Why would the same economic policies, apart from nuance, appeal to Democrats, Republicans, government and academic economists, statists, progressives and liberals?
I see the possible answers as:
1. They do not understand the ultimate consequences of their ideas.
2. They do not understand what the problem is in the first place.
3. They know what the consequences will be and they accept them for the sake of political gain.
Personally, I think those who push the Bernanke paradigm do know what the consequences are and they hoped no one would see through their motives and they don't really care what the problem is. The problem at hand is apparently irrelevant to their course of action so why bother actually trying to address it?
I say that because, otherwise, someone in Congress (besides Ron Paul) would be pointing out that the problem isn't a credit crisis but a crisis based on assessment of risk by thousands of individual humans. Bankers, business owners and laborers alike are unable to see how they can turn borrowed money into profit. Banks can't see how they can either so even if a few bold people want to take on debt, banks are bound to demand a very convincing business plan. The problem is that instead of coming in with bold new business plans, many are simply concerned with servicing existing debt. In boom times there is less risk in borrowing to “roll over” existing debt. So, businesses can operate under a model that requires periodic refinancing and bankers are willing to accommodate. Some individuals adopted that model also.
The “credit crisis” has a totally different nature for the Individual / Bank relationships than for the Business / Bank relationships and certainly the Bank / Bank relationships. In the case of individuals, banks were relieved of the burden of risk by the secondary mortgage market where they could sell the mortgage after collecting all the fees they could, they were free to forget that loan and move on to the next one. Lending to individuals became a fee-based business model rather than a leveraged asset model.
The secondary mortgage market opened the door for mom and pop speculators to come out of the wood work. Banks were handing out cash by the truckload and home prices were rocketing upwards due to the price pressure from the speculators. This made the secondary mortgage market so lucrative that many banks couldn't resist getting some of the action. So, after packaging “bad” loans and selling them into the secondary market, they bought boatloads of these secondary products. This was obviously too good to last. Instead of making solid loans and having a business model based on interest payments, the banks could collect fees up front, sell the risk then drink the effluent from the compost heap, I mean, enjoy the stream of risk free income from the derivatives.
That enormous wave of speculation likewise fueled the builders to crank up production. They would be fools to watch their competitors pave the world while they built individual homes on wooded lots. Nearly every business in the world reacted to the housing boom by over borrowing, over expanding and over paying most of their workforce and a few of their executives. Job hopping and stock option treasure hunts became almost as common as they were prior to 2001.
Now everyone knows the stinky debt on the compost heap was the real source of their nourishment. From banks to businesses to Joe the Plumber, everyone knows where the taint came from. So far, not many people take the situation back to its root cause, government spending and Friedmanite or Keynesian financing and monetary policy. These failed theories have the same root flaw. They promote automatic reactions to specific events without regard to the expected actions of the multitudes; the very actions that ultimately determine the nature and direction of every economy. How a government could ever be envisioned that could operate effectively by absolutely ignoring the actions (and more importantly, the consequences of those actions) by the citizens is beyond me.
All the banks know all the other banks have a tummy ache and may not be able to make good on their debt. Government meddling has confused the game even more than just normal business risk assessment could have. The government's arbitrary and irrational over-reactions to recent situations have made it impossible to distinguish less risky banks from more risky banks.
By the same token, banks know businesses are not growing and that many are stuck in a debt servicing cycle. Those business all lose credit worthiness with every tick of the clock. The more desperate businesses become to borrow, the more suspicious banks will become. Soon the rate of business failures will affirm the banks new-found, too-late, prudence.
All of those businesses will need fewer workers at a time when many former wealthy “players” in the boom will start looking for real work again. They have no real skills besides occasionally well timed gullibility. Oops, we've shipped most of our low/no skill jobs over seas to avoid the cost burden of the US Welfare State; including minimum wage and the entire alphabet soup of Nanny State anti-business laws and programs.
So, this is not a credit crisis at all. The current global economic downturn is the sum of a multitude of prudent reactions to current business and economic signals. The current situation is the cure, not the problem. Obama-nomics is designed to nullify the cure by attacking it on multiple fronts simultaneously. In this it will succeed beyond most people's wildest nightmares. As far as “stimulating” the economy? Only in cartoon-land where falling elephants can be caught in a teacup. In the real world? There isn't even the most remote chance that anything Obama or Congress or the FED or the US Treasury does will fail to hasten the loss of wealth, the lower living and education standards, fewer prospects and lower expectations for several of the next generations…but first for the current generation. Damn the luck, most of us are going to outlive the good times. I guess since it's possible that has already happened, I may have to come back later to revise this article to say all of us did outlive the good times.
The Obama-nomics plan is to subvert those remaining true economic signals and force banks, businesses and individuals to begin acting as if the economy were still growing. The “bad bank” idea, the bail out schemes, the increasing focus on foreclosures and the momentum the elite leftists now have portend a rough and rapid descent into some oppressive form of Socialism.
How sad but inevitable that those who will suffer first, worst and longest are predominately Obama supporters. We all get what's coming. Those people deserve every awful consequence their actions bring down upon them. (so do McCain supporters, so don't feel picked on if Obama is your savior) I encourage all them to bear it with pluck and good humor, after all, the joke is on them. These folks range from the current recipients and consumers of government wealth transfer programs to the overly comfortable upper middle class products of US government indoctrination institutions of higher learning. Those at the upper end of the unquestionably deserving victims group are those who believe only a big, benevolent government can preserve their current bloated standard of living and naive expectations of a future just like the only past they are aware of…the most recent few decades. Gee…why didn't past Empires think of that? Oh, yeah, we have to be the unquestionable epitome of human intellectual development and spiritual enlightenment for any of this illusion to work. Such a finely honed and well exercised arrogance and disdain for anything beyond their immediate circumstance binds it all together.
The basically clueless issue-oriented nice people who want to feel good about their misguided intentions are all throughout the entire range of prosperity and achievement.
That leads to the other end of the Obama-nomics supporters, the wealthy and politically well connected who are not in any danger of having to work for a living. The idle rich, the do-gooder guilty rich, the entertainers, academics and globalists advocate an elitist society because they are the elite. It is this group and their ancestry who have managed to infect half the voting population with a willingness to submit to their elite oppression. Not only are they willing to submit but they are eager to use the force of government to ensure the submission of everyone regardless of their individual objections. That is the key the elitists needed to open the gate to their Utopia — my nightmare. Now they have it. History tells us what happens next.
It goes something like:
– The enormous hoards of deserving victims along with a lot of undeserving victims will realize they were used by the elite
– Then they realize they have no way to touch the wealthy or politically well connected…
– Entertainers are fun to have around…
– So they grab their torches and pitchforks and wipe out the academic guilds.
– The wealthy and politically well connected scurry out of harms way and never think twice about the academics. With the key to their Utopia secure the elite can afford to have one final thought about the academics, “Screw them.”
– Then, just as now, those in power will go to any imaginable lengths to preserve the system that they embody.
– The idle rich, the do-gooder guilty rich, the entertainers and globalists start breeding academics and encouraging those in power to do everything they can to ensure nothing ever changes.
– The academics start having radical ideas that lead to an appreciation for individual liberty
– They ignite the love of liberty in a handful of fire brands who manage to attract a sizable following of evangelical disciples
– They start the Libertarian Party and nothing more ever happens in the pursuit of liberty
– While libertarians are having endless debates over who is more libertarian, the damn collectivists and their elite shepherds have taken the helm again
At least there may be an opportunity for anarchists to celebrate between plagues and famine. I'm sure the plucky deserving victims, that survive, could use a good mosh pit. Maybe the Dead can play? Better yet, The Boss could play all Grateful Dead cover tunes. That would get starving people moshing for sure, anarchy doesn't get any better.
So, bringing this back on point, there is no credit crisis, thus, stimulating banks to lend cannot eliminate a credit crisis. There is a debt expansion crisis, as in: it isn't expanding fast enough. That's right, credit is still expanding substantially, there is no crisis. It just isn't expanding fast enough to gloss over the rot in the system. Soon folks can't help but realize that rot was brought about by the same policies and programs that are now being applied as the preservative and restorative elixir of economic health and vitality.
The only saving grace of Obama-nomics is that whole part about how it targets the most deserving as its primary victims. That's cool.
-Jahfre Fire EaterTweet
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