I designed this page with the idea to vent. As a conservative and registered Republican, I had become increasingly frustrated with the lack of leadership in D.C. and so had most of you. That is why in November 2006, the Democratic Party regained control of both the House and Senate of Congress. However, that was not a good solution because they choose to do nothing for the last 2 years and allowed, along with Bush, for the economy to fail.
Let me state here that deregulation itself is not bad, but deregulation along with bad policy is deadly. The Republicans use to be for deregulation of industry to allow the free flow of information and product markets. This is fine as long as the areas that need regulation, such as financial markets have good regulations. However, this was not the case.
Let me take a moment and talk history. The last leg of the civil rights movement was, and is home ownership. Democrats applied pressure to banks and financial organizations like Fannie Mae and Freddie Mac, to facilitate that loaning of money to groups who had in the past been denied home ownership based on race and not financial capacity. Republicans want home ownership and see it as a cornerstone to a solid economy. The recipe for disaster is allowing people to believe they can afford something they truly can’t or to buy more then they need.
The other situation putting this collapse into motion was to bundle up these mortgages and sell securities based on them to the world. It all works as long as people have faith in the system and value of the underline mortgages are stable.
The collapse came quickly because fuel prices rose, interest rates went up and the economy slowed. The rise in interest rates forced many to refinance their adjustable rate mortgages or get out of them, creating a price bubble and collapse of home values. This forced banks and other financial institution to down grade their investments, forcing insurance companies (covering these mortgages) to have a greater need for cash and AIG fails.
Credit Default Swaps (CDS) are unregulated insurance policies to off set possible failures of mortgage investments and now serious money was needed to cover their exposures.
Enter the U.S. government and the Federal Reserve.
700 billion is not enough. 7.4 trillion might be! The ripples of this much cash infusion is still unknown and probably unknowable until we are there. Many believe the USA is on the decline and according to a Russian analyst a breakup.
The reason I have not written on this more is because of my natural optimistic view of the world and our financial institutions. Lately, I have become concerned to very concerned about the economy as a whole. I see massive inflation with all this cash infusions into the financial institutions which will be used to pay off these CDS obligations. Then when they have paid that off will they return to the business of lending out money, however, if the dollar has no value, what will they loan?
Germany in the 20’s and 30’s had hyper inflation and it took a barrel of money to buy food. What was Germany’s solution? Hitler. The rest of the world was also in a depression and what did we get? Mussolini in Italy, Stalin in Russia, Mao in China, a military government in Japan, but a Roosevelt in the U.S. and in a more limited sense, Churchill in the U.K. Churchill was only Prime Minister from 1940 to 1945 or just WWII and had little to do with the depression on the post war recovery.
All of those countries had similar domestic policies in that public works projects were funded but were not enough. The “new deal” was not what gave us a recovery; it was a post WWII economy that had at its focus the rebuilding of Europe and Japan. Only when the private sector was fully deployed to furnish the U.S. economy and the world economy with goods from money borrowed from us by the Europeans and Asians, did the great depression finally go away, some 16 years after it began.
There is going to be no solution that won’t hurt much, if not all of the world’s economy. I know that an incoming administration wants to ease the pain but they also see opportunities to change government and the economy and that is even more scary.
What I believe is the best solution for the world and the U.S. is to make sure money is available to financial institutions and monitor those institution to make sure they are lending it out, and to create an “infrastructure” package to fix bridges and roads, lay new optical cables and ready this country for the upturn in the economy which will only happen when private business start hiring again. As for people power, we can make financing colleges easier for those wanting to receive degrees we need like engineering and the sciences.
Let me repeat, it is not the government that will get us out of this recession (potential depression) but the private sector and its free trade with other countries in the world. What we need from the President-Elect is a policy to create and environment where that trade can grow and prosper.
© WithComment.com 2008
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