I just happen to be up late again tonight catching the news from back home over the internet. It looks like 2008-2009 fashion is back in style again.
Greeks have some screwy problem, the Germans don’t want to pay for it. More of the countries of Europe are a little more overextended on the national credit card than seemed to be appropriate four weeks ago (!), and the next thing you know the U.S. market goes down.
Well, some commentators say it’s because people are worried about “another Lehman”. But the one thing that’s been going on for the last 20 months, is everybody flushing out the potential Lehmans. That’s what all that TARP crap was about. The government lent the banks this money—no, don’t let me get suckered by the historical revisionists—they forced the banks to take the money. Then, later, it turned out that situation was not nearly as bad for most of them as what the doomsayers had said.
In the meantime, the banks–whose lending makes up the fuel that keeps the economy running–had to suffer this false crisis that caused an even bigger dent in the overall economy.
When Obama got in, finally the government could do some Keynesian stimulus, which has always been the way, for the last 80 years, to get the economy out of deep recessions. Democrats and Republicans both used the technique (even Ronald Reagan), with Democrats mostly focusing on lower and middle income people (i.e. most of us), and Republicans shooting more for the top of the pyramid.
They do enough of one to amount to about 10% of the economy. The U.S. economy is about $14 trillion, and so $1.4 trillion (one point four trillion). And it was part personal tax cut (the Making Work Pay Credit), part stimulus spending, and the other part I think was some kind of business tax breaks.
It’s a lot of support for banking, and a lot of support for “demand” or personal consumption. And, no the economy doesn’t just turn on a dime. But you’d think the narrative–at least in America–would be that things are coming back! Nothing screws business confidence any worse than people going around saying “the next shoe is going to drop! The next shoe is going to drop!” How???? The shoes already dropped.
One of the worst aspects of these days is how easy it is for frauds to get their say, and their day. Back years ago, maybe before all this 24-hour television, people had to sit back and think things through. Now, it seems, people throw out their nutty ideas and do so repeatedly. Then, whatever sticks, well, that’s success.
Many Americans don’t understand that there is a minority of people who have learned to make money, some to make fortunes, by talking the American economy down. They bet against it—and it’s not Goldman Sachs that I’m talking about. It’s people who run a “short” strategy against all types of investments. They just sit there all day and talk things down. Any bit of news that goes into the 24-hour echo chamber has the spin put on it. And it goes on and on. On purpose.
When you do this with financial things—like banks or insurance companies—it’s especially dangerous. Because these are trust industries, they rely on the trust of people to believe the bank or insurance company will keep its promise. That’s why the government comes in and backs small saver deposits. That’s why the industry has been widely regulated for 80 years, with a notable lapse during the Bush years.
When people with a “short” strategy are allowed to go around unchecked, I think these people can be as dangerous as terrorists. Betting against a company in the hopes that it will go down or go bankrupt, where they can either get cheap shares or benefit somehow from the bankruptcy. Nowadays, they are not a “check on management” to expose, through the market, whether or not the company is really worth what the management says. They are people who spread silly theories, nutty rumors, or the worst—things that sound halfway plausible but probably would never come to pass—in order to roil the markets.
The banks turned out to be fine. But not before they were scared sh*tless by the government into curtailing lending and thereby deepening the Recession. There is nothing wrong with the Euro. It started life out as a checkbook currency in 1999, with a value around $1.15. A couple of years later is was about 88 cents: only 70% of the value that it is now. It shot up to $1.60 between 2002 and last year. Everybody said the dollar was doomed. Today, the Euro is $1.23.
European currencies as well as the yen bounced around all the time between 1973 and these days. This has gone on most of the time for anyone under the age of about 75. It’s what floating currencies do.
I don’t see why the language of Panic and Crisis has to be brought into what is obviously a correction for the Euro.
If anyone wanted to kill off capitalism, just let the Chicken Littles have their say unchecked (meaning, unchallenged), over the 24-hour news cycle, in Congress, in responsible press. As we “lurch” from one stupid false crisis to another, it won’t be long before people say that the whole system is unworkable.
And basically, everyone will end up a lot poorer because no one will trust any financial dealings, any borrowing to buy things, any investment program to retire on, you name it. You want to see a sh*t barter economy like the early 19th century, let these Chicken Little people keep it up.