I know very little about economics even though for several years I worked as a cost control engineer for a major construction management firm on projects ranging to two billion dollars. But I figured this experience would help me to understand what is currently going on. One thing is clear at this point: Money and economics seem to have little to do with each other. Economics and debt do have a close relationship unfortunately.Other things are also clear to me. ONE - The first President Bush presided over the savings and loan debacle and bail out. And now GW, son of Bush, is presiding over the investment bank debacle and bail out. Coincidence? I think not. Both of them were against regulation of corporations (including credit cards companies, mortgage lenders, investment banks, and savings and loans) and both said the economy was substantially sound until we were all treading water in debt.
TWO: Continuing to do the same thing and expecting different results is a really good definition of insanity - AND unstable economic policy.
THREE: You cannot plan for just two years. I found this out with cash flowing a three year construction project. And it had a beginning, middle and end. The economy of the world does not. It goes on. And decisions made today effect the future 10, 20 or 30 years down the road. Economic policies don't fare well in quick change mode. It makes investors uneasy and that makes them do stupid things as we have seen in the last week.
FOUR: Presidents are elected for four years and begin running for re-election in two if we are lucky so we could say that 50% of their job is running for office. Senators are elected for six and Representatives (the US House of Representatives is where all money bills originate) are elected for only two. Ergo they are always running for office ant it can be said that is their job.
FIVE: Only economists understand the economy and get four of them in a room and you will get at least eight opinions. They spend lifetimes understanding this stuff so what chance does any of the above in number four have of getting a handle on it when it is at most 50% of their job.
SIX: You cannot fire the SEC head Senator McCain. He does not serve at the pleasure of the president. If you are running for the office you might at least learn that much about it. The Presidency does have control of the Secretary of Treasury but maybe it shouldn't. Maybe that ought to be independent too so we can go for the long view needed in economics and not the short view needed in politics.
SEVEN: It is tax and spend. Not spend and tax. That, like credit cards for us lowly citizens in these perilous times, is doomed to failure.
EIGHT: No problem, be it economics or citizen unrest or an infection in your foot, goes away by ignoring it. In fact, continuing to say,"the underpinnings of the economy are strong," just makes people nervous. (see number three).
NINE: We are in a global economy and so what is bad for the United States is bad for everyone around the world. Supposedly the G8 meet and discuss some of these things yearly (or more) but there is not an economist among them. They make decisions for the world based on their view and interests.
And last but not least, TEN: WE ARE IN THE DEEP SHIT. And all in the same boat, up a creek without a paddle. With only a hoped for quick fix and no long range plan. (see two and three).
The reaity is that few of us know or understand economic issue to the degree which you are able to, Jacqui. I've talked to few people this week who have more than the faintest grsp of just what has been happening across the financial markets of the world- still less of the deep-seated malaise underlying it.
ReplyDeleteAs you say, the quick-fix is the guiding motive of all- politicians, industrialists and financiers, who are ultimately responsible.
For the politicians, patch things up until after the next election, for the industralists and financiers, short-term fixes which will for the moment preserve their assets and profits.
And if thousands of "ordinary" people lose jobs, pensions and livelihoods, so what?
And will it ever change - not until the present system collapse from its own rottenness, which I think is beginning to happen.
I keep thinking we will overcome the need for financial acquisition for the sheer sake of it, but no. We definitely need to stop paying CEO's huge bonuses for bankrupting their companies.
ReplyDeleteBut until such spiritual enlightenment descends upon the greedy I think the only cure is strict regulation and severe penalties for violation of those regulations.
A friend pointed out that by the US bailing out all these mortgage and investment companies we could be getting to socialism through capitalism gone wrong.
The difficulty is, Jacqui, that the socialism either doesn't last or isn't applied properly. As somebody said a few years back on whether "Marxism" could ever work as a political, economic and social system. "We don't know. Because nobody has ever tried it."
ReplyDeleteI think we can also say that capitalism isn't applied properly either. When it was a barter system there were just so many sheep you could keep in the fields. Now you can keep so much "paper money" it is obscene.
ReplyDeleteSo capitalism and paper currency do not mix. Especially when you add greed to the mix. Ideally the rich would like godfathers in the mafia distribute the wealth or protection or benefits but CEO's don't do that.
I suppose that one problem with capitalism as its applied is that its based on non existent "wealth". A complex system of balancing, which ultimately depends on nobody actually calling the "bluff" and demanding to see the actual "wealth". Which at least technically, I suppose is gold. At one time it was at least theoretically possible in the UK to go along to the Bank of England and demand to exchange your currency note for the equivalent value of gold.
ReplyDeleteNow there is nothing actually backing most of our currencies. And all major companies, at least, are run for the benefit of their directors and major shareholders, and their creditors, such as major banks. Their workforce and consumers are thrown (relatively speaking) enough crumbs to keep them from starvation. But once things go wrong, often for reasons beyond the understanding of most of us, the lack of substance to the system becomes all too apparent.
This was a few decades ago when I worked in Washington, DC and at a party one night I was talking to an economist (a great test of my acting skills and ability to maintain attention) and he brought up the Mexican debt to the US. He said that nobody expected them to pay if back. They knew they couldn't but nobody said that so it remained on our asset column to balance debts we incurred because Mexico could not even pay the interest we owed to others.
ReplyDeleteSound convex? The bottom line was god and everyone would do anything on a balance sheet. One of the many programs I watched on the net last night brought up the issue that governments (and yes, companies) are not putting all into their balance sheets. If you are a few million (or billion) from a bottom line balance you just leave off 7 or 8 or 9 figures or so.
Definitely the emperor's new clothes. Nobody dares say it is all based on a tissue of lies or it crumbles. Well that is essentially what happened with the mortgage banks. They pretended these people could pay the mortgages, then it cascaded to the investment banks that just knew the mortgage banks could pay their debts. Now the world is faced with that reality.
Oh, Fort Knox, our gold depository at one time could only make good on paper to 10% of the paper issued which should by all rights be called inflation.
And here in the UK borrowers are granted ever-bigger mortgages, which even if they are in employment, their earnings are barely big enough to meet. Powered by greed or unrealistic aimson both sides, I suppose - the borrower with aspirations for that bigger more beautiful house. The lender for that extra profit. Until the bubble bursts, and the borrower is left hommeless, and the lender with a repossessed asset he can't get rid of.
ReplyDeleteAnd even her, in a tiny village, the appeal to people's sense of Materislistic "arrivalism" (not sure if there actually is such a word) continues. Two fairly grotesque "executive" homes recently built dominating the skyline.Price around £ half a million. Will anyone buy them? Probably. Will they be any happier, more enriched and fulfilled as a result? I doubt it. Will they learn from experience? Almost certainly not.
Give me a crumbling old house anytime. One that was here when Napoleon came and went, and will probably be around to witness many more years of human failings.
They did subprime loans here to people that could not afford the payments when the interest went up.
ReplyDeletedjeseru informs me that it was the Keating Five behind the Savings and Loan fiasco in the senior Bush's presidency. And guess who one of those five was: John McCain. He emerged unscathed. Declares now it was the greed of others causing the current crisis and did not know how many homes he owned. Incidentally that number is seven.
Why am I not surprised? How anyone with seven homes (which they don't admit to) can claim to understand the needs, fears and problems of the mass of the population escapes me.
ReplyDelete