The Meltdown (Part III)
What does it mean that the Dow closed below 10,000 today -- returning to levels first seen nearly a decade ago, in early 1999? Many interpret it to mean that the stock market is finally reacting to the credit crisis. A more accurate assessment is that it's finally catching up to the consumer crisis.
After the market closed today, Bank of America announced a significant deterioration in people's ability to repay credit-card and other consumer debt.
The central fact is this: consumers in the real economy are coming to the end of their capacities to keep spending. They can't take on any more debt. And with the costs of energy, food, and health insurance all soaring, they're doing the only thing they can. They're pulling in their belts. They're leaving the malls. They're not buying a new car or TV or anything else they can do without.
For years, regardless of the business cycle, American consumers were the Energizer Bunnies of the world economy. Their spending kept it going. But now the Energizer Bunnies have turned into scared rabbits, and they're going back into their holes.
Yes, we need better regulation of Wall Street in order to avoid the sort of bubbles and distrust that have generated a credit crisis. But even more than that, we need to get money back into the pockets of average American consumers -- including major investments in infrastructure, affordable health care, and a more progressive tax code.
After the market closed today, Bank of America announced a significant deterioration in people's ability to repay credit-card and other consumer debt.
The central fact is this: consumers in the real economy are coming to the end of their capacities to keep spending. They can't take on any more debt. And with the costs of energy, food, and health insurance all soaring, they're doing the only thing they can. They're pulling in their belts. They're leaving the malls. They're not buying a new car or TV or anything else they can do without.
For years, regardless of the business cycle, American consumers were the Energizer Bunnies of the world economy. Their spending kept it going. But now the Energizer Bunnies have turned into scared rabbits, and they're going back into their holes.
Yes, we need better regulation of Wall Street in order to avoid the sort of bubbles and distrust that have generated a credit crisis. But even more than that, we need to get money back into the pockets of average American consumers -- including major investments in infrastructure, affordable health care, and a more progressive tax code.
posted by Robert Reich | 2:30 PM
21 Comments:
Huh. Trickle-up-economics. Or what's good for my customer is good for me. I seem to recall these ideas being somewhat popular in the sixties.
Over the past 20 years we have seen globalization of investments across all markets and all investors. Money has flown offshore and chased the latest regional bubble. Now we are seeing the "paradox of thrift" grabbing hold across the globe.
Not only is consumption constrainted, but due to a lack of transparancy, nobody trusts anybody else.
Investors are contracting to cash and local currency.
We must get the G20 to come up with a global solution.
Otherwise, each country needs to nationalize all debts and start over.
Robert,
Why don't we start by reforming the core of our monetary system by ending hundreds of years of exploitation and making interest/usury on fiat money credit and unlawful practice. Interest would only be legal on money backed by real value.
Why don't we follow the founding fathers and issue tax-free currency based on investments in infrastructure that people value (including healthcare).
Thank you,
Gui
Is it really beneficial to put more money in the hands of those whose profligate use of easy credit - credit they clearly didn't deserve - and contributed to the mess?
If you step back from the bailout mentality, deflation could be very good for restructuring the economy in a way that focuses on real wealth, and stays away from magical derivatives and invisible credit.
Sure, tax reform would be nice, and should be done, but not because of this. Infrastructure investments are necessary, and should be done, and this is a perfect opportunity for them. Health care is a human right. But these are things that should be part of the status quo, not as a way to get "money back into the pockets of average American consumers."
As it is, though, I would rather do all of that than throw more money at the banks, who seem more willing to clutch at it ever tighter rather than use it for its intended function.
Or we could just nationalize a few of them and get them lending again. Their choice, I guess.
Re: stimulus, we might try launching a major buildout of inter-city high-speed rail, which can get you places almost as fast as flying -- faster, with the modern nightmare of getting through security and then waiting for your delayed flight -- with WAY less carbon emitted per passenger. We need this anyways; might as well go after it when we depserately need to create that kind of job, to soak up the people who've lost jobs on housing and office development...
It may be that someone, perhaps the next President of the USA even (and other global leaders), has to show some stewardship and leadership and say:
My fellow Americans, we are going to do something new, here and globally, we are going to save: save our money and save our planet. We are going to live within our means. If this causes is genuine hardship we will help each other. Its time.
Tim,
Franklin Roosevelt's aggressive "Trickle Up" programs and the oncoming of WWII are what saved our country from complete bankruptcy (also caused by greedy money barons) in the 30s. Are you saying we today need more of the "Trickle Down" raping of our economy by tax breaks going mainly to the wealthy and by the free reign of Wall Street's financial thieves?
Our financial system has become a golden idol. We sacrifice our humanity to preserve it. We worship this system before all else, rather than placing the needs of people first.
How long do we have to put up with this?
ARGH.
Anonymous said:
Our financial system has become a golden idol. We sacrifice our humanity to preserve it. We worship this system before all else, rather than placing the needs of people first.
How long do we have to put up with this?
We'll have to put up with it as long as long as you have to be a millionaire to get to the White House.
Of course, at the end, it's a consumer crisis. But of a very new kind.
You can not obliterate the responsibility of the consumers themselves and position them only as "victims" of the "class struggle".
Consumers have also been overspending, buying large phone plans, plasma screens, etc... All of those not first necessity goods. Also shooting in their feet buying when buying foreign goods for price issues - and long term, therefore, losing their jobs.
Consumer society means that you create a structural hole in consumer's pockets. The size of the hole largely influenced by corporate advertising, communication, lobbying.
Or, if you really want to put this in "class struggle" terms, the US consumer is alienated and advertising is its opium.
If you want to solve the solution long term, you have to work on this pocket hole - limit advertising, may be tax it, limit lobbying, etc...
I've always found it odd that the American economic model never accounts for a point at which people are happy with what they have.
Unemployment during fdr's terms
1930: 8.7%
1931: 15.9%
1932: 23.6%
1933: 24.9%
1934: 21.7%
1935: 20.1.%
1936:16.9%
1937:14.3%
1938:19%
1939:17.2%
1940:14.6%
is that what we want now?
fdr's programs were a joke.
I agree about the consumer crisis. The best explanation that I've heard about this is as follows: Wages have not kept up with productivity and, as a result, one would expect demand (driven chiefly by wages) to fall behind supply (driven chiefly by productivity). This has been avoided until now by enticing consumers to take on more and more debt. This of course is unsustainable and we are now seeing the result as consumers are reaching their limits.
Regarding Wall Street, I do wonder how much short selling is adding to the problems. It sickened me a few days ago to hear a talking head on CNBC talk about shorting the S&P and expecting to wake up to a "Christmas present". Is the ability to borrow and sell other people's stock really a right and/or necessary to the efficient functioning of the market? In any case, it seems that we should strongly enforce the ban on naked short selling and restore the uptick rule. This will at least curb the more destructive forms of short selling.
Open,
Those unemployment rates in Fdr's time would have been much, much higher if he had not initiated aggressive job generation programs from the bottom up. The programs started to take effect in 1936 to bring unemployment down from peak of 24% to below 15% by 1940, also helped by start of WWII in the early 40s.
Perhaps this would be a good time to re-examine the worth of having a consumer society.
Perhaps there are indeed limits to growth, and the economy is correcting because we've exceeded them.
I like what one of the anonymous said: "We are going to live within our means."
Nothing wrong with that, even if it means redefining what it means to be American and gets people like Dick Cheney worked up.
Outside of employment levels during FDR's time was the reinvestment in the US's infrastructure, which, to this day, amazes me. Most of my technology gadgets I have may last a couple of years - maybe - but there are still CCC projects from the '30's that are still providing value to the American public.
healthcare as a human right.... I have never heard anything so stupid. Liberals..... driving this country into the ground....
According to the Federal Reserve's Sept data release, the financial health of America's households, throught september 08, was better than it had been for 7 of the last 8 years, and the second best ever. Lets blame the guilty parties. Lets blame the undercapitalized housing speculators and their undercapitalized enablers, Goldman et al. Household's aren't the problem. Unregulated undercapitalized "insurance" (CDS) failures are the problem. You'll never fix the problem if you keep blaming the victims.
1930: 8.7%
1931: 15.9%
1932: 23.6%
1933: 24.9%
1934: 21.7%
1935: 20.1.%
Get your facts straight, Open. FDR didn't become president until 1933.
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