Soup Kitchen U.S.A.

[babylonsister]

http://www.smirkingchimp.com/thread/9892

Soup Kitchen U.S.A.
by Mike Whitney | Sep 12 2007


"Credit booms do not end in inflation as most people believe. Credit booms ARE inflation that end in deflation. This credit boom is no different.”
-- Mike Shedlock, “Mish’s Global Economic Trend Analysis”


healthy snip//

THE LIKELIHOOD OF A HARD LANDING

Even if a shakeup at the banks can be averted, the path ahead is still filled with obstacles. The reckless policies of the last 7 years have edged us ever-closer to the inevitable day of reckoning. Professor Nouriel Roubini summed it up best in a recent blog-entry, “The Coming US Hard Landing”:

“The forthcoming easing of monetary policy by the Fed will not rescue the economy and financial markets from a hard landing as it will be too little too late. The Fed underestimated the severity of the housing recession, its spillovers to other sectors, and the contagion of the sub-prime carnage to other mortgage markets and to the overall financial markets. Fed easing will not work for several reasons: the Fed will cut rates too slowly as it is still worried about inflation and about the moral hazard of perceptions of rescuing reckless investors and lenders; we have a glut of housing, autos and consumer durables and the demand for these goods becomes relatively interest rate insensitive once you have a glut that requires years to work out; SERIOUS CREDIT PROBLEMS AND INSOLVENCIES CANNOT BE RESOLVED BY MONETARY POLICY ALONE; and the liquidity injections by the Fed are being stashed in excess reserves by the banks, not aimed at the parts of the financial markets where the liquidity crunch is most severe and worsening.” (Nouriel Roubini's Blog)

SOUP KITCHEN USA

Roubini is right. The Fed doesn’t have the tools to fix this problem. It needs to be addressed on the policy level. The “structured finance” model has proved to be an abysmal failure. It has created an unstable and opaque market full of bizarre-named debt-instruments---CDOs, CDSs, CLOs, MBSs, etc—which collapse under stress. Congress needs to step up and force regulators to ban these poisonous bonds and swaps and restore the market’s credibility.

We also need to address the expanding wealth gap which is the result of 20 years of wage stagnation. Personal savings can only grow if wages keep pace with productivity; otherwise workers will try to meet their needs by increasing their debt-load. That’s why we’re in the fix we are now. Working families are having a harder time making ends meet. It’s only natural they would try “speculating” in the real estate market to get ahead. After all, everyone wants a piece of the “American dream”. Unfortunately, many homeowners stand to lose more now than when the dot.com bubble burst. The downturn in housing is certain to wipe out trillions in market value.

There are no quick-fixes or “silver bullets” as Bush likes to say. These issues will require a fundamental change in our political consciousness. Nobody’s going to fix this for us. It’ll take organization, energy and an unwillingness to accept failure.

It’ll take years to dig our way out of this mess. In the meantime, we need to close-ranks and prepare ourselves for tougher times ahead. The dollar will weaken, housing prices will fall, and economic conditions will continue to deteriorate. We can either organize--and meet the challenges we face head-on--or form a line and wait for the soup kitchens to open.

[bemildred]

1. Look, it's simple.

You take money from the rich and give it to the poor. You give tax benefits to businesses that create and maintain good jobs, and you screw the heck out of those that don't. Everything will get better. Oh yeah, and you fix the health care system so that it is again about health care and not money.

[babylonsister]

2. In other words, lose the voting machines and hire a Dem who will

actually get elected (still not sold on the notion a Dem will fix healthcare, but that's another post).

[bemildred]

3. Corrupt elections are part of the problem.

So is the relentless stream of propaganda that passes for "News" in this country.
But I was merely addressing the remedy for our economic decay.

The ruling classes would be wiser to make the necessary changes voluntarily, but they don't seem to be long-range thinkers, so I think the eventual adjustment will be "sudden" rather than "smooth".

[enid602]

4. deflation?

i'm not sure we'll suffer from inflation when our currency goes south and we still have to import everything from overseas. I think the author is refering to the Great Depression, when the US was largely self-sufficient.

[Karenina]

5. K&R.