Tell me if my thinking on the economy is wrong

[ThomWV]

Let me try to sum up what seems to be the state of broken in the economy.

There have been massive frauds and abuses on one hand and then on the other hand there has also been a massive accumulation of private debt that makes it impossible for incomes to meet spending demands. The two are not the same thing but they are taking place concurrently.

If I'm seeing this right most of the work toward recovery that has been accomplished so far is to right the fraud and abuses. These are things that effect the financial system; or banks and the flow of cash and near cash instruments that are the lifeblood of our day to day activity. I think the Administration is doing what must be done in this arena and will continue to do what is required until things improve to some sort of normalcy.

The second problem is more vexing though. It may be that we have borrowed to the point that we can not pay back what we owe, a problem compounded by an ever-growing unemployment rate. As recent posts and articles about credit card companies hounding creditors past the grave show we have spent more than we can repay in our lifetimes in some cases. While Government spending programs can certainly be effective in halting the every-increasing unemployment rate it would seem that even with full employment there is no way we can pay back more than we earn in even the best of times. That's a quandary.

But maybe I've got this all wrong, thinking about the problem in two separate parts. Maybe I've got the parts wrong and maybe I'm just dead wrong all the way around. If that's so please make me smarter.

[Deja Q]

1. Over the last 30 years, easy wages were replaced with easy credit.

Not to mention how wages, inflation-adjusted, have barely kept up with cost of living expenses, never mind money to save or fun money... I think all that has a part to play in everything too...

[Warren Stupidity]

2. "right the fraud and abuses"? nope.

What has been done so far is to paper over (with trillions in taxpayer money and obligations) the hole created by the fraud and abuse while keeping the fraudulent abusers in place in charge of the same institutions that committed the fraud and abuse to begin with. There is no new regulation, for example reinstating glass-steagal, to prevent new abuse, fraud and nefarious idiocy.

We do not need CDSs, we don't need financialization of the mortgage industry, we don't need any of that crap. Businesses needed the standard sort of business loans businesses have been getting for hundreds of years. Individuals needed a sane mortgage banking system that loaned people who could actually afford a mortgage money to buy houses that were appropriately valued. All the rest of the crap that got wiped out was speculative bullshit trying to make huge profits out of smoke and mirrors. That shit can die and 99.999% of us would not even notice.

[ThomWV]

4. May I quote you?

Not facetious; your second paragraph was like a light shining on the answer to another question I've been asking myself. I think you have nailed the solution to our problems with what you said about "Businesses needed ..." but its implications are far reaching and will effect our Party greatly.

So, asking your permission to use it, with reference to you of course.

[Warren Stupidity]

8. of course - when I get pissed I get articulate - quote away

[truedelphi]

7. I like how concise your answer is.

definitely easy to understand and just as easy to remeber and quote.

One thing I'd point out -as long as the upper one percent can place their money into the extremely fun and highly profitable CDS's - there won't be many loans made to people at the bottom. Or even people in the upper part of the middle.

Right now, with the whopping grand total of the monies spent on the TARP's, PPIP's, Stim bill, Toxic Asset plans etc reaching Twelve Trillion bucks -- every single mortgage in the USA could be bought and paid for!

[sendero]

9. Seconded..

.... everything you said.

We all thought a couple months ago the CDS was dead but now that is not so certain.

If we can't even get a little regulation out of this debacle, that's unbelievable.

[omega minimo]

11. Great post and thirded and re: another glaring glitch in the OP that Americans are sposed to believe

"These are things that effect the financial system; or banks and the flow of cash and near cash instruments that are the lifeblood of our day to day activity. I think the Administration is doing what must be done in this arena and will continue to do what is required until things improve to some sort of normalcy."

Those "cash instruments" as toxic and blameworthy and insanely valueless as they are, have been presented to the public as crucial "lifeblood" that must keep flowing.

The Administration and enablers in the media have been disingenuous on this point.

[The Magistrate]

3. You are Quite Right, Sir

The second problem you identify is the larger, and the only way out of it is a combination of two things. Wages must rise, and creditors must accept they are not going to be paid everything they feel they are due. Since most of what creditors feel they are due is simply exorbitant interest charges, which in many instances would have been an invitation to jail time in most jurisdictions fifty years ago, no sense of justice or propriety is offended by depriving them of their expected gains, nor is there a real loss of actual capital, since the amounts repaid already are equivalent to the actual principal lent, with even a bit of interest thrown in. Wages must rise in order for there to be a healthy base of economic activity from which profits can be made without usury. It is impossible for an economy to be healthy when the largest proportion of profit it generates accrues to money-lenders.

[xchrom]

5. i concur with the magistrate --

however we deal with the problem of giving americans a pay raise.

many americans do save -- many more would save -- if in real terms wages hadn't been declining for so many, many years.

we've sold gopity goop when it comes to americans and savings on the news.

[Mike 03]

6. This may be the most intelligent post I have seen on this issue at DU

Damn, it's so exciting to see someone actually put so much thought into a post about the financial crisis. THANK YOU.

I agree with everything you are saying, and I'm asking the same questions you are asking.

Just as Bernanke, Geithner and Paulson were saying: This is NOT fair, and it was never intended to have the appearance of fairness.

We are salvaging companies whose counterparties are so important that if they were to fail, entire countries would fail. Not only that, but in the U.S.A., pension plans, 401Ks, money market accounts and funds would be in dire jeopardy of complete failure, leaving millions and millions of Americans broke and unable to access credit of any kind.

You raise other issues as well, which I cannot answer, but it's so heartening to see some people here at DU who are really thinking carefully about what the point of these programs are.

There are no winners here. We just need to prevent the complete hemorrhaging of the financial system.

[omega minimo]

10. Hopefully you looked at the numerous threads referencing Moyers Journal interviews of past few weeks

Sounds like you missed them

[girl gone mad]

12. Where do you come up with this stuff?

Entire countries would fail if they didn't get our tax dollars to pay off their rich bankers gambling debts? Pensions and 401ks are in jeopardy so we need to stuff more money into insolvent banks?

There are some serious gaps in your logic.

[GeorgeGist]

13. Follow the Money.

Capitalists create poverty by rewarding themselves with unearned income. In other words, poverty is the not-so-hidden cost of monetary profit.