Piling on

Posted at 5:10 PM on November 12, 2008 by Bob Collins (2 Comments)
Filed under: Economy

The stock market tanked again and the former chair of Goldman Sachs said on Wednesday that the economic problems could be worse than the Great Depression, according to Reuters:

"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

Politicians are debating an economic stimulus package for the U.S., with a figure of $150 billion being tossed around. Can this work?

At Harvard, Philip Greenspun says an economic stimulus package likely won't work from a consumer perspective because people will just pay down debt. And from a corporate viewpoint, well, why would you build a business in the U.S. anyway?

Based on tax rates, education, and costs, the U.S. is not looking competitive right now. Corporate tax rates are among the highest in the world. The quality of our high school graduates is stagnant or slipping while other countries have enjoyed big improvements. Our workforce is expensive to employ if only because employers are required to pay for health care costs that are now certainly the highest in the world.

Meanwhile, banks are jacking up credit card rates while (a) receiving a government infusion of cash and (b) their costs to borrow are coming down... further strangling consumers trying to pay down debt.

All of this poses a grave challenge to American journalism: Tell the story in visual ways other than stock exchange workers with headaches, who are mostly losing money that's not theirs.

Over the next few days, be alert for everyday images that portray the economic mess, and send it in. I saw one today but didn't have a camera with me: A full parking lot at a pawn shop in Crystal.

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Comments (2)

The bail out was a bait and switch. The Fed did what they had planned to do before the bailout package was passed. They said "yeah yeah yeah" when Democrats loaded all the supposed "safe guards" and emphasis requirements, then they went ahead and what they wanted to do... tried to save investors on Wall Street instead of the over-all economy.

This won't work. Wall Street always drags us into these recessions/depressions and they never get us out. Basically the Fed is trying to re-inflate the bubble, for those following at home, a bubble is thin membrane of some kind filled with empty space, air, gas,... no substance. An economy built on bubbles is bankrupt economy.

Handing out more credit to an American work force that has seen no real gains in wages or salary for 15 or more years won't fix anything. Economies don't run on credit, or debt, they run on commerce. Things have to be bought and sold, valuable consideration must change hands, you can't by food with someone's IOU. Eventually debts have to be paid, once debt exceeds income, as it has now, you can't just spend your way out of it on more credit.

There's a nice but depressing article on Counterpunch about the economic crises and wall street's response, you have to scroll down, they're in the middle of fundraiser: http://www.counterpunch.com/zadeh10312008.html

Posted by Paul | November 13, 2008 8:59 AM

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I thought a story on the radio this AM did a pretty good job of explaining why the credit markets' 'unwinding' is having such an impact on the economy. (was that a Marketplace story?) For those who missed it, buying on credit is using 'leverage' to increase the impact of your money on whatever you're buying. The risk is that leverage works both ways - whether the asset's value goes up or down. If the value goes up & you sell, everybody's happy. If the value goes down & you have to sell, you end up having less than you started with. Apply that to entities ranging from yourself or your neighbor to investment banks & multi-national corporations - the size of the impact is enormous.

Posted by bsimon | November 13, 2008 10:20 AM

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