Monday, August 15, 2011

OUR NATION'S POWDER KEG

Broadly speaking, our nation's economy is in trouble for two reasons. First, we failed to seize the moment and fix what caused the economic collapse in 2008. Second, our largest economic players seem to be paralyzed by ideological stupidity, which surrounds Washington and, to a lesser degree, Wall Street.

It's really that simple.

On one level, as I explained last week, a second market collapse is around the corner because our national economy continues to be threatened by an explosive brew of reckless deregulation, irresponsible tax cuts, and Wall Street's gambling and speculation. For many "investors" the focus is on short term yield and wealth extraction, not wealth creation. What we had before 2008 is essentially what we have today. This is structural, and won't go away with a simple capital gains cut, or with the congress we currently have.

This is our nation's economic powder keg.


The short-term factors that will light the powder keg are tied to three institutions that can put significant financial resources into action, but are paralyzed by ideology and each others inaction.

Specifically, as we saw during the debt ceiling fiasco, we now have a House of Representatives that's governed by historical and economic illiterates. The GOP's (deliberate) failure to understand cause and effect explains why they're ignoring how we got into this mess, and are doubling down on their "Let's-get-Obama-so-say-no" strategy. They're using our nation's debt (which Reagan tripled and Bush II doubled) as a political weapon, and will continue to fight President Obama on any program of substance, regardless of what it will do for the economy.


The GOP wants President Obama to fail, and don't care if they take the country down in the process. It's that petty.

This extremism is one of the reasons John Boehner and Majority Whip, Kevin McCarthy, couldn't round up enough votes for a debt ceiling deal that the GOP wrote, and then had to rely on former Speaker, Nancy Pelosi, to get the votes they needed to avoid default. The Tea Party and their GOP hosts don't want to give the president anything, and are prepared to wreck the country in the process. It's not Sherman, but it's scorched earth policy at its political best ...


Then we have the private sector sitting on trillions of dollars, much of which (especially for the banks) was made possible because of taxpayer backed bailouts and stimulus programs. Ingrates.

Throw in the fact that the Federal Reserve decided not to inject more money into the economy last Tuesday (in part because the Fed is staffed with ideologues), and it's easy to see why we're virtually guaranteed another recession, or worse.

So there you have it. On one level we did nothing to fix the problems that caused the 2008 market meltdown. This is the powder keg. On another level we're watching as the biggest institutions with the means to help our nation - the private sector, the Federal Reserve, and Congress - sit on the sidelines. They are the kids playing with matches.


Unless something significant happens to change these dynamics over the next two years, I can't seem to find a silver lining in any of this. I hope I'm wrong.

History suggests I'm not.

- Mark

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