Tuesday, April 14, 2009

A Better Grade of Sand

The economy took a big dip in March after a relatively good report for February. Retail sales dropped sharply reflecting month after month of crippling job losses. Wholesale prices took an unexpected downturn which raises fears that deflation is taking a grip on the economy.

President Obama gave a long speech on the economy today that demonstrated he’s been reading his briefing book but not that he really understands it. He is focused on the bringing the banks back on line because he thinks that banks create a "multiplier effect". He’s been told that "a dollar of capital in a bank creates eight or ten dollars in new lending". That’s true Mr. President, but only because the Federal Reserve will in turn loan banks ten to one new money that they, the Federal Reserve, created out of thin air. That’s how we got in this mess. Sad to say he doesn’t get it or he is not sharing with us the knowledge if he has it.

He did say that having 40% of corporate profits coming from trading derivatives and other instruments of no real value was no way to run an economy. He’s got that right, but he doesn’t seem to realize that corporations began doing this with the blessing of the Federal Reserve as well as the Bush Adm. They did this in order to postpone the current Great Depression. For the past year; the Fed along with Congress and Bush and now Obama have been propping everything up by creating trillions and trillions of new money. This is unsustainable and Obama is giving no indication that he understands what to do about this.

Obama threw in the Bible verse about not building your house on a pile of sand. That’s great but he isn’t offering any actual rocks. He wants to fix the banking system, rather the Treasury Dept. should charter new banks and the Justice Dept. round up people who ran the old ones. He wants more education so that we can compete better in the World, ask Ireland how that works. They have the most educated work force in Europe and have no jobs, all the corporations abandoned Ireland for cheaper labor. He wants health care reform, that’s great and it would help the economy some, but you can’t build an economy on taking each other’s temperature.

He says we have to save more and borrow less; people have been borrowing because it was Fed policy to have easy credit to offset low wages. Obama says we need to consume less and export more; but that’s what really poor third world countries do instead of having their own industrial base and they have no middle class. With Wall Street discredited and no plans to increase consumer spending, that means business will have to drive the recovery but with no export market and no domestic market how exactly will that work? We’re just moving up to a better grade of sand.


Anonymous said...

Hello Prairie 2,

A slight correction in regards to Ireland... Ireland is one of the more educated workforces in Europe. Compared to Germany, Ireland's educational ranks fluctuate higher and lower when using educational statistics, and Germany has not gone the way of Ireland in this depression.

With regard to "consume less and export more", Germany does this also, and they have an industrial base.


PS. Nice glass works.