The new word of the week is "economic stimulus package." Everyone is for it.
The President wants it if only because he knows a worsening economic crisis will leave his Administration in deep doo-doo, the way it did his dads’ back in ’92. Ben Bernanke, chairman of the Federal Reserve, is all for it if only because all of his rate cuts and "injections" of money into the financial system have not turned the US economy around.
He told Congress Thursday: "put money into the hands of households and firms that would spend it in the near term." This is likely to take the form of tax rebates and direct assistance.
And all the candidates-well most of them—want it too. Or at least they want something upbeat that will stimulate voters. John McCain lost Michigan, it is said, because he was too negative. Mitt Romney won because he promised to wave a magic wand, repeal Globalization and make Detroit what it one was.
The stimulus idea is simple-give people some money to spend and, presto, our problems will disappear. This is the "Alka Seltzer solution." Take one tablet and when it fizzes, you’re better in the morning.
The only problem is that the real world isn’t so simple and simplistic solutions will not work.
We didn’t get into this mess because one thing went wrong. Many things went wrong -and over a long time.
This crisis may seem brand new. It isn’t. And please dump that word "recession" because it doesn’t do justice to what we are talking about here. The highest inflation rate in 17 years and the biggest housing crisis in a quarter of a century didn’t just happen. Major banks writing down billions of dollars practically every week is not normal. Wall Street going from boom to gloom almost overnight was not caused by somebody making a mistake.
The political causes of this are deep and long standing. Writer Robert Kuttner calls this "the most serious downturn since the Great Depression." He blames the rise of right-wing ideology, and "the domination of our politics by a financial elite, and the lack of a true opposition party."
You can’t fix that with pathetic stimulus packages and minor tinkering.
This is a structural crisis that’s been spawned by decades of shifting our economy from making things to buying things, from production to consumption. It has spawned "financialization’ a well heeled credit and loan complex powered by legal and illegal shenanigans in an unregulated market-driven environment. Both parties have benefited from it and are complicit in its consequences. All of our biggest banks were part of the subprime/subcrime-led credit collapse which enriched so many before bringing so many down. This crisis is still unfolding, rippling, and infecting more sectors of the economy. It is a "contagion" that has yet to be contained.
Writes the Mclatchey Newspapers: "The unwinding of debt is all-encompassing. It’s from the little homeowner out there to the big corporation," said Larry Moss, senior vice president for the Raymond James investment firm in Birmingham, Mich.
The credit crunch overlaps with other negative trends, most noticeably the poor housing market and weakening consumer spending. The fear is that tighter credit and weaker spending will reinforce and amplify each other, creating a downward spiral leading to a recession.
"Once you get in that cycle, then it becomes really, really scary," said Amiyatosh Purnanandam, a professor of finance at the Ross School of Business at the University of Michigan who has studied tight-credit periods."
For starters we need some stimulus from a study of history to understand how greed and corruption of any and all ethical principles stimulates this type of frightening business cycle. We need to stimulate a deeper debate.
Writes Satyajit Das, author of Traders, Guns & Money, explains: "Recent history has been a period of ‘too much’ and ‘too little’ – too much liquidity, too much leverage, too much complex financial engineering, too little return for risk, too little understanding of the risk."
He told one of India’s leading newspapers, The Hindu, "This will reduce economic growth (the US looks likely to slow down sharply) and asset prices (houses and shares) around the world. It is perhaps the most serious crisis that we have faced in a very long time."
Let’s break this down: Lets say we give every household $1000 bucks ($800 is the number under discussion). What happens? What do will recipients do first? What will they/we stimulate?
Will they rush out to the mall and buy the latest and the greatest? Unlikely. Why? Because so many of us are already in hock beyond our ears. Millions are drowning in debt and barely hanging on to homes, cars or even student loans. We are groaning under the burden of higher interest, higher prices and higher fees, as a recent study by United for A Fair Economy explained:
"Increases in the cost of housing, education, and health care, paired with an increase in payroll taxes of 25%, and massively decreased government investment in affordable housing, employment, and job training, have left most of America cash poor. Americans found the liquidity needed to pay daily bills through debt: credit cards, refinancing, subprime loans. The American middle and working classes are maintaining their lifestyle on a foundation of quicksand (debt they cannot afford). If current indicators are correct it is quite possible that the entire US economy will sink into the debt that the middle and working class have developed over the last twenty years."
This is not a very ‘stimulating’ environment. No wonder most Americans think the country is going in the wrong direction and have lost confidence in the economy. No wonder, crime is rising along with foreclosures. Let’s not forget the wars that are also draining the economy, growing the deficit and pouring billions of dollars and so many lives into a rat hole without end.
So, please candidates, loose the cheery rhetoric of economic stimulus. Do nothing about the debt burden and you do nothing. We don’t need stimulus; we need economic change, and economic justice. We need white-collar predators in jail. We need restructuring, not repossessions. We need mechanisms for the redistribution of wealth from the greedy to the needy. And just like the folks in Africa living under a crushing burden of debt we need genuine debt relief. We need to buck this system, not get a few bucks in the mail.
If we have any hope of getting out from under, we also need a media to tell the truth about how this crisis happened, and investigate those that profited on the destruction of our economy, the bankers and brokers that stole our treasure and future. We need movements to fight back and politicians that will stand up for economic fairness, especially on the day we honor Dr. Martin Luther King and the movements he led.
News Dissector Danny Schechter directed the film IN DEBT WE TRUST (indebtwetrust.com) which forecast this crisis. He explores the roots of the problem in a new e-book SQUEEZED (Downloadable from Coldtype.net)