The Economic crisis of 2008
What should Congress do? What shall President Elect Obama do? Should we bail out this industry, how about that industry? I must say, as an Economist I have many opinions but I’ve been reluctant to post them on my blog due to the fact that I think opinions are like noses and a. holes, ever body has one. I believe the choices are quite obvious once all the data is compiled. The problems are that each solution has losers that will fight against that solution. People always vote their interest over the interest of the nation. So if unemployment drops to 1%, is that good? Yes it’s great for the nation, but it sucks majorly if you are part of the 1% who are unemployed.
Auto industry:
I’d suggest giving a set amount of loans to Ford and GM. Restrict the use of funds to salaries of lower management and below employees. This will build an additional incentive for the labor union to compromise on salaries and layoff numbers. Those decision will shape how far the government loans will stretch. Everyone from the assembly line workers to the CEO were all overpaid at the big three. Instead of being more efficient and developing innovation that consumers can appreciate, they were busy paying each other. That must stop in order to be positioned as a viable option for the American auto consumer. Despite their international sales and fleet sales to government agencies, they still are unable to muster a profit.
Jobs are our National interest within the auto industry. If the companies collapse next year or beg for more money, we want to rest assured that our tax dollars were spend on households, not luxury items for top management nor technology or raw materials that will be wasted if the company doesn’t make it another year. We need a domestic industry to remain competitive globally, if we were to put either of these companies up for sale, the chances of a more effective management team buying the assets and technologies are pretty high.
I’d hesitate on giving Chrysler any funds, but would consider it if the funds were restricted to to salaries. Chrysler is a private company owned by a private equity firm (which is another name for a small number of very rich individuals) who I would not want to give a dime of my tax dollars to. Their plans have been to sell Chrysler as soon as they can, and if they do not get assistance it will force them to sell the company at a discount. As of lately Chrysler has improved demand substantially and I believe Chrysler will be a great buy for a management group who knows what they are doing.
Obamanomics:
I may be a little bias, but Obama has made all the right moves. His cabinet is stellar; he has not made too many large commitments due to the fact that he has 39 days until he is in the driver’s seat. In the mean time, he is working with all the players to design his position to be most effective come January. People still embrace the hope of him being a savior to this situation. So he wants a large impactful push so there is optimal effect in economic course change.
The information he has divulged is on par with effectiveness. By working with cash strapped States to create jobs is the best move possible to dig us out of this crisis. Job creation is a very important factor in changing consumer sentiment. This sentiment is what queues household spending. The down side of this plan is the slow way in which these projects began. Obama must get States and counties to streamline this process by eliminating the bid process in public works. On my 9 to 5, I insure architect, engineering and contracting firms all day long. Many of these firms are suffering due to the real estate crisis. If we reduce the long biding and planning process on straight forward projects, we can get blue prints, city permits and construction underway within 6 months as opposed to the normal 18 months. Within the 6 months, we can hire and train a quality workforce of construction, management, environmental and energy efficiency team employees to turn the economic wheels a little faster.
Real estate market:
The Government has tried to repair the banking system as it currently exists. It has not worked. Homeowners have suffered in the mean time due to investors being unwilling to take a loss. So let the banks have their profits. The government through their current organizations should refinance homes of foreclosing homes that are owner occupied. The banks will get their full amount and be very pleased as Senator McCain recommended during his campaign. Most citizens were against allowing the banking industry to get off scott free. In response, banks stopped lending due to uncertainty of their own balance sheets as well as the future income of customers. We need them to begin to lend to customers to lubricate this economy with credit transactions. As for the homeowners, they’ll have to qualify similarly to my first report on how TARP should work. Once the government has a large pool of loans, they can bundle them and sell them to just as the real estate industry did to get us in this mess. The difference is that the participating homeowners will be better qualified and the terms of the loan will not be predatorial in nature.
Two years from now the people who will benefit from the 2009 stabilization of the real estate market, namely the rich investors and mortgage lenders of 2007, will be displeased with the new tax code when it will be time to pay the piper.
The Future issue:
The problem of the future will be the devaluation of the dollar. By this time next year we may be in a hyper inflationary spiral due to the printing and release of this additional cash. The more money in the system, the less value each dollar carries, that is why we have continued hikes in the cost of living. In order to reduce this exposure, the Government must take back as much of the newly lent money as quickly as possible. This will prove to be a difficult balancing act. High inflationary pressure will be difficult to impossible to avoid.
The best thing we can do is to spend now to stimulate the economy. Create jobs and enhance the feeling of job stability. Yet as soon as we see light at the end of the tunnel, we should have a national initiative to save money. This will stave off inflation and show that America has learned its lesson of living off of 110% of its income. Companies and households alike need to learn to spend 80% and save 20%. So that the economy will not get over heated, while companies and households have no emergency funds to ride out future storms.
We have learned our lesson right? Right?
The GMC dilemma reminds me of a quote from Hamlet…”To be or not to be…,” and the nation is trying to decide whether they want to do the noble and humane act OR if they should act in the American business driven capitalistic way. Really your opinion is as telling as your political affiliation, class and values.
Laissez Faire – Let the market do what it does and it will correct itself. Well this may be a good thought but without some sort of intervention the “Haves” just walk all over the “Have Nots” and the rich get richer and the poor get poorer. (If you’re rich then this is a good ideal.) But now the rich are getting poor and they’ve got an issue with this and want some free money.
Vs.
Socialism – Everyone works for the government as the government owns everything. All decisions are made for the general welfare of the government and its people. No one gets rich, no-one gets poor. Great if you’re a bum. But where is the drive to do great things? Think out of the box and pull yourself up by your Ugg boot straps and do something to change the world? No incentive to dream.
People are reacting to the previous Laissez Faire mentality we are moving to a more socialistic approach and in the end neither makes sense. This is not what this country is about. Our morals reward hard work and education. We need to get back to those basic principles and I don’t think bail outs help anyone. Get people jobs. Only the rich want hand outs, everyone else wants to work. Put together incentives for companies that can develop in growing industries to produce more jobs. Diversify jobs so when one industry tanks then our national GDP and unemployment rate don’t tank! This can all be accomplished with Obama’s plan and if he can be successful in galvanizing the American people to all work together than we can be the super power that we are known to be.
Just takes a little HOPE, FAITH and CHANGE. (Damn I think I heard that somewhere.)
We always think in the two extremes as if those are our only choices. Yet there is a third choice. This is acting in concert with a sort of honest morality that creates balance and equity. Not through backend government responses, but by the conscious forethought of man. I’m not saying, love thy neighbor, that’s asking too much of capitalist, but at least give a damn about him. To think of how my rich friends’ waist their money is absolutely ludicrous.