Wednesday, August 25, 2010

What Are We Doing To Fix The Mess?

 As of today we are not doing much as Americans to fix this mess.Right after the financial crisis Tim Geithner  put into place the financial rescue plan and I applaud him for his judgement in such a potentially dangerous situation that threatened world financial collapse. While I generally do not favor  bailouts as such, I thing he did the correct thing under the circumstances.The debate over which institutions to help and which not to help could go on forever but the situation at the time did not allow for much time to debate the issue.
  We also bailed out the auto industry which I opposed. I think if a company mismanages itself as the big three definitely did for so long, then it will fail and it should.Our government will not bail out your business or mine if we make mistakes and fall on hard times so why the auto industry and where is the line drawn? Well you and I do not pose a threat to the economy if we go under and we do not employ a very large number of union voters, I mean union workers. The ripple effect of Gm and Chrysley going under would have been a brief economic shock at the wrong time. But had they failed the total number of cars sold in the U S would have been little changed.They would have been bought out of bankruptcy  and probably have continued.While today it appears that G M at least may actually recover ,with lower costs and debt and maybe we the people might get our money back I still thing we should have let the natural process take its course.
 Next came the hastily conceived, inefficient and wasteful stimulus program,the results of which we will never truly know.My guess is that it probably saved some jobs and created some but most only temporarily.The bail out to the states for police and teachers ,apparently the only ones laid off when states are short of funds,and of course union voters sorry workers was and is only temporary.Building roads and bridges is money much better spent.First we need them,they take a long time to complete thus employing people longer,  and have bigger multiplier effects so we get more bang for the buck What happened  is that within 6 months the states needed and were given 45 billion more in aid to keep those union workers  [ got it right this time ] and we are still building roads.So what does this do? It sets up the scenario which basically creates a new welfare system for the states.The states have to bite the bullet make hard choices and balance their budgets.It wont be easy and it will be painful but we must do it.Why should people in a well run state ie Virginia pay federal taxes to bail out a poorly run state ie California? The next time the states come to washington asking for more money we must say no. Our government Principally our president is basing his answer on his political points instead of financial concern for all of us.I do not want to see police and teachers fired. I think possibly if the states get a big fat NO  when they ask for a bailout they might search for other ways to make it work.  They could spread the pain and put state workers on forced, unpaid leave a day or two per month such as california is now and I have a good idea that there is a lot of overhead that could be cut ie administrators, supervisors even assistant principals.
 The Fed for its part is keeping interest rates very low and liquidity high which under normal situations would tend to boost economic growth but its not responding as fast as we would like for other than normal circumstances.
  And our politicians are continuing to extend unemployment benefits. At the risk of being seen as a heartless right wing waco, I think this is enough of the extensions. The extensions tend to create a dependency state of mind among the unemployed. Where is the incentive to get employment when the attitude is created  " why get a job that pays little more than unemployment ?" The money spent on unemployment would be better spent on reeducation.The extension of bennefits also has a very negative impact on the deficit which retards future growth.
 In the private sector the banks are beginning to make loans but very selectively.This is part of an overreaction to the financial crisis and part of the cycle of bank lending trends.With time it should improve.Banks have to make a profit and they do not if they do not make loans.It is possible that if the fed. raised rates modestly it would increase the bank costs and thus encouragement to make more loans.
 Other than that mentioned, not much else is being done to improve things.But there are a lot of things going on that are actually impeding future growth.


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