Financial Crisis: Sorting Through the Rubble in Post-Bubble America

[CGowen]

...




Cyclical downturn or post-bubble recession?

An article in the New York Times by Morgan Stanley's Asia chairman, Stephen Roach, states that the country is not in a cyclical downturn, but post-bubble recession. There is a big difference. The Fed's interest rate cuts and Bush's “Stimulus Plan” are unlikely to stop housing prices from continuing to fall nor will they miraculously fix the problems in the credit markets. The massive expansion of credit in the last 6 years has created a $45 trillion derivatives balloon that could implode or just partially unwind. No one really knows. And no one really knows how much damage it will cause to the global financial system. Stay tuned.

Roach notes that the recession of 2000 to 2001 was a collapse of business spending which only represented a 13 per cent of GDP. Compare that to the current recession which “has been set off by the simultaneous bursting of property and credit bubbles.... Those two economic sectors collectively peaked at 78 percent of gross domestic product, or fully six times the share of the sector that pushed the country into recession seven years ago.”

Not only will the impending recession be six times more severe; it will also be the fire-siren for America's consumer-based society. Attitudes towards spending have already changed dramatically since prices on food and fuel have increased. That trend will only grow as hard times set in.

Roach adds: “For asset-dependent, bubble-prone economies, a cyclical recovery — even when assisted by aggressive monetary and fiscal accommodation — isn’t a given....Washington policymakers may not be able to arrest this post-bubble downturn. Interest rate cuts are unlikely to halt the decline in nationwide home prices...Aggressive interest rate cuts have not done much to contain the lethal contagion spreading in credit and capital markets...A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure."

The Federal Reserve and Washington policymakers are still stuck in the past trying to revive consumer spending by creating another equity bubble with low interest rates and their $600 per person “stimulus” giveaways. Wrong way. Invest in infrastructure and environmentally-friendly technologies, rebuild the economy from the ground up, reestablish fiscal sanity and minimize deficit spending, put America back to work making things that people use and that improve society, and (as Roach says) “help the innocent victims of the bubble’s aftermath — especially lower- and middle-income families”. And, most importantly, abolish the Federal Reserve and give the control of our money back to our elected representatives in Congress. That is the only way to put America's economic future back in the hands of the people.

That's a plan we can all get behind. It's time to split the new wood and start fresh.

http://www.globalresearch.ca/index.php?context=va&aid=8285

[ayeshahaqqiqa]

1. green infrastructure

and finding alternative ways of transporting folks are the way to get back on the road to prosperity.

[jwirr]

2. Abolish the Federal Reserve? When did they take control of our

money? Was this one of the safeguards that FDR put into place. Give us more insight into why you would take this move.

[CGowen]

4. The Federal Reserve was created in 1913 and they didn't like Roosevelt,

because he took matters in his own hands. (If you argue that the Federal Reserve is unconstitutional and the president and congress have the power to coin money and regulate it, it's normal)


http://links.jstor.org/sici?sici=0021-8723(197103)57%3A4%3C864%3AR1ME%3E2.0.CO%3B2-9
http://tinyurl.com/2mfgyf

[Doctor Cynic]

5. Yeah, that's the only crackpot idea in the article.

Everything else I agree with, but the "abolish the Federal Reserve" idea makes me wonder what meds they're on.

It sounds good in theory, but with anything else in control of politicians you have a double edged sword. Can you even begin to imagine if Chimpy and the rubber-stamp Republicans had control over the supply of US Dollars? Can you imagine if Chimpy decided to print $600 for every citizen, and Pelosi et al keeled over on this issue?

I guarantee you, we'd all be billionaires now! :rofl:

It's preferable to leave the supply of money with an independent and non-partisan body shielded from the whims of politicians. You may disagree with something undemocratic, but the supply of money would be yet another aspect Chimpy would screw up.

[msongs]

3. lowering interest rates punishes all people who save and live responsibly nt