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Here's a thread I posted in GD, and added to my journal.
I'm prepared to discuss economic and financial issues, but not on this board. I can address our failing trade policies for hours, and will do so at some point, but not tonight.
Wanna Be Able to straighten out your Republican friends, family & coworkers on Money Issues?!
Posted by TexasObserver in General Discussion
Mon Feb 18th 2008, 03:19 AM
In a GDP thread, a poster raised some questions that often arise in discussions during our primaries, and more importantly, once we square off against the Republicans for the fall. This is a post which should help all DUers address questions and positions raised by others in political discussions. I want the GD crowd to be able to use this, which might help you convince others Democrats can do them the most good, and why.
Republicans love to claim they know business better and are better for the economy. It's a lie. They're terrible when they run things, because the are irresponsible in spending and taxing policies, and here is your answer to issues they often present.
I prepared this tonight because a poster asked these questions. I want to give it a chance for full review by DUers and don't mind if you print this up and use it as a handy reference for your discussions with others about Democratic versus Republican economics.
We always need to be ready to persuade those relatives, friends, and coworkers that Democrats will do better for the economy than Republicans.
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Question:
How bad is the economy?
Answer:
Bad. If you will look at the Dow Jones Industrial Average, you will see that since Bush took office, the DJIA has risen (in dollars, not real, inflated dollars) under 9%, or a little over 1% per year. This is pathetic, even if there were no inflation and no diminution in the value of the US dollar.
What this means is that you if you invested $1000 in the DJIA, on average, on January 20, 2001, the day Bush took office, and let it ride for 7 years, you would now have $1090 to show for it in value.
If you had invested your $1000 in something really safe, like tax free bonds, paying maybe 5% per annum, you would have over $1350 in value now, and in fact, given your ability to reinvest the the $50 it was throwing you each year, you'd have closer to $1400. When really safe bonds are outperforming the stock market that badly, the economy is really bad.
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Question:
I keep hearing candidates and surrogates talking about the economy crisis, but I personally have not been affected. Should I be concerned?
Answer:
Yes, if you paying your own gasoline, insurance, rent, groceries, medical, and health insurance. Gasoline has more than doubled since Bush took office, and all things that rely on energy costs have seen concomitant increases in costs. Because the economy has been sick, Americans, like their government, have gone precariously in debt. In the past three years, Americans have had their debt exceed their savings, the first years that has happened since the early 1930s.
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Question:
I know a lot of people are losing their homes due to the sub-prime mortgages, but didn't that actually start months and months ago?
Answer:
It started years ago, as the Federal Reserve Board (the FED) kept interest rates artificially low, and the government allowed lenders to offer Adjustable Rate Mortgages (ARMs) which gave consumers below market rates with a step up at a point in the future. Those loans started rolling over last year, and consumers couldn't pay the stepped up rate. To further complicate the mess, bonds were created to finance such lending, and those bonds were insured. Now the lenders, the bonds, and the bond insurers are all fiscally on the ledge because the properties supporting the original loans are over-leveraged, and many are going into default. There will be at least a million home foreclosures this year, and that means 3000 families on the street every day from foreclosure.
Nothing can stop it. The problem cannot be fixed because true wages in the US have fallen, and in real dollars, the average person has less buying power. They can't stop paying for food, or gasoline, or car note, or medical bills, or health insurance, or clothes, etc. They can default on their home loans and move into something smaller for lease.
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Question:
I don't have money invested in stocks, so maybe that's why I haven't been affected by the downturn in the stock market, but doesn't the market always have valleys and peaks, I mean, it can't always be at a peak, that couldn't be healthy!?
Answer:
You have been affected, you just don't know it. As stock values fall, so do the financial statements of individuals who hold those stocks. The entire value of the holdings of US citizens drops, and that drop reduces the security banks have, and that makes banks nervous. The Comptroller of the Currency sends bank examiners to banks to determine their bad loans, and they require those loans to be written off against each bank's capital. A bank can loan money based upon a multiple of its capital, so when the capital is reduced, the loans a bank can make or have out are reduced by a factor approximately ten times the amount of the loan written off. As banks experience this, they literally have less money they can lend.
Because the FED has tried since last August to artificially keep the DJIA and other indexes above recession levels, the US dollar has fallen badly in its currency exchange rate with foreign currencies. As an example, the Canadian dollar has risen 65% against the US dollar since Bush took office. If you had simply taken $1000 the day Bush took office and bought Canadian dollars, they would be worth about $1700 US dollars today.
If you had bought gold on the first day Bush took office for $1000, it would worth close to $3000 today. These examples I am giving you are designed to show just how badly our economy is really doing.
The number of uber rich have grown. The number in poverty have grown. The middle has shrunk.
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Question:
Also, has anyone else thought about the fact that Bill's presidency was during the Internet Bubble and perhaps that might have something to do with the positive turns in the economy during his presidency?
Answer:
That is a straight up rightwing talking point. Let me knock it down. The tech boom was one aspect of the success of the Clinton era economy, but it's much more than that. The balanced budget gave the economy a strong base, and made the dollar strong. Avoiding nasty wars in the mideast kept oil prices below $30 a barrel, and that kept all costs down, since energy costs are built into everything. We had a peace dividend from the end of the Soviet Union, and that allowed us to save money on defense items. As the economy remained solid, more Americans had more money, and real disposal income increased, unlike under Bush.
The internet bubble, as reflected in the NASDAQ, one major index, began its decline in summer 2000, but the drop in the DOW didn't occur until Bush took over in 2001 and began his tax cut for the wealthy. This meant we would have deficit spending, and meant the government would have to borrow more money to cover that deficit, which is both inflationary and makes the US dollar less sound. The decline began, and was exacerbated in August by the fall of Enron, and by 9/11 the next month. The 9/11 losses were quickly recouped, however. It was the 2003 invasion of Iraq which really set things on the wrong path.
The Iraq war simultaneously drove spending UP, the deficit UP, and the cost of oil UP. All of these together hurt the US economy.
Because the US dollar has been weakened by the various Bush actions, it has lost value against the Euro and other currencies, which make the US dollar less attractive as a currency to hold by foreign countries.
In summary, Bush has made a mess of the US economy, the value of the DOW and NASDAQ, in real dollars, is greatly reduced from what it was 7 years ago, the number of wealthy and the number in poverty have grown vastly, and ordinary Americans have less disposable income and less in real dollars.
We are worse off than we were 7 years ago, a lot worse.
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