A Vivisection of the US Economy

[Phoebe Loosinhouse]

I call this a vivisection, since at the moment anyway, the economy is still breathing feebly, albeit on life support with the family members gathered.

Basic Premise : Alan Greenspan was and is a moron as are all the Republican supply siders and trickle downers who espoused and put into practice measures that for decades have favored corporations and the wealthy while cannibalizing the middle class and ending upward mobility as we know it.

Our real spending power is an illusion. Our economy as a whole is an illusion.

Deregulation was supposed to make goods and services cheap and affordable for the American consumer. Did you ever think 20 years ago that you would be spending HUNDREDS of dollars a month for telephone and television services? How about those utility costs - Boy, they really went WAAY down too, didn't they? And your health insurance went from double digits a month to triples with your employers paying less and less every year or picking a crappier provider every year. Fuel costs - they did a good job with that too, didn't they?

One basic premise of Greenspan and the supply siders was that the cost of money (interest rates) should be cheap.

Think about that. If interest rates are really low all the time, there is little incentive to save in the traditional manner as people had done previously. Your CD is getting 3-4% and barely keeping up with the fake inflation figures. So, everyone in the country is forced to speculate (that's what it is) in the stock market in order to attempt to get any type of decent return. They also FORCE more people into the market when companies do away with defined benefits (pensions) and put us into 401Ks which are all about the stock market. (How many 401Ks ANYWHERE have options like good old American savings bonds or T-bills?)

This was a wealth transfer. And did American industry use this huge influx of dollars responsibly? No, they did not. They put all this money into giant cookie jars and they paid our dollars out to the top tier while simultaneously cutting back on the wages and benefits of the average worker while also closing down production and offshoring labor.

Then, oh my God, the stock market itself tanks from market mania in the tech sector (our bubble of the 90's). People discover that hey! you can lose money in the stock market! There is one place for frightened America to put it's dollars - again shored up by artificially cheap interest rates- and that is REAL ESTATE. Real estate investment/speculation reigns supreme. Close to one third of real estate purchases are investor driven.Excess demand drives up prices and then causes builders to continue to overbuild with the cheap dollars. Alan Greenspan himself decries the wealth that America has tied up in untapped equity and sings the praises of ARMs.
Not just home buyers, but home owners decide to take their long-term security and turn it into plasma Tv's and SUV's and granite countrtops.

Everyone takes out fake, cheap, illusory, non-regulated mortgage products which are then turned into fake, cheap, illusory, non-regulated securities which then pollute the entire financial substructure. A cancer, if you will. Dollar plummets.

The teratagen was the underlying idea that what is good for American Corporatocracy is good for Americans in general. Let's put this canard to rest. The American Corporatocracy has proved that they are no more responsible than your self-indulgent teen age son who wrecked your car while you were out of town and then lied about it. They can't HANDLE the responsibility of little or no government oversight and regulation. They have proved this time and time again. Our economy is in a shambles as a result.

So, where do we go from here?

1. A reinstitution of government oversight and regulation of those areas of the economy that I would consider to be non-optional -
Natural Resources, Utilities, Healthcare, Transportation, etc.

2. Free money is not necessarily a good thing and drives up prices due to increasing demand while depressing savings. So, If I were Ben Bernacke, I would actually RAISE the interest rates.

3. Some type of government intervention in the unfolding mortgage mess is absolutely necessary. People who don't understand this will see most of their housing equity ( the major component of individual American wealth) evaporate.

(This post got a lot longer than I meant it to be - thanks to anyone who had the patience to read the whole thing.)

[EV_Ares]

1. Phoebe, thanks for the post, very good, actually didn't get to the bottom

as have to head out but have it saved. Thanks, here is a link you might be interested in this morning on our national debt.

http://abcnews.go.com/Politics/wireStory?id=3944576

[flashl]

2. Wealth transfer? It more like robbery with a pen. n/t

[TheFarseer]

3. I read the whole thing and you're welcome!

I agree with all of it unless you are saying you want a mortgage bail-out. I am against that. Let them suffer.

I have studied the history of the economy a little bit recently and everytime someone tries to pull some weird unsustainable scheme to make more money we have a crash of 1929 or a panic of 1907, and this mess with subprimes probably isn't any different. I don't think we've seen the worst of it.

[enid602]

9. ARM's

I don't like the idea of a mortgage bailout either, but I would like the government to consider a law that will freeze/rollback interest rates on ARM's, and outlaw granting them in the future. The banks will lose money in interest, but will have to foreclose far fewer homes.

[leftist_not_liberal]

23. In the nineteenth century, when Marx was writing,

credit was something that really existed only for the middle and upper classes; for the poor there was only usury, the ruthless exploitation of poverty by various kinds of money-lender. Especially from the 1950s onwards, a multiplicity of forms of consumer credit have penetrated the daily lives of the masses, all of them new forms of usury, driving people into debt and skimming a share of the surplus out of workers’ wages through interest payments. For the wealthy, the credit system invents new and newer forms every year. Since the 1970s, forms of credit operating in the world of finance – future, commodity speculation, the purchase and sale of debt itself, and so on – have far outstripped paper money and constitutes a huge burden of fictitious capital on the backs of the working class and an enromously unstable ocean of value that can sweep whole economies away in its ebbb and flow.

See Volume III of Capital, especially chapters 21 to 27 for a more detailed analysis of credit.

Crisis of Capitalism

The word “crisis”, used in reference to the economic system, may be in connection with (i) a conjunctural crisis, (ii) the cyclical crisis or “business cycle”, or (iii) the historic crisis of capitalism.

A conjunctural crisis can only be discussed in connection with the specific conditions involved in the given case, and generalisation is impossible. For example, such crises can be caused by defeat in war, or by being overtaken economically by a rival power, or as a result of a weak or incompetent government, or as a result of the loss of the natural conditions for production, such as where the environment has been destroyed by industry.

It is, however, particularly the cyclical and historical crises of capitalism which have absorbed the attention of Marx and other revolutionaries over a long period of time, and have been the subject of important theoretical debate down the years.

In the opening chapters of Capital Marx explains why cyclical crises are characteristic of capitalism:

“If the interval in time between the two complementary phases of the complete metamorphosis of a commodity become too great, if the split between the sale and the purchase become too pronounced, the intimate connection between them, their oneness, asserts itself by producing - a crisis. The antithesis, use-value and value; the contradictions that private labour is bound to manifest itself as direct social labour, that a particularised concrete kind of labour has to pass for abstract human labour; the contradiction between the personification of objects and the representation of persons by things; all these antitheses and contradictions, which are immanent in commodities, assert themselves, and develop their modes of motion, in the antithetical phases of the metamorphosis of a commodity. These modes therefore imply the possibility, and no more than the possibility, of crises. The conversion of this mere possibility into a reality is the result of a long series of relations ..”

and in one of the last fragments of Volume III:

“... production relations are converted into entities and rendered independent in relation to the agents of production, ... the interrelations, due to the world-market, its conjunctures, movements of market-prices, periods of credit, industrial and commercial cycles, alternations of prosperity and crisis, appear to them as overwhelming natural laws that irresistibly enforce their will over them, and confront them as blind necessity. ...”

It is also said that capitalism is in permanent crisis, as capitalism is constantly transforming the labour process and revolutionising the relations of production, driven by the unresolvable contradiction between capital and labour. Or, to put it another way, capitalism is unsustainable development by its very nature.
http://www.marxists.org/glossary/terms/c/r.htm

[annabanana]

4. And yet there are millions of people out there who don't "do" politics.

As if it were a hobby like fishing or tatting...

[whistle]

5. A revival of the FDR New Deal and Bretton Woods Agreements would

...accomplish your three summary suggestions very nicely.

[Phoebe Loosinhouse]

6. We need NEW New Deal - here's an idea

I have had an idea for awhile that I wish there was a way for Americans to have more direct control of some of the way we spend our dollars. I think that we should have Government Bonds directed into specific sectors - like ETF's in the stock market

For instance, if you believe in single payer national health, we could have an actual government bond that pays interest to you, but is specifically directed to funding this.

If people love National Parks, we could have a National Parks bond.

If people want to fund more government spending on college grants, we could have a bond that does that.

If you want to see a National Rail system, then buy National Rail bonds.

Now THIS would really be investing in America and not just lip service

This program would be optional, but it would give taxpayers an incentive to save as well as a voice to where their dollars actually get spent. I sent this suggestion to Paul Krugman once, hoping that it could get traction.

Imagine if wars could ONLY be funded with War Bonds?

[whistle]

11. That is FDR style fiscal policy and I agree 100% let's get the Central Bankers

...out of influencing how the Federal budget is allocated and get long term programs based on 40 to 50 year commitments in place which would generate jobs for the next 2 and a half generations. :applause:

[gateley]

16. You've got my vote! This just makes so much SENSE! Again, another

excellent DU Contribution I'd love to make all of our candidates, Senators and Congressmen sit down and read.

[sendero]

7. I agree...

... and all I can say is that is will be very interesting to see what emerges from the ashes of this economy in a few years. Maybe people will finally wake the eff up.

[izquierdista]

8. Houses in America cost too much anyway

Home equity is a cruel joke. It has been tapped and tapped and tapped during this decade to provide spending money when it should be a source of savings for the future. It has also fueled land speculation to a ridiculous extent. You can find houses for sale in many areas (like the beaches in California) for $1 million and all they are is a building worth $30,000 -$40,000 on a $950,000 lot. Too much money going into a finite pool of assets raises the price to levels that are out of line with other assets.

But that is typical of capitalism, it's zoom, zoom, zoom until there is no fuel left in the tank and then everyone gets to share the misery of the bust. In a PLANNED economy, one that has some regulations or a working pair of brakes, home ownership would be promoted for its own intrinsic good -- it builds stable communities. There would be generous credits applicable to a principal residence, but second homes and speculation would not be pumped up into a bubble. Most of the current activity in the real estate market has been with flippers and speculators, a sign of an unhealthy market.

For most of the 50's and 60's, passbook savings rates were fixed at 5%, which resulted in a very dull real estate market, but also one that was open to anyone with a job. Now that interest rates fluctuate more in one week than they would during a year previously, home mortgages take on the excitement of a crap shoot. Will your mortgage be approved at that low rate before the new shooter comes out?

I don't see any way the government can stabilize the unfolding mess, what with all the collateralized debt obligations that have been turned into capital free to flit around the world. This is like the savings and loan crisis of the 80s, another Republican con job, but with collateralization, the tools of readjustment to the local economy have been taken away. The government is no longer in control of the money, the "free market" is. Americans may have to do what the Japanese did when their bubble deflated at the end of the 80s, sit on your hands for a decade and wait for the overbuilding to work itself out. :shrug:

[whistle]

12. For what you get, that is true

[mojowork_n]

10. Great post, not only did I read it all, I'd only have two things to add:

1. Don't forget the whole thing with derivatives. I don't know -- I'm not sure if anyone really knows -- what the total numbers are, but besides the normal, reasoned investment options you included, the amount of money that was ploughed in to assorted varieties of roulette wheel speculation (bets on the outcome of other bets, not really tied to anything substantial) has been off the rails.

Plus:

http://www.almartinraw.com/public/column335.html

2. The percentage of real GDP growth that's tied to "defense spending/black book budgeting." It was an off-hand remark by Randi Rhodes last Friday -- something along the lines of 'our whole economy is now a war economy', that I don't think has been discussed enough.

Again, great post, thanks for taking the time to think and write.

[whistle]

13. That's the result of Central Banker monetary policy and it will destroy

...the country

[HCE SuiGeneris]

14. Another outstanding post. Clearly defines the issues and offers solutions.

Brilliantly thought out and written. K & R

[Armstead]

15. Kicked and recommended 1000 times

Okay just once, but this is a really good explanation for the fundamental problems of the last 30 years.

[NV Whino]

17. You bet I read it through

Excellent post. Most people tend to either not understand or ignore the damage that Alan Greenspan has done to this nation. Thanks for pointing it out. (He's not a moron, by the way. He knew exactly what he was doing.)

[Klukie]

18. Great post...

Thanks for writing something that those of us who aren't versed in economics can easily understand. I think your common sense approach to fixing it is greatly needed.

[Hydra]

19. This was a deliberately planned trainwreck

expect insane suggestions to come from Bushco when the train flies of the cliff, and for all of their enablers to make it happen.

Banana republic here we come.

[Spazito]

20. Excellent OP!

Very well stated.

Recommended.

[WillyT]

21. Would You Please Run For President !!!

I was goin for Gore until I read that most excellent post of yours!

:bounce::yourock::bounce:

[Phoebe Loosinhouse]

22. Just got home -thanks for reading and responding

I also have to compliment anyone intrepid enough to open a thread with the word "Vivisection" in the title.

I'm no economic guru, but I think we all know what has happened to many of us personally in the years since Reagan. Now, if we can just elect some brave people at the top who can fight on our behalf to restore fiscal sanity, we'll all be better off.

Anyone who likes the purpose-driven bond idea, please pass that around. I really think people would be happy to invest in something other than stocks that could help the deficit, encourage savings, and perhaps get some Big Idea projects off the ground.

[eridani]

26. A suggestion

I don't have time for the research, but I'll bet you probably are not the first one who thought of this. why not do some googling to see if there is anyplace in the world where this idea may have been tried, and what the results were?

[Phoebe Loosinhouse]

29. I know exactly where the thought came from

It comes from the fact that I admire FDR and the New Deal very much and whenever you read anything about WWII, you will always bump into references about War Bonds. Celebrities flew around the country promoting the sale of War Bonds which is one way that our country financed the war in addition to the funds on hand. It brought Americans together who actually sacrificed and put money towards a common goal - win the war. I am sure I am not the first or the only person to think that that might be a model for further development. ("There is nothing new under the sun, Horatio . . .")

States issue bonds right now to finance their multiple projects. Maybe some states do direct the goal of the bonds now and I am just not aware of it. I think it's an idea whose time has come on a larger, national level. It would allow Americans to put their money where their mouth (and heart) is and maybe do some good at the same time and save and earn interest.

It seems so obvious, that as you say, I would be surprised if some country someplace isn't doing it.

[TroubleMan]

24. The investor class declared war against the savings class.

Basically if you're the average American who works a hard job and saves your money, the low interest rates steal from your savings and give it to the investment class. So you would think you should invest your money - but, ha-ha, that's the trick. They've rigged the investment game so only they win (unless you get really lucky). With real estate it was a good investment, but the greed and avarice of the investment crowd drove the market into a bubble, and the big guys bailed out with a golden parachute (although a lot of share holders not in the know are getting screwed).

So right now, if you just put your money in a bank and save it, you're actually losing money. If you invest and you're not on the inside or lucky, then they just take your money outright. They've rigged the game, and something needs to be done now, or we're toast.

[AikidoSoul]

25. Thanks very much for the lucid post

on what these criminals have wrought for our future.

I wish they would share in that same future instead of being able to live off
their billions.

K & R

[JFN1]

27. Our "economy" is just a great big piggy bank for the rich

We don't have a real economy...

[Usrename]

28. Tom Tommorow's commentary on the comic genius of Alan Greenspan.

[Phoebe Loosinhouse]

30. Brilliant! The only summary of Greenspan you'll ever need.

I am going to print that, make copies and hand it out to anyone who is still deluded enough to think that Alan Greenspan is a genius. Thanks!:toast:

[Usrename]

31. When Tom Tommorow hits the mark, he really nails it.

Most folks don't remember back to when Greenspan was on that special select committee to fix Social Security, way back before he was Fed Chairman, back in the early 80's. That's what that third panel is about:

>

Dec. 16, 1981

President Ronald Reagan and Congress create the National Commission on Social Security -- known as the Greenspan Commission after its chairman Alan Greenspan -- to study the program's financial problems and make recommendations for legislative reforms.



April 20, 1983

President Reagan signs the 1983 Social Security Amendments, which incorporate many of the Greenspan Commission's recommendations.

Those recommendations include an increase in the self-employment tax, the partial taxation of Social Security benefits to wealthier retirees, coverage of all federal employees and a gradual increase of the retirement age from 65 to 67, starting in 2000. The bill also augments the reserves in the Social Security trust funds and accelerates the scheduled increases of Social Security tax rates.

Payroll taxes reach 11.4 percent.

>


http://www.pbs.org/newshour/bb/social_security/reform/timeline.html

[Hugin]

32. The truth never expires...

:kick: