Sunday, May 08, 2011

The Collapse of Our Economy And Why

In order to fix a problem you have to understand what caused it. Our economic situation is now called the "Great Recession," to separate the dialogue from the original "Great Depression."

Originally, it is thought that rampant speculation in the stock market, along with low margin requirements started the whole thing. People were gambling on an out of control upswing in the stock market, but gambling with money they didn't own. When the market started to fall, margin calls went out to the investors. That meant they had to finish paying what they bought the stocks for in cash. The vast majority of stockholders couldn't do that, and the market plunged even further. Ergo, the crash of 1929. What most people today do not understand is that the depth of the depression didn't hit until 1932 and 1933. It wasn't until the U.S. started to crank up the industrial side to tool up for what loomed as the second world War that the depression was finally but slowly on it's way out.

Starting in 1929, it didn't really end until early 1939. Ten miserable years in which literally thousands of Americans starved. If it hadn't been for the fact that most in our country lived on either family farms, or at least acreage they could convert into food production, even more would have succumbed.

The post depression years were filled with two things. The first, World War two, the second many band aids were applied to regulate the economy so that this would never happen again. I'm not going to get blatantly into partisanship more than I have to here, but still, many will on both sides of the dogmatics crowd, think I have.

First, laws were passed so that Banks were limited to the state they were chartered in. Secondly, limitations were applied to percentages of stocks could be borrowed on margin. Another, and perhaps the most serious was the separation by law, of investment houses from commercial banks. Keep this paragraph in mind, as we revisit the subject again. These laws have all been overturned.

During the Forties and 50's, the era I grew up in, there weren't many safety nets, as they are popularly called. Old people were on county welfare, a system that kept starvation away, but didn't stop the roof from leaking. Social Security was introduced in 1937, started in January 1938, but payouts started in 1942, just four years after it's inception. By rushing into payments that hadn't accrued in this what was called an insurance program, negative cash flow started right from the beginning.

For those of you with computers, here is the short history of Social Security:

Over the years, Politicians ran for office, generally promising a chicken in every pot and the government would provide the pot. Citizens ran for office, country, state, and federal, by promising to deliver things. Benefits, housing, jobs, etc. and they are still doing it today. Obviously, in a system whereby a politician is elected by what he or she can deliver, the ones that promised the most were usually elected. If they produced what they promised, they were usually re-elected as well. What the dumbed down populous didn't think about, was that when benefits ere delivered, they paid for them, not the "Government."

Taxes began to rise, as did the benefits. We have arrived to this, the second great depression because we wanted more from government than they could deliver, yet they continued to promise these things to the point over the years, and as new generations appeared, until we stopped paying attention to our history, or that history was altered to fit special interests. As new generations came along, they now expected as their right to have all of these government programs.

While the industrial revolution was taking place, several social adjustments were as well. Unions organized, and sweat shops, child labor and such began to disappear. Wages went up and conditions improved, but like everything in life, the pendulum swings and with government, it usually swings hard past the original intents. Good old American know how and industrious workers managed through increased productivity. Manufacturers modernized their factories, and labor became more efficient.

We finally came to a point where the union movement had virtually taken over manufacturing in this country by pricing it's labor beyond what efficiency could absorb. When that happened, U.S productivity no longer could hold off the developing countries, some of which while we were not looking had become more developed than our selves, yet with economies that did not match ours. Their labor was less costly, mostly because their society had not gone the same route as we. People were living in sub-standard housing, even mud huts, but they were eating and educating their children who now are our scientist and engineers that were brought here because we weren't filling that gap through our own efforts.

We are in a declining civilization. We have all heard of "The Rise and Fall of Europe," but most assumed wrongly that it couldn't happen here. Over thousand of years civilisations have appeared, bloomed in wealth, then passed by by stronger countries, perished. We are a spoiled nation that demands that when tax revenues fall short, government support all of the programs that we have become accustomed to. Child care, Kindergarten, pre-school, none of which existed during my childhood.

Inflation took away the ability for most mothers to stay at home, and even with two incomes we aren't where we were when mom left home to work. During 1967-68 social security annual maximum payments stopped at $4400 per year. I passed that in the first quarter. Today social security is in trouble because it was mismanaged from the beginning. If private retirement funds were run the way our government runs it they would have been jailed long ago.

Our congress, when having to fund a war, borrows the money from the Social Security trust fund. A trust fund that exists in name only, as it has been drained away. Most high tech jobs have gone elsewhere and will stay off shore until either the countries that have our business now, bring their economy up to ours, or wages in this country dip to the levels of theirs.

While wall street celebrates increasing profits those profits were obtained from goods and services produced by foreigners, not our over priced labor force. Some have indignantly asked me, "why can't our laborers become middle class too." The answer is they can't and still have our over all economy survive. As in other countries, many without a middle class, the rich get richer and the poor, poorer. Cheaper commodities won't cure anything if our average citizen can't afford to buy them at any price. Look for our illegal immigrant problem to solve itself. Soon there will be an Exodus back to where they came from. Our day has passed, through greed and a history of lying office holders. Hire honest people and we'll maybe, just maybe get back to where we want to be.

Of all states, according to a study just published in the AARP newsletter and based on stats from the Center on Budget and policy priorities, the stats of interest are as follows. These are projected deficits by state, percentage wise for 2012:

Idaho at 3.9 billion, one of only three states with deficits less than 5%. Nevada, home of our senate leader, leads the deficit parade with 45.2 billion, followed by New Jersey at 37.4 billion. Texas with 31.5 billion top the front runners. Washington State is at 16.2 % and California at 29.3 as is Oregon at 25%. The winner on the low end is Indiana, led by former budget director in the Bush administration, Governor Mitch Daniels at an even 2%. Perhaps the Republican Party should be looking at Daniels instead of the glamour kings of the party. At least Daniels knows how to roll up his sleeves and do the business of governing without the demagoguery that plagues us all.

1 comment:

Josephine said...