I used to be a Democrat, but Iâm not a Republican either. I am very much inclined to agree with âiamrefreshedâ on this. I am not an economist, but I am old enough to have lived through these things before. Theyâre never fun, and theyâre never pretty, and the lessons never get learned, seems like.
Just having lived through them, it seems to me there are some common characteristics. Seems there is a combination of governmental policies that warp investment decisions, combined with easy monetary policies and unwise governmental fiscal decisions, all of which bump up against economic realities at some point.
We have a really insane tax situation which, on one hand, encouraged investment through reductions in the capital gains and dividend taxes, but then held the âsword of Damoclesâ over it by making it temporary. If ever there was anything better designed to make people try to âride to the top, then jump offâ I canât imagine what it could be. The consequence of âjumping offâ destroys a staggering amount of wealth, and weâre seeing that right now. I canât imagine how many trillions of dollars of wealth have been destroyed in the last few months from the stock market alone, and not just the wealth of the rich, either. So, on Wall Street, we have a âperfect stormâ going, of people who figured they would have to get out at some point, and before 2009, to avoid tax increases, plus people needing, at the same time, to use that wealth due to increased inflation, plus massive destruction of wealth in the real estate and stock markets.
To ensure eventual recession, Greenspan pumped up the money supply and reduced interest rates, and for what? Because he was afraid of deflation? Thatâs what he said. But all the while, the only prices that were going down were the prices of ever-increasing cheap imported goods. And people couldnât spend enough on consumer goods, and China couldnât build factories fast enough to supply the stuff, or to burn oil fast enough to produce it. Cheap toys went down, but oil didnât. Commodities started climbing.
Because of the increases in the money supply, lenders found themselves awash in funds; funds they had to loan out. I remember, not long ago, that banks, brokerages and mortgage companies were in a bind because they had so much money they had trouble loaning it out.
So, giving the whole thing a wink and a nod, they all started being incautious in their lending practices. Watching it happen, and being an old guy who had seen it before, I KNEW the piper would come around for payment. I saw lenders approving 45% payment to income ratios (thats gross income, mind you) and refinances that were 20% or more over last yearâs appraisal. Crazy stuff. And people saw those low interest rates and just couldnât borrow enough money, yes, to pay off credit cards that soon refilled, to buy cars, to buy boats, to make a down payment on a vacation home, to play games âflippingâ real estate, to pretend to be âday tradersâ. Craziness.
And, while it was all happening, the Congress larded up the budget, yes, on credit. And everybody pretended there was no piper.
I remember the early 1980s, and I remember how painful that recession was, for me as well as others. I remember how easy it was to resent Reagan and Paul Volker, and I did. But after it was all over, and uncountable dollars in bogus wealth disappeared, a person could go on, and assets formed a base that had more to do with their productive value than their speculative value. And the economy recovered and, the government came close to a surplus until the fed and the Congress went wild again. And, in truth, if anyone could claim credit for it, it would be Ronald Reagan and Paul Volker, and nobody else.
In passing, I might mention that almost nobody seems to notice that they DID reduce social security benefits, and the Dem Congress went along with it. Itâs almost a state secret. Nobody talks about it.
(continued)
The spending and waste is what is going to sink us the quickest.
I always wondered that!!!
O.k., i am obviously being sarcastic.
