We have become in many ways a country who's domestic economy resembles the ancient Spartans. Many of our citizens, especially those living in upscale urban areas, enjoy what could be be termed the services of twenty first century helots in the form of undocumented aliens who clean their homes, cook their food and raise their children. Not to mention, those who still work in the few factories and family farms to supply their insatiable desires. It seems ironic that the urban and suburban areas of our country seem to enjoy the bulk of these services and look at disdain on those who reside in the more rural areas, as country bumpkins, gun toting, bible thumping clods, who are too unsophisticated to be allowed to be a part of the decision making of this nation. Now, those people are being asked to bail out those who played this national pyramid game of living beyond their means. I personally, am pissed off at having to dig deep to bail out people who let greed fuel their lives. There is enough blame to go around, both political parties are in deep shit as far as I am concerned.
Now is not the time for revenge. We must find a way to get out of this manure pile so that our children don't have to spend the rest of their lives growing turnips on the balconies of their state provided housing units, just to survive.
Below are two articles that offer some ideas of how we got here and how we can salvage something for the next generation.
Historian and author, Niall Ferguson penned this article in Time magazine, about the question that is on everyone's mind if not their lips. "Are we headed into a second Great Depression?"
Congress's initial rejection of the Bush Administration's $700 billion bailout plan calls to mind an unhappy precedent. Back in 1930, the Senate passed the Smoot-Hawley Tariff Act, which raised duties on some 20,000 imported goods. Historians define this as one of the critical steps that led to the Great Depression — a tipping point when the world realized that partisan self-interest had trumped global leadership on Capitol Hill.
He explains what happened to tip the scales.
The U.S. — not to mention Western Europe — is in the grip of a downward spiral that financial experts call deleveraging. Having accumulated debts beyond what's sustainable, households and financial institutions are being forced to reduce them. The pressure to do so results from a decline in the price of the assets they bought with the money they borrowed. It's a vicious feedback loop. When families and banks tip into bankruptcy, more assets get dumped on the market, driving prices down further and necessitating more deleveraging. This process now has so much momentum that even $700 billion in taxpayers' money may not suffice to stop it.
Ferguson, a historian who specializes in economic history outlines the historical parallels of this current crisis and the Great Depression.
We tend to think of the Depression as having been triggered by the stock-market crash of 1929. The Wall Street crash is conventionally said to have begun on "Black Thursday" — Oct. 24, 1929, when the Dow Jones industrial average declined 2% — though in fact the market had been slipping since early September. On "Black Monday" (Oct. 28), it plunged 13%, the next day a further 12%. Over the next three years, the U.S. stock market declined a staggering 89%, reaching its nadir in July 1932. The index did not regain its 1929 peak until 1954.
On Sept. 29 of this year, as investors and traders reacted to Congress's rejection of the bailout plan presented by Treasury Secretary Hank Paulson, the stock market sell-off was dramatic: the Dow fell nearly 7% that day, a one-day drop that has been matched only 17 times since the index's birth in 1896. From its peak last October, the Dow has fallen more than 25%.
Yet the underlying cause of the Great Depression — as Milton Friedman and Anna Jacobson Schwartz argued in their seminal book A Monetary History of the United States: 1867-1960, published in 1963 — was not the stock-market crash but a "great contraction" of credit due to an epidemic of bank failures.
Ferguson offers thoughts about how this plunging economic jumbo jet can be pulled out before slamming to earth.
He writes this about our relationship with the other big economic player, China.
The notion that Asia has somehow "decoupled" itself from the U.S. now seems fanciful. China and America have come so close to merging financially that we can almost speak of "Chimerica." When Fannie and Freddie were on the brink of collapse, many were surprised to learn that fully a fifth of China's currency reserves was composed of their bonds. Small wonder. Having spent much of the past decade intervening on currency markets to prevent the appreciation of its renminbi, China has accumulated a huge hoard of dollar-denominated bonds. No foreign nation stands to lose more from a U.S. financial collapse.
....But while we certainly face a global slowdown, we may yet avoid another depression. Now, unlike in the Great Depression, central banks and finance ministries know it's better to run deficits and print money than to suffer massive losses of output and jobs....
His final words, offer some hope.
Given the immensity of the crisis, a Congress-approved bailout may be just a short-term fix. But a short-term fix is better than no fix. If nothing else, it would signal to the world that — unlike in 1930 — the U.S. is doing what it can to avoid financial calamity and sidestep Depression 2.0.
The whole story:
The End of Prosperity?
Steve DeAngelis of Enterra Solutions penned this optimistic post about how the United States might try and recover some of it's economic luster after the current crisis and downturn has settled.
When the cloud of economic dust created by the implosion of large U.S. financial institutions finally begins to settle, some optimistic analysts believe that the U.S. economy that will emerge from the debris will be quite different than the economy that faltered. They believe that the U.S. will innovate its way back to health ["Can America Invent Its Way Back?" by Michael Mandel, BusinessWeek, 11 September 2008]. As readers of this blog know, innovation is one of the topics to which I continually return. Creativity not only fascinates me, but as an entrepreneur I see it as the engine that powers the future. That is exactly what the "innovation economists" are counting on.
DeAngelis sees hope amid the rubble of what is left after American's began to eat their seed corn.
The world has reason to be concerned with the latest financial crisis but has no reason to be forlorn. Mankind has managed to create more wealth in the last two hundred years than in all of the rest of history combined. One reason, of course, is that the explosion of knowledge and technology has made mankind more productive than ever. There is little reason to believe such progress will end -- even if it has been slowed down for the moment.
He ends his post with words that have been the driving force behind every entrepreneur since man moved beyond being a hunter-gatherer to develop civilization.
I have noted before that entrepreneurs are optimistic by nature. They believe in the future or they wouldn't be entrepreneurs. I'm certainly no different. I see opportunities everywhere I travel. I get invigorated being around other entrepreneurs who also see a bright future and are working to make it happen. Innovators, whether found in established or entrepreneurial organizations, share a common bond of hope. I suspect that the reason that McCain and Obama have embraced innovation as part of their campaigns is that hope is in short supply at the moment. It remains to be seen whether the U.S. can invent its way out of the current financial downturn, but my gut tells me it can.
Read the whole post here:
Thanks for taking the time to read this, and the important links.