It's the Economy, Stupid Pt. 2

Ok. This is a double barreled day on Power to the People. I promised you Repubs we'd talk about the economic crisis and we will. Right now.

But we also need to talk about the wild and woolly Dem debate last night. I figured another civil, ho hum affair that wouldn't reveal anything new after the other 86 debates we've heard. Wrong!! So later in the morning, we'll delve into that, as well.

But first, it's the economy, stupid. Part 2.

In 1992, The Clinton camp coined that phrase to keep themselves on message. Today, I coin that that phrase to refer to my inadequacy in wrapping my head around this crisis, the proposed stimulus packages, and other economic concepts.

But this is what I know:

International markets fell precipitously due to the fear that the American economy is heading toward a possible recession that has not yet revealed a "bottom". http://online.wsj.com/article/SB120096287671805087.html?mod=todays_us_page_one

In very general terms, this economic downturn is apparently the result of a "housing bubble" that inspired the proliferation of subprime mortgages issued to people who were unaware that the fine print included escalating payments that would be unaffordable down the road. (Big breath...) So, many people are defaulting on these loans, losing their homes and leaving the banks who issued these loans holding the bag. Which means they don't have as much capital to lend to people and businesses, which slows the economy.
http://online.wsj.com/article/SB120096351182805111.html?mod=todays_us_page_one

Now, adding to the overall squeamishness are not just fears of recession but also some signs of inflation. Prices are growing while wages are slowing. Which means the Fed has to be a little careful about dropping interest rates too precipitously. http://www.aei.org/publications/pubID.27309/pub_detail.asp

So, let's get to the interesting part of this mess: the massive disagreements concerning what to do about it.

For example, true conservatives will explain that short term stimulus packages, like the one proposed by George Bush http://online.wsj.com/article/SB120066658450000649.html?mod=sphere_ts are not really helpful. Giving people, who are probably in debt, some money to spend on consumer items is an idea based on a mistaken assumption, conservatives say. Consumer spending, they insist, is a symptom of a good economy, not the cause of one. So, a brief infusion of capital into the system will not solve anything. Especially if those indebted folks use the money to pay down their debt, instead of buy a new pair of Nikes.

Conservatives will also tell you that in a free market economy you have take your lumps and let things correct themselves. There are steps the government can take (everyone agrees that the Fed needs to lower interest rates) but generally, hand outs are bad, low taxes are good. And for those of you who are going belly up, oh well. It'll be better in 2009. Now, in fairness, this makes some sense. Giving businesses some reassurance that they won't be taxed to death and even giving them immediate tax breaks may allow companies to keep Joe and Jane American on the payroll, instead of firing them. I get that. http://online.wsj.com/article/SB120096316700305131.html?mod=opinion_main_commentaries

But then there's Jim Cramer, Host of Mad Money on CNBC. He presents a scenario so dangerous that I am as baffled as he that no one is addressing it. I won't even try to get too deep into it. Go to the link and open the video. It's scarier than Cloverfield. http://www.cnbc.com/id/22728371 The short story is that the handful of outfits that insure banks against these bad subprime loans don't have the capital to protect the banks. They might go belly up. Cramer says that if that happens, banks stop lending entirely, the economy grinds to a halt and the Dow drops 2000 points. He insists that what the government needs to do is buy these insurers outright and guarantee that the banks will at least get 50 cents on the dollar. This way banks recover, economy starts up and the Dow recovers.

So why is no one listening to Cramer? And why does it look as if we are going to have a massive stimulus package? Because it's the election, stupid.

I have included links to several candidates stimulus packages:

http://online.wsj.com/article/SB120070044545701647.html
http://blogs.wsj.com/washwire/2008/01/13/obama-releases-stimulus-plan/
http://online.wsj.com/article/SB120061974887199345.html

Check 'em out and then tell me which way we need to go: Stimulus, Cramer or true market conservative?

And while you're at it, let's hear about Ben Bernanke. Most folks I've talked to on both sides of the aisle think he's doing a terrible job. What do you think?

Back later to talk debate.