This crisis may seem brand new. It isn’t. And please dump that word “recession” because it doesn’t do justice to what we are talking about here. The highest inflation rate in 17 years and the biggest housing crisis in a quarter of a century didn’t just happen. Major banks writing down billions of dollars practically every week is not normal. Wall Street going from boom to gloom almost overnight was not caused by somebody making a mistake.
The political causes of this are deep and long standing. Writer Robert Kuttner calls this “the most serious downturn since the Great Depression.” He blames the rise of right-wing ideology, and “the domination of our politics by a financial elite, and the lack of a true opposition party.”
You can’t fix that with pathetic stimulus packages and minor tinkering.
This is a structural crisis that’s been spawned by decades of shifting our economy from making things to buying things, from production to consumption. It has spawned “financialization’ a well heeled credit and loan complex powered by legal and illegal shenanigans in an unregulated market-driven environment. Both parties have benefited from it and are complicit in its consequences. All of our biggest banks were part of the subprime/subcrime-led credit collapse which enriched so many before bringing so many down. This crisis is still unfolding, rippling, and infecting more sectors of the economy. It is a “contagion” that has yet to be contained.
Writes the Mclatchey Newspapers: “The unwinding of debt is all-encompassing. It’s from the little homeowner out there to the big corporation,” said Larry Moss, senior vice president for the Raymond James investment firm in Birmingham, Mich.
The credit crunch overlaps with other negative trends, most noticeably the poor housing market and weakening consumer spending. The fear is that tighter credit and weaker spending will reinforce and amplify each other, creating a downward spiral leading to a recession.
“Once you get in that cycle, then it becomes really, really scary,” said Amiyatosh Purnanandam, a professor of finance at the Ross School of Business at the University of Michigan who has studied tight-credit periods.”
For starters we need some stimulus from a study of history to understand how greed and corruption of any and all ethical principles stimulates this type of frightening business cycle. We need to stimulate a deeper debate.
Writes Satyajit Das, author of Traders, Guns & Money, explains: “Recent history has been a period of ‘too much’ and ‘too little’ - too much liquidity, too much leverage, too much complex financial engineering, too little return for risk, too little understanding of the risk.”
He told one of India’s leading newspapers, The Hindu, “This will reduce economic growth (the US looks likely to slow down sharply) and asset prices (houses and shares) around the world. It is perhaps the most serious crisis that we have faced in a very long time.”
Let’s break this down: Lets say we give every household $1000 bucks ($800 is the number under discussion). What happens? What do will recipients do first? What will they/we stimulate?
http://www.commondreams.org/archive/2008/01/18/6449/
