Marilyn M. Barnewall
April 8, 2009
Why is the economy not growing? Why are none of the "jump-starts" being injected into the economy by Fed Head Helicopter Ben Bernanke and Treasury Tim (Forgot to Pay My Taxes) Geithner not working? Why will hundreds of billions of dollars President Obama got approved to stimulate the economy not work? Why didn't the first $800 billion work - or the checks that were sent out to all Americans so they could spend the money and stimulate the economy?
What is the problem?
The problem is, the American people have begun doing the right thing - saving - while the government continues doing precisely the thing that got us into the economic mess in the first place: Overspending.
Have you ever tried to put a roof on a house without first building four walls on which the roof can be placed? The actions being taken by the government to "stimulate" the economy is a little like that. They're trying to put a roof on a house with no walls and the roof keeps falling to the ground. Puzzled statesmen like Barney Frank and Chris Dodd and Neighborhood Organizer Barack Obama stand around with puzzled looks on their faces wondering why the roof cannot be made to stay up just because there are no walls.
To understand why the economy is not improving gives people a frightening insight into the way the minds of politicians think. Many have law degrees, but few, if any, understand the business of banking. We have economists who understand econometric models which, because they were filled with misassumptions, keep spitting out wrong answers. Without accurate computer models to guide them, without correct assumptions, economists are at a loss.
What can we tell about how politicians think from what they have done to fight the abominable unemployment statistics and all of the other data that tells a very clear story?
We can tell that they think things are going to go back to the way they were. We should take up a collection and send each of them a copy of the song "Memories." because no matter what they think, things will not go back to the way they were. I hate to tell that to a man Warren Buffet's age - I'm not far behind him - but it's true.
The computer models that spit out statistics about economic trends and what it means when averages are missed have been wrong for a long time. GIGO applies here - Garbage In, Garbage Out.
The current crisis started with the Community Reinvestment Act and moved to NAFTA. It started before then, but that was the first time our politicians made it apparent they thought the new era of technology and service could totally replace the industrial and manufacturing era.
In 1860, we moved from an economy driven by agriculture to an economy driven by industry and manufacturing. Did we tell Mexico or the nations of South America they should produce our farm goods? No. The agriculture economy may have taken a back seat to Henry Ford's Model T, but agriculture, which had been the driving force of the American economy for a hundred years, remained in tact in America.
In 1960, we moved from an economy driven by industry and manufacturing to an economy driven by technology and the service industry. Instead of maintaining our industrial base and keeping our manufacturing businesses strong, we shipped those jobs off to Mexico (at first) and then to any nation that could provide lower cost labor than was available in the U.S.A. For those who do not recognize it, that is called "corporate greed."
And so the current problem began.
If the Federal Reserve and the Treasury Department were able to fix the banking industry tomorrow, how many Americans would rush out to borrow money?
It is, of course, an unanswerable question. so, let's approach it from a different perspective.
How many people do you know who feel totally secure about their jobs and ongoing salary increases? How many of them feel totally secure about their retirement funds? How many of them trust the government? How do the 5 or 6 million documented people who are out of work borrow money from a bank for a new car or a home mortgage when they have no way to repay the loan?
The economy is not growing because people are not spending money. When people do not spend money, businesses do not grow. They do not hire people to create products that people are not buying. People who are earning enough to spend see what's going on around them and, rather than spend, spend, spend like the government wants them to do, they save, save, save. And they are right to do so! The old American economy was dependent upon the ongoing indebtedness of us all. the "service" economy. That's what failed. but the politicians haven't figured it out, yet. The American people, however, have.
This seems a pretty basic and logical problem. All it requires to solve it is a little common sense. the one commodity with which America's politicians are certainly not blessed.
We've learned that some banks got "too large to fail" because of the impact it would have on the "total system." That tells me there's something wrong with the total system and the people who created it. It tells me the politicians and bureaucrats who want to make bigger the "too big to fail" organizations that caused the problem in the first place don't know up from down.
We've learned that the people who regulate Wall Street don't know what the hell they are doing! It was apparent that when the Securities and Exchange Commission did away with the "uptick" law in July of 2007, that made it possible for greedy little men who manage huge amounts of money to manipulate the stock market. to literally cause large companies to fail. If the uptick law were reinstated, it would help prevent such manipulations.
I began writing about the Community Reinvestment Act being at the base of the home mortgage problem years ago. I wrote my first article about Fannie Mae in 2003.
For those who wonder why so many of us think the current economic crisis has been manufactured to pull a J.P. Morgan of yesteryear - buy up your competitors by using the media to create a run on the business or bank - it's simple. The reason it's simple is because anyone with an IQ two points above plant life can see what the problems are. The problems are over in right field and government and the Fed (which is not part of the government) are trying to catch fly balls in left field. Government batters are facing the stands rather than the pitcher's mound. Either these people should go on record as being dumber than dumb, or they are helping to manufacture an economic crisis that will remove sovereignty from nations all over the world. Those are the only two possibilities.
Someone needs to tell Barney and Chris and Ben and Tim and Barack that the days of consumer spending for things people want but don't need is over. People have learned a great deal during the almost two-year ordeal of broken promises and outright lies.
They have learned that Barney Frank and Chris Dodd were doing everything in their legislative power to keep Fannie Mae and Freddie Mac making bad mortgage loans to people who couldn't afford them. They have learned that John McCain and George W. Bush tried to stop them and were ineffective. They have learned that they have a President who, during a Monday night speech to the nation, adamantly rejects earmarks because of the seriousness of our economic crisis - and the next day says he will sign a budget that has 9,000 of them.
A lot of people are going to tell you that the status of our economy proves that capitalism does not work. What a bunch of balderdash! We haven't had a capitalist economy in America since the first job was sent to Mexico under NAFTA.
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What we have is a bunch of greedy people who we, the people, have elected to office. Keep in mind that Adam Smith who created the capitalist system (just as Kark Marx created the socialist and communist systems that redistribute wealth) said that capitalism was a profit-motivated form of economics. He made it very clear that when greed became the driving factor behind an economy, it was not capitalism at work. It was greed.
© 2009 Marilyn M. Barnewall - All Rights Reserved
Marilyn Barnewall received her graduate degree in Banking from the University of Colorado Graduate School of Business in 1978. She created the first wealth creation (credit-driven) private bank in America in the 1970s. Prior to her 21-year banking career, she was a newspaper reporter, advertising copywriter, public relations director, magazine editor, assistant to the publisher, singer, dog trainer, and an insurance salesperson and manager.
She was named one of America's top 100 businesswomen in the book, What It Takes (Dolphin/Doubleday; Gardenswartz and Roe) and was one of the founders of the Committee of 200, the official organization of America's top 200 businesswomen. She can be found in Who's Who in America (2005-08), Who's Who of American Women (2006-08), Who's Who in Finance and Business (2006-08), and Who's Who in the World (2008).