Wednesday, September 17, 2008

As the US economy shits itself, we look on in confusion...

I am not an economist. I know nothing of economic theory, and have a five year-old's grasp of economic practice. Yet even a five year-old can see that there is something hideously wrong with the US/World economic system. Some of the big thingies* in the US have encountered troubles - Bear Stearns, Freddie Mac, Fannie May. Now the US federal reserve has bailed out the insurance company American Insurance Group with a loan of US $86 Billion.

It seems that the so called 'sub-prime' crisis is tearing apart the fabric that holds together modern economic theory. Fascinating to watch, unless of course, your house is being repossessed, your job cancelled, or your food is too expensive to buy for eating. No-one, it seems, knows how long this recession will last, what the long term effects may be, or if there even is a recession at all. (In The Doubter's Companion John Raulston Saul argues that the world economies have been in a depression since 1973 (pp 95-99). Coincidentally, the same year that Black Sabbath released Sabbath Bloody Sabbath. But I don't think you can blame them entirely). I am sure that there are a stack of tricksy economic sleight of hand tricks to pull, and like rabbits out of a hat, we will all emerge unscathed and better for the experience.
One idea, that is so simple that it must surely be wrong is put by former US senator in a NY Times article today: “We’ve been consuming more than we’ve been producing. We’ve been spending more than we’ve been earning...It’s been a big holiday.”

Governments in the developed world have followed the mantra of privatisation to the letter, and privatised debt, shifting debt from a public responsibility onto the backs of 'working families'. Now, the US government is throwing money hand over fist to prevent full scale collapse of the US and world economy. For years, free market advocates have been voiciferously opposed to the state interfering in economic matters. Should we now demand that the state remove its hand and let the world economy collapse, or will the invisible hand come to the aid of struggling economists to explain why the system is not working?

As should now be entirely clear, I don't really know what I am talking about, and have no idea of what I want to say. But when US $86 Billion is thrown at something, I wonder what in hell is going on, and could that money be spent elsewhere?

* Again as the use of the technical term 'thingies' shows, I am not an economist. I don't know who these Freddie Mac or Fannie May people are, why they had a fight and are now not talking. And I don't know who let the Stearn Bear into the US stock exchange, causing a Bear-ish market. I think there is some gun related freedoms going on here: as some of you know I fully believe the Second Amendment and the right to arm bears, but maybe not in a crowded stock exchange. But more on that some other time.


Adam said...

I agree with what I say.

Two things I read today make me smille like a skull on its way to the bones-box:

First: This quote by a conservative republican: "The free market for all intents and purposes is dead in America," said senator Jim Bunning, a Republican from Kentucky..."The action proposed today by the Treasury Department will take away the free market and institute socialism in America."

Yes. This government bail-out of the banks is nothing more than a cynical exercise by those socialists running the Republican party.

Secondly: The White House has so far drafted just a three-page plan that amounts to the costliest taxpayer-funded effort in history to reflate the US banking system and stop the economy from plunging into a depression like that witnessed in the 1930s.

US$700 Billion dollars, and a three page plan. Now, that's efficiency.

Again, I find this economic collapse fascinating. As long as you forget that it is destroying the lives of millions of innocent people, its a pretty amusing show.

Adam said...

As said, I agree with me and myself are saying.

I just realised that the worthless blabberings of my previous comment to self contained words stolen from others.

Both the first statement ("The free market for all...blah" and the second statment ("The white house...blah) were pilfered from The Australian article: Ban On Short Selling To Sheild Market.

That is all