Posts tagged ‘Recession’

05/09/2012

Obama Inherited the Great Recession

The way many Republicans and right-wingers talk about the American economy, one might think the Great Recession of 2008 was somehow single-handedly caused by President Obama, but in case we have forgotten, the crash occurred under the watch of President George W. Bush, and when he vacated the White House in Jan. 2009, he left behind several major economic problems.

OBAMA NOT TO BLAME: While Gov. Romney repeatedly said during the Republican debates, he did not blame Obama for the Great Recession, he dishonesty suggested Obama’s policies were somehow responsible for making it deeper, and causing it to go on longer than it should have.

WHAT WOULD ROMNEY HAVE DONE? But what would Romney have done if he had been President in Jan. 2009? What if he had inherited the Great Recession?

HOUSING CRISIS: The housing market had collapsed, as the value of millions upon millions of homes, all across the country, had dropped to roughly half their previous values. Many suddenly realized they owed far more on their mortgages than their homes were worth. Their residences were considered “underwater.” As the Fed used Monetary Policy to keep lending interest rates low, Obama instituted a homeowners program to allow refinancing at lower rates. If Romney would have been President, he would have taken no action to get private homeowners out from their underwater status. It is just wrong to suggest millions of homes could have recovered from their depressed values in just 4 years.

BANKING MELTDOWN: Banks and some insurance companies were collapsing as the Bush Administration, followed by Obama, did everything they could to shore them up with government bailout loans. While it is now easy to say we should have just let them go bankrupt, the ripple effect of a free market free-fall would have been catastrophic. A hands-off policy would have triggered another Great Depression, with major economic failures in all economic sectors, bringing record levels of unemployment.

AUTO BANKRUPTCY: The recession caused General Motors and Chrysler to lose so many sales, they faced bankruptcy, and no private bank was able to lend them any money. The only option was a federal bailout loan, but Romney repeatedly opposed any financial help whatsoever for the beleaguered auto industry. If he had been President, these major industrial employers would have gone bankrupt, and the ripple effect would have killed thousands upon thousands of additional jobs at component part factories throughout the industrial Midwest. Once again, inaction would have turned the Great Recession into another Great Depression.

WALL STREET CRASH: Obama inherited a stock market that had crashed, and a Wall Street trading system that was dealing in unregulated derivatives, contributing greatly to the problem. While Democrats took action by passing the Dodd-Frank bill to eliminate financial abuses, the Republicans held firm to a hands-off business as usual approach. What would Romney have done?

HIGH UNEMPLOYMENT: When Obama took office, the level of unemployment was literally sky-rocking by the hour. Obama did what any reasonable President would have done, by signing a job stimulus bill, designed to help people get back to work. While the federal government used Keynesian economics through deficit spending to prime the pump, Republican Governors in nearly 30 states did exactly the opposite, which was counterproductive, by laying off people, and making the recession worse.

A pure capitalist total free market response to the Great Recession would have triggered a Great Depression. The history of the 1929 Stock Market crash, and the subsequent four years of inaction under President Hoover, proved that point. Governments must do what they can to help the nation out of a deep recession, and it appears Obama did as good a job as any President could have.

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01/17/2012

Republican Debate: New Hamp (1-8-12)

FOREIGN POLICY: Paul said we need someone to challenge our huge empire overseas and the amount we spend on it. Elections are held overseas, he said, but we refuse to accept results. We can no longer have 900 bases in 130 countries, he said. Santorum argued the problem with Paul is all the things Republicans like about him, he cannot accomplish, and all the things they worry about, he can do on day one. As commander-in-chief, on day one, Paul could pull all our troops back from overseas. We would no longer have the 5th Fleet in the Persian Gulf. Perry also disagreed with Paul, saying overseas spending is not our biggest problem.

DEFENSE SPENDING: Huntsman said Defense should not be a sacred cow. If we cannot find cuts in the Defense, we are nuts.

IRAN: Santorum argued Iran has a theocracy which believes the afterlife is better than this one. They are different than the Soviets, China, or North Korea, as they would actually use nuclear weapons, since they value martyrdom and would die for Allah.

PAKISTAN: Even though Pakistan already has nuclear weapons, Santorum said they are a secular state, and not theocratic.

SOCIALISM: Perry believes Obama is a socialist. Paul said there is a socialism for the rich. The banks, and military industrial complex run the entitlement system, and benefit from it.

CAPITALISM: Gingrich referred to a NY Times report that said Romney’s Bain Capital engaged in behavior which looted a company and left 1,700 unemployed.

RECESSION: Romney does not blame Obama for the recession, but claims he is responsible for getting us deeper into it and causing it to go on longer.

BANKS: Romney argues the Dodd-Frank Bill made it harder for community banks to make loans.

LABOR: Perry thinks there is a federal law that forces states to enact right-to-work laws. He claims he is not anti-union, but instead pro-jobs. Santorum would sign a national right-to-work law. Romney said the anti-union right-to-work laws make sense for the entire nation. He also claims Obama stacked the National Labor Relations Board with “labor stooges.”

ENERGY: In response to a question regarding home heating oil prices rising in NH to $4 gallon, because Obama cut the program that helps low income people, Huntsman said we need to disrupt the oil monopoly. Paul wants energy deregulated. He said subsidizing it is not the way to do it. Gingrich wants federal lands and offshore areas opened for oil and gas development. Romney said air pollution is a reason to switch to natural gas, located in the Dakotas, Penn and Texas, which costs only a fraction of oil.

ENVIRONMENT: Romney said we are responsible for clean air and cannot allow pollution from one state to flow to another state.

HEALTH CARE: Huntsman agrees with the Ryan plan which would remove 6.2 trillion from the budget over 10 years. Medicare should not be a sacred cow, he said. He would impose means testing. Gingrich called the new Ryan-Wyden bill more sensible. Paul explained medical care is not a right, like liberty, but rather an entitlement. He explained federal employees have a choice of plans. If they opt for a more expensive one, their co-insurance costs are higher. Romney would cut Obamacare and save 95 billion a year. Santorum opposes subsidizing high income seniors and supports anti-socialist approaches like Medical Savings Accounts, Medicare Advantage, based on premiums, and Medicare Part D.

SOCIAL SECURITY: Romney does not want to change Medicare or Social Security for current retirees.

POVERTY: Romney said federal poverty programs need to be sent back to the states. Given the bureaucracy, he thinks very little actually reaches those who need it. Santorum would block grant food stamps and housing and send them back to the states.

AGENCIES: Perry would eliminate the Energy, Commerce, and Education Depts. Romney would cut a whole series of programs.

TERM LIMITS: Huntsman said, as a candidate for governor, he talked about term limits and campaign finance reform.

BUDGET: The only people who would be in pain through budget cuts are crooks, Gingrich said. Romney said we need to stop the extraordinary spending going on for the past 20, 30 to 40 years.  Paul said his 1 trillion dollar proposal to cut spending would not begin with Social Security, but rather overseas spending. He would return to the 2006 budget. Perry said spending is the biggest problem and wants a balanced budget amendment.

TAXES: The right course, Romney said, is not to raise taxes. Huntsman said loopholes and deductions weigh down our tax code by 1 trillion dollars, and give rise to lobbying on Capitol Hill. We must say good-bye to corporate welfare and subsidies.

FAMILY: Santorum believes the breakdown of the American family is undermining America, as he pointed out the rate of poverty in single-parent families is five times higher.

GAYS: Romney would not discriminate against gays. He appointed people to the bench regardless of sexual orientation, but does not favor same-sex marriage. Santorum said every person should be treated with respect and dignity and should have equal opportunity, but he opposes adoption by gay couples.

ELECTABILITY: Romney will have a very hard time getting elected, Gingrich argued. Romney called himself a conservative, who balanced the Mass budget 4 years straight, and cut taxes 19 times. Santorum pointed out that if Romney was such a great Mass. Gov, why didn’t he run for re-election? He said Romney lost a race to Sen. Kennedy in 1994 by 20 points. When Romney claimed politics is not a career for him, Gingrich told him to drop the “pious baloney.” He said Romney has been running for office since the 1990s.  Paul doesn’t think the Republicans will do well with a candidate who endorsed the single-payer system and TARP bailouts. Paul sponsored 620 measures, but just 4 made it to the floor, and only 1 became law.

08/25/2011

Low Interest Rates: Correct Fed Policy

The Board of Governors of the Federal Reserve correctly used Monetary Policy to try to turn the economy around, by keeping home mortgage interest rates at their lowest level in 40 years.

Congress created the Federal Reserve System with a Central Bank in 1913 to help prevent recessions and other economic downturns from turning into depressions. Since then, all National Banks have joined the system.

The Federal Reserve has the ability to set interest rates for loans to member banks. When the Fed sets low interest rates, members are able to make loans to the public at correspondingly low rates. The availability of cheap money theoretically allows the economy to expand, provided other factors line up correctly.

Low interest rates at the Fed also help the U.S. Government when short-term loans are needed. Since interest on these loans is later turned over to the U.S. Treasury, the Fed basically provides interest-free money to the government. The principal sums borrowed from the Fed are repaid by the government with money raised from publically sold Treasury Bonds. Interest on the bonds is paid by the U.S. Treasury, until the bondholders are satisfied.

The decision by the Fed to keep interest rates low helps the federal government in terms of the annual deficit and national debt, regional banks in allowing them to offer cheap money, and the public, by enabling them to borrow at relatively low rates.

If the Fed now raised interest rates, while the national economy is still struggling to get out of a deep recession, one consequence would be a contraction, and a worsening of the economic crisis. If the Fed imposed higher interest rates, they certainly would not help, and would likely make the housing crisis worse.

Currently, factors other than interest rates are keeping the housing market from expanding. The Fed should continue to keep interest rates low, until measurable improvements are seen in the housing industry, which unfortunately may take the better part of a decade, no matter who occupies the White House or the Congress.