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We are in the worst slump since 1938, and you better hope Obama can fix it because that was not a pretty time. Unfortunately, as in the Great Depression, the extreme conservatives would rather trash the country than have our government succeed.
The main thing to remember is that, with consumer spending down, business is going to lay people off—not hire them. You can't blame business for this. It's just a vicious cycle that the economy gets into. And you can't blame consumers for not spending in bad times.
The only way out of this, if we don't want to wait 10 years, is for the government to spend, pay unemployment insurance, or give tax breaks to people who will spend (not the rich), save and create jobs for the people who drive the economy--the Middle Class.
The one thing we learned from the Great Depression is that the only way for the economy to recover is through deficit spending. Roosevelt understood this; he tried deficit spending, cutting unemployment in half through money he infused into the economy to create jobs.Â
But then, just as now, the fringe conservatives began throwing a fit about the careless spending by the government. Under pressure from Congress, Roosevelt backed off and unemployment shot right back up.
It took World War II and massive deficit spending by the government to bring the country out of the depression. It left Americans with a massive debt, some of which is still not totally paid. But the country enjoyed 60 years of relative prosperity while paying on that debt.Â
The other problem Roosevelt faced when taking office was what to do about the banks.  After all it was the failure of the banking industry that had triggered the depression.Â
The depression of the 30's followed unchecked selling of worthless paper by banks that eventually led to the stock market crash of 29. Exactly the same practice that led to the banking crisis of 08.
As we have seen this past year, what happens on Wall Street always impacts what happens on Main Street.
What Roosevelt did in his first 90 days in office was issue an executive order that closed every bank in the United States. He then pushed through Congress the Bear-Sterns Act that placed a barrier between consumer banking and investment banking, not allowing consumer banks to engage in the risky investment ventures of Wall Street bankers. He also instituted the FDIC and set a limit of 10% above assets for the amount that investment bankers could leverage. Then, and only then, did Roosevelt re-open the banks.
Let's talk about what Obama-and initially, Bush-have done to try to pull America back from the brink. When the housing industry began imploding, it touched off a crisis on Wall Street and with large consumer banks who had been living high selling off mortgages as collateral to back up paper. When those mortgages went sour, so did Wall Street and the big consumer banks.
With the country already in a recession because of the glut in the housing industry, Bush let the first big investment firm go under. That touched off a worldwide crisis in investment banking, triggering recessions around the globe.
When it became obvious that all the big investment firms were about to collapse, Bush went to Congress asking for bailout money.Â
Then the big three auto companies came calling with their hands out. Again, Congress and Bush bailed them out, but with the stipulation that they work out pay reductions with their unions.
Obama, meanwhile, had won the Presidency running on a platform of addressing the growing crisis of the economy, reforming health care, getting America out of Iraq, and addressing concerns about global warming.
To address the economy, Obama's first act was to put together a stimulus plan to infuse money into the economy by offering tax breaks to the Middle Class, by extending unemployment benefits, by paying part of people's COBRA costs so they could keep health insurance, and by providing money to improve all phases of the country's infrastructure.
Many of those programs are just beginning to get off the ground.
At the same time, he immediately began addressing ways to bring down the deficit through reforming health care. How does health care impact the deficit, you ask. Look at the chart below where America spends the most dollars.
--- Updated 7 February 2010--- About the FED The bar chart is created using data found in the Monthly Treasury Statement, published by the U. S. Treasury Department. Your money is spent through U. S. Senate Appropriations Bills. The "estimate bar" (in the "Debt Total" box) for the current Fiscal Year (FY), is generated by NDAC analysts from data published by the Congressional Budget Office and several other sources. |
--- "Budget Deficit" vs. "National Debt"--- Suppose you want to spend more money this month than your income. This situation is called a "budget deficit". So you borrow (ie; use your credit card). The amount you borrowed (and now owe) is called your debt. You have to pay interest on your debt. If next month you don't have enough money to cover your spending (another deficit), you must borrow some more, and you'll still have to pay the interest on the loan. If you have a deficit every month, you keep borrowing and your debt grows. Soon the interest payment on your loan is bigger than any other item in your budget. Eventually, all you can do is pay the interest payment, and you don't have any money left over for anything else. This situation is known as bankruptcy. Each year since 1969, Congress has spent more money than its income. The Treasury Department has to borrow money to meet Congress's appropriations. |
https://www.federalbudget.com/
The chart above shows that we spend our most money on defense, health care and interest on debt. The social security is a separate entity because it is funded by FICA tax rather than income tax.Â
The only source of income the United States has is income tax. Since the '60's the United States has spent more than it has brought in. That national debt has now reached the level that it is important to try initiating ways to bring it down.
So, we can reduce deficit by attacking those things that are eating into Middle America and government's income--health and human services (Medicare and Medicaid) as well as rising health care premiums for individuals that erode at their dollars; by collecting more taxes, and by reducing defense spending.
Health care reform, to be effective, must have a public option. But that has been sidetracked by a distrustful public who really has no concept of the desperate need to reform health care. Americans need protection from the greedy insurers who eat into their income with high premiums that they raise every year as well as the need to streamline Medicare and Medicaid to further attack the deficit.
Secondly, we can collect more taxes. Obama will let the Bush tax cuts for the rich lapse. He walks a fine line here in trying to keep taxes low for the Middle Class while trying to compensate for the loss of income there by shifting more of the tax burden to the rich.
Finally, we can reduce defense spending. Obama will continue to try to do that by bringing home more of the Iraqi troops and by only keeping additional troops in Afghanistan for 18 months.
At the same time, he must address the 10 per cent unemployment rate. Sitting on his hands doing nothing will only drive unemployment higher. He MUST of necessity come up with ways to reduce unemployment.
Already the detractors are screaming that it is just another example of careless reckless spending by Democrats.Â
Then, there are the banks. Many have paid back their borrowed money; but not all. The President wants to start collecting a fee from those who still owe the government money. As he said, "If they can afford to pay big bonuses again, surely they can afford a small monthly fee to repay their debt."
He also wants regulations returned to banks to prevent another catastrophe like the one the banks suffered in '08.
While trying to deal with all these problems he inherited, he must deal with the anarchists who call themselves the "Tea Party" whose reality is stuck somewhere in the far distant past, whose only solution to anything is just to say "NO!", and whose movement is rapidly moving farther away from either party.
Furthermore, he has a recalcitrant Congress of "blue dog Democrats" and stubborn Republicans who have had their pockets lined with big business lobbiests to buy their votes
I submit to all these people. If you have a better solution, let's hear it. If you don't, then quit criticizing the man who has the weight of the world on his shoulders.