Central Bankers, et al: Supply and, uh, What?

by Dollars and Sense

This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.

Well, the verdict from the markets is in, and they rejected the new Treasury plan to recpitalize the banking system with almost as much enthusiasm as certain members of the House of Representatves rejected the first Treasury plan in late September. As befits a country with a disgraceful healthcare system, the soggy plaster hurriedly applied by the financial mandarins was washed away by a torrent of bloodletting on Wall Street today, with US indices giving up almost all the enormous gains they made after the unprecedented Central Bank interventions at the weekend. And this in spite of a halving of the cost of credit default insurance, and tentative signs of improvement in the all-important interbank and even commercial paper markets. The reason? A poor monthly retail sales report confirmed evidence from the just published Federal Reserve Beige Book on the health of the economy, and the indications are quite poor. As a consequence, non-financial stocks, which never really got going anyway after the announcement of the plan, fell sharply, particularly in cyclical industries and consumer goods. The (quite sensible) sentiment seems to be: all the corporate liquidity in the world (assuming it becomes truly and safely available) won't help sell to consumers who have nothing to pay for products and services anyway, as they are up to their necks in debt, and facing the prospect of swingeing job cuts, recession and--ahem--paying off the still incalculable debt of the banks anyway. And that goes for overseas consumers, too: the recent export boom, which accounted for a vast part of the otherwise inexplicable growth of the economy for the first half of the year, is bound to tail off, as trading partners find themselves, as the Europeans did, swiftly caught up in recession, or have to concentrate on shoring up domestic economies, as China and other countries still experiencing growth may have to do. Especially if the US dollar retains its position as every speculator's security blanket in time of turmoil.

So bad times are on the way. What to do? Well, once Obama is elected (I have no doubt that he will humiliate the hapless McCain and his pathetic sidekick--and I wouldn't be surprised if Obama announces the outline of a semi-ambitious economic program during the presidential debate tonight, in order to consign the economically illiterate McCain to Dole-like irrelevance in the waning days of the election season), and even before, we must be on his case: we need to pressure him to focus oin the demand-side of the economy, replacing the rot of increasing consumer-indebtedness from the outsourcing of good jobs and speculative asset-bubbles that engender increasingly jobless recoveries with public works programs of huge proportions. We can't let him, as was the case with our current economic bureacrats, make the mistake that a crisis of this nature can be solved merely by adding to one side of the equation. And these public works programs must be focused on productive endevors, of which there is no shortage: a single-payer healtcare system, serious, even drastic, environmental reform, and the end to global military adventures: we can't squander the money on favoring the housing sector, or trying to subsidize heavy polluters. But it's not going to be easy. So get out there, or be prepared to feel some serious pain, sucker. It's that simple.

Labels: financial crisis, john mccain, Larry Peterson, Obama, recession, stock market

 

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10/15/2008 05:01:00 PM