Tuesday, June 02, 2009

It's the Economy

I've been hearing cautious optimism about the economy -- "green shoots" -- which make no sense to me.

The housing market is still collapsing. The economy is shedding jobs -- a lovely term -- at the rate of 600,000 a month. GM is closing 3,000 dealerships. Think of what that means in a small town where the car dealer is the biggest business. If the GM bankruptcy does not go smoothly, it will take down a lot more dealers, and suppliers and much of the Midwest's economy. Even in decline, GM is huge.

The Obama Administration -- advised by the Three Stooges, Summers, Geithner and Bernanke -- is operating on the theory that what's wrong is lack of liquidity. There isn't enough money available to make loans. This, as far as I can figure out, is why they are pumping trillions of dollars into the Wall Street banks.

These banks are bankrupt, more bankrupt than GM, and the FDIC should take them over, clean them out and sell whatever remains. The FBI should also go in, since there has almost certainly been criminal fraud.

The money poured in by the government has hidden the fact that the banks are zombies, the walking dead. But they are still not making loans, the last time I checked.

However, it seems obvious to me that the problem is not one of supply, but demand. If people are out of work or afraid of losing their jobs, they are not going to spend money. If their houses have dropped 50% in value, and their IRAs or 401(k)s have vanished in the stock market, they are going to be frugal.

If people are not spending, retailers and manufacturers (such as as GM) are going to cut back. This means more layoffs and more people without money to spend.

So the cycle continues, going down and down.

I have always been able to find work and have cruised through a number of previous economic crises and recessions. I'd have to do research to find out how many, though economic crises have been coming with increasing frequency in the past two or three decades. I don't even remember them. They didn't have a big enough impact on me so they stayed in my mind.

This time I am worried. This looks really bad to me.


Blogger Therem said...

Hi Eleanor. Actually, I think things are looking up in a lot of areas of the U.S. According to this article at Realty Times, new construction and home sales are picking up in most regions of the country. Speaking personally, I am in the process of buying a house because now seems like the ideal time to do it if you can get financing (which I was able to do). Interest rates are low, and there is an $8000 tax credit for first-time home buyers this year.

Unfortunately, according to the article, things aren't looking so good in the midwest. :-(

8:50 AM  
Blogger Eleanor said...

You may well be right. The Midwest is being hit hard; and the collapse of GM is not going to help. Minnesota has usually done not too badly in previous recessions, but, due to our jerk Republican governor, the state is flat broke; and the government money that has usually helped people and businesses through difficult times is gone.

3:38 PM  

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