Economics 101 As I Remember

January/09/2009 1:06AM
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Here’s what I retained from Economics 101. Black Mike O’Conner, my professor, would be proud. 

We, Americans, have stopped spending and started saving. Guess that should be a good thing, since banks would have more money to lend. But, the private sector has stopped investing. Demand is down and the economy is bad, so business is not expanding. Plus, banks have balance sheet problems, so they are not lending. That has caused a lot of the savings to go to Treasury Notes, not into bank CD’s. 

Now, Black Mike, you told me demand increase can come from consumption, exports, government, or investment. So when our investments were wiped out by the housing market and the stock market, there were trillions lost. So investment is not going to recover soon. Exports? Well, the world is consuming less, so this doesn’t look too rosy. Consumption? The public is smarter than the government. We know that excessive debt and spending put us where we are. We aren’t going to go back there for a while. So, that leaves government.

Government spending does not create investment capital that creates new business, bigger business, and more goods to sell and export. It will be slow to develop new jobs and the jobs it does develop will be short-term. When the government spending stops the jobs go away. 

The government says they have understated their unemployment forecasts. When haven’t they understated them? They use voodoo economics to keep score on this critical factor of the health of our economy. They now say unemployment may hit 9% next year. I say we will break 10% in the first quarter. It may go higher before the year is out.

So, the only creation of demand in 2009 will be government. When the stimulus package is used primarily to bail out the states that put Obama in office, and all state medicare and medicaid problems, pork barrel projects, Ear marks( Obama, the king of ear marks says no more ear marks), and other non productive projects, little will be done for infrastructure. 

Basically, until you and I get our confidence back that we can invest in corporations, put money in banks and buy things again, there will be no economic recovery. We will just move deeper and deeper into Socialism. More and more dependent on central government. More and more like Cuba. 

I’m not going to spend and I’m not going to invest in this climate. Until we throw the bums out of Washington and our state and local governments and hire competent people to run the business of government here who should spent and invest?

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