Economics 101

While I have not been shaken from my belief that much of the debt crisis thingy was about both parties ganging up to send the teaparty into needed retirement, I must admit concerns about the agreement reached, with the apparent approval of president Obama.  And it’s not because House leader John Boehner’s boasted that “We got 98% of what we asked for”.

The agreement is totally opposed to economic growth and an improved employment outlook.  Without an additional source of revenue (call it taxes if you wish), the country cannot grow in light of the fiscal curbs placed on government.  The fact is that government is the only major source of revenue input in the economy.  The private sector isn’t doing crap… with good reason.

One of the problems is that Obama has let the republicans define the so-called debt crisis as more important than the recession/jobs crisis.

Here is the simple economics 101.  The United States economy is no longer production-based, and like Britain amongst others, have become a nation of shopkeepers to quote Margaret Thatcher.  The strength of the national economy comes from consumer spending.  When people spend, that demand creates jobs.   When jobs are lost as happened since 2008, then there is less spending, which translates to less demand, since only fools spend beyond the absolute basics without an income source.

When buying slows, shopkeepers and service providers lay off staff leading to more unemployment, and obviously, less spending.  Because the republicans cut Obama’s original request for his stimulus plan, the economy didn’t get the required voltage needed to jumpstart the economy.   Then they created more unemployment through the budget cuts to the public sector.

The more unemployment rises, the greater spending drops.

The first stimulus was essentially to the banks and the auto companies.   It worked for the latter but the former simply sat on the money or used it to buy up weaker banks rather than pumping it back into the economy in the form of loans.

Now, no private sector company is going to create employment in an economy where there is no buying.

The United Kingdom under the conservative government took the same tack the republicans continue to advocate… and the British economy contracted.  What makes anyone think the results would be different in ‘Merica?

The American economy will contract and Obama will be blamed.

One would think that Obama knows this and therefore would veto any bill that didn’t have additional taxes from the rich.  This is perplexing.  And I have no answer.

But this much I know.  One of the mistakes we need to rid ourselves of is that the president as one single person, runs the country.  Nothing can be further from the truth.  At times, the president can be as impotent as Hefner.

Presidents rarely act on their own nowadays.  Obama is part of an apparatus which includes advisors, pollsters, economists, sociologists, political thinkers, historians etc… a broad group of ‘wise men’.   He relies on consensus.

So let’s disabuse ourselves of this notion that the presidency is captured in one man and that his decisions are the reflection of this one man, and thus Obama is weak and lacks leadership.

When we look at this decision, we have to look also at the leaders of the democratic party.  It is not mandatory for them to support the president.  When most do, you can bet that whatever move is to be taken, has already been thoroughly rationalised.  Thus there must be reasons above our pay grade, for all these leaders to seemingly be bending over backwards to apparently facilitate the republicans.  Either they have information that gave them no alternative, or they baited and set a trap.  We also have to understand that August 2 was an artificial deadline set by the white House. It could have been any arbitrary date that suited them.

When I look at the last few days before the debt vote, we saw several moderate republicans attacking the teapartyers within.  We also saw fringe teapartyers (those on the edge of sanity) vote for the bill.  This was certainly the best chance of the republicans at large taming the lunatic element.  Those certainly bolstered my opinion.  I don’t know if the plan remains and it’s only a matter of time, or Obama and the democrats got themselves shafted again by the GOP.  I’m still betting on the former.

Since the Standard and  Poor’s downgrade (more on them below), I notice the republicans are again locked in tight embrace with the teapartyers.  John McCain who days before the debt vote described them as ‘hobbits’, is now in praise of them.  Could the republicans have once again played Obama?  If so everyone loses, most of all Obama.

America at this time cannot afford the teaparty’s fringe policies.  First of all, they have no empathy for people and they are adverse to people-friendly policies.  If the republicans continue to praise them instead of isolating them, then that will send the wrong signals to the voting public… that lunacy works.  During the debt vote, with only 60 or so seats out of 240, teapartyers were demanding that John Boehner be relieved of his House leader position and that be given to one of the teapartyers.  Now Boehner is behaving like their best friend.  The first victim of a strengthened teaparty will obviously be the GOP itself.

And now with the S&P reduced credit rating, Obama will be discredited and there will be a ‘tax’ increase for the majority of Americans… just not the rich ones.   Unless….

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I have questions about the S&P and not just about shooting the messenger. Where was the S&P during the Bush years?  Secondly and as been well aired, the S&P gave top ratings to the banks and Wall St companies minutes before the crash came.  So how good is their judgement?  Thirdly, and interestingly in terms of my hypothesis above, the S&P downgraded the country not because of economic conditions but because of the ‘political wranglings’ over the last few weeks.  This according to Bloomberg News, “ On a conference call today with reporters, S&P analysts David Beers and John Chambers said that in their analysis, the “extremely difficult” political discussions in Washington over how to reduce the more than $1 trillion budget deficit carried more weight in their decision than the nation’s outstanding debt. It said the talks weren’t “consistent” with a AAA rating”. Huh?  That could be interpreted as a shot at the right wingers.

Its clear however, that the S&P was used as a political tool.  To what long-term ends, I don’t know.

The big irony is that the USA has often used the S&P as a political tool against other countries.

But back to the credibility of S&P.  Since the downgrade, the US Treasury remains the go-to place for securities. In other words, companies and foreigners are still keeping faith with the American economy.   If the S&P were credible, the opposite would happen.  Hmmm.  We just have to nervously wait to see how this thing plays out.  The truth is we should be behaving like those ‘thugs’ in England.  But the American people has been so pacified that they are little but fat blogs stuffing their faces with fast food and cheap American beer.

Several months ago I predicted the fall of gas prices when it was still rising.  It fell.  Then I predicted the rise when it was still falling.  It rose.  Then I predicted the fall and now it is falling.   This will go on for a short time.  The thing to remember is that it won’t reach $3 anytime soon, and it shouldn’t go much over $4 a gallon anytime soon either.

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As I speak, the republicans have put forward their 6 names for this so-called super-duper financial committee.  Only one member is regarded as something of a tea-partyist.  One would have thought that they would have demanded and gotten stronger participation.  From the House side, all 3 nominees are Boehner loyalists.   Hmmmm.  Perhaps there is a teaparty elimination plan in place after all.

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I will eschew my art section this week but will post an entire artblog within days on a response and follow up to the last piece, “Good Art, Bad Art”.