Posts Tagged ‘eagle and bear’

Fall of the Eagle and Rise of the Bear

Friday, March 27th, 2009

Many economists look at the current economic conditions and have different interpretations of where we are going. However, one aspect that is sure to repeat itself is history. That is unless we are students of history and do not repeat prior mistakes.

When we examine our economy we may see many concerns. However, the current administration is concentrating on not repeating the mistakes of the past. In a nutshell the Great Depression was caused by the same concept of speculation that caused the downfall of our current economy. However, the government is not going to allow the banks to fold like they did in the late 1920’s.

Many hard working people are disgusted with the banking industry bailout, but it is necessary. However, with government money comes government regulation. Many will argue government regulation is bad for any economy; however, you need to examine and understand that the lack of regulation is what got us to the point where we need regulation.

 The Government needs to also realize that by putting money back into the banking system is not going to boost this economy out of this recession.  Banks contribute to the multiplier effect when they lend money to people and businesses to produce and purchase goods and services. However, the banks are only concerned with recovering their bad loans at this time.

Examine this actual occurance and judge for yourself if bailing out the banking system is going to grow the economy. A freind of mine recently applied to refince his or her home. The refinancing was to consolidate debt and open the cash flow to purchase goods and services.

  • The house was appraised at over 40% of what the borrower was asking for in way of a mortgage.
  • The borrower’s credit score was just beneath maximum score.
  • The borrower stated that the purpose for refinancing was to consolidate debt and improve the property.

Was the refinance approved? NO. The bank stated that an appraisal of the grounds listed it as in fair condition and that the bank is not willing to accept the collateral on the mortgage. Does this sound familiar to anyone? Is this a bank that is going to help get us out of our current economical difficulties?

What government needs to do is perform a bailout that will place the money back into the hands of the consumers. Big business has already shown they are only concerned with shareholders but reducing their expenses (layoffs) to increase profits to their shareholders.

If you give the money to the citizens what will they do with it? Make purchase and pay off debt. Either way the money ends up right back in the hands of the banks.  However, you obtain a faster growing economy because once people are out of debt they will begin to make purchases, thus forcing businesses to grow their staffs and stop the downsizing spiral.

I feel in this case a good term would be a “tickle up economy.” Think about the key indicator during any economic cycle – Consumer Confidence.  Consumers already lack confidence in big business and banks, so why are we just placing the money in their hands? We need to build the economic confidence of the average citizen and stop concentrating on filling the pockets of the wealthiest 5% in this country.

Mike Kniaziewicz, MIS