Hinchey: U.S. on verge of new kind of depression
While he warned of a severe recession, U.S. Rep. Maurice Hinchey said the economy can recover with a straightforward reinvestment in America”™s infrastructure and energy systems.
The question, he said, is not if good solutions exist, but whether a dysfunctional Washington establishment can implement them.
“We”™ve got a much more serious situation to confront than is being admitted,” Hinchey said at a conference at the Levy Institute for Economics at Bard College. “I have believed for some time we are in a recession. The only questions are how far and how deep will it go ”¦ I don”™t think it is a stretch to say we are on (the) verge of a new kind of depression.”
One of the primary causes of economic woes is misspent taxpayer dollars, Hinchey said, He cited the war in Iraq ”“ costing $10.3 billion a month just for immediate military costs. He pointed to $1.6 trillion in federal borrowing required to pay for tax cuts, 30 percent of which went to the top 1 percent of taxpayers, thus doing little to help an economy driven largely by middle-class spending patterns. And he said that while unofficial statistics peg the rate of unemployment at about 5 percent, the true U.S. jobless figure is nearly 10 percent.
Reckless speculation in financial circles is also playing a part, he said, citing unregulated hedge funds ”“ an investment partnership limited to certain qualified investors that does not have to abide by federal regulations governing brokerage firms. “Hedge funds right now don”™t have to register (with regulators) at all but they oversee $1 trillion, 10 times more than a decade ago,” which translates to up to 30 percent of trading volume in U.S. domestic market stocks and higher in global exchanges.
He pointed to Bear Stearns as one casualty, saying the company first reported potential problems in June 2007 due to investments in subprime mortgage markets made through a hedge fund. Intervention by the Federal Reserve was sparked by “legitimate fear the failure of Bear Stearns would create a general failure. So hedge funds have the potential and almost have brought down the entire financial market. It is imperative the funds start being regulated,” Hinchey said.
A brighter picture?
“So what is going to turn it around?” Hinchey said to the somber crowd. He prescribed a straightforward regimen of domestic investment, saying U.S. roads and bridges are in dire need of upgrades and that such a program creates jobs in addition to better, safer transportation. Railroads and energy delivery systems should also be upgraded, he said, with far greater attention given to energy conservation.
Washington has a major role to play, Hinchey said. “We must regulate this increasingly unregulated economy.”
He said speculation in gas futures needs to be reined in with “common sense rules,” such as requiring entities trading in gas on commodities markets to actually have capacities to receive and store gas. He said this change could, by itself, significantly lower gas prices.
He said Congress must also act to repeal or revise the Gramm-Leach-Bliley bill of 1999 that gave financial service companies and banks more opportunities to make loans and investments, with fewer restrictions or regulations.
Hinchey, a liberal Democrat in his eighth term, faulted both fellow Democrats and the current Republican administration as facilitators of the troubled economy. He said to fix the economy will likely require more than a new president. “We have the ability to recover. But we need a smart Congress that has a lot more strength than this one.”
Hinchey”™s keynote address was part of the day-long 37th annual Hyman F. Minksy Conference titled “Credit, Markets and the Real Economy: Is the Financial System Working?”