From President Obama”™s inaugural speech: “We remain a young nation but in the words of scripture, the time has come to put away childish things.” To be sure there are countless ways we as a nation have demonstrated we have not grown up.
Believing 72 percent of the economy can be based on consumer spending is childish indeed. Banks believing that loans without adequate income won”™t go bad is beyond childish. Assuming we can continually cut taxes and not fall deeper in debt is immature in the extreme. We could go on. The new president is right. It is time to grow up, get past the immediate gratification mode and begin to regain our footing as a mature nation and a global leader.
Further on in the speech: “What is required of us now is a new era of responsibility ”“ this is the price of citizenship.” Such challenges read like something from the Founding Fathers, at the birth of the nation. However, did the president”™s challenge apply equally to the actions of the government or maybe the banks? We”™ll see.
Meanwhile, a humongous stimulus package is deemed by Obama”™s economic team as well as many economists to be the only way to jumpstart the economy. Just to put this bundle of money into perspective it would place a $6,700 burden on each and every taxpayer if we were called upon personally to actually get up the money. You can bet this number will go up. To this point the package being discussed appears to be directed largely at getting the banking system to function. It does not appear to assign any responsibility or exact remuneration from any individual for the current mess. In many cases the CEO is carting mega bonuses out the back door as taxpayers”™ bailout money is coming in the front door. Given the unfortunate fate of the TARP I where $350 billion just disappeared into the caverns of Wall Street it is difficult to feel confident in the success of the next monetary installment.
Covering their assets
In an insightful column in the Wall Street Journal (Jan. 22), David Roche, president of Independent Strategy in London, said that in order to bring order to the banking system, the toxic assets currently held by banks worldwide must be written down to market prices, the hit being taken not by depositors but by bondholders and shareholders. These assets can then be sold to a so-called “bad bank,” (something like the Resolution Trust set up in the 1980s) which clears the toxic assets off the books of the banking system. This would force many banks into insolvency, of course, but it would cleanse the system, allowing it to move forward and allowing credit to flow again. This plan exacts pain where it should be exacted.
The alternate scenario allows the banks to sell the toxic assets at inflated prices, to the “bad bank” thus avoiding pain and assuring that lessons were not learned and that the pain will be far greater down the line. Roche critiques the policymakers when they claim, “We know where the problem at the heart of the credit crisis is: it is the lack of lending and we must get credit flowing,” saying that “on both sides of the Atlantic the desire appears to be to sustain household leverage and consumption at any price, when the only exit from the credit crisis involves a return to thrift by the overleveraged. That cannot be achieved painlessly.” This shift to thrift on the part of the public is already in progress and the pain has definitely begun.
The signs of the old consumerism economy are everywhere. Self-storage units wander over the landscape and lawns are regularly filled with Saturday tag sales as homes cannot contain the detritus of the consumer economy. If not a consumer-driven economy then what? Unless it is based on super-efficient energy use it will be founded on sand just as the current one has proved itself to be.
Humbug, you say?
In the last chapter of Margaret Atwood”™s small but powerful book “Payback-Debt and the Shadow Side of Wealth,” the author does a takeoff on Dicken”™s “A Christmas Carol.” In this story Scrooge is shepherded through the ages by the Spirit, who points out the devastation humanity has wrought through its profligate use of the earth”™s finite resources. Some random quotes follow:
“Two centuries ago people began substituting something called ”˜the market”™ for God, attributing the same characteristics to it: all-knowingness, always-rightness, and the ability to make ”˜corrections,”™ which, like the divine punishments of old, had the effect of wiping out a great many people.
“All wealth comes from nature. Without it there wouldn”™t be any economics. The primary wealth is food, not money. Therefore anything that concerns the handling of the land concerns me,” says the Spirit.
Later in the chapter the Spirit states, “It is folly to become dependent on just a few crops ”“ wheat, rice, corn and soy, for instance, as in the twenty-first century ”“ because a blight can cause instant famine.
“The killing of the earth is driven on by poverty on the one hand and greed on the other. Keep in mind that many of the countries where the most destruction is going on are heavily in debt to the rich ones. So the killing is also driven by debt.”
The Spirit of the Future then shows Scrooge a vision of himself pushing a wheelbarrow of money while trying to buy a can of dog food. To Scrooge”™s horror the Spirit says, “You”™re witnessing a moment of hyperinflation. This has happened many times in the history of money. When people lose faith in the value of a currency, you need more and more money to buy anything; and those that have items of real use ”“ such as food or fuel ”“ don”™t want to sell them, because they fear that the money they receive will be worth a lot less the next day.”
This imaginative tale is not for children, only grownups who want to understand where we, as a country, are and what the future has in store. It should be required reading for those trying to extract the nation from the economic morass we are in.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
