Wednesday, August 19, 2009

Late Summer Economy

Summer is generally a time when capital markets languish, brokers vacation in the Hamptons, and there is little economic news. That is not the case in the Summer of 2009.
A fierce battle is being fought between the economic interests of those who have monetized health care - the pharmaceutical companies, the health insurers and health care providers like doctors and nurses - and millions of Americans who are teetering on the edge of economic insolvency because of our country's unsustainable rise in the cost of health care. The stakes are undeniably high, as are the emotions of those who argue both sides of the issue.
On one thing we can all agree. To fail to address this issue is to destroy the long term health of our economy.
In addition to that issue, however, we are also emerging from the worst recession since the Great Depression. Because financial markets ceased to function at the end of last year, an enormous amount of money was provided to commercial banks (and investment banks who changed their charters to avail themselves of this money) in order to prevent a financial disaster. This disaster was caused by securitizing and selling the risk of poorly underwritten mortgages, and the sales - and disastrous effects - were worldwide.
This problem began in the late 1990s, with the dissolution of the Glass-Steagall Act, that separated commercial and investment banking. It appears that we expect, however, that this decade long problem-in-the-making is solved immediately.
"What is taking so long?" is the predominant economic question.
We have, apparently, become a nation convinced that there are simple, quick solutions to everything.
We continue to face declines in manufacturing, rising unemployment, plummeting housing prices and a distinct lack of consumer confidence. On the bright side, inflation is almost non-existent, interest rates are at decade lows, and capital markets show unmistakable signs of predicting an end to our recession. We are working on financial reform and the excesses of the past seem, at least for the present, to have subsided.
It's a mixed bag. We will not suddenly pop out of this quagmire in a month or two. That is clear.
It is also clear that we will politicize economic issues. We will criticize the Economic Team, point to rising deficits, scream about banker's bonuses and wonder why we're not back to normal seven months from the inauguration of the new administration.
Yet, not one of these issues is directly relevant.
Rising deficits? Yes. Was there an alternative to a huge cash infusion into the economy? No.
Banker's bonuses? Yes. Are they a significant percentage of the "bailout money?" No.
What, then, should we be discussing?
  1. Financial Regulation - Plug up the holes that caused excesses without unduly burdening the financial system
  2. Long Term Employment Growth Policy - Some jobs, including much manufacturing, are gone forever. Reeducating the work force for long term employment is vital
  3. Deficit Reduction and National Debt Repayment - Once we've stabilized the economy and gotten back to work (in about a year), we need to raise taxes. Yes, we all need to pay more taxes to reduce the current deficit and repay the national debt. It is as big a security issue as reliance on foreign oil.

There you have it. It's not a pretty story, but at least we're talking about the real issues.

As always, your comments are most welcome.


  1. Kitty,
    Always sound advice and I hope the US gets its financial house in order too.

    This is the first time in history that Republicans are actually talking about health care and are willing to make adjustments--but not the public option. I think Conservatives and Liberals should seize this opportunity to make inroads rather than argue the ideologies. Liberals want it their way--Conservatives want it their way. However when Liberals decide they would not vote on any plan that does not include the option, all Americans--especially the uninsured and underinsured lose out. The Republicans are even acknowledging that health care companies shouldn't have the right to interfere between a doctor and patient or deny coverage if a person becomes sick or has a pre-existing condition. That's a huge win! If a compromise is not reached, it could mean more seats for the Republicans in the midterm elections, and the health care issue will be lost for another 8 years. Ant that is the larger picture here.

    We are now seeing dealerships pulling out of the "cash for clunkers" deal because the gov't cannot pay them on time, and they are losing money if they cannot meet their bills. If this plan, which one would think would be simpler to manage than health care, cannot be, it says a lot about the future of gov't run health care. These things cannot be rushed. It would need years of planning and knowing how to finance it without having more burdens put upon the middle class.

    Hope all is well!

  2. If I read your comment correctly, you want a civilized, issue-oriented discussion. Without directly addressing either of your points, I would like to make a broader statement of response.
    Would you care to run for office? The calm, rational voice of reason is sadly lacking in our Congressional representatives. Yours is a welcome relief.

  3. Well, I wish politics could be civilized and rational. And I wish Congress were reading and discussing your blog, but the financial institutions seem to still be running the show.
    Where is the regulation that was promised??

    Obama cannot keep giving in to everyone's will. One day is for the public option, the next day against, and then for it again. That to me is weakness.

    Obama is a bit of a disappointment because instead of coming up with a health plan that the people can understand, he leaves it to those in Congress who have no sense. And the PR campaign against it is working because of that lack of communication. I don't even understand Obama when he is interviewed. Everyone seems to be double-talking. And that's why I have no trust in either party.

    Would a public option be better? Yes. Do I trust this gov't to run it properly. No.

    Obama's numbers are slipping because his own party is upset at his lack of leadership. Would I vote for him over McCain/Palin--Absolutely. But will the voters keep Dems in Congress--that's my greater concern because Dems will at least keep the health care issue alive.

    Looking fwd to your next post :)