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No More Shopping Till We Drop

Nov 15, 2008

Here is an article that raises some good questions:

http://www.europac.net/externalframeset.asp?from=home&id=14645

First he talks about how the parable of Golilocks was the favorite among economists in years past. Now it is the Humpty Dumpty on the Wall Street parable.

He comments on the recent "solution" to the housing crisis, where Freddie and Fannie are going to reward those who are 90 days or more delinquent on their house payments. This is sure to encourage more people to go delinquent in order to qualify for a reduction on their interest payments. I mean, why struggle to make the higher payments when you can get a new mortgage at just 3% by just stop paying the mortgage for 3 months?

He calls it "the law of unintended consequences," but anyone who can't see those consequences should send his economics diploma back to the university who gave it to him.

Next, he talks about the possible bailouts for the automakers, saying that they ought to go into bankruptcy and sold at a fire sale, so that others can come in and restructure them to make autos that people will actually buy at world-competitive prices. In other words, the people working for the big three are being paid too much for the companies to stay competitive.

This, of course, is the classic confrontation between labor unions and "free trade." Labor union leaders are hired to negotiate high wages for the workers. The corporation leaders, who much prefer to get those higher salaries for their own wallets, are looking to "save money" for their "stockholders" by "outsourcing" the production to other parts of the world where the labor is cheap.

Free trade is the natural enemy of labor unions. Eventually, one will destroy the other.

I suggest that if you want to help the auto industry by stimulating more buying sprees, then use the $25 billion bailout fund as a low-interest bank to loan money to people who want to buy an American-made car. That way, most of the money will be repaid to the fund over 5 years or so. Even if 10% of them default on the loans, it would mean a loss of only $2.5 billion, instead of the entire $25 billion.

Giving the money to the auto execs will immediately result in their pocketing their bonuses for all the hard work they did in lobbying congress. Helping Americans buy cars will help ordinary Americans, not the millionaires, and incidentally, it would help the auto companies themselves by increasing sales, rather than by a corporate welfare package.

But I suppose such a plan would run afoul of the "free trade" agreements, since that would, in effect, give US automakers an advantage over Toyota and Volkswagon.

The underlying problem with world trade is that every country wants to export more than it imports in order to have a favorable balance of trade. But any success means that some other country will suffer. America has been the cash cow of the world for decades, and now that cow has run out of money. We have been milked dry, and no one has bothered to feed the cow.

Americans have been using their home equity and their credit cards in recent years to buy products, which keep the economies of the world running smoothly. Now home equity is being wiped out, and there is a credit card crunch. So Americans are not buying as much any more. The consequence? A world recession with no end in sight. And, of course, Rev. 18:11 is fulfilled:

"And the merchants of the earth weep and mourn over her [Babylon], because no one buys their cargoes any more."

Yesterday the BBC news announced that the EuroZone is officially in recession now. Germany has had 2 quarters of negative growth (announced Thursday), and Italy made its announcement on Friday. It is expected that Britain will announce the same when its figures come out in January. It is expected that it will be the same with Japan shortly.

The economic problems started over a year ago, but it is only now that it is officially a "recession." This is only the beginning of the recession. Don't expect it to bottom out any time soon. Perhaps one bright spot for Americans is that since we are mostly an IMPORTER nation, this recession is going to hit others harder than it hits us. Hardest hit will be those nations that export products to us, because the American consumers have stopped shopping till they drop.


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Category: Financial

Dr. Stephen Jones


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