This Obama interview yesterday offers some encouraging signals. He knows he is inheriting a trillion dollar deficit before he even gets started. There is no magic fix here. It will take time to pay down debt and build up savings and financial health again in the economy. But the Obama economics team seems to understand that stimulating sustainable jobs (rather just stimulating more credit) is the path out of the present downturn. Remember how the recovery coming out of 2003 was called the “jobless recovery”? That was because the spending of that expansion came primarily from credit growth, rather than job and wage growth. This time, the Obama team understands that real jobs are needed for this solution. Spending in health care, schools, energy efficiency and infrastructure can all serve to strengthen America over the next many years. Directing government spending at intelligent, enriching causes that will build up assets rather than blow the world up? What a novel concept. This is a start in the right direction.
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I have one question for you Danielle. If everything in the past many years was built on credit, then does that mean alot things around us are fake? Here is an example to clarify my question a bit better. Lets say i buy a tv on credit for $1000. I then realise that i cannot pay for this tv. But in the mean time the company who i bought this tv from books this as a sale/profit. I have the the tv in my living room but i have really not paid for it. Since i used my credit card to aquire the tv, and my bank gave me this credit card, does that mean the bank is on the hook for this bill ultimately? I hope my question and example are both clear and i would appreciate your insight to this inquiry. Thank you…PARM
Parm, in a way it is a bit fake, “keeping up appearances” has truly taken on a whole new urgency in the past few years. People had increasingly more appearance of wealth, but ironically less actual saved wealth in the bank than ever.
The retailers who sold things on credit, booked the sales as revenue and then sold the receivables to credit companies. In a lot of cases, the credit companies then repackaged the receivables into securities that they then sold to investors and pension funds. Where this all worked, the retailers booked a sale, the credit companies profited from the transactions, and the investors who blindly bought the securities are now left holding the bad debts. In some cases the credit companies were also left holding a lot of these securities and that has been a big problem. Not to be left holding the bag though, many of the credit manufacturers have now turned around and rolled the bad debts into government agencies in exchange for higher quality assets. It is a perfect slight of hand, except now the packaged garbage has undermined the health of our entire system. The truth eventually got out, but it tooka few years. D
Ms. Park, I agree with you that job creation trumps war (who wouldn't?), but government inevitably misdirects funds extracted from the free market into projects of its own choosing. Regardless of their perceived value, these projects are not the best use of capital because their is no risk of its use to the “investor” (government). Meanwhile, the profitable use of tax dollars has been removed from the free market which would direct that capital to endeavors that would provide the most effective returns. In the end, the free market is the best determiner of how capital should be invested, not government. This must be fundamental to correcting the malinvestment of the past, which was caused by inflation of the money supply and forced credit stimulation. The current economic malaise won't be resolved by more of the same, which you appear to favor in my reading of your post.