Better Or Worse Than What We Are Facing Now?
Readers suggested a topic on how things might have been different. “Does anyone want to talk about what would have really happened if the banks hadn’t been ‘rescued’ in the manner they were all those years ago? My basic idea is what would have happened if, instead of giving Hank Paulson a completely blank check to save the banks, Congress had given him authority to split them up, sell off the depositor and solvent commercial lending bits, and then made the shareholders and unsecured bond holders and CDS counterparties and all the other speculators take their lumps to the extent necessary to wind it all down.”
“I think there was more than enough money sloshing around the system in hedge funds and private equity funds to take over the basic banking functions, though I don’t know if they would have wanted those businesses. Smaller banks could have taken the accounts relevant to their areas. It would have taken some time. They would have been nationalized for at least a few months.”
A reply, “We’d be dealing with a nascent civil war. A whole lot of government and private paychecks would be irredeemable, goods and services un-purchased or unpurchasable, and credit cards and retirement funds rendered useless. If no one accepts the coin of the realm, and no one is willing to grant credit, things could get pretty messy pretty quickly.”
“I suspect unemployment would be ahem, significantly higher than the 20% it is now. A whole lot of chronically ill poor folks and oldsters would be dead or in end-stage decline. Global exports (our food sources among them,) would dwindle, as would our supply chains. OWS would be armed. Tax revenues would be not only withheld, but uncollectible. De facto war lords, er volunteer peace officers would enforce the local order. Ta-taa to the court, contract, and title system. And what about that pesky unpaid military?”
“But Craig’s list and eBay would be thriving. And lawyers would be having a field day….”
Another said, “A replay of the Great Depression, with rolling large scale bankruptcies and an eventual bank holiday or nationalization. The question is, whether that is better or worse in the long run than what we are facing now.”
The St Augustine Record. “The recession has been brutal in Northeast Florida, according to Census data released today showing that income is down, poverty rates are up and more and more people are looking for help. ‘We’re seeing a new face on poverty that, quite frankly, we haven’t seen in the last 30 years,’ said John Edwards, executive director of the Northeast Florida Community Action Agency, which assists low-income people.”
“Bruce Ganger, executive director of Second Harvest North Florida, which supplies food banks, tells of a well-educated, professional woman who had joined her husband in the ranks of the unemployed and struggling. ‘She said to me, ‘Bruce, you have to understand, I stand in line now to get food, crying: How did I ever get here?’ Ganger said.”
“Comparing the report’s numbers to the 2005-2007 survey — just before the major effects of the recession hit — the affect of the downturn is easy to see. In the earlier report, just 14.2 percent of families in the area made less than $25,000 a year. In 2010, that jumped to 22.1 percent. Median household income dropped from an inflation-adjusted $70,984 to $68,189. The percentage of people living below the poverty line went from 11.2 percent to 13.4 percent. Unemployment in the civilian labor force jumped from an average of 6.1 percent to 9.7 percent.”
“More houses are vacant, and both homeowners and renters are spending a bigger chunk of their shrinking income just for shelter. ‘If anybody thinks this economy is improving, just look at those numbers,’ said Susan King, who starts Monday as head of the Beaches Emergency Assistance Ministry. ‘There are so many people coming out of the woodwork who’ve never needed help before.’”
US News and World Report. “Data from the Labor Department shows that the U.S. economy is a much changed place from past recessions. Despite small recent gains, manufacturing employment is down more than 37 percent since the last major recession, in the early 1980s. Healthcare is a bigger share of the economy than ever, and has continued to grow unfazed by downturns of any size. And construction has shrunk considerably, having experienced its biggest dip in employment on record since 2007.”
“The low interest rates that helped boost housing and the U.S. economy after the early-2000s recession (and eventually created the bubble that caused the Great Recession) have been ineffective this time around. ‘If you look back at, say, for example, recoveries that were more robust–following the recessions in the mid-1970s, the early 1980s–those were recoveries that were a lot more responsive to monetary ease,’ says Conrad DeQuadros, senior economist at RDQ Economics. When the housing market recovered after the 1980s recession, he says, that spurred a ‘very significant pickup in job growth.’”
“With the federal funds rate at near-zero for nearly three years now, not to mention historically low mortgage rates, the Federal Reserve has been scrambling to find ways to fix the economy from the monetary side, providing monetary easing and altering its balance sheet. However, such policy is proving ineffective. ‘[A monetary fix is] not going to happen this time,’ says DeQuadros. ‘It’s not the level of mortgage rates–that’s not what’s holding back housing market. It’s the excess supply of homes, the backlog of foreclosures. Those aren’t issues that can be addressed with monetary policy.’”
From RT.com. “With all eyes on the debt crisis engulfing America and Europe, few have noticed the depths to which Japan’s once-triumphant economy has sunk. With Tokyo reduced to wringing its hands, could Japanese economic dominance be dead in the water? Stagnant growth, the strong yen, and a massive national debt – some economists fear that Japan may only be a few years away from its own major economic crisis.”
“‘Japanese industry can probably endure the current 75-yen-to-the-dollar level for a little while,’ says House of Councillors member Yoichi Kaneko. ‘But if this situation doesn’t change over a longer period, I think we’re going to see Japanese factories and large companies move their operations overseas – to places like Vietnam, Thailand, or China. This would lead to a hollowing out of Japanese domestic industry and create unemployment. Japan is facing an extraordinary economic crisis.’”
“Japan has the highest national debt among major economies, owing almost twice as much as the economy makes in an entire year. Couple that with the funds needed to rebuild after the devastation unleashed by the earthquake and tsunami earlier this year, and it seems Japan is fighting a battle it may not be able to win.”
