November 2, 2009 Patrick Oliver-Kelley

Consumers are snatching at any evidence indicating that this recession is ended. Reported 3rd Q GNP was up, subject to subsequent adjustment. Durable goods orders for the month were up. Home sales were positive for the first time in over 18 months two month ago, thought they were down once again in the last month.

Anything indicating that the worst is past makes headlines.
The drug addict wants to believe that he is cured.

Whittaker Chambers said, “To live is to maneuver,” and that is exactly what everyone is doing – maneuvering to find something evidencing the end of the fall has come. But we should not, however, want to kill crises, Crises are the alarm bells of reality.

No question that the $878 Billion Stimulus Package prevented a collapse of not only our economy, but also of the world’s economies. Without ours, other countries such as the UK, Ireland, and Spain would have failed miserably. Without the Stimulus Package, we would have had an economic debacle in 2008, every bit as bad as we had in 1929. We dodged a bullet.

Most importantly, the stimulus package will end and we need a new path, or at minimum, planning for a new path.

Debt accumulation is bad; bad for government; bad for industry; bad for the people who allow themselves to be sucked into the morass of debt. There is no denying that over the last 10 years, the entire economy was made drunk by sipping the elixir of cheap money, using unrealistically inflated asset prices in stocks and real estate as collateral.

What was unnoticed and was hugely unpopular was the fact that from 9/11, the US and the West generally, entered a 30 years war with fundamentalist Islam. This far, 10 years into the battle, we have not found the handle. We can only hope it won’t take another 20 years to find it.

The sudden economic collapse was set off by the implosion of the sub-prime mortgage market, accompanied by huge numbers of job losses, and by a virtual shutdown of consumer spending. Mortgages holders were suddenly confronted with ‘inverted mortgages’, mortgages greater than the value of the assets collateralizing the debt.

What was lost can be restored.

It will take time, time to establish goals, objectives, and strategies. We cannot continue with a financial system being held hostage by a few monster financial institutions too big to fail; that are immune to market vagaries, or immune to regulation. These mega institutions are of no visible benefit to the everyday citizen; where there is little or no trickle down, save for the salaries of their employees.

Periodically, during the hay day of the economic boom, flaws in the system surfaced briefly and were noted by regulators and even by market participants and money managers. But people who could have prevented the flaws, notably regulators choose to wait because they were enjoying the limelight of the euphoria of an artificially robust economy.

The system was infiltrated by beneficiaries of the system. No one was regulating the regulators. It required a decision to use the judicial system to bring back into control that reigned in the exuberance. The regulators on ‘site’, would not be around to clean up the mess, or clean out the stables.

What is needed to restore economic strength?

The power of the mega- financial institutions must be cauterized. The political power of these institutions must be eliminated. Conquering unbridled speculation and speculators is a MUST. The economy is not out of the woods yet. The bottom is going to be long lasting. A ‘New Deal’ at grass roots is called for

After the economic implosion, the US populace wanted a ‘Roosevelt Moment’ with the election of Obama…

Create jobs is the first requirement. Recognize everyone’s right to have a job, a right to earn enough to make a decent living; create trade in an atmosphere of freedom; provide programs that achieve good health and achieve good education. And finally, create a sense of security. Without security at home, you cannot have security abroad.

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