Tuesday, November 27, 2007

More Economics Made Fun....

So, as part of my Americoprs*VISTA year of service (less impressive than Durf's Poshcorps gig in China, but it's what I got), I've been trying to understand better what all this economic stuff means. As many of you know, my ideas are pretty much informed by philosophers, artists, and cartoons (almost in that order of preference), and as such I have a generalized distaste for all things deemed financially sound or fiscally responsible.

Be that as it may, my year of service is with a nonprofit microlender. That means that I've spent my year meeting with poor and lower-middle class families and talking to them about how to start a small business (budget), and largely try to explain how the credit system works in the U.S. As some of you may know, both budgeting and credit have been the silver bullet and garlic combination that has kept this half-vampire-half-werewolf-half-alligator (egregious Dr. Octagon allusion) down over the last 12 years (all of my "adult" life). So, imagine how funny it is for me (of all people) to explain what happens when you stop answering the phone 'cause the debt collectors on the other line. Or, why you should save money, even if all you have is $5 dollars a month. But that's my beautiful karma.

The real issue for most people I know is credit. How does it work? How do I get it to work for me? In order for me to understand credit I've had to necessarily understand also much more about the economy of the U.S. at large over the past 15 years or so (so the economic realities of my entire adult life). And this has been really interesting because understanding the economy of the past 15 years for me has been very much like Philosopher's Stone (yeah, the Harry Potter story). Learning about the last 15 years of America's economy has been operating has like Harry learning that there's a Hogwarts. There's this whole, other, secret, history - an entirely different set of dynamic forces that have shaped my life that I never was able to account for.

The question begins with, "whycome, after working so hard for so long, I'm so broke all the time?" This can't only be answered by, "You didn't budget." Much of the answer is there, the vast majority of the answer is there; but not all of the answer is there. Nor is the remainder of the answer found in my postmarxist reading of the narrative I call reality. Some of the answer also lies at the intersection of politics and economic policy.

See, during the '90s there was a deregulation of how credit could be offered. It used to be that people didn't lend credit to folks that never demonstrated the ability to pay beack a loan with interest. How was that decided? First, do you have a job? Do you have savings? Do you have a plan for paying back this loan that has been verified as sound by an independent and neutral third party? If you answered in the negative to any of those questions you were not offered credit. And that makes sense; 'cause credit is not your friend.

Credit is not money. Credit is a tool that generates money. Just like fire is a tool that generates heat and digestible food and also likely to kill you and your loved ones in your sleep if you don't contain fire and manage fire properly; so is credit likely to do. I use Lewis Farrakhan's speech every time I talk about credit. I think I've used it before here so I won't bother to repost it - but if you'd like to read the speech, put a comment at the bottom requesting such.

I'm really not here to write this blog about personal credit - I'm really writing today to talk about the recession that we're going into and I want to share an interesting article that I read about the intersection of economics and politics. Now, as the lit.crit/artloving/philosophy rogue I pretend to be, it seems to me obvious that an economic problem is a political problem. The word economy, from the Greek, means managing the household, and a household is most certainly plagued with politics. But I'm a holistic kinda thinker, I guess. Unlike your average business media reader, I s'pose.

So, to the point of this blog. Below is an excerpt from a recent posting on iTulip.com that discusses the merits and shortcomings of a recent policy proposal about what to do with this recession that has been born from (among a few other things) the credit craze of the '90s. I liked its discussion of what are the likely talking points and policies that will be adopted by what ever puppet wins the next election in 2008. Read below and smell the sulfur.
11. War costs
Force Washington to get honest about how it's going to pay for our wars, other than supplemental bills that are worse than Enron-style debt financing.
What Enron did wrong was report debt as operating income. Here in the USA, we depend on foreign borrowing for GDP growth.

Besides, here we are, no official recession yet, and Congress can't even cut spending on current wars without the DoD making political threats of election year layoffs and instigating economic havok: 200,000 layoffs between now and Christmas is a formidable stick to use to beat Republican members of Congress into voting "the right way."
Pentagon Warns of Civilian Layoffs If Congress Delays War Funding
Nov. 21, 2007 (Jonathan Weisman and Ann Scott Tyson - Washington Post)

Democrats Are Firm on Link to Troop Withdrawals From Iraq

The Defense Department warned yesterday that as many as 200,000 contractors and civilian employees will begin receiving layoff warnings by Christmas unless Congress acts on President Bush's $196 billion war request, but senior Democrats said no war funds will be approved until Bush accepts a shift in his Iraq policy.
And there are plenty more such sticks where that came from, such as this threat–I mean–warning from Goldman Sachs that without further assistance from the Fed and others, the U.S. faces a $2 trillion "lending shock" during an election year.

This is precisely the dynamic of inflationary, politically motivated government spending in the face of recession that our Ka-Poom Theory anticipates. As the inflationary recession progresses, each political standoff between Congress and various political groups ends in additional spending. The end result is predictable: even more inflation. Expect the unions get into the act in 2008, and when they do don't forget where it all came from, no matter what you hear from the conservative media which will spin rising wage inflation as being caused by the unions: the initial decision to allow inflation to rise to forestall recession in 2001 planted the political seeds of further inflation as various groups fight to make up for the lost purchasing power of income suffered by their respective constituencies.

Rather than reveal the true source of war financing, a recession may just as well drive it farther underground by creating additional impetus for war. Recessions particularly preceded by credit booms have historically led to unpleasant unintended consequences; if a country can't spend its way out of recession peacefully, it may do so militarily.

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