A Layman’s Economic Forecast: It Ain’t Lookin Good
Wednesday, November 26th, 2008It’s safe to say that there are only a handful of people in this country with the knowledge and experience to at least convince everyone that they know how to help save our economy. At least those people are indeed working on the problem, and whether they really have a clue or not, they are helping me get to sleep a little easier at night by their reassurances that something is in fact being done.
But right when I wake up in the morning, I’m back to square one, thinking that no one has a damn clue as to what the right approach is to mitigate these issues. We have to face the facts that we, as citizens with a less than impressive understanding of economics, are relying on extremely intelligent minds to use all of their knowledge and experience to, at best, fly by the seat of their pants.
When Treasury Secretary Henry Paulson Jr. and President Bush and Co. came up with the Troubled Asset Relief Program (TARP), their intention was to help homeowners avoid foreclosure or to stave off bankruptcy by Detroit’s big three automakers. “Our initial intent had been to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities.” Mr. Paulson told the House Financial Services committee last week. However, while the legislation was being passed, the market crisis worsened significantly and, Paulson continued, “…by this time, given the severity and magnitude of the situation, an asset purchase program would not be effective enough, quickly enough. Therefore we exercised the authority granted by Congress in this legislation to develop and quickly deploy a $250 billion capital injection program, fully anticipating we would follow that with a program for troubled asset purchases.” This seems like Exhibit A of flying by the seat of their pants. But who am I to say it was right or wrong to do that. Perhaps it was indeed, the right move.
On November 18th, before lawmakers and members of the banking and insurance industries, Paulson and the other salesmen and architects of the financial bailout package testified about how they’ve been using their allotted $350 billion. And it was clear that the panel of questioners were as baffled as you and I about if what was being done is the right answer. Questions regarding every facet of the bailouts were addressed, and with little evidence to suggest the bailouts were the wrong decision, Paulson continued to iterate that the stabilization of the financial system was of the highest priority. Melvin Watt, a Democrat from North Carolina asked, “How does putting money in a bank that didn’t ask for it stabilize the financial system?” Paulson answered that banks are “not going to raise their hands” and announce that they need capital. What happens is that they claim they are not in need of help, and then hunker down and cease “dealing with other banks” and freeze lending. Treasury decided to go to “healthy banks before they became unhealthy” to make sure they would continue lending. Sounds good to me, I suppose.
Spencer Bachus, a Republican from Alabama and ranking member on the committee, asked simply, if we’re on the “right track” in restoring lending. Ahhh, a nice, simple question. Something I’d ask Paulson myself if he were dining at my home. But of course, the answer to that simple of a question is anything but simple. In essence, Paulson responded that actions taken “outside of TARP” with Fannie Mae and Freddie Mac potentially achieved more than if the Treasury had used the entirety of the bailout funds to buy troubled assets. Ok great, so potentially, we’re on the right track?
According to well known investor Jim Rogers, everything being done, in his opinion, is completely wrong and the United States won’t be coming out of this downturn for years, perhaps even decades. In an interview with Keith Fitz-Gerald of Money Morning, Rogers bluntly describes the United State’s ever growing-debt. ”I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt. Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.” Here’s another potential “expert” on the matter who’s coming out and saying everything the Treasury’s doing is wrong. He thinks interest rates should be hiked up immensely to offset the “mistakes” of Greenspan and Bernanke. And I’m left sitting at home ready to strangle Mr. Rogers for blatantly destroying my layman hopes that those in charge of this are going to get us out of this.
So who are we to listen to in this serious time? Who are we to believe? Of course, like everything in this world, it’s not that simple. Listen to what everyone says. Understand as best as you can what is going on in our economy and comprehend that our country has already changed and will continue to change. Our country could not possibly sustain what it was doing the past 10 years and this economic crisis, as brutal as it may be and will continue to be, will eventually right the ship. No one knows how long it’s going to last, and at this point, no one really knows if what we’re doing to begin righting this ship is the correct move. In January, President Elect Obama will take office, and with him comes a crew of economic advisors that look like an Olympic-caliber team of mathletes. I am confident that whatever these people decide to do, I will surely get behind them. To do otherwise, would be to claim that I know what’s going to happen.
Andrew Brentan is a Team Aguilar real estate agent and blog contributor
