COnsumers Out of Money Again: How WIll Recovery Continue?

I don’t think it make a lot of difference as to who becomes President in terms of economic recovery. Romney is a pragmatist and Obama likes to proceed incrementally. The fact is that when Romney and his cronies decided that reducing labor cost was a great idea, they created jobs overseas, and reduced median income at home. In a consumer driven economy, you might as well shoot yourself in the head. Reducing costs is a going out of business plan. Increasing revenues, on the other hand, raises the water levels and hides a lot of stumps.

Wall Street substituted credit for earnings until there was no more credit to give because the credit markets were frozen as the reality of this scheme became apparent. The link to the article below will show you that consumers have no savings, many have no income, no prospects and are badly in need of education to train them for the jobs that are available. Obama is right about that.

We need a fiscal stimulus to rebuild our roads, bridges and infrastructure but we are already stretched to the limit with quantitative easing going infinitely. So we can’t do a direct stimulus. Romney is right about that. But we still need the stimulus to get things going again.

So without credit, with savings, without equity, without earnings (or earnings that are flat and going down in real terms when inflation is applied), where is the stimulus going to come from?

The answer is the elephant in the living room. Whether you are a pragmatist or an incrementalist, the ONLY place it can come from is taking apart the mega banks, forcing them to report the real value of their real assets, forcing the mortgage loans to be modified to affordable levels and even forcing the “completed” (illegal) foreclosures to be reversed. The investor-lenders and the homeowner-borrowers are the ones who should get the benefits of the federal taxpayer money and the Federal reserve quantitative easing because they were the only real parties to the real transactions.

The loans were sham documents without any real money transaction. The real money transactions had no documents. This is easy in first year law school but challenging when you mix politics and ideology into due process and justice. The victims here are homeowners who believed the false appraisals and the investors who believed the false ratings.

Iceland and Ireland have no trouble understanding what is plain to see — if you want a thriving economy, the consumers must be given the resources to spend money, start businesses that hire more people, innovate and start building products and services that can be exported.

Economists for more than 100 years have agreed that housing drives the marketplace. What we have is an artificial economy where half of our GDP comes from moving the same paper back and forth across the desk of bankers. They are using every trick in the book to show that housing is rising from the ashes but it isn’t.

In 2007 and again in 2008 I wrote long pieces about “Amnesty for Everyone” where everyone takes a piece of the risk and swallows it and we return to a fact based economy where real things were happening. The silence was deafening. Instead we are exhausting all possible alternatives until we are forced to do the right thing — return people to their homes, take them out of the threat of foreclosures and give them a “shot” at equity, with an equity kicker for the investors and the banks.

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Posted in bubble, Corruption, Eviction, securities fraud |