when I started this blog five years ago, I was a pet sitter and the name animal-crackers made sense. now I'm a stay-at-home-dad and freelance writer, but rather than confuse everyone by getting a different blog, it's just easier to keep posting things here.
Saturday, February 09, 2008
day forty
Welcome to Day 40 of Recession 2008.
I know, no one's interested in my political rants. Well, this isn't political. Just economic.
According to economists a recession is when the economy shrinks for two or more quarters. That's too simplistic.
Let's go back to August 2007. A looming mortgage crisis prompts the Fed to lower the Discount Rate by 0.5 percent. (By lowering the rate, the Fed encourages banks to lend more money injecting extra cash into the economy.)
The Fed lowers the Federal Funds Rate by 0.5 percent in September, 0.25 percent in October and 0.25 percent in December. The Discount Rate was lowered an extra 0.5 percent during this same period.
That's a complicated way of saying the Fed was pumping a LOT of cash into the system.
Yet, consumers spent just 1 percent more in November 2007 than they did in November 2006. Worse still, they spent 0.1 percent more in December 2007 than December 2006.
Think of the economy as a car engine. The Fed just slammed its foot on the accelerator and instead of racing down the road, the engine sputtered. Where'd the extra cash go?
ExxonMobile. Chevron. Citgo. Valero.
I'm not knocking the oil industry. Just saying.
Of course, the Fed ain't the only game in town. There's Congress. It voted to flush $168 billion into the economy. Sounds huge. But it represents 0.013 percent of the US economy, which weighs in at nearly $13.2 trillion.
I gain 0.013 percent of my body weight by eating a breakfast taco.
So now here we are, Day 40 of the Recession. Economists won't know for certain whether it's a recession until July. But what do they care -- economists have job security. No one fires oracles, even if their predictions suck.
And it's gonna get worse.
Congress and the White House are negotiating a $3 trillion budget. That means the federal government's spending would represent almost 25 percent of the total US economy. And that budget doesn't include the price of waging war in Iraq and Afghanistan.
Of course, the US government likes to use its credit card. About 13 percent of the $3 trillion budget will be borrowed from our grandchildren. I hope they don't mind. They seem kind of young to agree to such terms.
The US government (i.e. us) already owes our grandchildren $9.2 trillion in borrowed money.
That means every American (including the rich ones) needs to work 254 days this year for our debt to reach zero. Financed over 30 years, we would need to work 17 days per year just to reach zero. (That assumes we never use the credit card again.)
How does this debt and deficit spending make the economy worse?
Imagine you have credit cards. Every month you pay the minimum balance even as you use the cards to buy more stuff. At first it's big screen TVs, iPhones and other gadgets. Your minimum payments go up, which leaves you with less money for food and bills.
Suddenly, you need the credit cards for an emergency medical expense. Your minimum payments go up more. Then your salary goes down. Soon groceries and bills go on the card.
Eventually, you're entire paycheck barely covers your minimum debt payment. Next time you have an emergency you've run out of credit. You miss a payment and you're forced into bankruptcy. All your stuff is repossessed by creditors.
Who are the government's creditors? Mostly rich people, but also some foreign investors and governments. No, they won't repossess government assets. They just won't lend us more money.
All social programs -- Social Security, welfare, Medicare -- go to zero. Then infrastructure programs -- roads and bridges -- are cut from the budget. Eventually all the US has is a military. And when the government cannot pay for the military, someone else will.
And that's just 2009!
Ok, it's not really 2009, but it can and will happen. We're not the first empire to walk the earth -- the Egyptians, Romans, Mongols, Arabs, Ottomans, Germans, Spaniards, Brits, Russians, the Hans and the Mings.
We think we're something special. So did they.
Wow, this economic rant really took a turn for the worse.
What I'm trying to say is these fallen empires lacked the insight and courage to curb their indulgences. They lived beyond their means, went bankrupt and all but disappeared.
Perhaps military spending doesn't need to be 3.6 percent of the GDP. Before World War II, military spending was 1 percent of the economy. During the Cold War, it was 8 percent of the economy.
What's reasonable when we're not fighting a global war -- 2 percent, 3 percent? (And no, the "War on Terror" does not count as a real war.)
Perhaps we could do with fewer roads or hospital beds or firefighters instead of cutting the military.
Maybe safeguarding the sanctity of marriage will somehow pay down the debt. Maybe forcing women to have back-alley, coat-hanger abortions will reduce the deficit. Maybe not.
I'm not saying anything new here. Many people who are much smarter and better educated than I am see what's going on. Perhaps a few of them have the huevos to do something about it.
Probably not.
I know, no one's interested in my political rants. Well, this isn't political. Just economic.
According to economists a recession is when the economy shrinks for two or more quarters. That's too simplistic.
Let's go back to August 2007. A looming mortgage crisis prompts the Fed to lower the Discount Rate by 0.5 percent. (By lowering the rate, the Fed encourages banks to lend more money injecting extra cash into the economy.)
The Fed lowers the Federal Funds Rate by 0.5 percent in September, 0.25 percent in October and 0.25 percent in December. The Discount Rate was lowered an extra 0.5 percent during this same period.
That's a complicated way of saying the Fed was pumping a LOT of cash into the system.
Yet, consumers spent just 1 percent more in November 2007 than they did in November 2006. Worse still, they spent 0.1 percent more in December 2007 than December 2006.
Think of the economy as a car engine. The Fed just slammed its foot on the accelerator and instead of racing down the road, the engine sputtered. Where'd the extra cash go?
ExxonMobile. Chevron. Citgo. Valero.
I'm not knocking the oil industry. Just saying.
Of course, the Fed ain't the only game in town. There's Congress. It voted to flush $168 billion into the economy. Sounds huge. But it represents 0.013 percent of the US economy, which weighs in at nearly $13.2 trillion.
I gain 0.013 percent of my body weight by eating a breakfast taco.
So now here we are, Day 40 of the Recession. Economists won't know for certain whether it's a recession until July. But what do they care -- economists have job security. No one fires oracles, even if their predictions suck.
And it's gonna get worse.
Congress and the White House are negotiating a $3 trillion budget. That means the federal government's spending would represent almost 25 percent of the total US economy. And that budget doesn't include the price of waging war in Iraq and Afghanistan.
Of course, the US government likes to use its credit card. About 13 percent of the $3 trillion budget will be borrowed from our grandchildren. I hope they don't mind. They seem kind of young to agree to such terms.
The US government (i.e. us) already owes our grandchildren $9.2 trillion in borrowed money.
That means every American (including the rich ones) needs to work 254 days this year for our debt to reach zero. Financed over 30 years, we would need to work 17 days per year just to reach zero. (That assumes we never use the credit card again.)
How does this debt and deficit spending make the economy worse?
Imagine you have credit cards. Every month you pay the minimum balance even as you use the cards to buy more stuff. At first it's big screen TVs, iPhones and other gadgets. Your minimum payments go up, which leaves you with less money for food and bills.
Suddenly, you need the credit cards for an emergency medical expense. Your minimum payments go up more. Then your salary goes down. Soon groceries and bills go on the card.
Eventually, you're entire paycheck barely covers your minimum debt payment. Next time you have an emergency you've run out of credit. You miss a payment and you're forced into bankruptcy. All your stuff is repossessed by creditors.
Who are the government's creditors? Mostly rich people, but also some foreign investors and governments. No, they won't repossess government assets. They just won't lend us more money.
All social programs -- Social Security, welfare, Medicare -- go to zero. Then infrastructure programs -- roads and bridges -- are cut from the budget. Eventually all the US has is a military. And when the government cannot pay for the military, someone else will.
And that's just 2009!
Ok, it's not really 2009, but it can and will happen. We're not the first empire to walk the earth -- the Egyptians, Romans, Mongols, Arabs, Ottomans, Germans, Spaniards, Brits, Russians, the Hans and the Mings.
We think we're something special. So did they.
Wow, this economic rant really took a turn for the worse.
What I'm trying to say is these fallen empires lacked the insight and courage to curb their indulgences. They lived beyond their means, went bankrupt and all but disappeared.
Perhaps military spending doesn't need to be 3.6 percent of the GDP. Before World War II, military spending was 1 percent of the economy. During the Cold War, it was 8 percent of the economy.
What's reasonable when we're not fighting a global war -- 2 percent, 3 percent? (And no, the "War on Terror" does not count as a real war.)
Perhaps we could do with fewer roads or hospital beds or firefighters instead of cutting the military.
Maybe safeguarding the sanctity of marriage will somehow pay down the debt. Maybe forcing women to have back-alley, coat-hanger abortions will reduce the deficit. Maybe not.
I'm not saying anything new here. Many people who are much smarter and better educated than I am see what's going on. Perhaps a few of them have the huevos to do something about it.
Probably not.
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