The country is in a funk. The economy seems to be going from bad to worse. What happened? The simple answer is that all the frantic Democratic legislation designed “to change the country” made matters worse for everybody and most especially for poor and the middle class, the very people Obama claims to want to help. Wall street and Pennsylvania Avenue are at each others throat and, if the American Dream is not dead it is in a coma. That is what former Fed Chairman Alan Greenspan New York mayor Michael Bloomberg explained to Dick Gregory on Meet the Press. Greenspan described the two Americas thus:
MR. ALAN GREENSPAN: . . . Our problem, basically, is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it and are carrying what consumption there is.Large banks, who are doing much better, and large corporations, whom you point out and the–and everyone’s pointing out, are in excellent shape.
The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at, but they are fundamentally two separate types of economy.
So why is Wall Street so mad? Because of a financial bill that makes planning an impossibility:
MAYOR BLOOMBERG: The devil’s in the details. A 2,000-page bill that very few people have ever read, but it basically turns over to the SEC and the Fed and other agencies the responsibility to write regulations. This is a dream piece of legislation for lobbyists and for lawyers. And nobody knows the answer to your question.
Why has the stimulus not kept unemployment at check?
MAYOR BLOOMBERG: . . . This stimulus bill has fundamentally gone, started out with a $500 rebate check, remember. That went to buy flat-screen TVs made in China. That didn’t exactly help our economy.Then all of this other stimulus money that’s been given out to governments, they’re using it for operating rather than investment. And the monies that are going to, to the private sector, they’re doing the pet projects for companies that happen to have some influence throughout this country.
And the argument is, “Well, these people would get laid off if we didn’t do that,” but nobody’s directing this money at the people who’ve already been laid off. . . .
Would ending the Bush tax cuts hurt?
MR. GREENSPAN: Look, I’m very much in favor of tax cuts, but not with borrowed money. And the problem that we’ve gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money, and at the end of the day, that proves disastrous. And my view is I don’t think we can play subtle policy here on it.
MR. GREGORY: You don’t agree with Republican leaders who say tax cuts pay for themselves?
MR. GREENSPAN: They do not.
The “unusually uncertain” economy is leading frightened Americans to save at a virtuous 6.2%.
What is to be done?
As could have been expected from Ayn Rand’s disciple, Alan Greenspan suggest letting the stock market do its thing:
MR. GREGORY: Dr. Greenspan, the Dow, an important barometer, as you’ve said before on this program, because there’s real money there, there’s real wealth. Are we out of the woods in the sense that Dow 10,000-plus you think is here to stay?MR. GREENSPAN: I wish I could answer that one. It’s a critical issue because, as you point out and as I’ve always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect. What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We’ve come all the way back–maybe a little more than halfway, and it’s had a very positive effect. I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.
I do not know if the current Fed will follow Greenspan’s advice, but the markets have been rising precipitously today.