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DarkSteven -> RE: it's the economy, stupid...... (8/1/2008 5:46:14 AM)
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There are several things going on.
1. The housing crunch. This means two things: first, that there is a loss of real wealth as people default, and second, that there is a loss of false wealth, as the bubble popped.
2. The credit crunch. This one I frankly don't understand. A bunch of financial institutions are strapped for cash because they made stupid, risky loans. But the Fed is offering banks money so cheap that it should be child's play to profit, So if the existing institutions are cash strapped, why aren't newcomers entering the market?
3. Gas prices. To be more precise, energy prices. Since our economy is based heavily on energy, high energy costs add to the price of everything.
4. Auto sales. I suspect that poor sales are a combination of tight money and tightened credit. Whatever, the auto industry is doing badly.
5. A weak dollar. That makes all overseas purchases more expensive. This helps industries that export, but the truth is that the US is a net importer big time. So electronics, Chilean produce, Mexican silver, etc. all cost more.
6. The deficit. I suspect that low deficits are more important to the economy's health than politicians let on. The GOP's trickle-down dogma, birthed by Reagan, is that whenever taxes are cut, the resultant economic stimulation generates additional economic activity whose resultant taxes more than make up for the up front tax loss. Bush's tax cuts and subsequent economic train wreck should convince anyone, but this is a GOP sacred cow. The Dems don't want to acknowledge this because they have a raft of programs that they want to initiate.
C'mon, guys. Clinton was gung ho on a balanced budget. Compare his economy to Bush's.
To respond to your "why don't the politicians DO something?", it's because there's not much they CAN do. The Fed can control rates but will allow for growth only at the cost of inflation. Right now we are experiencing inflation coupled with a shrinking economy, so the Fed's only option is picking which evil to live with. Another stimulus will increase the deficit.
The correct course is to cut the government and its spending drastically and begin shittling away at the deficit. This will NOT be done in an election year. I'm hoping that the new President will do that up front and bank on the pain being over come reelection time.
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