[Oe List ...] Another Perspective

Tue Sep 30 21:06:00 EDT 2008

Very helpful.  Bob and Cynthia

-----Original Message-----
From: Sandra Rafos <rafos at interlog.com>
To: Order Ecumenical Community <OE at wedgeblade.net>
Sent: Tue, 30 Sep 2008 6:06 pm
Subject: [Oe List ...] Another Perspective

Bob asked me to share this with you all----He thought it was helpful!

There is fear and loathing all over Main Street, Wall Street, and Capitol Hill but there are also those who are calling this tempest one of teapot-sized magnitude. Irwin Kellner at Marketwatch chimes in and tries to inject a dose of sobering caffeine into the drama that the media wasted no time in assigning scary superlatives to:

" We are nowhere near a depression, so let's stop talking ourselves into one.

Spiro Agnew's words of the Nixon era ring true today. The politicians, pundits and, yes, the press, are nattering nabobs of negativism. For example, in recent weeks, the broadcast and the print media have filed stories replete with scare words. You don't even have to look at the tabloids to see what I mean. 

The front page of the New York Times recently described what it called "chaos" in the financial markets. Not to be outdone, most of the first section of The Wall Street Journal one day last week was devoted to articles describing the "spreading crisis" in our economy. And both newspapers have run stories using the word "depression" more times than I care to count. 

Now, don't get me wrong, I am not saying things aren't serious out 
there, but another Great Depression? I don't think so. 

If you look at the data, you will see more differences than similarities between the 1930s and today: 

In the crash of 1929 the Dow Jones industrials plunged 40% in two months; this time around it has taken a year to fall 22%. 

The jobless rate jumped to 25% by 1933; it is little more than 6% today. 

The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year. 

Consumer prices fell by about 30% from 1929 to 1933; and the last time I looked they were still rising. 

Home prices dropped more than 30% during the Depression vs. about 16% today. 

Some 40% of all mortgages were delinquent by 1934 compared with 4% today. 

In the 1930s, more than 9,000 banks failed compared with fewer than 20 over the past couple of years. 

Remember also it was policy errors, not the stock market crash, that caused the Great Depression: 

Instead of increasing the money supply, the Federal Reserve of that era reduced it by one-third. 

Instead of lowering taxes, Herbert Hoover raised them. 

And to channel whatever demand was left into U.S.-made goods, the government enacted the Smoot-Hawley Tariff Act to keep out foreign products; this only provoked our trading partners to do the same.

Add to this today's automatic stabilizers such as unemployment insurance and Social Security, the FDIC to insure bank deposits and circuit breakers to keep stocks from falling too quickly, a
nd you can see why this is not a depression in any way shape or form. 

While I am at it, I would like to take issue with the almost ubiquitous use of the word "bailout" to describe the government's rescue package. 

Folks, this is not a bailout of anyone, not Wall Street, not Main Street, and certainly not the so-called "fat cats." It's an infusion of liquidity, designed to unclog the financial markets. In doing so, it will benefit everyone, business and consumers alike. 

Also, the $700 billion bandied about will not be immediately handed over to the Treasury secretary; he will simply have a line of credit, similar to what the typical business might have. 

Finally, this package may not even cost $700 billion. For that matter, it may wind up costing nothing. It all depends on the price the government pays for these distressed assets and what it winds up selling them for."

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