After listening to every expert on every form of traditional media pontificate on our current World Wide Economic Collapse I was convinced that the sky was going to fall tomorrow morning and the moon would be black and everlasting night was about to set in. I was told that if Congress will not approve a federal bailout/rescue plan that the problem would only get worse and harder to solve. Oh wait, that was three months ago.
On and on the pundits and experts proclaim that things certainly look bad. We are given this bit of "news" as if our own eyes could not affirm this. The American public is given about that much credit for its' own intelligence, but from there it all goes downhill.
More after the fold...
I for one kind of wish that this was someone's fault. It would be so much easier to take some one person, say, like the CEO of an auto company, or one such company like Freddie Mac, and say this is all your fault, and exact revenge on the one clearly guilty culprit before the credits roll. Sadly, life does not come prepackaged like that. There is no one bad guy to blame. Anyone who tries to do so is a fool. In much the same way trying to explain what should we do now? is useless without asking how did we get here in the first place ?
We have all heard the news, which day after day gives the public platitudes and new-speak economic definitions, one after the other throwing terms around like liquidity that people do not absorb. The feeling that I get after absorbing all the information at hand and their conflicting spins is one of pessimism and concern but still cautious optimism. In some ways we are led to believe that we have all used our credit cards too often and have over extended credit. Some cheer along on the sidelines proclaiming that now is when you buy and wait for prices to readjust. This leads you to believe that all is not wrong with the world and some good may come of this yet. If Warren Buffet can do it, so can you. Still, others would have that there is not enough liquidity in the marketplace. These are very inter-related subjects, and there are these as well as a number of other reasons for the problem at hand, but, like pulling one flea off of a dog's ass, that alone doesn't quite make the scratching stop.
First let's lay down a couple of facts, truths known which we will not argue over, just for conversational purposes. These truths will be that
A. Wages are stagnant for the middle class and down.
B. Prices are not stagnant. Prices are rising. (ex. home values, health insurance, energy, food. etc . . . )
C. Consumer confidence is essential to a growing economy.
D. The economy should be encouraged to grow and inflation can not be allowed to.
These will be the ground rules.
Now as I understand it the Chief Operating Officer, or CEO, of a company is paid in both a yearly salary and through other means, be it stock or perks or yearly bonuses based on seniority or performance. In most cases, when a company is successful the CEO will be rewarded as such. It is therefore in his interests to see his company succeed as much as possible, there by profiting the investors and other employees and, theoretically, the company itself.
Now, theoretically, this profit would be divided between labor(employees) and capital (investors)such as that both would profit by the mutual arrangement. When stocks were rising and the DOW kept soaring investors raked in money, but in many industries high paying jobs were few, and yearly raises did not keep up with real inflation.
As consumers drive the economy, real wages remaining stagnant limited the disposable income available to the average American. This would have normally slowed the rate of growth in the economy down before the onset of inflation. Instead, during the 80's and Clinton years, on up until early 2001 inflation remained steady while the Dow climbed and unemployment held fast. In the history of our country this had never happened before. Now we are learning that it should not have happened at all.
You see, the economy was able to grow during these years without the average wages of the middle and lower class wage earners who constitute the majority of consumers increasing because the investor class of America saw their wealth increase in record numbers. As the average salary of the Fortune 500 CEO's were rising in multiples of 100, Joe Six pack got a 4% raise if he was lucky. All the while, the investor class is spending money, creating demand, and driving prices a little higher.
But how can the economy just keep growing and growing? How can everyone have their stocks keep rising? What kind of game is it when everybody wins? It isn't a game. If it were a game someone had their finger on the Ace. The game is rigged.
The way it seems to me, CEO's and investors know that their stocks will rise and their bonuses increase if profits rise, so they actively do everything within their power to make it seem so. At the accounting level, firms are hired with the understanding that there is no auditing, only advise, and what goes in the expenditure column may be negotiable. Every profit increasing tax loophole is employed. Sometimes these methods are legitimate. Other times they are not. The 2002-2003 Enron/Adelphia/WorldCom/ArthurAnderson crash would attest to that.
So would the internet bubble before that. And so on. And all the time we have Wall Street experts telling us that this is down today but don't worry something else will be up tomorrow. Each loss is sugar coated in anticipation of the next gain. That is why the news we are getting now during the holiday bulge rings so hollow in our ears coming from the unemployed Macy's Santa's bell as he sways at my bus stop.
There is no consumer confidence because people, real people, have not seen things get much better for themselves, and all they hear is that things are definitely bad now. They suspect that things will get worse. The volcano stirring on Wall Street gives no one reassurance as it belches up the acidic inflation created within itself by out of control over compensation of the investor class. Now those stocks and markets have over-inflated stocks and debt burdened creditless companies. Jimmy-rigging the failures there-in with bailout flavored sugar pills will only add fuel to the fire. The sad part is, in their own greed for ever higher stock prices and performance bonuses the super wealthy in this country have poisoned the well where all that trickle down wealth that hasn't reached you yet was supposed to come from.
The pundits are supposed to cheer. They are paid to cheer. They will not tell you that their unflagging optimism in spite of the facts helped inflate the market place and create false consumer confidence. Worse yet, they will not and can not tell you the truth.
I believe that the truth is that inaccurate accounting and a total lack of scrutiny by the cheerleading traditional financial journalists and experts have created false value throughout every sector of the economy. An ongoing assault on the ability of the average wage earning American to sustain day to day living is a product of the unequal distribution of the profits generated by corporate America, and because rising wages have not accompanied the hidden inflation we are seeing in the rising cost of daily necessities the average consumer is no longer able to sustain the growth of our economy through velocity alone.
Worse still, when stocks and dividends and bonuses are based on false value there is created another sort of inflation, the inflation of wage value. A large problem we have yet to deal with in this country is not the fact that a 20 dollars doesn't get you what it used to, it's that 20 million dollars doesn't get you what it used to. That's compounded by the lunacy of throwing 700 billion at a problem we can not name. The problem is not that there is not enough available credit. That might slow things down for the short term, but long term it solves nothing. The problem is how do people pay for something now that they could not afford then? Or, rather, what can be done for average wage earning Americans that will lessen the burden of every day necessities so that they can grow their wealth and therefore growing back the strength of the American economy.
Without the true understanding of what has been done by the inflationary and illegal accounting and cheerleading of accounting companies, credit raters, Wall Street mainstream journalists, editors and experts, as well as the companies and profiting investors, we can only try to come up with better question. Without better questions, how can we expect any better ideas to solve the problem?
That is why I will no longer regard the losses or gains of The Dow or Nasdaq as an effective barometer for the health of our nations economy. I will never give credence to the opinion of any expert who may be just as misinformed as you or I. I will wonder if that expert has a stake in his answers from now on. I will not buy into the covers of the newspapers. I will not believe a word of anything I might hear on AM radio. That one should be pretty easy. I did not and will not panic and run under the covers whenever Paulson or Bush tell me to, which is likely to happen again while they still can. And I will definitely take the day off on inauguration day, crossing my fingers that a real change is on the way.
If this is the American dream, I believe that every last one of us deserves a fair piece of the pie!
Until we address as a nation the need to grow the average income of the American consumer we can not and will not fix the economy, if such as it is can be fixed. Even then, it is going to take a lot more than that, but I hope and believe that a progressive solution will work and help dispel the myth that a freer capitalism is the answer to, instead of the cause of this mess.
And if we really want to judge the nation's economy we might be better served by looking at our own old bank statement over the course of the years instead of listening to Jim Cramer everyday.