Do Not Panic

Written by:

Joe Oglesby

The economy for many American’s is the number one issue this political season, as indicated by polls in a previous blog post of mine. The unemployment rate is at a five year high of 6.1%. There is a mortgage crisis that is resulting in large companies and banks going belly up. Gas prices, although having dropped recently, are very high and many people have changed their ways because of it. Right now the two candidates are polar opposites on the issue of where the economy stands now.

Senator Barack Obama recently made the comment that we are currently in the worst economic crisis since the Great Depression. Comparing the great depression to the crisis now is the same as comparing apples to oranges, and negates the drop in the fall of 1987, which in terms of percentage was much worse. In an interview on the Fox Business Network Amity Schlaes compared the depression to now. She brings up that the depression grew because the tax rates were increased from about 25% up to 30%. Raising taxes is what Obama plans on doing. Amity also brings up that she believes the depression could have ended earlier than it did, but there was too much regulation by the government because of the New Deal. The Obama camp is criticizing McCain and the republicans for a lack of regulation. So, inversely, this would mean the Obama camp wants more regulation and in the above interview it is even stated that we need more regulation.

Senator John McCain has stated many times that he believes even though we are in tough times that the fundamentals of our economy are still strong. Neil Cavuto points out why the economy is still strong and that it is the housing market that is weak, not the overall economy. Cavuto points out that consumers are buying much more than analysts expected. The housing market is collapsing because in the nineties the federal government pushed for banks to give loans so people could buy homes. The problem is that these loans should not have been given out to many of the people that these loans were given to because they were not financially stable enough to be able to pay back the loans to the banks. When the loan is defaulted on the bank takes the home, which has been driving down property values for other homeowners. Neil points out that the banks took a huge gamble on the housing market with these loans and have lost. Neil believes the economy is strong and it is not time to run and hide as the Obama camp may like us to believe. The price of oil has also dropped significantly.

Oil is down more than 30% since hitting a high of $147.27 on July 11.” Oil is now below $100 a barrel. This occurred because of the basic economic idea of supply and demand. Over the summer many people used alternative forms of transportation such as riding a bike, walking, or using public transportation. Because of the cutback on consumption of fuel this past summer the overall supply ratio has gone up since demand was down and that is why we are seeing oil go below $100 a barrel. This drop in gas prices in the coming months will finally provide some relief from high gas prices which will trickle down to lower the food prices.

People are short on cash as it is, yet Obama wants to initiate a “progressive tax” increase. Obama seems to think that he can pull from only one side of the bucket by taxing only the rich. This crisis is not the end of days; we are not in a modern day Great Depression. In fact, the economy is stable according to the Federal Reserve which just sent across the wire that interest rates will remain unchanged, had the economy been in trouble the interest rates would have risen. As Neil Cavuto pointed out “we’ll be fine.”

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3 Comments

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3 responses to “Do Not Panic

  1. thatgirlsmind

    It may not be the ‘end of days’, but I say we are in a modern day Great Depression. We just don’t know it yet.
    The Fed is talking a big game because the last thing it’s going to do is create a panic by admitting to the severity of the situation which would practically guarantee a run on every bank in America tomorrow. Just ask Senator Charles Schumer about his role in the IndyMac Bank failure in July.
    The fact that the Fed didn’t raise interest rates is actually an indication of just how sick the economy is because the subprime mess responsible for the felling of all but two investment banking giants (to date) is tied directly to the Fed rate. Mortgages are considered “subprime” because they have adjustable rates. Adjustable rate mortgages (ARM’s) “adjust” when the Fed rate changes. The higher the rate, the higher the monthly ARM payments for individuals and families already struggling with the raising costs of food, fuel, energy and health. At the moment, it seems maintaining what’s left of consumer confidence and keeping homeowners on the brink of foreclosure in their homes for one more month is trumping inflation concerns. But I suspect it won’t be long before inflation is also a hot topic.
    All due respect, but there isn’t enough money in the world to fix this mess. That’s the problem. The American way of life is built on credit. Spend today what you make tomorrow. Save nothing. Banking institutions operated and encouraged everyone to live by this mantra. They’re going bankrupt and we’re paying the price to the tune of a collective trillion dollar bailout… It’s only a matter of time before we feel that in our wallets.

  2. Tony Robinson

    Joe: I appreciate your insightful and challenging attempt to sail against the prevailing winds with your analysis that everything is really just great and “we’ll all be fine,” and I do think you raise some good points about the trickle down effect of lower oil prices, etc.

    But I want to raise a few other points.

    1) Your claims that the Depression was essentially caused by rising tax rates and was prolonged by New Deal reforms is definitely a minority opinion. The collapse of the American farming market was hardly caused by rising taxes, and that played a key role in the depression–and Galbraith tells the excellent story of speculative excess in his tale of the Crash of 29 in his book of the same title. Also, consider Kevin Phillips analysis in Wealth and Democracy. Wages were declining across the economy, wealth was concentrating at the top, thousands of farmers had went bankrupt and were kicked off their land, and deregulated investors had created a huge speculative bubble of false wealth through such ponzi schemes as the florida land bubble–those were the causes of the Depression, not rising income tax rates.

    2) You say New Deal reforms prolonged the Depression–but I wonder if you really feel the economy would operate better without the key New Deal reforms of — bank insurance and deposit insurance (so that millions did not go bankrupt every time a bank went under), — social security (the most successful program in American history in ending poverty among seniors), — The Tennessee Valley Authority and Rural Electrification (bringing electricity, dams and development to rural areas, built by high-wage workers), and the Agricultural Assistance Act which provided lower interest loans to farmers and helped them secure higher prices for their crops, thus ending thousands of farm bankruptcies a year. These were the essence of the New Deal. If we had done of these things–would our economy really have rebounded faster and been better off?

    3) The Housing market crisis is bigger than just a housing crisis. Due to deregulation and new rules allowing banks to bundle mortgages, create new security products out of them and sell them as investments across the globe–the mortgage crisis is at the heart of a worldwide web of investment. For example, the money that Americans borrow to keep their economy afloat (both the American government and the American consumer now have larger debt loads than any nation in the history of earth) is largely from foreign investors (namely china), who securitize these loans (e.g., guarantee them) with bundled mortgages that carry a guaranteed rate of return. Who guarantees the rate of return to these Chinese investors? That’s right–AIG. When AIG is going belly up, Chinese investors lose faith in lending money to America, and the entire American model of borrow, borrow, borrow quickly comes into crisis–which also puts Japan and China in crisis, since they needs Americans to borrow, so we can buy their goods. through the summer of 2008, asian investors were already pulling $100 billion a month out of the u.s. economy–part of the reason for the cascading financial catastrophe that seems only to be growing. In this way, the AIG crisis is a worldwide economic crisis, not just an isolated housing market crisis. That’s why Russia’s plunging stock market had to close early today, why England’s largest banks are facing similar challenges as America’s, and why stock exchanges in Asia are sinking. When every day brings news of another aged financial giant going under (Behr Stearns, Fannie Mae, Freddie Mac, Lehmann, AIG, B of A, WAMU, etc.), let’s face it–something’s going wrong more than someone being in over their head in a starter home.

    3) a minor point–if the Fed felt the economy was tanking, they would drop interest rates, not raise them as you say. Lowered interest rates means rising economic activity.

    Anyway, enough of a rant for now. Your post provoked me, though. Nice work.

  3. Stephen Noriega

    It is good to stay calm in these times of trouble. The stock market is made up of companies and confidence, interlinked in the hopes and nightmares of a fickle investor mob. Neil Cavuto is trying to keep the boogey man away. I wonder if he believes in the boogey man right now or not.

    I think we are headed for a real hard economic patch. Some of this can be blamed on the ruthless seasons of capitalism. Karl Marx is right in defining capitalist systems by their various crashes. Systems with representative money will always have bad days, months and years. We are in for some tough years.

    Perhaps we should be a little afraid. The Dow lost another 373 points today. Oil jumped up to 120/Barrel as investors look to materials to hide their money. Hank Paulson believes that if there is no government bailout, the United States is weeks from a total credit market crash, instant lay-offs and a possible depression. I don’t think that would be too helpful for Bush’s approval rating.

    I agree with you in that we should not be panicking. However, we see the bear on the mountain, he is walking our way and we better load our shotgun just in case!

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