Pointer’s Weekly

GOP leaders blame President Obama for higher unemployment-rates than expected by the government. It’s clear that the economic policy of the Bush43 administration is worse than recognized when the Obama-administration came in charge.
In this figure the reality is exposed with the numbers of March, April and May already onward to the sky. When I did predict this in February most readers said that I was exaggerating, but it was simple logic, while the bailout money did not restore the credit-flow for small businesses, the foremost job-generator. GOP-leaders say now that the government’s spending does not help either. That’s without any logic. Of course are the projects of the stimulus package creating work for many who otherwise should be unemployed and again the state of the economy isn’t Obama’s fault. It’s what the former administration has left us, that be the people all over the world.

Let’s look what is written by Martin Feldstein in the Washington Post on Thursday, October 30, 2008; he is the chief economic adviser of the Reagan administration, so, really a Republican, but not that playing around with reality and the wildest faklse accusation as is fashioned by the current GOP leaders.

Further legislation to deal with the economic crisis should not wait until the new president takes office. Fortunately, the president-elect will be a senator and can propose legislation without waiting to be sworn in as president. Immediately after Nov. 4, the winner could, and should, take the lead in the legislative process.
The economy faces two separate problems: the downward spiral of home prices, which hangs over the financial markets, and the decline in aggregate spending, which could cause a deep and prolonged recession.
Home prices have already fallen about 25 percent from their peak in 2006, and experts say they must fall an additional 10 to 15 percent to get back to pre-bubble levels. But they could fall much further than that as a result of mortgage defaults and foreclosures. Further declines from the current level would increase the number of homeowners whose mortgages exceed the value of their homes, creating a strong incentive to default. Defaults and the resulting foreclosures would put more homes on the market, driving down prices even more.
And this fear of a deep drop in home prices depresses the value of mortgage-backed securities, contributing to the difficulty that banks are having raising funds and to their reluctance to make loans.

Although home prices must get back to pre-bubble levels, Congress should enact policies to reduce defaults that could drive prices down much further. Direct help to the 12 million homeowners who already have negative equity in their homes could help to stop foreclosures. But it is important for Congress to go further and stop declining prices from pushing a large portion of the other 37 million homeowners with mortgages into negative equity, which could tempt them to default. The mortgage replacement loan plan that I suggested in June, essentially a congressionally enacted mortgage “firewall” to prevent prices from dropping too far, is one possible way to do that.
Falling home prices have already reduced homeowner wealth by about $3 trillion; the stock market decline has cut wealth by an additional $8 trillion. This reduced household wealth is causing consumers to cut spending, leading to lower employment, lower incomes and, therefore, further cuts in consumer spending.
Other components of aggregate demand are also falling. The decline in consumer spending will lead to less business investment in plants and equipment. And the recession in Europe and Japan will further reduce our net exports.
With the Fed’s benchmark interest rate down to 1 percent, there is no scope for an easier monetary policy to stop the downward spiral in aggregate demand.
Another round of one-time tax rebates won’t do the job. The rebates that Congress enacted this spring failed to stimulate consumer spending: More than 80 percent of tax rebate dollars were saved or used to pay down existing debt.
The only way to prevent a deepening recession will be a temporary program of increased government spending. Previous attempts to use government spending to stimulate an economic recovery, particularly spending on infrastructure, have not been successful because of long legislative lags that delayed the spending until a recovery was well underway. But while past recessions lasted an average of only about 12 months, this downturn is likely to last much longer, providing the scope for successful countercyclical spending.
A fiscal package of $100 billion is not likely to be large enough to revive the economy. The fall in household wealth resulting from the collapse of the stock market and the decline of home prices may cut aggregate spending by $300 billion a year or more.
The president-elect should focus on developing a mechanism for identifying and funding spending initiatives that can occur quickly and that would otherwise not be done. While it would be good if some of the increased spending also contributed to long-term productivity, the key is to stimulate demand. Any plan to finance this spending by raising taxes, even if postponed, as Sen. Barack Obama has suggested, would hurt the recovery by causing affected taxpayers to cut their spending now.
The increased government spending should include not only money for infrastructure such as bridges and roads but also for a wide range of equipment. Rebuilding some of the military capacity that has been depleted by the wars in Iraq and Afghanistan could be done relatively quickly and should be part of the overall package.
Although the economy is facing severe challenges, the president-elect can turn the situation around by introducing legislation to deal with the downward spiral in home prices and with the declining level of aggregate demand. It is important that such legislation be enacted as quickly as possible.

We know that Obama followed this bold face printed (by me) advise, because it was the only way to deal smartly with the deplorable state of the economy of that very moment, with Bush43 still in the White House, until now. The damage of the forgoing administration is at least that three trillion dollars of the real estate market, plus that eight trillion of the stock market plus the three trillion of the costs of the lost war in Iraq, which is nothing more than a hobby of the neocons. This makes for the moment a total loss of fourteen trillion dollars, the total GDP of the USA, which is according to the CIA World Factbook: US$14,330,000 million.
Doing nothing, as is, according to the current fiscal conservative GOP-leaders, far better should have been to face with the total collapse of the ten largest banking and insurance companies with the following bankruptcy of states and countless small businesses. Unemployment rates should have reached to 50%-60% by now, what means nothing less than starvation. But indeed only the strongest businesses, manufacturing products for the most urgent needs like cheap food, should survive the ultimate worst. We can observe how that is to be in Zimbabwe. Americans have to thank on their bare knees all their gods for the right president at the right moment.
Yes, with no regards of justice, they will all have to pay their debts and only the conservatives who created this mess are responsible for it. It’s the price for the culture of unlimited greed.
But did Feldstein himself offer a true solution when he saw and predicted the current crisis?
This is from January 2008:

NEW YORK (CNNMoney.com) — Martin Feldstein, the Harvard economist credited with being one of the fathers of the Bush administration tax cuts, says the U.S. economy is now likely to slip into a recession, and that avoiding one will take a new round of tax cuts and interest rate cuts from the Federal Reserve.
Feldstein is president and CEO of the National Bureau of Economic Research (NBER), the organization charged with determining when the economy is in a recession and when it is growing. He told CNNMoney.com that he had thought the chance of a recession was about 50-50 even before last week.
But he said he now believes a recession is likely, as he pointed to both a report from the Institute of Supply Management showing manufacturing activity in decline for the first time in almost a year, and Friday’s December jobs report that showed a jump in the unemployment rate to a two-year high.
He did not give a new percentage for the chance of a recession, saying that will depend on what both the Federal Reserve and Congress and the administration do in response to the weakness.
“It’s not just clear that lower interest rates and monetary policy more generally will have enough traction because of conditions in the credit market,” he said when asked if the Fed could hold off a recession. “We should have some fiscal stimulus to back that up.”
Feldstein made his remarks the same day President Bush gave a speech in Chicago in which he said that economic indicators are “increasingly mixed,” and he acknowledged that many Americans are growing anxious about the economy. But the president argued the economy itself is resilient.
The president did not propose any kind of short-term economic stimulus package in his comments, as some had expected, although he argued that it was important not to raise taxes and called for making permanent the tax cuts he passed early in his administration that are due to expire after he leaves office.
Feldstein said he was not surprised that there was no plan laid out on Monday, saying he expects to see it in the State of the Union address. He said an extra $300 tax credit for each tax payer, similar to what was passed in 2001, would only be a good first step this time, and that some kind of deeper cuts might be necessary if the economy starts to lose jobs.

It is clearly much worse than expected. Some other facts: Feldstein is an avid advocate of Social Security reform and has been a main driving force behind former President George W. Bush’s initiative of partial privatization of the Social Security system. By now putting the social security funds in the hands of hedge funds and other private speculators seems to be not a good idea. As a member of the board of AIG Financial Products, Feldstein was one of those who had oversight of the division of the international insurer that contributed to the company’s crisis in September, 2008. So also with Feldstein the GOP has nothing to contribute in reversing the economic downturn of the USA and the world. But as wrong as he is, he is not as crazy as the current GOP-leaders.

This entry was posted on Thursday, June 18th, 2009 at 5:19 pm and is filed under Economics and Frauds, Politics and Policies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.