Wednesday, June 18, 2008

A Rhyme for Recessionary Times

Jack and Jill

Faced rising bills.

And could afford

Only bread and water.

Jill asked, why not

Sell our house and lot?

Said Jack,

‘Cause they’re under water.

The American economy is based on credit and growth in asset values. When credit contracts and asset prices fall, the entire economy contracts, and there are no easy ways to recover. Everyone, from powerful investment banks to laid off wage earners, is suffering. Old fashioned fussbudgets mumble about living within one's means, saving nickels, and prudent investing. But politicians, knowing that the way to the electorate's heart is through their pocketbooks, promise bread and circuses while conveniently omitting to mention that the bread and circuses come at the dispensation of foreign creditors. Rome fell. Britain, too, after fighting World War II on borrowed money (loaned courtesy of the United States, which was considerate enough to press the issue of repayment only gently). The United States cannot prosper by indulging in more borrowing and consuming. Nor can it benefit from more cheap government-funded credit provided courtesy of the Federal Reserve. We've had enough of bubbles and we don't need stagflation. Presidential candidates speak of change. Real change would involve offering greater incentives to engage in productive activity--creating goods and services that can be sold worldwide--and wealth building activity, like saving.

No comments: