Tuesday, March 11, 2008

The crunch and the remedy

Rarely do I disagree with the great Bill Hobbs, but I must part ways with him over the economic reality in Tennessee and the country:

Take a look around you. Most people have not lost their homes or their jobs. Most businesses are still open, still doing business. Yes, there are problems - high fuel prices, rising food costs, a housing sector that's taken a sub-prime hit. But the overall economy is still growing, a fact not reflected in the news coverage of the economy.

I am not one to "talk down" the economy, nor would I want to, but we have to be realistic about what is happening. Not only are fuel prices high, but those high prices are impacting the rest of the economic sector. Diesel fuel over at the Co-op in Dandridge is running at $3.40 a gallon this morning (it is running much higher elsewhere). Some of the farm implements that are used to harvest crops run on diesel, and all of the vehicles used to transport food to places of purchase use it. What cost me a dollar at the store six months ago now costs me $1.25, and that is something that I have noticed very personally.

This inflationary pressure is not being helped by the low value of the Dollar against the Loonie, the Euro, or other world currencies. The sub-prime crisis that the article Hobbs quotes is part of a larger credit crunch in which banks and credit card companies lent money to people at exorbitant interest rates who were extremely high lending risks. We can't blame only the irresponsible consumers for this-they only share half of the blame-we must also place the blame on banks and creditors which have made extremely irresponsible lending decisions over the last decade or more.

Combine the high cost of fuel, the inflationary pressures on the economy that high cost creates, the low dollar, and the credit crunch, and we don't have a very good economic situation at the moment. It is a great truism that we can't change what we don't acknowledge, and in order for conservatives and Republicans to provide a solid conservative prescription for the country's economic woes, we must first be willing to admit that for much of America, those troubles are a real and current reality.

Both political parties like to play politics with the economy whenever it is down. If Democrats are the party of executive power, Republicans are sure to point the finger at them. If Republicans are in executive control, Democrats will blame the GOP as certain as the sun rises in the morning. Whoever the next president is, if there isn't significant economic improvement during their tenure, Americans will blame that person, rightly or wrongly, for the country's economic outlook.

There is one thing that can be done to lessen the economic burden on working people in the short-term: Lower or eliminate taxes on gasoline and diesel fuel as long as crude oil and fuel prices remain in their current state. This will at least lower the price somewhat, since gas taxes are always passed on to the consumer, whether at the pump or in the grocery aisle. The other things which need to be done are (or should be) out of the purview of government, but need to be done in order to help speed a real and sustainable recovery. Banks and credit card companies need to stop lending money to people they know are very high risk, no matter the profit they might make off of interest. Eventually, those high-risk people simply won't be able to repay their debts and creditors will lose those clients and their money-and the economy suffers. Loan officers would have been fired as little as 30 years ago for making some of the consumer loans that today's creditors have made.

Secondly, and most importantly, Americans should not buy things they can't afford. Spending only stimulates the economy in the short-term. If the consumer spending is actually an accumulation of greater consumer debt, the short-term benefits to the economy are negated, and we end up with a credit bubble similar to what the country had in 1929. An economy built solely on debt will eventually see a day of reckoning no matter who holds the wheels of government. If you need that new car, save for it. It may take you longer to get there, but you'll be in much better financial shape and you won't be contributing to the credit bubble.

We can 't expect our government to live within its means if the people it serves refuse to do so as well.

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At Tuesday, March 11, 2008 5:51:00 PM, Anonymous Anonymous said...

Interesting and true thoughts. I see the economic side in a slightly different light but my belief economic recovery begins when every person in congress who voted for appropriations over the budgetary limits need to be fired and fiscal managers sent in and we live within the means


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