Barry Eichengreen

Good evening, PDX!

All week long I've been thinking about the free forum I went to Monday PM at Reed College. Macroeconomist, Dr. Barry Eichengreen of UC-Berkeley, made a presentation titled "The Financial Crisis--How We Got Here and Where We're Headed". I wish many more people could have attended. The little lecture hall in the Psychology Dept. was stuffed to overflowing. Highlights:

1. We are tracking 1929 very closely.
2. It's global, and demand for almost everything is down everywhere, including for our stuff overseas.
3. The longer the job shedding goes on, the more self-perpetuating it becomes. Even if a massive program to help homeowners on the edge takes hold in a major way, it won't stem the tide of new foreclosures and people walking away from their homes due to job losses. Supply will be far ahead of demand for at least a year or more.
4. The stimulus package wasn't big enough. 40% of the US economy is consumer stuff, and the slowdown will suck $3 trillion out of the economy this year. $800 billion in stimulus is peanuts compared to 3 trill.
5. The Obama Administration should end the charade of the "stress test" for banks. It's wasting time. All the major banks are basically insolvent today. The only way forward is to nationalize the banks, chop out the toxic debt parts, and sell the rest off as newly privatized entities. Nothing (good) will happen until we do that, and the longer we wait, the more it will cost. And the longer we delay arresting our fall and starting a turnaround.
6. The earliest we might expect improvement would be two years from now. The longer we piddle, the longer we stretch that out. It could be 10 years--if ever.
7. Construction jobs won't be coming back anytime soon.
8. (In response to my question) we have only about the next 7-8 months to get the right things in place. After that, the 2010 Congressional election campaign begins; and people will be told that we should have gone with all tax cuts and no spending in the stimulus bill; told that's why things are bad, that we need to change course. This line won't necessarily be true, but it will sell well because Americans alive today expect instant results and have not experienced hard times such as the ones we are entering. We will likely make adjustments in 2010 that may be the wrong thing. At least there's the danger.

This will be a "long, hard slog", to quote an infamous former SecDef.

Oh, and there was this. We knew July-August 2007 that we had a major problem on our hands. It took us 18 months to get a coherent response to it. His words. I'm not sure we have a coherent response yet. We're about three months behind in our official recogniton of the severity of what workers and households know by getting up each day: It ain't happenin' here anymore.

The days of having people use their home equities at ATM's are SO over! And far too much of our vaunted "growth" was based on precisely that.

One other thing. Tax cuts won't create jobs. People are socking away everything they can. That motor home/RV maker, Monaco Coach, that I wrote about in the last post? Say we gave the company a nice fat corporate tax cut. Their market is gone. The money people used to buy those luxury homes on wheels is gone. Think Monaco will call people back to make another 150-200 of those big heaps when no one is ordering and they can't sell the inventory they have?

Those living-wage jobs with benefits are gone, and they aren't coming back in the lifetimes of most of the former employees. That won't turn around in 16 months. The future will be different.

But why didn't we start doing something back there around July-August of '07?
Two answers.
1) We were all obsessed with whether the surge in Iraq was working and what that meant for presidential elections.
2) Both parties were obsessed with the jockeying leading up to the New Hampshire primary, the Iowa caucuses, and which state could get the most campaign dollars and news crews tramping through with candidates in tow. The last thing either party wanted, especially the one that was in the White House at the time, was to be honest about bad news with the economy.

It's the economy, stupid. Famous words. So even though our real purchasing power was shrinking, the White House managed to convince itself (and us) that we were actually better off. And we bought it. After all, American Idol was on.

Construction jobs in Bend, Oregon? Not anytime soon.

Love your neighbor as yourself!

Shalom,

Pastor Roger