Two news items caught my eye this week:
Greenspan Says Stimulus Isn’t Working
First, former Federal Reserve Chairman Alan Greenspan said that the fiscal stimulus has fallen far short of expectations. He said made his comments Wednesday morning at a gathering held at the Council on Foreign Relations, in New York.
As reported by the Wall Street Journal’s Real Time Economics blog, what he is advocating is less stimulus and more free market activity. “We have to find a way to simmer down the extent of activism that is going on” with government stimulus spending “and allow the economy to heal” itself, Greenspan said.
That’s interesting because there’s coffee klatch chatter about how the housing market just needs to crash and burn, so that (ostensibly) a new housing market can rise from the ashes, Phoenix-style.
But has anyone really thought through what that will mean, particularly for the housing industry? (That’s just what we need – more markets crashing, and wiping out what’s left of Main Street’s fortunes.)
Greenspan says that it’s looking less likely that we’ll have a double-dip recession (really???!!!) but he said that if housing prices decline further, then it’s more likely we’ll have a recession.
Well, guess what? If we let the housing market (as well as the other industry markets) crash and burn, housing prices are going to go down and foreclosures are going to go up. Why? Because we haven’t fixed the core problem – 15 million Americans (at least) are unemployed. The U-6, which is the broadest measure of unemployment, including those laid off, those who no longer qualify for benefits (the so-called 99ers), those who have thrown up their hands and quit their jobs and those who have given up to stay at home with their kids or gone back to school, that number is now at nearly 18 percent.
That’s a whole lot of people who are out of work. And, I don’t believe this number takes into account the millions of self-employed contractors (1099ers) who don’t have benefits are are earning a fraction of what they once earned. (Plus, don’t forget the recent Pew Research Center study that revealed 55 percent of Americans are earning less than they were three years ago.)
I don’t know if economists, who live in a world defined by mathematics formulas, ever step outside to see how the real world functions. They should. It’s pretty rough right now – with nary a green shoot in sight.
And, let me end by pointing out that Greenspan, for all of his talk about irrational exuberance, missed the call on this Great Recession. Is he right now?
How Will Baby Boomer Seniors Pay Their Mortgage?
The other story that caught my eye was a report about how states are slashing pension benefits for not just future retirees, but current retirees. In simple language: The states are broke. They can’t print money (unlike the Federal Government), and they can’t run deficits. So, they are slashing and burning their costs, of which pension costs are huge.
But with seniors only earning about a half percent on their savings at the moment, slashing pensions and increasing health care cost contributions is going to mean more seniors will be unable to afford their mortgages or make any meaningful contribution to the economy.
All this talk about getting our financial houses in order is going to be one long, painful process. I’m wondering if a generation bred on 8-minutes of television content sandwiched between commercials is going to have the focus and vision to get through it.
Please leave your comments on the Blog.