THE COMING DEPRESSION

Now that congressional Republicans have decided that they want narrow political expediency to defeat the bailout package I am fearful for the future of our nation and the rest of the world, Although I did not believe that the proposed compromise was the best way of handling the problem I felt that an expedited poor plan was better than no plan at all.

People and markets are driven by expectations. If they believe that something will be done to alleviate a problem they will act as if the problem has been solved. On the other hand, if they see political divisiveness, they will act as if the problem will never be solved. This means that the financial markets will see a flight to quality. A flight to quality means dumping stocks and buying US Government Securities. The goods and services market will experience falling sales because people see their jobs as being in jeopardy, their 401k investments and savings shrinking while the value of their homes is falling. All of this will bring about further layoffs and a downward spiral in both consumer confidence and sales. I really don’t know a better description of the factors leading to a depression.

I know that many commentators believe that we now have the opportunity to do the job right. I do not believe that we will. The republicans believe that a total reliance on a market solution will solve the problem. In fact they are calling for market solutions devoid of regulation. This is what got us into the problem in the first place and the democrats would be dumb to go along with it.

On the other hand the democrats are calling for a “New Deal” type solution which might actually work. The problem here is that the republicans are so opposed to anything that smacks of the “New Deal” they’d rather sink the country than let it pass. They will throw procedural road blocks to the system that would prevent any solution that didn’t give the market reign.

We are still a month away from the election and three months from a new congress and president. In that amount of time we can face a complete economic, as well as financial, collapse. If our congressional leaders cannot create a new solution before the end of the week it will be too late. I am afraid we are destined to relive the great depression. Hello 1932. Hoovervilles will be Bush Bergs, Buddy can you spare a dime will become fella can you spare a 5, and 25+% unemployment will rein.