tackle a very tough subject: trying to explain exactly what a bank is and does. They talk to a number of experts about what has gone wrong in banking, but not before bringing us all up to speed on some banking basics, like understanding a bank balance sheet, and a bank’s assets and liabilities, and the squishy business of what banks say about their balance sheets compared to what they are.
Alex and Adam walk us step by step through the complications of the US government buying up bad assets from banks, and explain why, when it comes to footing the bill, the government might just prefer to not be in charge of the very banks it is having taxpayers bailout. From a dollhouse, to a hypothetical bank worth tens of dollars, to the trillions of dollars being spent to keep banks afloat, Alex and Adam talk economy, and where we might be headed. (39 minutes)
"Hard economic times are acting like instant fertilizer on an industry that had been growing slowly: home vegetable gardening," USA Today reports. For Americans squeezed by the recession and interested in a healthier alternative to store-bought produce, now is a great time to start planting.
LBO has often described the U.S. economy by invoking the old Timex watch slogan from the 1950s, “Takes a licking and keeps on ticking.” Crash follows upon panic follows upon bust, and yet the thing keeps getting up again to binge some more. These remarkable feats of renewal, though, have always come with big help from the U.S. government, either multibillion dollar bailouts or long rounds of indulgent monetary policy from the Federal Reserve. But revive it always has, despite the forecasts from the hard left and the hard right that this time it was different and the medicine just won’t work.
Will it work again? Will the megadoses of stimulus do the trick? Or is the jig up? Will what’s widely touted as the greatest financial crisis since the 1930s be a prelude to Great Depression II?
More from the December issue of Left Business Observer.
"Listen to recent debate about the $800+ billion federal stimulus package and you hear two strong underlying assumptions: the economy will recover within a few years, and it will function pretty much the same as today (except perhaps for some more wind turbines, more solar panels, and a dazzling new selection of fuel-efficient family cars)."
Driving around Florida's ghost subdivisions, you feel not just that their influence is waning but that they are physically hollowing out. In a place like Lehigh Acres, near Fort Meyers, where half the driveways are sprouting weeds, and where garbage piles up in the bushes along the outer streets, it's already possible to see the slums of the future. More and more of the residents in Hamilton Park will be renters like Lee Gaither. The vacant houses in Country Walk will be boarded up. The St. Augustine grass in the front yards of Tanglewood Preserve will grow three feet high. The open fields with street lights but no houses will become dumps.
More of George Packer's excellent article on Florida's speculative real estate disaster here (New Yorker subscription required) and a video here.
You may have heard of peak oil, but what about "peak dollars"? Ben McGrath touches on the term in his excellent article in this week's New Yorker on the recent spike in popularity of the doomsayer movement. (Abstract here and an audio interview here.)
In simple terms, peak dollars is the notion that the U.S. monetary system (and by extension, our economy) faces eventual breakdown due to our fairly recent decision (in the seventies) to completely unlink the dollar from the gold standard. This makes it very easy for the U.S. government to issue bonds, many to foreign investors and governments, essentially borrowing more dollars into existence. This can lead to inflation, which erodes the value of individual savings accounts, discouraging saving and forcing people to put their money in risky investments to keep up.
As long as GDP continues to grow exponentially (at some percentage every year), the government is able to service its growing debts, and the economy stays afloat. But the important point here is that the monetary system we've created for ourselves assumes and essentially requires that our economy (and, by extension, our resource use) keep growing exponentially and indefinitely.
The problem, of course, is that natural resources are finite. Some argue we're not even close to running out and that technology will provide the necessary efficiencies to keep up business as usual for quite some time. The doomers, on the other hand, think we're going to run out of resources a lot sooner than we think and that the whole economic system will collapse.
Who's right? I don't know. Dystopians have certainly been wrong in the past, but as McGrath says, "they only have to be right once."
What seems more likely than sudden collapse is a sort of herky-jerky unraveling--a bunch of dips and jumps that trend downward, forcing us to eventually cast a much more critical eye at some of our most deeply held assumptions about our economy.
Whatever direction we think our current economic crisis is going to lead, it's important we learn as much as we can about the conditions that are required for short-term growth to resume and long-term growth to continue. The easiest-to-digest explanation of all this that I've found is a series of videos from economist Chris Martensen called the Crash Course. It's long but utterly fascinating and even a touch optimistic in its own Debbie Doomer way.
"THIS week, President Obama called upon all Americans to volunteer, to pitch in and give back. We hope that the president is serious about this challenge, because providing more opportunities for national and community service won’t just lift the nation’s spirit, it could help save the economy."
A reader forwarded me a link to a recent This American Life episode in which Alex Blumberg and Adam Davidson . . .
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