No doubt, we are facing a unique set of circumstances in the markets. We are facing a global recession that actually teetered on the brink of a depression.
While some might think that just recapitalizing the banks will allow the lenders to get back into the business of aiding growth by providing credit, the reality is that the financial blowup is a symptom of structural conditions that keep generating these imbalances over time.
Let me be more specific.
There are three important structural conditions afflicting the long-term economic health of America:
The U.S. auto industry has fallen to international competitors.
Huge Social Security imbalances and an out-of-control medical care system figure to siphon an increasing amount of capital out of the economy.
And the onerous and incomprehensible U.S. corporate tax system will cause enough friction to slow economic growth.
When the United States couldn’t sell cars and other products abroad, it stimulated its internal consumption in order to keep the economy going. The U.S. auto industry barely subsisted while the rest of America subsidized it with abnormally low interest rates and overpriced cars. Foreign carmakers could underprice them – and with better cars to offer – helping them book large profits, even when manufacturing in the United States.
Over time, the falling market share – in an industry where economies of scale are the name of the game – kept increasing the financial pressure on the U.S. car industry, which was technically insolvent by the year 2000. And up until recently, members of the U.S. industry declined to take the hard medicine and restructure their failing business models.
All the government money in the world couldn’t help the U.S. auto industry without a vital restructuring. The end result will be a trimmed-down, leaner industry whose workers will have less purchasing power. That is a strong change that will not be reversed.
Likewise with the banking industry, capital alone won’t do the trick unless the banks remove the cancer that is eating away at the very foundations of this country’s economic system. Therefore, we’ll see a pared-down, de-leveraged financial system that will produce less secular growth, lower profits and lower employment than its inflated predecessor.
In addition, although the industry has been “stabilized” with massive subsidies (zero interest rates, wide open discount windows and U.S. Federal Reserve programs designed to bolster asset values) significant losses are still ahead, which will continue to be painful.
There’s one last problem: The U.S. government has yet to address the elephants in the bazaar: The massive inter-generational Ponzi scheme of Social Security and the massive and unsustainable healthcare system.
If we do not address these two problems seriously, without political pandering and without making the very tough choices we need to make, let the last one leaving the U.S. turn off the lights, because the population pyramid is too narrow at its base to sustain the millions of baby boomers retiring.
The Obama administration is being proactive in addressing these problems, but the measures it is employing are inflationary.
They are non-linear dynamic. They are naturally chaotic and complex patterns. A cycle is a nail in a tire. It clicks with every revolution. Business and economies don't "cycle" because they are not round. Economic fluctuations are beautiful, natural, unique. They are not random either. Mathematics is the use of numbers to represent patterns in nature. Economic models seem cyclical only because the math and science hasn't evolved sufficiently to adequately describe the natural complexity. Instead we use approximations and oversimplified "models." Some aspects of economics seem cyclical because of our dependence on the cyclical nature of the calendar(annual reports). For many years the pattern of heartbeats was believed to be cyclical and persons who experienced "irregular" timing of heartbeats were considered at risk. We have since discovered the "fractal" or non-linear dynamic nature of heartbeats and understand that they follow a much more complex pattern that the nail in the tire.--PGSanalyst 19:43, February 23, 2008 (PST)