Monday, May 25, 2009

Proper Language (Not Cussing)

How much can the current Recession be blamed on the huge Oil run-up in Price? This article makes only a cursory review, without genuine comment. What exactly do high Oil prices do, and what did they do to bring the last Recession? Well, they first made Mortgage-Holders highly conscious of not only the magnitude of their monthly House payments, the real reduction of their disposable Income by what can be called Shelter Costs, but significantly raised their Commute Costs if continuing the natural Commute of their own vehicle. There was even an Increase in the Cost of communal Transport systems due to higher fuel Costs. The real horror of their Commutes was highlighted, as the Oil price did not present a real reduction in Traffic as Everyone had the necessity of maintaining their Work Schedule; based upon their own personal need for Cash, and mass Transports’ inability to establish sufficient lines. A real number of Homeowners, I estimate around an initial 300,000, simply abandoned their Homes and Mortgages almost immediately; they early recognizing that they could not maintain the effort. A couple million more Mortgage-Holders followed as the debt load was realized. Here was the real causation of the Recession.

Mark Thoma gives Us a Contribution from Barry Eichengreen. It comes with a good presentation of the Issues, but with a sparsity of definition of potential Solutions. The Chinese are unlikely to alter their Savings ratios, under the impress of current economic conditions there; unemployed industrial labor are returning to the land in Record numbers, as they can no longer afford simple subsistence in the Cities. Their Wages levels are still far too low for the majority of Chinese labor to accomplish both Consumption and Savings, with the horrors of Unemployment still too vivid to contemplate a reduction of Savings. The Chinese cannot commit Chinese labor to expenditure of what personal wealth they presently possess on Consumption at the present time, with an impossible task of imposing a Consumer Credit system when people are insecure of their next Paycheck; a situation faced in the United States today, where Americans have ramped up their Savings schedules with and under the threat of Paycheck loss. The Fed provision of funds to the Equation makes little difference when confronted by a mass of individual decisions to curtail Consumption for Household stability. Sooner or Later all must realize that Monetary policy will not provide a Curative, nor will fiscal policy. The best Answer will probably be higher Business taxes, lower fiscal Spending, a balanced Budget, and a greater Safety Net under Unemployment.

John Quiggin wants to take on Bryan Caplan, when I ask what does it matter. Loss of the quality of life through dumping Welfare measures to protect Labor is not even worth the loss of Consumption of this segment of the Population, let alone the higher Wage levels which must be paid to generate willingness to Work. A lot of people believe that abandoning Labor, while subtracting Business from taxation, promises economic growth and success. I suggest such an attitude ignores the Consumption Demand needs of an economy which must sell most of its Product domestically. Competition on World markets is a useless proposition if domestic demand suffers as a consequence. Less than 1% of American businesses pay their Expenses through foreign sales, though they achieve sometimes up to 85% of their Profits from such Sales. I would suggest all such Dreamers who envision great success from Exports, to start paying their Maintenance Costs from their Export Profits. lgl

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