The Cause and the Cure

[j_martin]

Radio talk show host Kris Baker had Keith Hembre, the chief investment strategist at US Bancorp on his show today. He asked him to explain a banker's view of what is happening in our economy.

He started by saying that it reminded him of a Homer Simpson line. "The main cause, as well as the main cure for man's problems is alcohol."

Basically, he explained what is intuitive to anybody that thinks about it a bit. Loose banking procedures, and loan parameters, mostly forced by the government, caused a surplus of capital chasing the markets. Now that bubble has burst, and if left alone, the markets will readjust and clear out and business can go on as usual. Banks are loaning money, but they are way more cautious than before. The days of the NINJA loans (No Income, No Job or Assets) are over.

His main point is that the work force is at 140 million and growing, and productivity has been increasing about 2% per year for years. That is the fundamental source of GDP growth and prosperity, and it is at this point intact.

Both business and personal savings are rising, and personal debt is going down. Signs that people are cautious, to the point of worrying about the future.

What wasn't covered in the limited time, but should be obvious, is that the current "bailout" will mess seriously with the fundamentals, tying up capital needed to finance business and consumer spending, and also tying up work force by paying it for nothing. (welfare, unemployment, etc.)

Man, this is gonna hurt a lot before it gets better.

John

[sho305]

This is a perfect opportunity to buy votes, they can't pass this up. I also like how they are doing little for the economy in all this spending. Instead of boosting the economy so people can get on with it, they spend on a bunch of pork. Government gets money for the roads when people drive on them, you don't give money for roads and expect people to get magical powers to drive a car they can't afford to put gas in to go to a job that is not there.

Maybe I'm a stupid conservative but if you stop taking money from people in taxes, interest rates, and health care deductions they might feel better and go do their thing. Housing might stabilize to fix the banks, and business might pick up to make jobs. Just a guess on my part. That applies to business to a lesser degree.

They are doing nothing for the consumer that runs 70% of the economy, and while they waste most of this money the economy will have to crawl back on its own carrying even more weight. When it does, where will we be? We will have more debt and still not make anymore money to pay for anything because nothing else changed....except some more liberal programs we can't pay for in the future. At least the bankers will still be rich, the hedge funds can still run up energy, you can still payoff the SEC, lawyers will make their money for doing nothing, we will still have copyrights forever, and we can all count on larger future health care deductions from our paychecks....and we will have an even lower level of living than before.