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The crisis in Washington: What does it say about us?

This is an extraordinary moment, requiring adult leadership and adult followership. I am concerned about whether we have either.

Acknowledging with total humility that I have no special expertise on the matter, and that much-better-positioned journalists are following every bounce of the ball in Washington and on Wall Street, I offer a few facts, thoughts and questions.

We are told that the stakes right now are so high that references to the Great Depression are appropriate.

I have no idea if the stakes are really that high today. I assume that no one really knows. We deal with threat inflation all the time in our current political culture. A few weeks ago, the high price of gasoline was being discussed as if was almost an existential threat to the American way of life. At a time like this moment, it is regrettable that we allow shrill voices to scare us so often that we're not sure when something truly frightening is at hand.

For the record, the Depression that began in 1929 was the greatest economic calamity in U.S. history. The unemployment rate rose to 25 percent and remained above 20 percent for four years before starting to subside. The GDP shrank by about 10 percent a year for the first three years after 1929, then bottomed out and slowly began to grow. But full recovery didn't occur for more than a decade.


The fact that the soberest titans of the economy speak in these terms, makes me want to shake off my cynicism about all the previous threat inflations and take this very seriously. But it also makes me want to stay calm. The country survived, and achieved its greatest days, after the recovery from the Great Depression. Are its greatest days still ahead? Ask me in 20 or 30 years.

I assume that the smartest and best-intentioned people in the world don't really know, for sure, what is the best way to minimize the danger to the economy.

We need to be realistic about that fact and not look for a messiah. But we have no choice other than to accept the leadership of the smartest and best-intentioned people in the picture. Whom do you trust?

Only about 20 percent of Americans can name the two U.S. senators from their own state. The idea of an informed electorate is a shibboleth. But even among the best informed, the kind of people who read MinnPost for example, very few of us have the economic skills to assess the proposals for ourselves. Certainly this humble scribbler isn't one. In reality, even the best-informed Americans rely on trusted leaders and thinkers to sort out questions like this.

Right now, I want someone I can trust in charge. I don't know who that is but I know it is not President Bush.

It is sad, maybe tragic, that it comes to this. This is one of the reasons we have a president, and it is natural to look to the Oval Office for leadership that will rise above ideological blinders and partisan advantage. I don't doubt President Bush's patriotism or his good intentions, but he has long since spent all of his credibility with me and I suspect with many other Americans.

I have actually wondered over the last couple of years about the wisdom of our system, which virtually guarantees the president (absent an impeachable offense) a four-year term even if he has lost the confidence of the public and the Congress in the first year or two. Parliamentary systems have a quicker way to deal with such situations. This is not a moment to consider structural change, but it's worth discussing someday.

Instead, we have a titular leader who enjoys the confidence of roughly 20 percent of the nation. For leadership in this current travail, we must look to a large group of people most of us barely know — a treasury secretary and a Fed chair, leaders of Congress, chairs and ranking members of normally obscure committees that regulate banking, and in some collective sense, the whole Congress itself, replete with nobles and knaves. I sincerely hope they are doing their best work right now with as little partisan advantage-seeking as they can manage.

I have written this before but I wish I had written it 10 times more often: The national debt is no joke, but it is treated as a joke.

There is plenty of blame to go around for that. There are only two reliable ways to reduce the deficit and, ultimately, the debt: raise taxes or cut spending. We need to do both. We do neither.

We are spending money on ourselves and charging it to our children's credit cards. This is a moral issue but is seldom treated as one. The political class seems to be unanimous that they will be punished politically if they ask us for any sacrifice on the taxing or the spending side. They have looked into our hearts and the political commandment they see there is: Pander to me, run up the debt for my grandchildren or face my wrath.

I'm not saying that it is in our children's or grandchildren's interest to allow the U.S. economy to collapse for 10 years by failing to take action now because of an excessive faith in the invisible hand of the marketplace. That, I gather, is what Hoover did.

I know little about Keynesian economics, on which, I gather, modern fiscal policy is sort of based. But it's supposed to go something like this: It's OK to engage in deficit spending, when necessary to deal with a crisis or stimulate the economy. But then you are supposed to pay down the debt during good times, so that you will be in a position to borrow again when the need arises.

Now that we are in a position where we may have to put $700 billion to $1 trillion on our kids' credit card all at once, I ask this question: Has there been no time over recent decades when times were good enough that we could have reduced the debt to get ready for this moment?

(I know that the budget was technically balanced during the late Clinton years, and the debt actually declined very slightly. The leaders who made those decisions in the 90s deserve some credit, although the success of that period depended overmuch on the tech stock bubble, which burst. The progress was not sustained.)

I dream of a candidate who has the guts to tell us that the tax cuts and new programs we are always being offered are going on our kids' charge cards. And I dream of an electorate that will not sentence that candidate to political death. Instead we have two major-party nominees running on fiscal programs that will both raise the deficit. Team Obama boasts that all independent analysts agree that his tax and spending proposals will increase the deficit less than McCain's will. I gather this is true, and a shame on McCain who claims to be the fiscal conservative in the race. But it is a hollow boast. Don't increase the deficit less. Decrease it and put us on a path to reduce the debt.

Again, this is not a moment to revisit past tax and spending decisions, but a reasonable time to lay down a marker for a serious discussion of what fiscal conservatism used to mean. I leave this subject by noting that the absolute most sacrosanct item in the federal budget (and the fastest growing, I believe) is the interest on the national debt.

We could cut the military budget in half and still have, by far, the strongest military in the world. As unthinkable as this would be politically, Congress could, in an emergency, reduce Social Security benefits. It would cause some suffering and make a lot of seniors angry, but the Earth would not crumble.

But if we were to miss a payment on the debt, it would cause a dollar crisis that would make the current worries look small. The beauty here, if you choose to look at it that way, is that we can pay the interest on the money we have previously borrowed with new money that we have recently borrowed. But is that a long-term plan?

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Comments (7)

If you were sincere in your belief that adult decisionmaking is the answer, Eric, you would burn your DFL membership card today and never set foot into another leftist "house of worship" again.

You would start writing glowing "profile of courage" pieces when voters display adult, fiscally responsible behavior such as "voting the rascals out", as the Minnesota GOP did with the free spending "gang of 6" RINO's.

You'd come to realize that socialist political platforms are recipes for financial disaster.

Is the GOP ready to act like adults? Not yet; not by a long shot. We've let the party's core principals collect dust while we battled the left's attack on our social fabric.

While we were busy trying to keep GLSEN out of the public schools and abortionists away from our kids, our supposidly fiscally responsible, Republican elected representatives went a wild spending spree.

When you mention "W"'s poor approval numbers, do not fail to remember that there are those of us that cannot forgive him for his failure to reign in spending.

But the infrastructure is still there, the job at hand is to guide our Republican decision makers out of the ditch and back to the road.

The Democrat party, on the other hand is at it's very core, based upon the childish, irresponsible behaviors you are decrying here. When it comes to fiscal responsibility, there is no "there" there.

And wild spending isn't the only poison pill in the liberal bag of tricks.

While greed certainly had a hand in the current mess, let us not forget that the the left stuck government's big nose in there too.

Fannie Mae, Freddie Mac, the "Community Reinvestment Act" and a raft of other supposidly altruistic experiments in socio-economic manipulation were pure poison to our capitalist market.

Regulation is only as good as the people implimenting it, and using the authority to restrain business as a tool to manipulate the "free market" for political purposes is worse than dropping the reigns altogether.

As to the course to be plotted in the here and now, count me in as one in favor of letting the chips fall where they may.

A 10% hit to the GDP will be no picnic, and even if we do not see a 25% unemployment rate, wages will certainly fall...well, at least in the private sector.

That is not a pleasant prospect, but for me, the alternative of opening the door to socialism wide open is much worse.

Outside the mainstream news, there are those such as Danny Schechter who have been writing about the imminent collapse of the American economy. How did he see this coming? The same way he foresaw the the Iraq War debacle in "Weapons of Mass Deception," his previous book. Like you, he focuses on facts that mainstream media ignores.

But, did you (and your readers) not see this coming?

We have a vice president who says, "Reagan proved that the national debt is unimportant." We get "tax rebates" because we "do not spend enough." Industry focuses on short-term profits and refuses to make long-term investments, so Ford and GM get $25 billion of federal credit to retool. We have a trillion dollar war paid for on credit. We had a housing boom, paid for on credit. We have increasing income inequality, so, except for the very rich, no one has money to pay for higher housing prices. After a while, as Republicans used to understand, you have to pay the money back, and if wages are not keeping pace, this becomes impossible.

The issue is not about Wall Street, though, in 1999, lobbyists convinced Congress to eliminate the regulations that would have forestalled the collapse and they deserve their credit. (Credit was a very poor choice of words, was it not?) The issue is the sustainability of the economy as a whole. Some short-term action is justified. But, can a bailout really make the economy more sustainable?

I recommend looking at Danny Schecter's blog: http://www.newsdissector.com/blog/2008/09/26/first-the-deal-is-done-then...

Have the two wannabees come up with a solution yet? It appears that the President at least has a plan (not that I agree with it). It seems to me that both of the senators should be offering legislation to solve all the country's ills, shepherd them through Congress, and have all the problems solved befor their inauguration. This would show the country how they can deal with a divided Congress and get things done.

Those who would offer opinions based on political philosophies might want to spend the time to discuss their views with their nearest soup kitchen/homeless shelter directors.

I have actually wondered over the last couple of years about the wisdom of our system, which virtually guarantees the president (absent an impeachable offense) a four-year term even if he has lost the confidence of the public and the Congress in the first year or two. Parliamentary systems have a quicker way to deal with such situations. This is not a moment to consider structural change, but it's worth discussing someday.

Instead, we have a titular leader who enjoys the confidence of roughly 20 percent of the nation. For leadership in this current travail, we must look to a large group of people most of us barely know — a treasury secretary and a Fed chair, leaders of Congress, chairs and ranking members of normally obscure committees that regulate banking, and in some collective sense, the whole Congress itself, replete with nobles and knaves. I sincerely hope they are doing their best work right now with as little partisan advantage-seeking as they can manage.

Since Congress has positive ratings that make GWB's look stellar - what are we to do with them? Trash our entire system?

Seems to me that John McCain has been a senator who works more across the aisle than many. Yet, most of the liberals I know have few good words for him.

We get what we vote for. Right now - the public doesn't seem to happy with very many of those representing us. What does it say about us as voters?

The two candidates refrained from offering solutions to a problem they have not had time to study. Which didn't stop McCain, a self-described economic non-expert, from "suspending his campaign" and rushing to Washington to help. Which led Bush to call his photo-op "meeting of the leaders," which Obama also had to attend.

The relevant committees in the House and Senate contain many legislators who are experts in banking and finance. What they did wrong, in my opinion, was to spend day after day talking with Paulson and Bernanke before consulting with any of the dozens of alternative opinions put forth by other economists.

Re: A parliamentary system. Yes, please!! One of the bad results of our current system is that people like Paulson and Bernanke are presidential appointees. They are Wall Street guys and understand and sympathize with the Wall Street point of view. I am told also that some school districts no longer teach civics to young Americans, for what possible reason I do not know.

"I assume that the smartest and best-intentioned people in the world don't really know, for sure, what is the best way to minimize the danger to the economy."

>Of course not -- "the economy" is made up of so many disparate factors it impossible to control it, let alone "know" what will accomplish that.

"Right now, I want someone I can trust in charge. I don't know who that is but I know it is not President Bush."

>Never going to happen...especially for those who never were willing to trust Bush in the first place, and for those who have long since realized that the silliest thing anyone can do is trust any politician. And even God doesn't do too well with many people. Maybe mom and dad?

"I have written this before but I wish I had written it 10 times more often: The national debt is no joke, but it is treated as a joke."

>It's no joke, but it's no great worry, either. If one considers what portion of the gross national product it is, or even what percentage of annual tax revenues, most individuals who own a home have a greater percentage of debt vs total annual income than the government. And, just like us when we take out a mortgage payable over 30 years, it will be paid off in cheaper dollars if history is any indicator. Get a grip, I say.

"Now that we are in a position where we may have to put $700 billion to $1 trillion on our kids' credit card all at once, I ask this question: Has there been no time over recent decades when times were good enough that we could have reduced the debt to get ready for this moment?"

>And as for this 700 trillion business, it would be a real worry if it were going for spending, as for a war (which at least gives people work) or welfare programs, where nothing is left once the money is disbursed.

>What the government is proposing to do here is BUY OWNERSIP of a bunch of mortgages backed up by REAL property. All they have to do is give these people a realistic interest rate and many of them will be happy to pay their mortgages off at face value and continue to live in their homes. For those who don't pay, all that the government needs to do is sit on the properties for a while until values recover.

>Which they will, because they're not making any more land.

>It all depends, of course, on how wisely the government buys these mortgages. If they pay face value they are fools -- and the irresponsible bankers will laugh all the way home.

>The banks who lent the money with little or no caution and the REITS who bought them with little examination SHOULD pay the price -- in heavily discounted purchase prices for the loans. (The worst offenders may still go belly-up -- as they should.)

>This is my principal area of concern, and "trust me" coming from a government employee does not sit well. Nor does "oversight" by a bunch of politicians, for that matter.

>A stipulation in the authorizing legislation that no more than 50% or 75% of face value would be paid as a maximum for a mortgage would make me a lot more comfortable than the package now being considered.

>But even the current package is not likely to cost us, the tax payers, over $50 billion in the end.

>And most of that will have been spent for the outrageous bureaucracy that is sure to flower in this rain of government dollars.

>To sum up briefly, I believe what we do know is enough to motivate taking some action to intervene. And of course I would never trust government or politicians to do it wisely. But what is being discussed is truly an "investment" (and not in the dem sense") where the funds will be returned when the acquired assets are eventually sold, just as with a house. And I think it is little short of marvelous that -- for a change -- the government will have some real collateral underlying its debt.