Its already too late.....

Reader comment on: Sachs Versus Krugman

Submitted by Fast Eddie (United States), Mar 11, 2013 17:44

I don't really want to be such a pessimist, but, frankly, the time has already gone by when any kind of meaningful solution to our economic problems, centering around the debt and deficits, will be devised in the foreseeable future that would prevent this country from going through another severe recession or possibly depression. Neither political party is going to participate in the kind of compromises that a long term solution would require. This instransigence has several causes, one of the most significant being that virtually all members of the House of Representatives now come from gerrymandered voting districts that assure, election after election, that the same political party will carry the district, irrespective of who is running for election in the district unless they, literally, commit a felony (think: Rostenkowski) or email lewd photos of themselves (think: Anthony Weiner). Thus, they can vote to dole out benefits to their constituents endlessly without really worrying about taking the blame, or suffering the consequences, of economic hard times. The election of 2010, when the Republicans took control of the House of Representatives, was a rare event and happened only because of an immense groundswell of resentment against Pelosi's ramming through legislation that offended too many voters.

Another cause of the intractability of our situation is the Federal Reserve Board's unprecedented action in adding $3 Trillion to its balance sheet in less than three years, along with a promise to add Trillions more into the future, all of which is being used to purchase Treasury securities in order to keep their prices high, and thus keep interest rates low. It will be impossible for this to continue indefinitely and, (NOT if) when interest rates do begin to rise, the yearly deficit, and thus the overall federal debt, will also begin to rise because Congress will, of course, have to honor the interest payments due on all of the U.S. Treasury Bills, Notes and Bonds being held by various parties, including, most especially, foreign governments. And, while many Americans suffer long term unemployment and retirees who saved for decades to help fund their retirements with interest on their savings find that they are getting, after core inflation of 1.9% (Jan 2012 to Jan 2013 per Fed statistics), a trivial negative rate of return, the TBTF banks are reaping a windfall of income by playing the spread between the interest rate they pay at the Fed 'window' to borrow hundreds of $Billions and the interest rate the Fed pays them when they loan that very same money back to the Fed. in order to help fund the deficit.

And even the passing thought that the stock markets' rising prices have anything to do with an actual economic recovery is profoundly humorous. Per Fed statistics, 81% of stocks are owned by the top 10% of the population. Add to this the fact that now some 70 - 80% of stock trades on 'open' marketplaces (e.g. NYSE) are HFT machine-to-machine trades with holding times measured in milliseconds, the idea that middle income and lower income households are somehow benefiting from this market action is nonsense. These big market rallies are being funded indirectly by the enormous amount of Fed money being funneled into the big NY TBTF banks and hedge funds and bear no actual resemblance to the genuine rallies that were indicia of actual economic recoveries several decades ago.

If Democrats cannot fathom that cuts in spending far greater than the essentially trivial 'cuts' in the Sequester (actual spending in 2013 will be greater than in 2012 despite the Sequester), then all of the to-and-fro in Washington is truly just no more meaningful than rearranging the deck chairs on the Titanic.

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