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Journalism and other myths.
Happy New Year! The changing of the calendar is a time when we can all make resolutions and think about how the coming year will be different. It’s also a good time to make predictions for the coming year that we can hide away later – unless they come true, that is. So I thought I’d give my own in plain language just so that those of you who have this bookmarked can make fun of me later.
Ready?
The year 2010 is nearly over. What happened? A fair number of celebrities died, a few videos went totally viral, and a few trends were established. That’s what I get from the nooze, at least.
But what happened economically? It turns out to be not much. That is what everyone is complaining about, too. I’ll do my best to explain just what nothing looks like as colorfully as possible because what we all expect from 2011 is something. Not that anyone knows what it is, just that it won’t be this blah.
The end of the year is as good of a time as any to look back and summarize what happened over the last year. In the process of doing that I came across a tidbit of information that clearly deserves a post of its own.
From March 2008 through 2009 the Federal Reserve acted quickly. Most people weren’t even aware of the crisis until October, but the Fed was on it. Emergency overnight loans at low interest rates were the cornerstone of their effort, quietly fronting interest-free scratch to investment houses that were in deep trouble.
How much did they loan out? Sen Bernie Sanders sponsored a bill that forced the Fed to tell us. It turns out it was $9 Trillion – that’s money on top of the $4.7 Trillion that we knew was used to get the economy rolling. All together the total “stimulus” is about 1 year’s total production in the USofA.
The latest batch of official US documents released by wikileaks caused a tremendous storm with two immediate reactions. The first was a nearly hour by hour revelation as to what was in this batch as reporters combed through the piles of information looking for newsworthy (or simply salacious) details. The second reaction came as a character assassination (and call for a bloody assassination) of Julian Assange as a “terrorist”.
The first wave of revelation is understandable, but neither of these reactions tells us much about what is really happening here. That requires time.
What will it take to get the economy moving again? Two years after everything simply stopped long enough to watch Lehman fall momentum is still against us. When credit markets stop they are very hard to start back up again for a large number of reasons – the most important is the one at the heart of any free market, risk.
Interest rates near zero and a Federal Reserve pumping all the cash they can into the economy may seem enticing, but when banks can’t get any kind of interest on the loans they write they become very nervous about the risk inherent in any loan. Is it really worth loaning out billions of dollars if you’re not sure you’ll be paid back? So the usual mechanism to crank up the speed of the economy, cheap money, simply doesn’t work.
Perhaps there is a role for government – specifically state government.
Barataria - The work of Erik Hare 