Federal Spending: Simon Johnson, Plus Graphs on Stimulus, TARP, Bailouts

Boy, you think you’ve finally got a handle on how much money the federal government is tossing around — and then you take a look at these interactive graphs (Feds to the Rescue and Fiscal Stimulus Map)published in the Atlantic this month in an article entitled, The Fed’s Cash Machine. The graphs are awesome because they do exactly what visual aids are supposed to do: They give you an insight into the scale of the spending meant to pull the economy up from its massive nosedive. Warning: these graphics are upsetting in nature since they may represent the complete leveraging of our children’s and grandchildren’s futures in order to provide the current bankers, CEOs and shareholders with a cushion against their painful mistakes in corporate policy and investment strategies.

For an incisive view of the current US economic situation, I cannot recommend enough Simon Johnson’s Atlantic article entitled, The Quiet Coup. Johnson, a former chief economist for the IMF, lays it bare. In no uncertain terms, Johnson explains:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.
More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

And:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances.

Will Obama become just another protector of the banking industry elites? Will the far Right wake up to the fact that Obama is not the enemy, and maybe Greenspan, Paulsen, and the Federal Reserve are? Tune in for more in the months to come.

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May 4, 2009 | Filed Under Great Recession 

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