Obamanomics part 1

Obamanomics  Part 1 

One of the most serious questions of our day is this: What turns Recession into Depression.  In the book Sovereign Individual by Davidson and Rees-Mogg they address this quite nicely.  “In general risk averse behavior has been common among all groups that operate along the margins of survival.” What does this mean to us?  Simply that the scarier things get ,the more likely we are to choose what we consider to be a careful and conservative route.  

In other words the greater the individual or cultural prosperity the greater the tendency for productive risk-taking behavior, or to put it the other way when people are scared they get very conservative about what they spend and where they invest. 

How many companies and individuals are taking on new risks today?  How many are bringing out a new product?  How many are contracting to build a new building?  How many are lending to entrepreneurs?  Some are, but the current climate is still very chilling. 

Now, I am not worried about a little chilling, that is what a recession is for, to bring the overly optimistic into alignment before things get out of control.  It is this very thing that Greenspan et al denied us for the balance of the 18 1/2 years he held the position of Head of  Fed. 

During that time we never had a single true economic recession.  Yes, we had the tech bubble burst in the early 2000s and a few other minor things, but that was froth blowing off the beer.  Greenspan was just all too good at what we all wanted him to do, keeping unremitting prosperity running white hot without blowing up in our faces.  What happened?  Greenspan left AND we had/have a whole generation in their 30s and 40s who have never seen a recession and real consequences. 

For God’s sake, I heard on NPR that Freddie Mac and Fannie Mae couldn’t even enter a negative number on their risk/reward spread sheets.  They had NO way to factor a period of falling real estate valuations into their risk calculations.  They had been removed from reality, because they had never really seen a recession.  Many of them had never seen or had forgotten the consequences of a real economic problem.

Today, most of the cash money that is in the economy is scared and sitting on the sidelines, waiting.  Waiting for what you might ask?  Waiting for some assurance that it can survive and prosper.  And ,waiting for some assurance that Obama and the Congress will not use the federal powers of taking to take on a massive scale.  Thus, the banks don’t loan, the venture capitalists don’t invest and the consumer doesn’t consume.  They wait.   

This becomes a brutal cycle.  The greater the fear, the fewer actually move money in the economy.

When very few are buying, those selling are looking for bankruptcy attorneys.