Friday, September 09, 2011

A short summary of the economy that ended the Bush administration

Americans are ahistorical. They can't even remember what happened three years ago. [The failure of the so-called news media to honestly and accurately cover it doesn't help.] Here's an exception.

Rachel Maddow very clearly lays out the utter collapse of the American economy in the last two quarters of 2008 (the Bush administration) and shows the effects of the stimulus spending from Washington, D.C. in 2009. It's clear and it's short.

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The Republicans claim that the stimulus didn't work. It was not big enough to eliminate the Great Recession, but it stopped the collapse into Depression. Even as soon as December 2009 it was clear that more stimulus was needed - and Congress refused. Largely this was through the Republican use of the filibuster and threat of the filibuster in the Senate.

So remember, Obama knew in 2009 that more stimulus was needed and requested it in December 2009. The Republicans were already blocking it and the Republicans were guaranteeing that America would have more and worse recession. This is intentional. The Republicans are the party that is against any government action, and their calculation is that if they can cause the government to fail in dealing with the Great Recession, the Republicans will gain power and replace the Democrats.

Notice the end of the Maddow segment, though. The statistics from the Bush administration showed a half percent GDP decline in the third quarter of 2008 and a 3.8% decline in the fourth quarter. But those were preliminary statistics. When the final numbers came in it became clear that America had been headed for the Second Great Depression. [This starts at minute 4.0 in the clip] Instead of a 1/2 % shrinkage of the economy in the third quarter of 2008 it was actually 3.7% shrinkage. Instead of 3.7% shrinkage in the fourth quarter of 2008 the shrinkage was actually 8.9%. America was headed into the Second Great Depression very rapidly. Only the stimulus (which the lame duck Congress of 2008 failed to act on - no leadership from the vacationing George Bush) passed within a month of Obama's inauguration kept America in the world from falling into the most massive economic Depression the world had ever seen.

One other thing to remember is that both the Great Depression of the 1930's and the almost Second Great Depression which started in 2007 with the mortgage crisis were caused primarily by unregulated, ignorant, and corrupt self-dealing by the massive banks in Wall Street. By 2008 America's GDP consisted of 40% the economically unproductive banking activities. The banks were creating markets with massive risk in them and then selling insurance to investors and borrowers to protect them against that risk the banks had created. Only the unregulated insurance the banks were selling were not capable of protecting the overall banking system from the extreme risk the bankers were creating and taking on.

Banks, through their lending, create the money supply the productive economy requires in order to function. They had by 2008 slipped into what is called the Shadow Banking System (unregulated and unmeasured private banking) which dominated the world financial economy. No one in banking itself knew what was going on overall, and the bankers successfully forced the federal government to remove itself from the regulation business, allowing the creation of the Shadow Banking System.

That unregulated banking system created the economic collapse that everyone became suddenly aware of in September 2008.

America and the world are now struggling to recover from the financial collapse of 2008. Only the conservatives world-wide are using the methods of Herbert Hoover, methods clearly shown in the 1930's to make the economic problems worse.

In the 1930's the bankers did not understand what they were doing when they passed the Smoot-Hawley Tarrif Act. Today the Republican Party knows exactly what it is doing. It is exacerbating the set of American economic problems based on Republican political calculation that the public will blame Obama and the Democrats for the failure to get us out of the economic problems.

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