April 23, 2009
Were Credit Card Co.'s Sabotaging Themselves?
Congress is working on reforms to be applied to the credit card industry. Good. They need it. But, when it became clear that the government was going to bail out floundering corporations, did credit card companies begin to make themselves insolvent in order to get in line for tax payer dollars? With a few exceptions, the credit card companies did not begin to shut down consumer credit until government handouts were known to be coming and the recession underway.
Last Summer however, the credit card industry, almost in perfect synchrony, began in a wholesale fashion to raise interest rates on millions of Americans, and cut back their credit limits to existing debt balance levels. This had several predictable results. First, it cut back on long term revenue projections on the corporation's balance sheets by lowering the long term profit projections on continued and expansion of credit card debt. Second, it induced a large number of credit card holders to close their accounts altogether to avoid the rate increases. Both of the consequences positioned credit card lenders to display financial hardship going forward.
To be sure, it would appear the increase in rates on millions of credit card holders projected higher revenues. But, in a recession, with more than 6.1 million American workers unemployed, credit card defaults were unavoidably going to rise. In fact, the credit card companies actions guaranteed that bankruptcies and defaults would rise. Here is why.
A majority of Americans were accustomed to rely upon unused credit on their card to cover unexpected and non-budgeted expenses which might arise. A perfect example is car repair. It is not possible to accurately budget for car repairs on a monthly or even annual basis. Some years may require only oil changes. Other years may require thousands of dollars for a transmission overhaul. Most American consumers rely upon their vehicles to conduct their daily lives. And most credit card users had grown comfortable with having a line of credit on their cards to cover such emergencies and unanticipated expenses.
Which means, these card holders had budgeted their income in such a way as to not have readily available cash on hand to cover an emergency medical expense or car repair. When the credit card industry reduced their credit line to the customer's current balance, they completely shut many of these Americans off from being able to afford the repairs or medical expense, causing them to choose to default on credit card payments or even mortgage payments to have the cash to keep their car running or heal their sick child. Or worse, they had to file bankruptcy and default on all debt obligations except student loans or other government loans.
In other words, the credit card industry forced their own higher write offs on uncollectable debt. Which negatively impacted their balance sheets and projected earnings going forward. There are several explanations for why the credit card companies shot themselves in the foot in this manner. But the most logical one to this writer is the self-fulfilling prophecy. Here is how it worked.
The card card companies saw a recession getting under way. They rightly anticipated that with rising unemployment, defaults on their outstanding credit card loans would rise. To equalize the losses, they raised interest rates on as many credit card holders as they could get away with. The self-fulfilling prophecy now kicks in. By raising interest rates, they increased the monthly cash payments on credit cards for card holders dramatically, in some cases tripling or quadrupling the monthly payment by raising the interest rate from 8% to 28%. This in turn destroyed the consumer's anticipated budget for the year for food, transportation, education, health care out of pocket expenses, and a host of other needs to keep their lives intact. Workers who were forced from full-time to part-time income and faced higher credit card monthly payments, were pushed into insolvency.
As the link article above demonstrates, higher interest rates induced higher defaults, above and beyond what the recession's unemployment numbers would have created. Given the extensions of unemployment benefits, most of those now in default, would likely not have had to default if the credit card companies had not doubled, tripled, or quadrupled their monthly outlays for credit card payments. The credit card companies made dramatically larger the very defaults they anticipated as a result of the recession.
If some of these credit card companies were not victims of self-fulfilling prophecy, then one has to speculate they were preparing for a dramatic rise in defaults in the hope of getting in line for TARP funds to rescue financial institutions threatened with potential insolvency. Now that the Obama administration has attached strings to receiving tax payer's dollars, the credit card companies are no doubt wanting to avoid government scrutiny or influence over their executive management's actions and the board of directors, possibly resulting in the government requiring their firing as part of the deal to receive public funds to shore up the company's balance sheet. Which puts these credit card companies in quite a pickle, wanting to avoid receipt of public dollars, but having shot themselves in the foot by dramatically increasing present and future defaults on their accounts receivable.
Congress is stepping in. I have railed against the usurious credit card company practices for years now and for sound reason. My central argument is that if a credit card company deems a client so risky as to warrant 32% interest rate, they have no business extending credit to that person in the first place. This is the credit card industry's parallel with the mortgage industry extending housing loans to the unemployed or underemployed. They have created a highly profitable bubble, and that bubble is now bursting. And it could not be bursting at a worse time, given the recession and deficits to rescue to the investment and commercial lending banks.
The credit card industry lobbyists were prime movers in the Bush administration's overhaul of the bankruptcy laws, making it dramatically more difficult for consumers to have their credit card debts written off by bankruptcy courts. Since the bankruptcy reform bill passed, the credit card companies have been handsomely rewarded with increased profits from interest rate bait and switch tactics, and introductory interest rates, and the highly onerous practice of raising interest rates on a customer with a perfect payment record because that customer was a few days late on another company's credit card payment or a medical bill. The Republican deregulation era is now accruing another massive cost to state and federal governments in the form of reduced revenues brought on by a recession and unemployment caused by consumers who can no longer afford to consume due to the practices of the credit card companies.
The credit card companies are now going to face write offs they thought they never would have to face with the advent of the bankruptcy reforms, at the hands of Congressional reforms coming that will permit credit card holders with debt and rates above certain limits to be absolved of that portion of their debt. The Congress must stimulate consumption in our economy again, and one way to do that is to remove the onerous debt yoke on the shoulders of consumers who had maintained a sound credit history until 1) the banks raised their rates and cut off their credit limit, and 2) they became unemployed or under-employed through no fault of their own, and 3) they saw their pension, 401K and other equity investment account balances lose 30 to 40% of their value.
If the Congress the federal government and private sector are unable to reinvigorate this economy and put 4 to 6 million unemployed workers back to work, the deficit and debt problem for government grows ever larger as government revenues continue to contract. America is in the dire position of paying dearly now, or paying dearly later. There is no free way exit from this economic and national debt crisis we find ourselves embroiled in.
Dramatic changes in policy direction are needed to resolve the current crisis, and diminish the threat of the looming one in the form of unsustainable government debt forced by the Medicare/Medicaid projected additions to the national debt beginning as early as 2018, just 9 years away. Many such changes are being discussed from taxing corporate earnings from overseas operations to investing in jobs in whole new industries to meet demands coming for lower cost energy, diminishing pollution effects, providing affordable health care, and investing in education that prepares the next generation for tax paying roles in good paying jobs, instead of non-tax paying roles in the underground economy.
The credit card companies are going to fight some of the changes coming and deny any culpability in contributing to this economic hardship. But, except for capitalism purists, their whining will fall on deaf ears, as 80% of Americans now hold credit cards; and more than half of those have a front row seat to the practices and mismanagement of the credit card companies they interact with on a monthly basis. In large part, the credit card companies did this to themselves with the help of the Republican led government from 2001 through 2006. We know this, because most Americans are honest and responsible and will pay their debts if they have a job and income they can rely upon and are permitted to budget their income and expenses with predictability. The fact that so many are now defaulting speaks to failed management and policy which undermined honest responsible American's ability to pay their debts.
Posted by David R. Remer at April 23, 2009 12:11 PMGood article. people need all the help and advice they can get at this difficult time.
Keep up the good work.
Jack
Drowning In Debt
I had an experience several years ago with one credit company, so this problem started before a year or two ago. I think I was with First Bank when the deed occurred…I heard that credit companies were raising rates without notice, so because I had a good rate I called the company and asked that my account be closed and the rate frozen. The company agreed. Within days I was given notice that Bank One had taken over First Bank, and that my account would reflect new ownership. My next statement showed a doubling of interest rate and was charged a $35.00 service charge, and I called to find out why…I was told it was because there had been activity on my account and that the activity canceled any agreement I had previously reached with First Bank. When I challenged them to prove the supposed activity, they admitted there had been none and immediately refunded the $35.00 service charge. As all this was taking place Chase took over Bank One, and my account was once again renamed. The following statement reflected the increased interest rate. When I called about it I got the run-around. Several calls and letters in the span of a year or so got nowhere. The higher rate was never resolved, but luckily I was able to accelerate my payments, and was able to pay the account off before it actually hurt me very much. But, anyone who says these people have been ethical until recently…this all happened at least five years ago, and ended at least three years ago when the account was zeroed out.
I’ve tossed my records so can’t remember or verify if the company I started with was First Bank or Bank One, but the rest of it is as I said.
Needless to say, I have steered clear of credit cards since then. We do have an account with JC Penny, but we have managed to pay it within their interest free time frame…I’m waiting for that shoe to fall any day now, and start being charged for the privilege of just shopping there.
Posted by: Marysdude at April 23, 2009 06:40 PMJack, Thanks for the comment.
There have been so many abuses by the Credit Card companies, I can’t begin to list them all. But, here are a few everyone should be aware of:
Billing Cycle. The Credit Card companies pay extra money to have their billing programs avoid predictable payment due dates, like the 27th of each month in the hopes that more payers will be late and have to pay the $39 dollar late fee. Additionally, some companies software is written to put the due date on a Sunday, which means if the card holder mails the payment to arrive on Sunday, the bank does not process payments on Sat. or Sun., and therefore even if it arrives on Saturday before the Sunday due date, the company processes it on Monday and hits the card carrier with the late fee.
Retroactive unilateral contracting. The credit card companies offer credit at a fixed rate. They card holder puts $2000 on the card at that rate. A contract is fulfilled, an offer, an acceptance of the terms of that offer, and an exchange of funds. Then, the credit card company ups the rate because card holder was late on utility bill. But, they don’t raise the rate on only future purchases at the new announced rate, but, the past balances too, even though the past balance was contracted at a lower rate.
One Credit Card company, HSBC, issues billing statements with print so small as to insure errors in the amount paid, reading of the due date, and finance charge, by those whose sight is less than perfect. At 30+ dollars a pop for late fees, plus the opportunity to raise the interest rate if a card holder is late or underpays, HSBC has a vested interest in insuring their billing statements are as difficult to read as they can get away with.
PEW Charitable Trusts reports from their study: “* In one year, credit card companies raised rates on about 70 million accounts — about a quarter of all open accounts. That has resulted in about $10 billion in additional fees and charges.”
Many, many, more stories of greed, traps and tricks, and deceptive practices have been reviewed by Congress and the federal reserve. But, changing all these practices without sinking even more financial institutions before 2010 is not possible. So, don’t look for government intervention and relief on all these issues this year.
Posted by: David R. Remer at April 23, 2009 06:42 PMLike MD i have used JC Penny and Sears and had a few gas cards and a major one now i just have a Sears card and i have taken advantage of there interest free for a year when i moved back here on a rider mower and refrigerator and washer and dryer and other household items i liked the idea i could use there product for a year without paying up front sort of a nice long test drive and knowing that I’d pay them off before it hit , I agree though their is a lot of BS with credit card companies it seemed like it was a constant battle for me to get them to remove something when they placed some added charges without my permission on the monthly bill for privacy or security or credit guard or ? and the constant barrage of calls with high pressure salesperson’s i ordered something for my wife for her birthday and when it came UPS i read the bill and it was over two hundred dollars more than the advertised price and found out later i had four subscriptions to magazines I didn’t even order, And I recall a few times they called from a card company of my wife’s and they told me i could approve of something and my name wasn’t even on the card! They are very sneaky they will hammer you senseless like a car salesman no doubt about it and they need to clean up their Act.
Posted by: Rodney Brown at April 23, 2009 09:23 PMDR
Nice work. I hope you are correct that the CC companies will not get much sympathy but I’ll bet they have a ton of lobbyest and pr. firms working overtime on it. It will be interesting to watch Biden’s role in this. Delaware is a very popular state for CC companies as they have the most lax regulation of the industry on purpose in a bid to increase employment in their state. That’s all fair but perhaps it is time to bring their operations under the federal government. It is clearly an interstate commerce issue and that way CC companies could no longer shop the most lax regulatory environment.
bills, thanks.
Yes, these new federal regulations will apply to all CC companies, regardless of home state. Long, long overdue.
And there is no denying that the American people had no choice but to look to the Democrats for such reforms. This is but one of several reasons, the GOP will be in the wilderness for many elections to come. The GOP is now being referred to as the Torture Party. I am sure they are feeling a bit tortured over that, as well.
Posted by: David R. Remer at April 24, 2009 10:10 AMBills,
There were actually several state agencies that tried to intervene during the Bush administration over CC predatory practices, but were told it was a federal issue and required to bow out. 60 minutes did a piece on this a year or two ago. Of course the Feds under Bush did absolutely nothing.
Posted by: gergle at April 24, 2009 05:06 PMOur new congressman Eric Massa D who beat Randy Kuhl R in a tough battle I’ll give massa credit he had the support of the folks here on every street corner is going after the credit card companies and making new friends in the congress. http://downwithtyranny.blogspot.com/2009/04/blue-america-candidate-rep-eric-massa-d.html And in Glen Falls Democrat Murphy wins House race after concession “The diverse district stretches from the rural Adirondack Mountains, south of the Canadian border, to the mid-Hudson Valley, north of New York City. It has more than 196,000 registered Republicans compared with about 125,000 Democrats.” http://news.yahoo.com/s/ap/20090424/ap_on_re_us/us_ny_house_race Bush did a lot of damage it’s going to take a long time to repair The R’s
Posted by: Rodney Brown at April 25, 2009 10:53 AMDavid,
Here I break completely with Republicans. The brutal “reforms” of bankruptcy law supported by Joe Biden and most Republicans created an enormously capricious so-called market in which people simply could not know what they were buying when they borrowed by credit card. This created a deeply perverse incentive to soak the poor and the near-desperate credit providers could now lure into catastrophe without fear of financial difficulty.
I would not hesitate to go into meetings with credit card lenders swinging a regulational machete. The industry’s practices are a clear instance of real corporate evil.
Posted by: Lee Jamison at April 25, 2009 02:49 PMDavid R. Remer wrote: Were Credit Card Co.’s Sabotaging Themselves?
Does a bear _ _ _ _ in the woods?
I just noticed a $1.50 Minimum Finance Charge on my monthly credit card statement, even though there is ZERO interest due and NO purchases that month.
What’s up with that?
Sneaky crap like that is revealing.
Of course, I’m going to cancel that Credit Card.
Speaking of dastardly deeds, last week, there was an instance where an old woman living in Dallas, TX thought she had just made her last and final home mortgage payment (of which she had paid on for 30 years) on her home. However, the bank told her that she still owed over $1,200.00 and if she didn’t pay it immediately, her home would be foreclosed. Also, this was a very modest home and $1,200.00 was far more than her previous monthly payment, and she did not have the $1,200.00. So, she called Channel 4 News, who was more than happy to assist. The bank instantly adjusted the amount owed down to about half the amount and allowed her to pay the remainder in payments.
Any way, nothing would surprise me in this era of unchecked greed.
At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).
Posted by: d.a.n at April 25, 2009 05:07 PMLee, I am with you. The wealthy individuals, under the bankruptcy reforms, who filed bankruptcy, were permitted to retain sufficient assets as to preserve their standard and quality of living as wealthy people. The poor, filing bankruptcy however, could not, except under very specific conditions, be exempted from any credit card debt or unsecured debt, as if the lenders had no part to play, and the reform requires readjustment of payback terms such that the poor could not get out from under the debt, due to medical expense bankruptcy for example.
It was an abominable reform that harkens back to indentured servitude. And yes, it was Republicans who decided to bail out the financial banks and lenders with public dollars last year with NO STRINGS attached. (I a agreed with rescuing the economy by helping financial institutions with tax dollars, BUT NOT without conditions).
But, Republicans in government now scream bloody murder at the spending to help poorer folks with unemployment insurance extensions and COBRA payment subsidies. The hypocrisy of Republicans in office on these issues is also abominably duplicitous.
Posted by: David R. Remer at April 26, 2009 11:21 AMd.a.n, yes, bears to eat in the woods. :-)
The credit card companies are an excellent example of capitalism without much oversight or regulation. You are right, greed is their primary motive, agenda, and methodology.
If one accepts the premise that everyone would like to be rich, one can attempt to argue that there is nothing wrong with unfettered capitalism, it is human nature. But, that argument fails to take into account the FACT that unbridled greed leads to ruin, even of those profiting most from it. The Financial institutions holding all those toxic assets were bankrupt. Their greed led to financial suicide.
And that’s fine too, a purist capitalist could argue, as their failure opens a niche for a new company to step in and pick up the unmet demand. The problem with this argument is that though it was the financial industry that went bankrupt, it took 6 million workers jobs with them, most not employed in the financial sector. And they threatened to implode the nation’s economy. Even the auto industry would be faring better than it is were it not for the Recession caused primarily by the unfettered greed of the financial industry.
Capitalism, well regulated and over seen with legal requirements for transparency of transaction, can be the most powerful tool for a nation’s economy and people. Conversely, socialist policy designed to ONLY meet basic human quality of life needs, which cannot affordably or coordinatedly be met by the private sector, can also be a most powerful tool for insuring stability and continuity of a government, society, and culture.
What is so hard about the extreme Left and extreme Right accepting a mixed economy of social policy and capitalism? Their brand of black or white thinking continues to harm our nation and its future and its progress. I look forward to the day that independent voter’s numbers are large enough to insure that black or white ideological candidates remain for ever a marginalized and minority voice in our government, so that the rest of us who can embrace mixed and moderated pragmatic solutions can get on with growing this nation’s future.
This pendulum swing between Capitalism run amok, and socialist clean up afterward, costing record debt and deficits, has got to be moderated so that the pendulum no longer busts out the sides of the nation’s grandfather clock.
Posted by: David R. Remer at April 26, 2009 11:40 AMYes, the slumbering majority of citizens foolishly allow the two extremes to screw things up … at least until that finally becomes too painful.
And when the IN-PARTY and OUT-PARTY aren’t indulging in those two destructive extremes:
- Extreme #1: One extreme wants regressive taxation, unfettered capitalism and freedom to explore and wallow in every manifestation of unchecked greed (which we have seen plenty of lately).
- Extreme #2: The other extreme wants a nanny-state with citizens increasingly dependent on the government; with massive cradle-to-grave government programs (which are usually severely mismanaged) that nurture a sense of entitlement and dependency on government; wants to grow government ever larger (despite the already current nightmare proportions); rewards failure and laziness; and perpetuates the myth that we can somehow all live at the expense of everyone else.
It’s not that we lack for good solutions and good ideas.
Unfortunately, the FOR-SALE Congress is where good ideas and solutions go to die.
David R. Remer wrote: FACT that unbridled greed leads to ruin, even of those profiting most from it.That’s usually true.
It can take a very long time.
But that usual outcome and unhappy voters who finally ousted 206 members from Congress in year 1933 is why I think enough voters will eventually get it (even if the lesson must be re-learned after much pain and misery).
Pain and misery is the built-in self-correction mechanism.
Too bad we have to repeatedly re-learn the lessons of excessive selfishness.
At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).
Posted by: d.a.n at April 26, 2009 04:00 PMd.a.n,
Yes, justice in America is usually slow where and when it can be found, the legal kind and the kharma kind. Bernie Madoff made off with 50 billion in just a decade before the seeds of his own destruction caught up with him. The credit card industry made off with billions in usury over decades before their seeds of spiraling defaults and government regulation caught up with them.
Posted by: David R. Remer at April 26, 2009 08:39 PMYes … what goes around, often (maybe not always, but often) comes around.
Too bad we have to repeatedly re-learn that painful lesson.
When will enough people learn that short-sighted selfishness is (usually) the path to pain and misery?
Posted by: d.a.n at April 26, 2009 11:10 PMI think because some people get away with their short-sighted selfishness for awhile, they begin to believe they can get away with it forever.
Sometimes they do, but often they don’t.
Remember these CEOs, CFO, Presidents, VPs, etc.:
- Ken Lay (ENRON) (desceased)
- Bernard Ebbers (WorldCOM)
- David Myers (WorldCOM)
- Dennis Kozlowski (Tyco)
- Mark H. Swartz (Tyco)
- John Rigas (Aldelphia)
- Timothy Rigas (Aldelphia)
- Scott Sullivan (WorldCOM)
- Burford Yates (WolrdCOM)
- Jeff Skilling (ENRON)
- Andrew Fastow (ENRON)
- Lea Fastow (ENRON)
- Samuel D. Waksal (ImClone Systems)
- David Duncan (Arthur Andersen)
- E. Kirk Shelton (Cendant)
- Ben Glisan Jr. (ENRON)
- Dan Boyle (ENRON)
- Weston Smith (HealthSouth)
- Aaron Beam (HealthSouth)
But, perhaps when enough voters are deep into debt , jobless , homeless , and hungry as a result of these 10 incessant abuses and these deteriorating economic conditions, enough of those voters will finally question their voting habits?
At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).
d.a.n asked: “When will enough people learn that short-sighted selfishness is (usually) the path to pain and misery?”
“When we include Adam Smith’s “Theory of Moral Sentiments” in our High School educational curriculums. The difference between greed and enlightened self-interest is what needs teaching in our schools. Were it to be incorporated into both civics and economics high school courses, I think we would witness a dramatic change toward responsible decision making in the following generation’s decision makers and leaders.
Of course, much of corporate America will attempt to lobby against any such efforts to protect greed as their prime mover. A decentralized educational system without national standards and requirements which favor the nation’s future, is how we continue to produce the incompetence, ineptitude, corruption, and short-sighted greed motives that have crippled our economy today, IMO.
Posted by: David R. Remer at April 27, 2009 08:27 AMDavid,
Do you think the US government can manipulate their way out of this recession? Do you think that the US just printing more money and giving their currency to the big businesses and allowing them to move these dollars into other ventures will in fact bail out America? Do you think that America’s influence is too weak on the world market? Do you think that a bailout is a short term solution to a long term issue? It wasn’t socialism that solved the depression when FDR took office. The 2nd world war saved America. Obama is not FDR. Obama is Obama, yet we compare the situation Obama faces to that of the situation FDR faced. Is there another war at our doorstep that Obama knows of that will bail out America, or are we following a man that doesn’t know the history of America? FDR didn’t understand the Russian’s insecurity due to a lack of historeical knowledge. Once Truman stepped in, he spawned the cold war and decades of fear. Is there a war that is comparable? Does Obama have a plan or an issue that will solve the economic problems set before us? Will there be a “New Deal” or a “Fair Deal”? Niether saved America, both kept America at war and far from peace, what is the goal of American policies? I have put a lot out there, what do you think?
Chad said: “Do you think the US government can manipulate their way out of this recession?”
Always have before, for better or worse, our nation is still intact and more than 90% of workers are still employed.
Chad asked: “Do you think that the US just printing more money and giving their currency to the big businesses and allowing them to move these dollars into other ventures will in fact bail out America?”
No. But, I do think that these actions prevented this recession from deepening, elongating, and perhaps even prevented a full blown unemployment depression that could have lasted half a decade or whole had such actions not taken place. And the vast majority of economists both liberal and conservative agree with this assessment.
“Do you think that a bailout is a short term solution to a long term issue?”
Both. It is a short term fix to prevent further losses of jobs and cascade effects on other businesses whose balance sheets are dependent upon the bailed out company’s remaining in business and solvent with the addition of public tax dollars. There is a long term cost associated with deficit spending to afford the bailout. And there is the precedential risk that future companies will be bailed out as well, whether they pose a risk to the national economy or not. I am concerned over the current administration’s lack of focus on breaking up these too big to fail corporations and reinstate the heart of the Glass-Steagal Act.
Chad said: “It wasn’t socialism that solved the depression when FDR took office. The 2nd world war saved America.”
WoW! That comment demonstrates a true misconception on many fronts. First, war is socialist spending. Everyone pays in to cover its cost whether they agree with the war or not. I give you Iraq. Socialist spending war if there ever was one. And given the fact that war is socialized spending, socialist spending DID in fact end the Great Depression. FDR did not spend enough in the prior years to WWII. After Pearl Harbor, FDR and Congress had the public support to raise taxes, and spend and vastly increase the national debt and divert consumer products to the war effort, in sums that made all of FDR’s spending to create jobs paltry by comparison.
Ergo, it was the monumental government social spending that put all eligible males and a great number of females to work on such a grand scale as to both insure the success of the war and the complete recovery of the economy in the wake of the vast increase in consumer activity based on all that wage wealth accrued during the war by the new and expanding middle class.
Chad stated the obvious: “Obama is not FDR. Obama is Obama.”
Both FDR and Obama faced an economy in decline marked by rapid growth in unemployment. What worked then, can and will work now. Government spending and investment in employment present and future. Doesn’t necessarily mean investment in government jobs which of course the WWII spending entailed to a big extent. Obama is investing in future cost saving jobs like alternative energy sources, health care which fosters a healthy work force, and infrastructure improvements to insure the save and rapid transport of goods, services, and persons in a growing economy to come. All primarily private sector jobs contracted for by the Government.
So, yes, there are many similarities between the 1930’s and today. More than I have mentioned, like the financial sector failure precipitating the economic decline being a most notable.
The rest of your comment’s analysis fails by resting on your erroneous understanding that the government spending in WWII was not socialized spending, which of course, it was, and the epitome, to boot. There simply is no better example of socialized spending than war, necessary, or avoidable, as such war may have been.
Posted by: David R. Remer at May 2, 2009 02:51 PMDavid,
I guess I don’t look at war like socialist spending because we elect the officials that grant the President the ability to go to war. I see your point though. Government spending on national defense. It wasnt socialism that started the 2nd world war. It wasn’t socialism that caused us to go to war. It was an evil man looking to control Europe and eventually the world. Although spending tax dollars on the war fixed our economy it was due to war. Our policies are formed using a democratic structure. Social welfare programs didn’t bail us out, that is what I was talking about when I said socialism. War was what ended the finacial crisis. An evil in the world brought about economic relief. I guess I should have been more specific when I used the word socialism.
Posted by: chad at May 3, 2009 07:28 PMChad said: “Social welfare programs didn’t bail us out”
Welfare which doesn’t move able people from welfare to work, will not stimulate the economy very much, and it will not pay returns on the tax dollars spent.
On the other hand, social welfare programs that train and prepare people to enter the workforce, is quite another deal, like the Government spending to put Americans to work during WWII, such social welfare programs will pay enormous returns back to the society and economy.
Public education is such a social welfare program, and who in business small or big, in their right mind, would not want America to invest in the education of our young and their ability to enter the future workforce capable and ready?
Likewise, investments in health care that insure 10’s of millions of working adults get ill less often and less severely, pays compound benefits back to employers, the economy, and the society as a whole.
Investing government tax dollars in cheaper American sourced energy which lowers the energy bill for average Americans 20 years out and beyond, will have the same effect on worker’s paychecks then, as a tax cut.
What American federal government has lacked for a very long time now, is this prescience to see what will be needed in decades to come for a healthy and capable employment full economy, and the investments today which will reap those benefits ONLY 10, 15, or 20 years out, IF those investments are made at all.
Given the enormous national debt, and the fact that there is no non-catastrophic way out from under that debt but to pay it off, it is incumbent upon us today to invest in a lower cost of living for those taxpayers in the future who will have higher taxes as a result of the debt due and payable in their work lives. Pres. Obama is proscribing such a plan that will benefit our children in their work lives, while saving our own jobs and work lives today.
I fail to see how anyone could realistically expect more from a new president inheriting a teetering economy, 2 wars, a failed financial and auto industry, and third class education and health care systems at absolutely top dollar price.
The only obstacle in the way now, is Congress, which wants to spend less federal dollars on the future and more on local homegrown projects that will insure ability to buy local votes. I suspect Obama has a plan to take that case to the local voters themselves if Congress attempts to overly compromise Obama’s and the American majority’s plan to invest in a better future than Obama and his supporters inherited this year.
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