The Frozen Economy

So much for me having more time to blog last weekend… my plans ran afoul of house chores & tending to children.  Ah well…

Good find courtesy of the Ticker Forum this morning on the “Frozen Economy.”   More & more folks are having to make ugly choices… food or fuel?  Heating bill or medicine?  Maybe only one of the four?  Many folks are scared to go out on a limb and do more than the bare minimum needed to get by.

2008 is shaping up to be a very, very interesting year.  The presidency is open, so both main candidates are trying their best to sell hope to a desperate American public.  How much of that hope turns out to be vaporware reamins to be seen.   It’s easy to talk a lot about solutions to big problems.  The hard part is actually figuring out how to implement and pay for them.

The theme of this years’ electoral race might as well be ‘failure.’  Major banks are failing; people are failing to retain their houses or pay their bills; Wall Street is failing to maintain stock prices; the Federal Reserve is failing to either keep inflation in check or the economy vibrant.   Our money is worth less; many major stocks are worth a lot less than they were a year or two ago; the economic bite of higher gas prices is only starting to trickle in to the consumer economy.

People are desperate for hope.  They will likely vote in anyone who will tell them they have a plan to fix things and bring us back to the go-go 90’s or whatever.   The major stumbling block is pain avoidance.   We have run up huge debts, both private & public.   The only ways to pay them off are to either inflate the debt away and vaporize the dollar (very unpopular with our foreign debt holders), or to get used to to idea of higher taxes, less services, and a lower standard of living (very unpopular with voters).    As Walter Mondale proved in 1984, telling Americans you’re going to promise to raise their taxes is a sure way to get one’s ass kicked in the general election.   Odds are very good that this will happen this time round, it’s just that the pols will obfuscate & avoid these questions during the campaign.

Voters have gotten used to the government helping themn in many ways without raising taxes… mostly this has been financed via debt.  The problem is that we’ve done this for such a long time that most buyers of that debt have more than they care to already… so what are we going to do?

That is a question that will be answered later this year, and then answered truthfully some time in 2009.


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