Saturday, October 18, 2008

They don't see it, do they?

The more the government does to "fix" the economy, the more it spirals down toward deflation and a full-on Depression that could be worse than the one in the thirties, and will last longer.

President Bush claimed, yesterday, that the government isn't moving toward nationalizing banks. What else would he call it, when the government buys preferred stock in the failing banks? I'm sure the government meant well, but the law of unintended consequences is already active: the richest tennis player in the world, Roger Federer, joked about taking his money and putting it in his mattress. I wouldn't be surprised if he'd been only half joking.

Consumer spending has been spiraling down for months, now, between the housing crunch starting and gas and oil prices driving up production and transportation costs driving up the prices for the goods consumers have to have. With consumers hanging onto their money, and credit becoming harder and harder to come by, prices are starting to free-fall in more than just the stock market as manufacturers and sellers drop prices again and again to try to get some cash flowing. Experts may not see a problem, but most consumers aren't experts, and they're terrified.

Business spending is also falling. As the money dries up for investors, they in turn become less willing to invest in new small business ventures. Housing continues to slow--only the slowdown isn't limited to sales any longer. New construction is falling off, leaving contractors unemployed.

There is one bright spot, though tax experts (wrongly) fear that it could cost more than it could save: the IRS and Treasury Department have rolled back some of the tax code that's been driving businesses out of the United States. Granted, they'd be right about it costing too much, were it not that lower taxes brings about companies re-investing what they save in taxes into new infrastructure, and new employees. This helps profits to rise, rapidly, which in a short period of time brings in higher tax revenue than did the higher tax codes.

Hopefully, this could be enough to stave off the mass of jobs that will be lost when the minimum wage increase hits in January, raising the costs of doing business. Honestly, if the government really wanted to help, they'd suspend the minimum wage increase, if not cut minimum wage, then stay out of the way until the crisis solves itself.

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