Yet Another Depression Sign...

I will be a bit more optomistic tonite

I still have some realistic hope that we avoid a depression

if we had a republican congress i would be more hopeless only because they believe in letting the markets sort this type of thing out-which IMO when you allow such a bubble to be created -letting it sort it self out naturally = a crash that could be long term (the key is not letting it happen!) and i address that toward the end of my post

in fairness i applaud the house republicans for standing up to the poorly designed 700 billion bailout bill, on the grounds that 300 economists pointed out it was INEFFECTIVE but i digress

The hope i have with the democrats is that they will be able to pass the massive stimulus needed to put a floor under the housing prices by accelerating federal purchases of GSE deb't effectively nationalizing the mortgage market. This is not a good thing but it is necessary to avoid a death spiral into an abyss that takes the financial sector down even lower. On a side note all the investment bank managers should be tried for fraud as well as Paulson.

The next thing the Fed needs to do is buy equity's. The plan is to first do this clandestinely and see what the effects are and then if the downward pressure is still immense announce that you are begginging a plan to buy equitys/stocks. this will put a temporary floor under the price of stocks and then possibly money wll flow back in to the markets

But this plan can only work when both the housing market and equity market are temporarily but strongly artificially propped up with gov't backing. This will stop the fast decline in american's equity and anxiety related to house price decline's and stop some of the downward pressure on consumer spending and then the reinforcing increases in unemployment before they get really high (0ver 10% based on the govt's preferred method of measuring unemployment)

In addition to this a Major stimulus plan must be enacted that is focused on developing infrastructure within this country with a goal of increasing new jobs , it would be key to also temporary lower business tax and tax on capital gains to give business investment some more room to grow and free up some cash for job creation.

The fed's balance sheet would probably swell to many many more trillion but since nearly all country's are in desperate situations the dollar should not collapse due to these actions. So long as the USA retains the World Reserve currency we should see a devaluation in the currency but not a hyperinflation. Without these measures i see that a natural path may be a reinforcing cycle of falling consumer demand and employment until depression conditions are met which will kill company earnings and kill the stock market further and the bond bull market would run several more years longer and deflation would settle in for the long run.

I would prosecture the major executives on the regulatory body's and many of the investment banks to minimize the moral harard and the free pass mentality that would otherwise refuse to stop the same sort of bubble from repeating again just because the perps would think the fed would bail them out, this is a key step to avoid having to face this situation again. Also re-enact the glass steagall act which was repealled under clinton-rubin (aka the goldman pig who helped start the mess with the blessing of rep. congressman gramm) there has been a one party system (wall street party) and the prosectution of top execs will send a message



[edit on 5-12-2008 by cpdaman]