The White House is in full-panic mode. In fact, the falling stock market has the administration so worried that they’ve concocted a “stimulus package” to rev up flagging consumer spending and keep the economy on life-support. The desperation is palpable. Fed chairman Ben Bernanke’s appearance on Capital Hill last Thursday turned out to be a total bust. Bernanke was supposed to calm jittery investors with promises of rates cuts and easy credit but, instead, his gloomy predictions put the Dow Jones into a 306-point tailspin. Now it’s up to Bush to try to restore confidence in Wall Street and allay the growing fears of a recession.
Since we first reported on the proposed “stimulus package,” the size of the rebates have increased dramatically. The Democratic-led Congress was only calling for $250 per taxpayer or $500 per married couple, but under the White House plan, taxpayers could receive rebates of up to $800 per individual or $1,600 per couple. The rebates will accompanied by additional cuts to the Fed Funds rate (estimated 50 basis points) which will provide more liquidity to the banking system and easier credit for consumers.
The administration’s desperate actions should remove any lingering doubt that the main problem facing the economy is inflation. It’s not. The moves are intended to forestall a deflationary spiral that is the natural corollary of seven years of intensive neoliberal policies. Ironically, now that Bush has achieved his goal of crushing the middle class and destroying the foundation of America’s consumer-based economy; he has decided to change directions and shower those same over-extended workers and subprime homeowners with a $150 billion gift from the government. So, what gives?
The real reason for the multi-billion dollar stimulus bailout is that the banking system is no longer able to fulfill its primary function as the conduit for consumer credit. As a result of the meltdown in “structured finance” which has left many of the country’s major banks with hundreds of billions of dollars in losses; the banks have been forced to tighten lending standards and screen out any loan applicant without spotless credit. This, in turn, has slowed credit expansion to a crawl. At the same time, the US consumer, which accounts for 72% of GDP, has gone into a spending funk due to his unsustainable debt load (credit cards, car payments, student loans, and mortgages) and an unprecedented lack of personal savings. The combination of sagging consumer spending and a banking system that is gunked up with billions of dollars of structured slime has put the economy into a deflationary nosedive. The stimulus package is not an expression of generosity. No, no. It is simply the lubricant that is required to gets the gears (you and me) of the consumer apparatus working properly. If there was any way the administration could avoid handing out rebates and simply round us all up and march us into Halliburton detention camps; you can bet they’d do it in a flash. But they can’t.
The negotiations on the stimulus package have given the Democrats their first victory over Bush. The president has agreed, “not to push for a permanent extension of his 2001 and 2003 tax cuts.” Whoopee. Unfortunately, the Dems don’t seem to grasp how dire the predicament is or they would have asked for much more. Bush would have given them anything they wanted. For example, they could have made the rebates contingent on troop withdrawals from Iraq or the closing Guantanamo Bay. Instead, the Dems made no demands at all and blew another golden opportunity to force Bush to change his extremist policies.
Earlier yesterday, Treasury Secretary Henry Paulson emphasized the urgency of the situation on CBS’s The Early Show saying:
What President Bush believes is that we’ve got to do something that is robust. It’s going to be temporary and get money into the economy quickly. It’s going to be focused on consumers, individuals, families — putting money in their pocket. And it’s going to be focused on giving businesses the incentive to hire people, to create jobs.
Can you sense the panic?
It’s funny in a way. The Bush administration had been warned repeatedly about the disastrous effects of their supply side theories, but they just shrugged it off and carried on with the plundering. Now consumer spending is drying up, unemployment is rising, manufacturing is down, foreclosures are soaring, and the Bush troupe is running in circles trying to find a way to stop the bleeding. Good luck.
Remember the $2 trillion wars (Iraq and Afghanistan) that could be paid for with “unfunded” tax cuts to the rich?
Remember the cuts to capital gains and corporate taxes that were supposed to “trickle down” to working class Americans creating more jobs and making us all more prosperous?
Remember the low interest rates that were supposed to create Bush’s “ownership society” that, in fact, generated the greatest speculative frenzy in real estate in American history?
Remember Dick Cheney’s brusque assurance that, “deficits don’t matter”?
Remember the myriad corporate giveaways, the lavish “no bid” contracts, and deregulated subprime shenanigans that were supposed to “grow the economy” and strengthen our markets?
The system is failing because it was designed to fail. The impending economic crisis is no accident, but the predictable outcome of deeply flawed policies that are pushing the country towards a 1930s-type catastrophe.
Still, even disaster has its brighter side: like watching the most-reviled, least-credible President in American history try to stop a crashing market with his miserable offers of “cash rebates.”