Why there is a financial news blackout

The media is conducting a blackout of the real bad economics news. To see it, one has to read through the “Financial Times” and http://www.bloomberg.com, where they have both the good news and bad news.

The reasons for the blackout are two-fold. One is that the economists are worried about an increased savings rate by consumers, just over 4% of disposable persynal income in the united $tates right now.(1) The economists fear that fear adds to the savings rate just when the economy needs spending. People think they will be unemployed and then obtain new ideas about savings.

Secondly, the media is trying to turn around the stock market. Alan Greenspan expresses the view nicely that without an improvement in equity values, there is less collateral for loans, hence a downward spiral in banking larger than the Fed can ever deal with. He says over $40 trillion has been lost in wealth globally from stock market downturns and housing downturns.(2)

Even this website helps out the stock market by talking about future inflation. Such talk may drive money out of mattresses and money market accounts into the stock market. The “Wall Street Journal” is also talking about inflation versus deflation risks, with some pretty scary statements about future inflation.(3) (It might also have the effect of scaring investors about the U.$. economy generally though.) Our intention is not to aid the stock market but to look at Third World interests including whether they’re being well-served in too much business with the united $tates.

We should return to the question why bankers do not lend.

Perhaps one could say it started as a few bankers going on strike to help elect Obama. Both David Brooks and Ann Coulter have pointed out that Democrats and Obama in particular have had heavy donations from the financial industry. However, once the election was over, one would think the capital strike would stop. Furthermore, smaller banks could eventually move in to take over business left hanging by the capital strike, especially with the Fed being so accomodating.

So we are back to the housing bubble. If the bubble really pops, then that would yet again further drive lending down in connection to home equity loans. We would say the true Liberal answer is to pop the bubble and pay the price. (We’re not Liberal.)

MIM has argued for many years that the growth of home equity in the West was not based in labor. That home equity could be exchanged for labor was an example of how asset bubbles can disadvantage the Third World proletariat. By making an external psychological argument about panics, the economics and banking professions can escape the exploitive aspects of bubbles exchanging against labor. We say the answer is right at home for economists in the variables of labor and asset prices. (They might counter that racism is psychological.)

This time around, if Greenspan is right, the contraction in lending may be so severe that capitalism can finish itself off by itself. One can then see an argument for why he kept up mini-bubbles. Labor exchanged against home equity; bubble-value in the stock market only added to problems. It cannot go on forever without crisis — no sudden discoveries in global psychology necessary.

1. http://online.wsj.com/article/SB123815632294556303.html
2. “Equities show us the way to recovery,” Financial Times 29Mar2009.
3. http://online.wsj.com/article/SB123836516806167317.html


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