May 30, 2011

Recession and Unemployment

We should spend. However, we need to spend wisely.

This is more like the last depression then the last recession. What got us out of the depression was a world war. An increase in demand is not going to come from the consumer. Unlike recent recessions, the average consumer's net worth has significantly dwindled because of the perspicuous fall in the value of his home, around 40%, with no sign of it recovering soon. This 40% drop in home values results in at least a 60% drop in net worth because of the excessive use of leverage.  Further, unlike the previous depression our government is much deeper in debt because of the burden of additional social programs and two wars going on.

This occurrence has caused the average American to be more frugal. He is not anxious to spend like yesterday. Further, even if he was, his ATM called a second mortgage, is no longer available to him.

The problem is further exasperated by the fact that much of what we consume is imported from other countries. Therefore, most purchases made today will have a much smaller stimulative affect than the purchases made during the Great Depression. In the 1930's any stimulus money spent could be counted on to circulate in the economy four or five times before its affects fizzled out. Today, when we go to Wal-Mart much of what is paid goes directly to China and leaves our economy.

Our spending needs to be focused on investment, rather than consumption. Our targeted spending should be on education, high speed Internet, high speed rail where it makes sense, drilling for oil, alternative sources of energy, demolition of vacated and dilapidated buildings, repairing infrastructure. and many other investments that make sense and will make us more competitive in the future..

I will not at this time climb onto my pulpit against the oligopolies that are destroying our economy and exasperating this recession. However, they are a major contributor to the unemployment and income disparity problems that currently exist in this country.

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