The Economy Tree

THE CENTURION CHRONICLE
Special Issue – Mar 2009

THE ECONOMY TREE
(making it bloom again)

Federal Reserve Chairman Bernanke’s public interview on 60 Minutes (the first in history) seems to have been an attempt at reviving public confidence in our financial system.

While his comments were apparently frank, and sincere, there was a whiff of his not really believing a word of what he was saying. Despite his optimistic demeanor and projections that things would turn around by the end of this year, and, that there would be positive signs of an economic rebound in the next year afterwards, it all came across as being part of a well-crafted PR script, not reality. The expression in his eyes belied the words of that script. It had a hint of desperation to it.

So, what is the reality of our situation? Frankly, it’s probably somewhere between outright doom….and just plain gloom.

And the key contributing factors to that are a combination of doubt, and fear, that the Fed’s “rescue” plan, somehow, is defying fundamental economic logic and principle. Simply put….flooding the financial system with trillions of fully discounted dollar bills, is akin to popping pep pills (amphetamines) to stay awake on a long haul drive cross-country. Sure, you’ll feel fully alert and ready for anything, at first, but, you’ll be lucky you don’t crash and burn before reaching the end….of that run.

The Obama Administration, and the Fed, are apparently being guided by the concept that money, much like manure, has to be spread around, to make things grow. While that might be a reasonable truism, to really make it work much depends on how, and where, that money-manure is applied. Unfortunately, our instincts are telling us….they’re not doing it right! Hence the doubt and fear, but, since they’re the “experts”….what do our instincts know?

Flooding the canopy of our economic tree with all that paper, that is, only bailing out those big financial outfits, like AIG, CitiGroup, JP Morgan Chase, Wells Fargo, BOA, etc., doesn’t feel right somehow. Why not let them fall apart from their own mismanagement and stupidities? Just because they’re “big” why should they be immune from that? Ask any entrepreneur or small business owner what happens if they make the wrong bet, or, screw up one way or the other. They’re gone!

The idea that letting such giant financial entities collapse would be too traumatic to the structure of our financial world, may be true; but, then again, how much different would that be than the situation we have now? Are there not any number of small banking and other financial institutions, without problems, who could pick up the pieces?

If we’re going to use the money-manure approach to fix things, perhaps we should consider applying it to the roots of our economy tree,instead. After all, it’s the roots of any plant that provide the nutrients that make it grow. The canopy, frankly, is just the emitting end of that alimentary process (transpiring water and oxygen).

So, what if, instead of bailing out those financial canopies, the same amount of money-manure was mulched and drip-irrigated onto the rootstocks of our economy. What would happen then?

Yes, there would probably be inflationary pressures, but by controlling the rate of irrigation, that could be containable. Bailed out homeowners, would no longer be “toxic” accounts for the banks, thus freeing up whatever capital assets they still might have for lending, thereby jump-starting the financial system. Small business enterprises would have the revolving financial support they need to keep operating, thereby reducing levels of unemployment. Larger businesses and industries, might also share in some form of Federal largess, in the form of bridge financing, and tax incentives, to get over the current bumps in the road.

All in all, every element and component of our economic system would have a piece of the action….not just a few parts of it. It would be the ultimate form of “earmarks”, but by these, our economic tree could surely be made to…. start blooming again.

Well, if this seems too radical an idea, or, sounding like some kind of zonked out pipe dream, we should ask ourselves this question: Is it any more of a pipe dream than what they’re smoking in Washington?

CENTURION