Is the Problem a Reality? Or Vice-Versa?

As Washington DC signs into law the American Recovery and Reinvestment Act, we all hope it will fix “the problem”,  so we return to someplace we were, say, 1 year ago. That would be nice, right?

But is it realistic? I don’t think so. A recession in economic activity may not be a “problem” at all…it may be just reality setting in, finally. The huge bubble was not really a real estate bubble. It was a money bubble…mortgaged homes posing as wealth.It was “fake” money. Money whose value is not tied to current economic production, but is instead the spending of future production. The early to mid 2000′s witnessed HUGE amounts of worldwide capital flowing into our Wall Street-sizzled mortgage-backed debt obligations…as long as it said “mortgage backed”, the world bought ‘em!

So newly minted Main Street mortgage brokers (happy to trade in that pizza delivery job and armed with half-page applications),  signed up everyone they could get their hands on for a new mortgage or a re-finance. Credit-happy consumers had a credit card payoff party, only to run ‘em up yet again.  People with no business owning homes at these prices were moving in. Speculation was rampant, with people counting on 6 month turnarounds with 20% profits. See what I mean by “fake money”?

So returning to some “good old day” when the economy was stable and growth was “real” does not require a Stimulus Package, it requires an acknowledgment that reality is what is being presented, not a problem. The fact is, we began mortgaging our futures during the Johnson administration. We have bought (hook, line, and sinker) the premise that Keynesian economic theory is valid, and that levering economic activity is a valid long-term growth plan. Maybe it is, and the “money bubble” is just a bad thing that happens when borrowing is unregulated. And “unregulated” sure does describe the economic atmosphere since the Reagan administration, does it not?

So will this new ARRA bill provide the solutions to this problem?  The problem, so we are told, is that the credit system is not flowing. So I guess we need more whiskey to help this hangover?   It seems we are just another loan or two away from economic health, is that it? If we can just blow MORE hot air into the deflated balloon, we’ll all fly again.