Karla: I don’t know what to think of the
economy anymore. Jobless claims are down and new home sales have come
up. Could this by an omen of a possible recovery?
Lyla: I am skeptical, meanwhile unemployment remains high demand
will be low and the economy will fail to show substantial growth.
Besides the assistance program for new home buyers of $8,000 dollars
will end around April of 2010 and that will likely slow down a possible
Karla: Obama’s economic stimulus plan is insufficient. On November
19 of this year in the New York Times Paul Krugman mentioned that “the
A.I.G. rescue was part of a pattern: Throughout the financial crisis
key officials -- most notably Timothy Geithner, who was president of
the New York Fed in 2008 and is now Treasury secretary -- have shied
away from doing anything that might rattle Wall Street. And the bitter
paradox is that this play-it-safe approach has ended up undermining
prospects for economic recovery. For the job of fixing the broken
economy is far from done -- yet finishing the job has become nearly
impossible now that the public has lost faith in the government’s
efforts, viewing them as little more than handouts to the people who
got us into this mess. About the A.I.G. affair: during the bubble
years, many financial companies created the illusion of financial
soundness by buying credit-default swaps from A.I.G. -- basically,
insurance policies in which A.I.G. promised to make up the difference
if borrowers defaulted on their debts. It was an illusion because the
insurer didn’t have remotely enough money to make good on its promises
if things went bad. And sure enough, things went bad.”
Lyla: Yes, I remembered reading that article, Krugman also
mentioned: “So why protect bankers from the consequences of their
errors? Well, by the time A.I.G.’s hollowness became apparent, the
world financial system was on the edge of collapse and officials judged
-- probably correctly — that letting A.I.G. go bankrupt would push the
financial system over that edge. So A.I.G. was effectively
nationalized; it's promises became taxpayer liabilities. But was there
any way to limit those liabilities? After all, banks would have
suffered huge losses if A.I.G. had been allowed to fail. So it seemed
only fair for them to bear part of the cost of the bailout, which they
could have done by accepting a “haircut” on the amounts A.I.G. owed
them. Indeed, the government asked them to do just that. But they said
no -- and that was the end of the story. Taxpayers not only ended up
honoring foolish promises made by other people, they ended up doing so
at 100 cents on the dollar.”
Karla: Mohamed El-Erian Pimco's director has said that the economic
crisis we are witnessing is formidable. It hit the economic core hard
and he thinks we are experiencing a sugar rush right now and the
markets think that everything is going to be well soon. El -Erian
really believes that the slight economic improvement we are
experiencing is only “temporal and reversible.”
Lyla: God only knows when the economy will get Better if it ever
does. It might improve some, but China is taking away many of our
possible new jobs by keeping the Yuan below the dollar and is hard to
think that Obama will borrow more funds to give the economy a second
jolt since the debt is already huge.
Karla: Many economists believe that there is a bubble in the stock
market. The market grew some at first and that was expected since
companies’ lay off many workers and improved productivity becoming more
efficient. However market growth has continued beyond reasonable
expectations. This could be a new bubble that could crash the economy
again. Maybe not as strong as the Real Estate bubble, but powerful
enough to cause a Great deal of damage.
Lyla: You are right. Bubbles are showing up here and abroad too. One
has only to look at China. The Chinese government has invested over a
trillion dollars in their stimulus package. A great deal of the Chinese
production won’t find markets for their products. Many investors that
are so sure about the Chinese economic rebound could end up empty
handed. As central bankers around the world put an end to their
stimulus programs a new economic world picture will emerge and it won’t
look too nice.
George: My folks are so incredibly happy that you wouldn't believe it, and of course that makes me very, very happy too!
Kathy: Wait, I know! They must have purchased a brand new car!
Kathy: Let me guess: they are going to Europe!
George: I don't think so.
Kathy: I give up. What could have made them so happy?
George: They got food stamps.
Kathy: They must have been awfully hungry!