How to deal with an Economic 9/11

by Djerrid

Let’s go back to one month after 9/11.  The country just suffered its worse terrorist attack in the nation’s history and was going through another.  Weaponized anthrax was being sent through the mail targeting politicians and the 4th estate. The intelligence agencies failed catastrophically and didn’t cooperate with each other. The nation panicked and didn’t know if it could protect itself.

The response? The USA PATRIOT Act. It authorized expanded powers for US intelligence and law enforcement agencies including surveillance capabilities, broadened the definition of “terrorism”, increased border security and gave the Treasury the ability to stop money laundering the world over.

But its authority is so broad that it can lend itself to abuse. It gives power to wiretap and spy on law-abiding American citizens including monitoring what they read at the library, “sneak and peek”  without a warrant, and access to medical and financial records. Plus, this large bill was being quickly pushed through Congress without giving it full consideration or even being read by those voting on it.

Now imagine if almost every Democratic member of Congress voted against the Act based on those reasons. Or perhaps they didn’t trust this new, untested administration to do what is right. Or maybe they did it to just make a point about party unity. Would there be a public outcry? Would the pundits say that the opposition party did not grasp the enormity of the situation and that in this moment of peril it is better to “shoot first and ask questions later”? With the great danger the country is in, would it be better to err on the side of giving too much power to the government to deal with the crisis than too little?

Remember your mental answers to those questions as I change the circumstances slightly.

Let’s zoom back to the present day. The national and world economies have never been in as bad shape since the Great Depression. We have been losing a half a million jobs a month since the election and now 4.81 million people collect unemployment benefits, the highest number in at least 40 years. Consumer confidence is at a 29-year low. The Dow has lost a quarter of its value since September. The financial sector has $1.17 trillion in defaulted loans on its books which lead to a 12.4% reduction in housing prices. 1 in 9 US homes are now vacant.

The response? The $787 billion economic recovery package. It offers the largest tax cut in US history,  $272 billion for the working class. $58 billion to jump-start green energy infrastructure and another $90 billion to shore up traditional infrastructure – from bridges to roads to levees and transit. There’s $100 billion to boost welfare and unemployment, $112 billion for health care in Medicare, electronic medial records and preventative care. And then there’s billions for school reconstruction, greening federal buildings, Head Start, buying foreclosed homes, and laying down broadband for the entire country.

But this is a big bill. At a heft of over 1000 pages it has the biggest price tag of any stimulus bill ever debated in Congress. And that debate didn’t include many Republicans; only the very moderate got to influence the bill significantly while the more conservative members got their ideas heard out but never implemented. But this bill is so large it would fundamentally change the size and scope of the government’s influence in American lives. And like the PATRIOT Act, this thing blazed through Congress and no one had a chance to read it all.

Now the Republicans had their equivalent of the PATRIOT Act sitting in front of them. So what would they do? What if almost every Republican member of Congress voted against the Act based on the above reasons? Or perhaps they didn’t trust this new, untested administration to do what is right. Or maybe they did it to just make a point about party unity. Would there be a public outcry? Would the pundits say that the opposition party did not grasp the enormity of the situation and that in this moment of peril it is better to “shoot first and ask questions later”? With the great danger the country is in, would it be better to err on the side of giving too much power to the government to deal with the crisis than too little?

Some might balk at equating 9/11 with the current economic crisis. But its impact and reach are very similar. There was a lot of talk about going into the depths of another Great Depression, but the institutions and foundations laid down after the Great Depression would prevent that great of a collapse. Just like there was a lot of talk about 9/11 being another Pearl Harbor, but we were then facing a coalition of highly militarized, fascist countries actively attacking America and invading its allies.   Now we are facing a small number of fanatics with light arms. You can compare the two by type but not size.

Let me put it in an SAT equation:

Pearl Harbor : 9/11 :: Great Depression : today’s major recession

Our country has faced worse in the past and it is entirely within our capabilities to deal with our present crises. And while the Democrats were willing to take on 9/11 on the Republicans’ terms, the Republicans aren’t willing to tackle this economic crisis with the Democrats holding the reins. Every single House Republican voted against this bill along with all but three Senators. This is either because the Republicans don’t appreciate the dire straits that we are in, they had issues about the substance of the bill and way that it was pushed through, or they are more concerned with with their party than their country. My guess that it is a little of all three.

13 comments on “How to deal with an Economic 9/11

  1. An excellent comparison, Djerrid.

    There have been rumors that a good number of Republicans actually supported the bill, but refused to vote for it for wholly political reasons. At least according to Arlen Spector.

    Yet i still find it amusing that such a big deal is made out of the size of the number, which is actually the same size as what we spend on the military every year. I fear that the number will be both too big and not nearly big enough; more importantly, it is rather piece meal and does very little to boost what we really need to boost…making things that the rest of the world wants to buy.

  2. Great job of analogizing, Djerrid. And your rational conclusion that some of all three issues – lack of grasp of our dire situation, resistance to the bill’s content and its hurried passage, or political machination – influenced their voting is balanced and sensible. But I dare say, for many of us watching the proceedings, it seems that issues 1 and 3 carry more weight for the Republicans than issue 2. They don’t seem to get how serious things are, and they still seem to think the strategies they’ve employed the last 15 years – since Newt told them to vote only according to party strategy – will work on the people they serve but seem to hold in what looks more and more like contempt….

  3. “The national and world economies have never been in as bad shape since the Great Depression”

    One could make an excellent case that things were worse in 1977-80 under Carter. Every key index was in the weeds.

    Jeff

  4. Thanks for the comments everyone. This has been tickling my brain for a while now.

    Jeff: Back in 1980 under Carter is the only time the severity has come even close. But the main differences are that we are just heading into this recession when then we were heading out of it and then it was only a national phenomenon driven by the oil crisis and the Feds interest policy. Now it is truly a global recession and the size of this titanic will take a lot more energy and time to change course.

    Depressing side note: the global economy is now considered the top threat to US security, leapfrogging terrorism, according to the head of the intelligence agencies: http://www.nytimes.com/2009/02/13/washington/13intel.html?hp

    Jim: I agree with you completely there. My inherent even-handed nature needs to show itself sometimes. The biggest argument that #2 was a smokescreen for the other two, the Republican’s concern over the size of the package, was their lack of concern about fiscal responsibility when they were in the driver’s seat. As usual, Jon Stewart says it best: http://www.hulu.com/watch/56480/the-daily-show-with-jon-stewart-clusterfk-to-the-poor-house—economic-recovery-plan#s-p3-sr-i1 The money shot starts at 5:20.

  5. Djerrid,

    Can you quantify the fact that we’re only heading into this recession, or is it merely your opinion? The Congressional Budget Office has an interesting take on things.

    http://www.tmcnet.com/usubmit/2009/01/23/3936863.htm

    Fed policy plus Reagan’s tax cuts are what brought us out of that malaise called the 70’s. The Fed actions were of secondary importance, as the tax cuts increased the velocity of money, increased the money supply, and were responsible for the lowered interest rates due to the supply. Back in those days, we were watching the M1 (Money supply) very closely. The Fed’s primary concern during those days was to keep inflation in check, not stimulate the economy. Volcker actually caused a recession with his policies if memory serves me correctly. All I remember is that things were so bad in 1980 that 30 year bonds traded at 56. and the Dow hit a low of 759. To put things in perspective, the Dow closed at 7850 on Friday….a tenfold return in 29 years is not a bad thing. 30 year bonds are trading at 120+, which isn’t a bad thing either. You have to look at the real numbers and overall performance of the economy and not let the 24 hour news cycle and resulting information overload scare the hell out of you.

    Jeff

  6. In 1980, 30 year bonds valued at $56 would be worth $166.10 in 2009 dollars, adjusted for inflation.

    The Dow performance you quote is quite a bit better, admittedly, than inflation. Looking at the trace from 1979-1980 and it looks like there was a lot more volatility, but the percentages don’t support the general thrust of “looking at the real numbers.”

    Normalizing into percentages to draw better comparisons, the low in 1980 was about 15% below the height of 1979. The low as of Feb 12, 2009 is 36% below the height of 2008, more than double. In addition, there was a dramatic increase in late 1980 (30% over the low), and while it’s theoretically possible that there could be a similar increase the rest of this year, I don’t know of any economists who expect such a thing.

  7. And I don’t buy the tax cuts argument – Reagan spent money like it was going out of style in addition to his tax cuts, especially on the military, and that supported a huge number of industries tied to defense.

  8. Brian,

    You’re forgetting the interest the bonds would have paid which would kick the yield up just a tad:)

    As for the normalizing the percentages, now you’re thinking on the right track. I do a lot of that kind of analysis, which is referred to as counting in our business. As for what the economists might think, I’ve never seen an economist who could trade worth a damn, Friedman included. One might find it useful to consider different time elements to filter out volatility and noise, and allow the inexorable upward drift of the market to carry you. Anyways, I tend to look at percentages, but trade real numbers as you can’t put percentages in the bank.

    I can’t find an instance where where tax cuts negatively affected the economy, so they must not be that bad.

    If this stimulus package that Obama signed was so good, why did the market puke today?

    Jeff

    Jeff

  9. This is the second time you’ve mentioned trading vis a vis economics. The two aren’t the same, and expertise in one doesn’t imply expertise in the other. I wouldn’t want a trader defining macroeconomic policy any more than I’d trust my 401k to an academic economist.

    I really need to finish my economic analysis – I expect a wide-ranging discussion about how related economic growth, unemployment, the influence of political parties, taxes, business growth, and more are to each other, what’s causal and what isn’t, etc. Especially since my first attempt turned up some very interesting things that run counter to what I expected, and others that ran counter to what I think you would have expected as well.

  10. Hey Jeff,
    Good catch on where we are in this recession. It was only the opinion I garnered from the economic stories in general. If this were to go on for another year it will be the longest since the Great Depression. Hell, we are almost breaking records already: “Now in its 14th month, this recession would have to go on only a few more months to surpass the 16-month recessions of 1981-1982 or 1973-1975.” http://www.registerguard.com/csp/cms/sites/web/business/7503830-41/story.csp

    As for right now, all indicators are still heading down, although a couple are just starting to slow their freefall: http://www.nytimes.com/2009/02/17/business/economy/17econ.html?ref=business

    If you see anything that says we’ll be rebounding out of this soon, I’m all ears.

    As for a longer view of the economy, you seem to be arguing that it’s not too scary right now because we have rebounded from as bad shape in the past. But as I alluded to above, there are usually a few indicators that proceed an economic rebound. And that ain’t happening yet. And that won’t happen until after credit has flowed for a little while (in my opinion).

    Lastly, I’ll have to side with Brian on the reason for 80s economic recovery. Reagan ran up a huge debt building up a military infrastructure which re-primed the economic pump. Obama is looking to do the same rebuilding our economic infrastructure (roads, transit, tech, broadband, electrical grid, etc.) which will then pay back dividends over time (instead of just sitting in stockpiles).

  11. Djerrid,

    I have my own little proprietary indicators that indicate an upside in the next few quarters. Those published indicators just don’t have an edge because of the large audience.

    However, I find this downdraft to be very exciting, history in the making, so to speak. From an analytical standpoint, the markets action is fascinating, Not all markets have performed poorly, as the metals have rallied substantially. The equities have been in this great pattern where one can sell the rallies with impunity and get rich buying the dips. Of course, there will be a time when the steamroller knocks us shorts down but that’s part of the business. The bonds have performed extraordinarily well, in fact, they’re in the biggest bull market ever. There’s plenty of opportunity out there to find a safe place for your money.

  12. “The intelligence agencies failed catastrophically and didn’t cooperate with each other. ”

    Or, conversely, some in the intelligence agencies succeeded beyond all expectations (in their treasonous views).

    ” Just like there was a lot of talk about 9/11 being another Pearl Harbor, but we were then facing a coalition of highly militarized, fascist countries actively attacking America and invading its allies. Now we are facing a small number of fanatics with light arms. You can compare the two by type but not size.”

    The small number of “fanatics” are assisted, armed and trained by intelligence services. They are protected by politicians. They are allowed to operate when needed, as per Operation Gladio exposed these methods and means.

    Failure to understand the nature of the threat is the main problem facing the American people. So called “allies” create the terror networks and they are encouraged to do so (more than $10Bn to Pakistani ISI since 9/11, despite even the Washington Post admitting that ISI colludes with terrorists).

    Terrorism is a tool of statecraft. Even when they get caught, it is apparently unthinkable that they would engage in such crimes.

    Please to name the “certain foreign governments” revealed by SENATOR Bob Graham and other senators, who “assisted the 9/11 hijackers” in the United States before the attacks. Then explain why keeping their activities “classified” is not high treason.

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