The Economy and the Impending Crisis

Barack Obama has, sensibly, taken to warning the sort of people who write the headlines that the recession is not over just because some of the hucksters on the markets are having a good month.

I couldn't agree more. I also stick to my original point that, so dire is the economy, he only has a fifty per cent chance, at best, of re-election.

I notice that people are waking up to how unemployment insurance works in the United States. It is genuinely insurance, in the sense that, if one has not paid in, then ordinarily one cannot extract. It is also operated on a state basis.

What this all means is that various people have been strung out on the road to calvary for between 46 and 72 weeks, depending on when they lost their job and where they live. The 'stimulus' package provided for federal help to states to temporarily ease their burden.

At the time, I thought that this was represented by an apparently unallocated two trillion, but that that money would be soaked up as state after state approached insolvency and as money made its way in a clandestine fashion to banks that were really on their uppers, but not revealing it.

The money is almost gone. A huge amount of that which has been allocated has also been mis-spent. For instance, I know from reliable if anecdotal evidence that high-tech and knowledge job support has gone to Long Beach; labouring support job subsidy to the Bay Area. This is almost 180 degrees wrong. On the other side of the country, by way of contrast, in Vermont, stimulus aid has gone on medicaid, which goes to insurers and back to Washington, and the state government is still having to cut jobs.

Someone is getting rich from the mismatch, which is being repeated across America.

Congress will have to contemplate increasing its line of unemployment benefit assistance by the better part of a further hundred billion. Tax revenues are collapsing. States like Pennsylvania and California are going to have to lay people off, and the insurance industry hasn't really recovered from the AIG collapse.

California, somewhat shamefully, is starting by cutting the budgets of sick children, the old, and the disabled--but these are just the first tastes of what is to come, and I can't see how they could have done otherwise without simply dissolving the State and starting again.

Put it together. If States ask Americans to do less work, in a country where redundancy packages are not automatic, what happens when they say 'no'? You get expensive court cases or strikes. California wants rid of 20,000 teachers--I can hear the tyres of the Lincoln-cadillac lawyers squealing as I write. Vermont is asking people to volunteer for salary cuts with no perquisites attached if they work for the state.

Two words; contract lawsuits.

States are going to try and get the money to waste on lawcases from medicare and medicaid budgets, and by offsetting against the credit of cities, counties, and school boards. But these are broke. They are also going to have to run transport services and hope no accident occurs--given insurance problems.

Meanwhile, they are going to have to work out what to do about 'tent cities' where the homeless are going to be once credit and unemployment insurance have run out. This is going to add to the deflation of wages and spending; and this is going to pull further agony out of the crisis of personal, state and federal debt that is ongoing.

The global implications of an American deflationary descent are severe. China, formerly dependent on the US market, is now talking dangerously about protectionism, both against it and as a defence; Europe is facing a ruinous deflation; and commodity markets have sunk, but may yet rebound disastrously to add to prices. The folly of part-nationalising banks but not following up, and of just printing money to fight Keynes' last battle from seventy years ago, is already coming back to haunt us.

I am not professionally gloomy. I am not hysterical. I have to emphasise this because I know that most of human history was poorer and more violent than now, and because I keep detailing the problems we face without proffering solutions.

But really, we are lied to right left and centre and we are lying to ourselves if we think that the new depression--made worse by a lack of moral fibre, by which I don't mean policing people's personal habits or bedrooms, but I suppose education and individuality and honesty in public--is going to be easy.

I also feel as though I should explain my Atlantic focus. There was truth in the idea that Britain and America had fallen under a 'NYLON' class in the globalist period; an English speaking group of media and political professionals based in New York and London for whom the wider English-speaking economies (or the 'white' ones at least) were a free-market playground. Since, in real life, governments and media and markets seem integrated and essentially follow the same tune, I thought that I would follow.

If you are one of my few non-Atlantic readers, I apologise for what may have seemed like discourtesy. A talk I gave at the LSE last week certainly brought home to me how much my fellow Europeans are hurting too. But, well, whereof we know little, thereof we should speak less. I'm just hoping Angie wins in Germany.

So I'm glad President Obama is hinting that he gets it. I'm sad very few people in the United Kingdom do, but we'll be facing a fiscal crisis, four or five million unemployed, and a credit default crisis soon enough.

The first criterion of optimism is that you look clearly at the dark cloud to see where the silver lining is, and where the rain will fall. Think about what is coming, what is almost here, and plan.

Things are going to get quite tough indeed, and every institution or group in whom or in which trust or leadership has been reposed has failed us. Every one. It's time to think for ourselves. That--accompanied by a great deal of economic hardship-- will be the only way out of this mess.