Playing Bait and Switch with our Economy

What part of the words “Troubled Asset Relief Program” does Henry Paulson not understand? The taxpayers of the United States just gave the most powerful financial companies in the country more than $700 billion in order to prevent the rest of our economy from slipping into a depression.

However, the Treasury Secretary said that he simply changed his mind and will not use those funds to purchase the troubled assets that lawmakers gave him permission and instructions to buy. Instead, he’ll use the money to purchase the precious “preferred stock”.

Therefore, the tangible relief that was sought won’t happen. The toxic assets are still on the books. They banks already got the money but they are not lending. Wall Street still recognizes the problem and continues to devalue these companies. There has been no tangible progress since the bail-out was announced. However, the taxpayers of the country are light in the wallet to the tune of $700billion.

In order to fix our economy, serious steps need to be made in order to turn this situation around. I believe our first action is to look at our energy policy and the way it has affected our country.

According to the Dept of Energy, in January 2000, the average price of gas was $1.35/ gallon. By June of 2008, the average price was up to $4.13 per gallon. Although our consumption increased by less than 2% during that period, the price went up by almost 400%. The projected usage of India and China 10-15 years from now was always their justification for raising the price. Existing consumption and supply patterns didn’t matter.

The first victims of this increase were the transportation companies. Operational expenses went through the roof as they tried to move people and products from point A to point B. To my understanding, for every penny that the price of gas increases, the airlines lose $25 million.

There was no way our economy could sustain such an increase outside of normal supply and demand tendencies. Many companies initially tried to simply handle doing business with lower profit margins; but, later had to pass on their own price increases to their customers. It became increasingly difficult for businesses to function under their existing pricing and payroll structures. Therefore, many businesses were faced with raising prices, employee layoffs, or both.

Obviously, it became much more expensive for Americans to fuel their vehicles and get back and forth to work. But during this period, the price for everything went up. The price of eggs, milk and cheese all doubled. General Mills and Kellogg were reducing the sizes of their packaging and still raising their prices. Customers were getting far less for much more.

The price to heat your home in the winter and cool it down in the summers also increased. Many regulated power companies lobbied their state PUCs for price increases to make up for their increased delivery costs.

The only thing that didn’t go up during this period was Americans’ salaries. The American consumer was now forced to attempt to operate their homes on the same income but with much higher expenses. The sales of luxury and other non-essential items declined substantially. The automobile manufactures started to announce significant decreases in sales figures. Retailers began to report 20, 25 and sometimes even 40% decreases in sales.

Americans were broke and were not spending their money on new fancy items that they could live without. Disposable income became non-existent.

As more companies went out of business, others continued their lay-offs. More victims were created out of this recession. An obvious victim was the housing market. Not only could Americans no longer afford any new gadgets and cars, they could no longer afford the homes that they worked their lives to purchase, maintain and leave to their children.

Although some Americans fell prey to some punitive loan structures and adjustable rate mortgages that always went up and never went down; many others could simply no longer afford the monthly payment that was no problem for them just a few months ago.

It’s easy to simply blame the foreclosure crisis on our country’s economic woes. However, until we diagnose what created the foreclosure crisis, we’ll be forced to repeat this cycle. We cannot allow any industry to manipulate the delicate balance of supply and demand that we have in this country.

American capitalism has been successful because of its win/win premise. In order to make business sustainable, it has to be good for both the buyer and the seller.