After a disappointing Christmas shopping season, the U.S. economy has been in a funk. The housing market collapse and subprime mortgage crisis have been weighing heavily on Wall Street. People are not able to use the value of their homes
After a disappointing Christmas shopping season, the U.S. economy has been in a funk. The housing market collapse and subprime mortgage crisis have been weighing heavily on Wall Street. People are not able to use the value of their homes as a supplementary income source — a cash machine. Instead of shopping, most Americans were just trying to get the next mortgage payment together.
Last Tuesday, after the long Martin Luther King Day weekend, in the hours before the U.S. stock exchanges opened, a selling binge began in far the east markets. Fueled by doubts about the American economy, it spread from Japan to China and wrapped around the world to Europe.
As the fear descended on England, the futures trading in the Dow Jones Industrials were running more than 400 points down. A full blown panic was in the wind. Treasury Secretary Hank Paulson quickly organized a press conference early that morning. He stepped up to the podium and stuttered and sweated through a promise to offer a “stimulus” check for as much as $1,600 per American household, that was designed to get consumers back to their primary job — buying more stuff.
Paulson was immediately followed by an announcement from Federal Reserve Bank Chairman Ben Bernacke. Bernacke was not going to wait for Fed’s next scheduled meeting. He dropped interest rates immediately by a whopping three-quarters of a percent: A shot of nitro in the old carburetor.
Both announcements were parts of a short-term stimulant fix that could have a nasty hangover later. Although both actions could weaken our economy further, they accomplished their goal. They staved off the panic that was about to engulf the United Kingdom. The London Exchange averted the crash and ended in neutral territory. The American exchanges recovered somewhat, and the worst case scenario of a market collapse did not occur.
The ‘old boy’
network fails
If you think Bernacke and Paulson have your best interest at heart, remember that Paulson was recently the CEO of Goldman Sachs.
Goldman Sachs is the firm that survived much of the subprime mortgage meltdown by selling high-risk mortgage packages while betting against those same customers.
Bernacke, is the chairman of the Federal Reserve Bank. The Fed is not an agency of the U.S. government, but an organization that is operated and controlled by the private banking industry.
With the Reagan-era deregulation of our economy, the banking and investment community have become partners in leveraged, complicated, abstract and risky activities that have resulted today in what may now be trillions of dollars of evaporated wealth for institutions like CitiGroup, Morgan Stanley, Merrill Lynch and the like.
That loss is about to find its way to you. A $150 billion dollar federal “stimulus” may replace your Dell desktop PC, but it won’t cover your next mortgage payment and monthly food bill, too.
As this week’s trading closed, triple-digit fluctuations on the DOW were the norm. Like a heart in fibrillation, this hyper-volatility is not an indicator of vigor, but an indication of uncertainty and fragility. The coming weeks will be telling, but the gloomy traders seem to know that things are sour with our economy.
A basis for our wealth, debt in suburban sprawl is not working anymore. The mantra of the consumer-based economy has been “Grow or Die!” This is certainly a dilemma for the American way of life.
The “R”, “D”
and “C” words
What is becoming clear is that America has entered a recession. The question now is how bad will it be? There are three commonly used terms to describe ascending orders of economic bad times.
• Recession is the widespread decline in Gross Domestic Product with no economic growth for six months.
• Depression is no growth for one year with a contraction of GDP.
• Collapse is a severe depression that is usually accompanied by long period of hyper-inflation in the prices for consumer goods like fuel, food and clothing.
Japan, Germany and most of Europe experienced economic collapse after W.W.II. Fortunately for them, the U.S. was at its peak industrial strength and initiated efforts, such as the Marshall Plan, to rebuild the economies of our allies as well those we had firebombed into submission. There is no White Knight today, unless you count China and Saudi Arabia.
The unanswered question is whether the entire world economy will be dragged down when the U.S. falters ? This is pertinent because for the last 15 years we have been strengthening the bonds of the global economy. In the past, a recession in one market might manifest itself as growth in another. At this point a deep recession in the U.S. economy might just stall the world economy. A new way of doing business may be in store for all of us.
Investments on Kaua‘i
One of the few things we can do to insulate ourselves from economic hard times is to be more self-reliant. Hawai‘i should invest in its own economic independence. Each island must find what it can do to stand on its own and then reach out to its partners for trade.
Instead of putting money in indexed derivatives, or credit default swaps on subprime mortgage pools, maybe those here with some wealth should invest in our island’s future. There are some things we will need that require capitol to start up. Many will be “safe bets” in the coming economic environment; especially the operations that will provide things we really need. Here are 10 items that occur to me: dairy farms, organic food cooperatives, wind energy cooperative, zero waste recycling center, renewable forest lumber mill, sailship building yard, village-scaled retail chains, timeshare conversions to housing, biodiesel fuel plantations and a bamboo products processing plant.
Some of these projects are already underway. Others won’t be in demand for a few years. All will have a place in our community as the world economy transforms here to an island economy.
A Kaua‘i currency
We are constantly witnessing the funneling of capital away from the islands. About 90 percent of the food and fuel we buy is from the off-island and that expenditure is immediately transferred to the Mainland, where corporations get the lion’s share of our remaining shopping dollar — and even the tourist dollar, too. Obviously, in response to this, we can conserve, cultivate local food and the generate electricity through community-owned and operated wind farms. But there is more we can do. How about printing our own money?
Monetary systems are useful because it allows people to store real value for later exchange. If the money bleeds away or loses value over time it is not so useful. An effort we can make now, as an investment in our own future, would be to develop a local currency. This could be vitally important when the U.S. economy tanks.
Several successful local currencies have been created. Perhaps the most renowned is the Ithaca Hour (www.ithacahours.com) that is based on trading in hours of labor. Inspired by such efforts, Jonathan Jay has proposed creation of the Kaua‘i Hour as a unit of currency emblazoned with the motto “In Kaua‘i We Trust.” He has even designed an example of a few denominations to generate interest in the concept.
A unit of Kaua‘i money would be backed up with an hour of real work. In 1997, for tax purposes, the original Ithaca Hour was pegged to $10 an hour work, but this exchange rate was variable.
In the long run, a local monetary system would ease the flight of currency to Mainland corporations and act as a hedge against U.S. dollar devaluation and inflation. Will it work? As Jonathan says; “People love to spend time on Kaua‘i.”
• Juan Wilson is a resident of Hanapepe and writes a bi-weekly column for The Garden Island. Juan is an architect-planner and the editor of www.IslandBreath.org
