Before it gets better. At least that is the opinion of two economists – one from the German Deutsche Bank reported on NPR’s Morning Edition this morning:
“Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line,” the document says.
In other words, the paper says, if the government tries to save taxpayers money, many people will lose their jobs and the whole economy will suffer.
The research note offers a solution any banker would love: The government should “estimate the highest price it can pay for the various toxic assets on financial institution balance sheets,” then pay that price to buy them.
Note that doesn’t say what they’re worth or what the going market price is, it says the highest price it can pay. The alternative is very, very high unemployment – like in the 20% range. Since “it” is the government, that’s us that will be on the hook, via taxes and debt. According to Simon Johnson, an economist at MIT’s Sloan School of Management:
“It’s saying, ‘Guys, either you’ll have 20 percent unemployment or national debt will go up to these dangerous levels, unless you buy toxic assets — not for what they’re worth, not for what the market price is, as much as you can pay.’ ”
Johnson says his “first reaction was: ‘It’s a spoof.’ My second reaction was: ‘Oh my God.’ “
Again from NPR:
Johnson thinks that if the U.S. is going to spend taxpayer money anyway, it’s ridiculous to use it to save the same bankers who caused the current crisis. He likes a different approach: where the government directly takes over banks and then sells them to new owners. Maybe for a profit, maybe for a loss.
David Beim, a former banker who is now a professor at the Columbia Business School, has something to say for people who want to pin this whole thing on the banks.
He has a chart illustrating how much debt American citizens owe, how much we all owe — with our mortgages and credit cards — compared with the economy as a whole. For most of American history, that consumer debt level represented less than 50 percent of the total U.S. economy, as measured by gross domestic product.
And then …
“From 2000 to 2008, it’s almost a hockey stick. It just goes dramatically upward,” Beim says. “It hits 100 percent of GDP. That is to say, currently, consumers owe $13 trillion when GDP is $13 trillion. That is a ton.”
This has happened before. The chart shows two peaks when consumer debt levels equaled the GDP: One occurred in 2007, the other in 1929.
Right now, I have a job. I hope that continues.