Months ago when Bears Sterns was crashing, I took some time to digest some of the problems in the current Economy...particularly a very unique problem that has occurred in the past year which is is Economic slow-down AND inflation.
These two problems, as I discussed really put the Fed in a pinch because their biggest Economics tools, supply of money in the economy and the federal funds rate help one area of this double sided problem while worsening the other.
There is another double edged sword with this American and World economic meltdown that has occurred, and it's in our view of how to solve the problems.
Partisan politics often create opposing sides that make us wish that everyone could just get along (and see it "our way"). But as problems worsen, people become more passionate about various things, even at the cost of others.
California's budget situation has been an utter mess. With a $15 billion dollar shortfall, the California Legislator has yet to approve their fiscal budget...which began 77 days ago, July 1st.
When I read and listen to the ideas of the politicians it's easy to see where they are coming from. In rough economics times many of the liberal democrats are passionate about seeing that necessary services, like health care and education become primary focuses of the current years budget. In the weak economy, these democrats see the need and role of the government to step in and provide services greater than ever...even at the cost of spending money they don't have (with solutions like buying futures on Wall Street for 2009 California Lottery earnings).
More fiscally minded conservatives see that there is a problem with the budget, that needs to come to an end, not be exacerbated, and are proposing cuts...saying, let's not bite off more than we can chew. They suggests that the last thing Californians need is less of their paycheck coming home, especially in the presents of high gas prices, a credit crunch, mortgage crisis, job loss, and inflation.
Both conceptual ideas make sense, and depending on your tendency towards donkey or elephant politics one seems to make more sense than the other.
The problem is that the lack of a consensus and a decision being made has probably done more harm to Californians than either of the plans, in that the budget has still not been agreed upon, meaning that money that is typically allocated to student loans, social services, schools have yet to be paid...because a budget has not been approved.
These plans, strategies and concerns seem very similar to the plans that I hear from the broader political chatter of speechs, ads, and sound bites. The situation with the American economy is historical, and action must be taken, with leadership, vision, and clarity.
Yet for some that action means seeing the government step in and use it's authority to shape and direct America out of these disastrous situations, without diminishing the expectations of American civil liberties and opportunities. While others see a need for the marketplace to be given the freedom to govern itself, for Americans to be given an opportunity to vote with their own paycheck and dollar instead of the government making the decision for them.
Unfortunately in various situations, and with different rhetorical statements, and various examples each case makes sense as the different attempts strive to amend different problems. But look at the situation for a second angle and the plans seem preposterous.
I can't help but think that the situation in California is only a microcosm of problems and situations we will see again and again. Whether it's the government determining whether to bail at Fannie Mae, Lehman Brothers, Washington Mutual, Wachovia, GM, GE, or any number of companies who just might not be able to survive in the coming year...or if it's the government balancing it's budget and trying to decide how much more it needs to go in deficit to save social security, health care programs, and transportation programs.
Honestly, it's an American mess and partisan politics aren't helping.