Ready for the Next Economic Crisis?

About twenty years ago I had an old Ford Escort that my friends called “the Blue Beast.” This was because it was both blue and a beast. The car would get me to and from work, but the heater did not work (this is a bad thing during the Maine winter), the steering wheel shook up and down, and it ran like a lawn mower (that is, it seemed to burn as much oil as gas). While the car did get me around, it was such a beast that it was not worth fixing-the only real solution was to replace it. However, I kept it going for quite some time by pouring more and more oil into it. This was wasteful, but it was the only viable solution I had at the time.

In many ways, the current financial system is the same way. Like my Blue Beast, the system is a mess. Also like the Blue Beast, the only thing really keeping it going has been the constant application of what it burns. In the case of the financial system, the influx of federal dollars (that is, my money and your money) has served to keep it going. Oddly enough, there has been no real effort to fix the main problems. Most of the fixes have been fairly minor or cosmetic and some of them really seem to be open to exceptions (like CEO compensation).

Part of the reason is that the main focus has been on health care. In many ways, Congress, the media and the people are like the cyclops-with one eye they can only look at one thing at a time. Part of the reason is that Wall Street and their associates have large sums of money that they can use to manipulate the political system in their favor (or what they see as in their favor). Another part of the reason is that the folks in finance have friends in the government and people look out for their friends. Naturally, finance is also difficult.

Because of these factors and others, the economy is like my Blue Beast. It seems to be running okay now, but not because anything fundamental has been fixed. It has a fresh supply of  “oil” but is burning through that. As such, it seems to be just a matter of time before the economy (like my Blue Beast) dies by the side of the road.