We keep hearing about the bailout plan and how we need to "re-capitalize" big banks to make everything better. I can't help but stand back, and look at the fact that the reality on the ground is being ignored;
1 in 6 homes are currently underwater. This means that the amount owed on the mortgage is greater than what the home could be sold for.
Average consumer is tapped out, between car loans, home loans, student loans and credit cards the average joe has been living beyond his means for years now and can no longer continue to.
The "financialization" of the economy is starting to unwind and things will revert to their actual value as opposed to their percieved value. What the heck does this mean? It means that ultimately, the true value of an economy is in goods produced or, services rendered. Widgets built at a factory or a dentist pulling a tooth. This is what is called the "real" economy vs the "financial" economy which is for lack of a better word a fairytale that seeks to avoid what has been called the tyranny of reality. But more on that in a moment.
What's been hapenning over the last 20 to 30 odd years is that the economy in N. America has progressively gotten out of the business of actually building things. Most manufacturing has been moved offshore.
Stardock, to their credit, is still in the business of widget-making. Granted, it's software, but still an actual product that's packaged (physically or electronically) and sold. And good on 'em.
But in the bigger picture, the engine of the U.S economy has been moved from the factory to the shopping mall. Consumer spending makes up 70% of GDP and most of the jobs in the economy, by and large, have been in the "services rendered" category. To make up the difference in wages vs inflation (adjusted for inflation average wages have fallen since the 1970's) we've had credit hocked to us as the solution.
Recapitalizing the banks just means that they will have the means to continue our dependency on credit and debt. This means they will continue to try and use debt and it's interest rates as their means of "wealth creation"
But, it won't affect some of the root problems:
It won't create more jobs. It won't bring manufacturing back into the country. It won't solve the fact that 70% of GDP is dependent on a resource that's tapped out (consumers) and it won't stop foreclosures and defaults on mortgages, which will push more and more houses underwater. In effect, it will allow them to continue ignoring reality.