Heading the Wrong Way Down a One Way Street

The Obama administration has an ass backwards financial policy. It is busy trying to prop up banks (Wall Street) while letting the consumers sink (Main Street). Here's a bit from Robert Reich's blog:

Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s dead wrong. Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes – courtesy of the Fed flooding the market with so much money mortgage rates are dropping – consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either.

That’s the big issue – the continued lack of enough demand in the economy. The current stimulus package is proving way too small relative to the shortfall between what consumers and businesses are buying and what the economy could produce at full capacity. (According to today's report from the Commerce Department, retail sales fell in March, as did prices paid to U.S. producers.)

Worse yet, the states are pulling in the opposite direction. States cannot run deficits, which means that as their revenues drop in this downturn they’re cutting vital services and raising taxes to the tune of $350 billion over this year and next. This fiscal drag is wiping out about half of the current federal stimulus.