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Dear Mr. Berko:

Dear T.A.:

I think it could be a long while until the stock market begins to move up. U.S. Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke could be making a grievous mistake by encouraging banks to make easy credit available. It was easy credit that got us into this mess.

To whom should the banks extend easy credit? The remaining consumers who have the capacity to borrow are reluctant to do so. Many feel their jobs are insecure and if they take on more debt they will be unable to repay the obligation. Consumers have the financial heebie-jeebies. They’re uncomfortable spending their funds for nonessential goods and services.

Banks are reluctant to extend credit to today’s qualified consumers, because those consumers are likely to be tomorrow’s unemployment statistics. So consumers won’t consume, new cars won’t be bought, new carpeting will remain in warehouses and new household appliances won’t be connected. It’s Catch-44, which is twice as bad as Catch-22.

Consequently, the $700 billion to $1.6 trillion stimulus/rescue package probably won’t work quickly enough to prevent a depression-like economic crisis. Consumers won’t borrow or spend money unless they have jobs, and corporations won’t hire and produce unless there’s a ready market for their products. That’s how capitalism works and should work. But now capitalism has temporarily failed us.

The solution must be a government-sponsored Works Progress Administration like the one that provided millions of jobs to Americans during the Great Depression. Americans built roads, bridges, national parks, libraries, courthouses, schools and public buildings. Americans got regular paychecks and spent those earnings, creating new demand for goods and services.

As more money was put into their pockets, it generated more demand for goods and services, increasing employment, which increased demand, and so on. In the process, the country got a new and stronger infrastructure. Small businesses earned profits by supplying raw materials, other businesses made money producing the finished products, shippers made money delivering the products and the laborers earned paychecks by bolting steel to concrete and attaching plumbing to sewer systems.

Middlemen matched raw materials to the manufacturer and brought the finished product to the builder. Office workers made money managing paperwork and accounts receivable. And the national debt increased about twofold.

Today, steel companies won’t hire more people to make steel, concrete companies won’t hire more people to make concrete and plumbing companies won’t hire more people to make “plumbs.” There’s little demand for steel, concrete or plumbing.

So the solution once again is a WPA, a series of government-sponsored programs to rebuild our infrastructure. Because neither industry nor consumer has the power to demand these projects, government must initiate the demand.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © 2009 Copley News Service