Peace of Mind as a Tool to Abate the US Crisis of Confidence

I believe – and I think this is a relatively non-controversial view – that the current recession/crisis has been and will be worse/deeper as a result of fear seeping deep into the American psyche. Even though I disagree with many of the actions and in-actions of the Bush administration/team, I can understand at some level the logic supporting their reluctance to step in to prevent company/Bank failures early in the crisis. However, this very reluctance and the resulting inaction in helping fundamentally sound companies survive failure-inducing-panics significantly deepened the economic crisis by escalating the level of panic and fear in people’s psyche (as consumers or financial counterparties).

Basically, the prior administration let companies fail due to panic and this was, in my opinion, a fatal logical flaw in their policies. I believe if they had prevented any/all panic-driven failures, we would have had a more orderly market correction, a softer recession, and less unemployment/people problems.

Aside from this view described above, 2 other factors support the idea described below (and first introduced in an earlier blog). First, the fact that there is an over-supply of housing in the US today. I think this is a well accepted fact: just look at all the vacant foreclosed and unsold homes in the market and on Bank’s balance sheets. Second, food is cheap in America. This was a surprise to me when I moved to the US from India in the early 1990’s: a country where the poor are fat and the rich are thin! This is exactly the opposite of the situation you see in most less developed nations including India.

So my idea/concept is very simple:

Most people’s #1 and #2 fear related to this crisis are: will I and my family lose the roof over our heads at some point due to this crisis, and will I and/or my family need to go hungry if things get really bad. People are scared because they don’t know how bad things can get for them, and they are worried about a worst case scenario playing out. There are even well known leaders/voices discussing this worst case scenario, and advising people to stock up on guns and food in preparation of a 2nd depression with civil unrest.

Well…it seems to me the housing problem is the simplest to solve as a country. Given the oversupply of homes nationwide, there is no reason a single American family should go homeless as a result of this crisis. Yet, every day families are facing this very issue. I know this because I have heard some of these very people speak at some of our public forums in LA (including one last week). The food situation is similar….food is cheap in America…super cheap relative to most other countries (on a purchasing power parity basis). Therefore, there’s no reason a single American should go hungry as a result of this crisis.

I think if the US President and/or Government were to tell all Americans simply this: We will make sure not a single American family goes homeless or hungry as a result of this economic crisis….that this would have a tremendous calming effect on the American people….and will accelerate our economic recovery. I think this “guarantee” should be relatively cheap to provide….especially in relation to the monies already being invested and spent to stabilize the financial system and stimulate the economy.

As with so many other things in life, there is both a real and an emotional/mental aspect to this crisis. If we can address people’s biggest fears as described above, I think it would go a long way toward addressing the mental issues….which are often even more important/impactful than the real ones.