Source Jockey

As you already know, the economy is in trouble.  What you don’t know is that not only is it not going to get better any time soon, but it wasn’t really doing as well as everyone thought  before the downturn (before July 2007).  Bear with me. The economy was never better.  Sure, unemployment was at an all-time low (not citing my source), and people were making enough money to spend, but we’re not using the right metric to judge how good the economy really was.

Here’s the crux of the issue:  How many people owned what they “owned”?  How many people were really on top of their own finances?  Having gainful employment and the ability to purchase a plethora of material objects was looked on as bolstering the economy.  This is dead wrong.  The vast majority of Americans were in debt, and their spending habits were merely out of ABILITY to buy, NOT ability to pay.  Keep in mind that everyone who finances their car, has a mortgage, or even commercial debt service, is in debt.  Of course not every kind of debt is bad, though.  If you buy a building that promises a rate of return, then yeah, borrow on it for a rate less than the rate of return.  That’s good leverage.

What isn’t good leverage, however, are those people who rack up debt to buy the newest Benz or biggest mansion…it’s a recipe for disaster.  When homes and cars were less expensive, people could afford to save for the whole value and buy it outright; obviously, we can’t do that now.  Homes that cost $500,000 seem to be in the majority (at least in my surrounding area), and most decent cars are at least $20,000.  How can you save for that making only $40,000 a year?  You can’t.

All that above is foreplay to jump-start what’s really gone wrong: there was no bubble before. There was nothing.  If everyone owes money, then no one owns anything.  Worse yet, with these stupid bailouts, Americans are being robbed by the very lessors who control the debt service in the first place.

If I were a bank, I would absolutely take advantage of getting bailout money, because hey, what’s better than free money?  What politicians don’t seem to understand is that banks don’t lend their own capital–they lend deposits.  All this bailout money is going to the banks own coffers.  Well, that really sucks.  I read somewhere that this whole thing is going to cost us $8 trillion dollars.  That’s about $30,000 per person (in a year).  Obviously this wouldn’t be due over time, but…it begs the question:

Why are we rewarding bad business practices and bad business with BILLIONS of dollars?  Because someone said we had to.  But the fact of the matter is, we don’t.  We Americans need to stop spending willy-nilly on things we can’t afford.  Stimulating the economy doesn’t mean spending on STUFF, it means PAYING for stuff.  Real money.   Not plastic IOUs.

By the way, I know this was long–I actually cut it down from what it was before–be thankful for that, at least

This entry was posted on Wednesday, February 18th, 2009 at 12:52 am and is filed under Theories. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.