Are you finding it hard to understand what’s going on with our economy right now? I am. Some things are certain — a lot of people who bought houses won’t be able to keep them; the stock market is down; gasoline and food prices are shooting up; a big financial firm just went out of business; the US dollar doesn’t buy much overseas right now; and a lot of people will get some free pocket change from the government shortly. That much we know.
But what’s coming over the horizon? Many economists and business people are worried. They hope it won’t be much worse than a year of slow business and a few hundred thousand extra people temporarily out of work. They hope nothing fundamental is changing and no real damage was done to the system. They hope that by next year the stock market will be up, the dollar will be up, employment will be up, gas prices will be down, and we’ll all be happy with our new President.
But what if there is real damage to the underlying structures on which the economy depends? One essential element in the mechanics of a successful economy is trust. Without trust, people stop trading and transacting, everyone gets defensive, and in the end a lot of people become poorer for it (usually those who already weren’t doing so great). For better or for worse, borrowed money is the grease that makes an economy run. Borrowed money stays “greasy” (in the economic sense) so long as everyone trusts that a loan will be repaid more or less on schedule. When that trust starts to fade, the grease starts to dry up and the economic machinery starts to grind and slow down.
For instance, student loans depend upon a complex financial system which is being thrown out of kilter by the crisis. It’s possible that fewer loans will be made to perspective students over the coming year, meaning that fewer kids will get to college, which immediately starts impacting the colleges and the textbook publishers. And those kids who were forced to delay or avoid college will earn less over their working lives, meaning that the government will get less tax revenue, Wal Mart will sell fewer home entertainment systems, etc. This is all just for one type of loan. Think about the effect of car loans, construction loans, credit card debt, working capital loans, etc. So, the lack of available loans has significant and long-term impact on economic activity.
You’d think that the people who invest and borrow millions of dollars each day would be careful (i.e, “trustworthy”) about what they’re doing. Obviously they weren’t. One of the bottom lines (or near-bottom lines) is that too much debt has been issued in the last couple of years, and that not all of it is going to be paid back. So just who is going to get stuck with the bill? And just how much is the economy going to suffer because of it?
The economy obviously has to slow down — all that delusional lending sped it up too much. However, economic things always tend to go too far one way and then too far the other. What will be the side effects? Someone is going to have to become poorer. But who? In a better world, we could all just agree to share the bill according to our ability, learn a lesson and get on with revitalizing things. But this is America, and thus there’s going to be a lot of political wrangling about it. The rich don’t want to become less rich, and they have the resources to fight the hardest. And it all just makes things worse.
I have a dog in this fight. I’m trying to save and invest so as to retire by age 66. My retirement plan isn’t luxurious; hopefully I’ll have the equivalent of $30K a year to spend after taxes (but before health costs). I could get by comfortably in a small-town apartment for 15 years or so, as long as I don’t plan on taking annual cruises and trips to Europe. But if the economy goes haywire for a decade, then my plan is toast. And so are a lot of other peoples’. But ain’t that America, as John Mellencamp says . . . . the America in which we’ve put our trust. My grandparents and parents put their trust in our country, and they did fairly well by it. But since then, someone turned our nation into a casino and a mud wrestling pit!
Jim,
This current economic situation has me very worried too. And I tend to not worry that much about things I basically cannot control–I mean REALLY CANNOT CONTROL–such as the economy.
I don’t think the “young” people have a clue of just what actually could happen. I was born in the depression (and that puts me in the category of the REALLY “old” people who nowadays are considered not worth any attention at all). While I was too young to remember the worst of it, I definitely remember the effects that pervaded my life and my parents’ lives. It is not pretty. But then again, those were the “good old days.”
I too worry what will happen if the system goes bust and my pension goes belly up. I’m toast–and just at a time of life when I really need what I have earned through my pension.
As to your comments: “Someone is going to have to become poorer.” All I can say is who do you think that will be?
Today I heard that in the Bear Stearns debacle one of the CEO’s financial situation went from $9 Billion plus to just $11 Million. While that’s a truly big loss, I tried to feel for him, but I just could not reach him.
The next sentence after how much the CEO lost was about how many employees were going to lose jobs, benefits, etc. Now those people I can feel for AND reach. They will not end up with ONLY $11 Million. They will end up with nothing–and likely no real new job easily seen on the horizon.
When I heard about Bear Stearns, I thought of my mother’s story (see comment for Thursday, March 13). In 1929 the economic structure fell apart–literally. Yes, the situation was different: This time it was an investment bank and not a “regular guys'” bank (“guys” in the feminine and masculine sense). But in the end, the bank went under. And in 1929, once it started it spread. Perhaps the Fed is wise in reducing the interest rate to try to stem further spread of the “disease.”
A couple of years ago I read somewhere (since I’m old, I can claim I don’t remember where I read it) that many of the ordinary banks we use were truly unstable. However, the report said it was virtually impossible to find out which banks these were as the info on them was kept a very close secret lest info leak out and people panic. At the time I remember looking around at different banks and wondering whether I should change banks. Except–how did one find out which these were? If the investigative reporters could not find out, I didn’t think I would be able to find out.
And I cannot believe our president (as he has done with the Iraq war) who flies in the face of what is obviously boldly in his line of sight. He “believes” it’s a slow down and that all will be right with the world. There is none so blind and he (she) who will not see. Well, I can see that for him all may end up being right with the world in the end. True, his money may go from (for example) $9 billion plus to only $11 million–but in the end that’s not too bad for him and his family, now is it?
Worse yet is the thought that if our system goes here in the U.S., it will have irrevocable effects on the rest of the world’s finances.
I find myself saying that we’re in the foxhole now, and it’s time for prayer–if prayer works when the government thinks it can spend, spend, spend, and when money is needed, just go to the money tree and get some more.
And on a definite tangent: With the latest that is coming out on Obama, I wonder if we will end up with yet another Republican president. I wonder if our president reflects our nation, that is, nobody really THINKS about anything. Everything is image and how things look; in short, everything is surface. There doesn’t seem to be–on a national basis–much deep thought about anything. Everything is how something looks; opinions are based on “what I think” rather than based on any solid rock of thought and/or study. Aren’t opinions supposed to be based on some INFORMED thought, experience, and/or basis of some
Comment by MCS — March 18, 2008 @ 11:04 am
Jim,
This current economic situation has me very worried too. And I tend to not worry that much about things I basically cannot control–I mean REALLY CANNOT CONTROL–such as the economy.
I don’t think the “young” people have a clue of just what actually could happen. I was born in the depression (and that puts me in the category of the REALLY “old” people who nowadays are considered not worth any attention at all). While I was too young to remember the worst of it, I definitely remember the effects that pervaded my life and my parents’ lives. It is not pretty. But then again, those were the “good old days.”
I too worry what will happen if the system goes bust and my pension goes belly up. I’m toast–and just at a time of life when I really need what I have earned through my pension.
As to your comments: “Someone is going to have to become poorer.” All I can say is who do you think that will be?
Today I heard that in the Bear Stearns debacle one of the CEO’s financial situation went from $9 Billion plus to just $11 Million. While that’s a truly big loss, I tried to feel for him, but I just could not reach him.
The next sentence after how much the CEO lost was about how many employees were going to lose jobs, benefits, etc. Now those people I can feel for AND reach. They will not end up with ONLY $11 Million. They will end up with nothing–and likely no real new job easily seen on the horizon.
When I heard about Bear Stearns, I thought of my mother’s story (see comment for Thursday, March 13). In 1929 the economic structure fell apart–literally. Yes, the situation was different: This time it was an investment bank and not a “regular guys'” bank (“guys” in the feminine and masculine sense). But in the end, the bank went under. And in 1929, once it started it spread. Perhaps the Fed is wise in reducing the interest rate to try to stem further spread of the “disease.”
A couple of years ago I read somewhere (since I’m old, I can claim I don’t remember where I read it) that many of the ordinary banks we use were truly unstable. However, the report said it was virtually impossible to find out which banks these were as the info on them was kept a very close secret lest info leak out and people panic. At the time I remember looking around at different banks and wondering whether I should change banks. Except–how did one find out which these were? If the investigative reporters could not find out, I didn’t think I would be able to find out.
And I cannot believe our president (as he has done with the Iraq war) who flies in the face of what is obviously boldly in his line of sight. He “believes” it’s a slow down and that all will be right with the world. There is none so blind and he (she) who will not see. Well, I can see that for him all may end up being right with the world in the end. True, his money may go from (for example) $9 billion plus to only $11 million–but in the end that’s not too bad for him and his family, now is it?
Worse yet is the thought that if our system goes here in the U.S., it will have irrevocable effects on the rest of the world’s finances.
I find myself saying that we’re in the foxhole now, and it’s time for prayer–if prayer works when the government thinks it can spend, spend, spend, and when money is needed, just go to the money tree and get some more.
And on a definite tangent: With the latest that is coming out on Obama, I wonder if we will end up with yet another Republican president. I wonder if our president reflects our nation, that is, nobody really THINKS about anything. Everything is image and how things look; in short, everything is surface. There doesn’t seem to be–on a national basis–much deep thought about anything. Everything is how something looks; opinions are based on “what I think” rather than based on any solid rock of thought and/or study. Aren’t opinions supposed to be based on some INFORMED thought, experience, and/or basis of some kind?
Well, now I have really gone off on a tangent that is truly divergent, and perhaps a rant to boot. So enough.
MCS
Comment by MCS — March 18, 2008 @ 11:04 am
Jim,
This current economic situation has me very worried too. And I tend to not worry that much about things I basically cannot control–I mean REALLY CANNOT CONTROL–such as the economy.
I don’t think the “young” people have a clue of just what actually could happen. I was born in the depression (and that puts me in the category of the REALLY “old” people who nowadays are considered not worth any attention at all). While I was too young to remember the worst of it, I definitely remember the effects that pervaded my life and my parents’ lives. It is not pretty. But then again, those were the “good old days.”
I too worry what will happen if the system goes bust and my pension goes belly up. I’m toast–and just at a time of life when I really need what I have earned through my pension.
As to your comments: “Someone is going to have to become poorer.” All I can say is who do you think that will be?
Today I heard that in the Bear Stearns debacle one of the CEO’s financial situation went from $9 Billion plus to just $11 Million. While that’s a truly big loss, I tried to feel for him, but I just could not reach him.
The next sentence after how much the CEO lost was about how many employees were going to lose jobs, benefits, etc. Now those people I can feel for AND reach. They will not end up with ONLY $11 Million. They will end up with nothing–and likely no real new job easily seen on the horizon.
When I heard about Bear Stearns, I thought of my mother’s story (see comment for Thursday, March 13). In 1929 the economic structure fell apart–literally. Yes, the situation was different: This time it was an investment bank and not a “regular guys'” bank (“guys” in the feminine and masculine sense). But in the end, the bank went under. And in 1929, once it started it spread. Perhaps the Fed is wise in reducing the interest rate to try to stem further spread of the “disease.”
A couple of years ago I read somewhere (since I’m old, I can claim I don’t remember where I read it) that many of the ordinary banks we use were truly unstable. However, the report said it was virtually impossible to find out which banks these were as the info on them was kept a very close secret lest info leak out and people panic. At the time I remember looking around at different banks and wondering whether I should change banks. Except–how did one find out which these were? If the investigative reporters could not find out, I didn’t think I would be able to find out.
And I cannot believe our president (as he has done with the Iraq war) who flies in the face of what is obviously boldly in his line of sight. He “believes” it’s a slow down and that all will be right with the world. There is none so blind and he (she) who will not see. Well, I can see that for him all may end up being right with the world in the end. True, his money may go from (for example) $9 billion plus to only $11 million–but in the end that’s not too bad for him and his family, now is it?
Worse yet is the thought that if our system goes here in the U.S., it will have irrevocable effects on the rest of the world’s finances.
I find myself saying that we’re in the foxhole now, and it’s time for prayer–if prayer works when the government thinks it can spend, spend, spend, and when money is needed, just go to the money tree and get some more.
And on a definite tangent: With the latest that is coming out on Obama, I wonder if we will end up with yet another Republican president. I wonder if our president reflects our nation, that is, nobody really THINKS about anything. Everything is image and how things look; in short, everything is surface. There doesn’t seem to be–on a national basis–much deep thought about anything. Everything is how something looks; opinions are based on “what I think” rather than based on any solid rock of thought and/or study. Aren’t opinions supposed to be based on some INFORMED thought, experience, and/or basis of some
Comment by MCS — March 18, 2008 @ 11:04 am