{"id":292,"date":"2008-03-17T20:32:00","date_gmt":"2008-03-17T20:32:00","guid":{"rendered":"http:\/\/jimgworld.com\/blog1\/2008\/03\/17\/292\/"},"modified":"2015-01-31T15:34:25","modified_gmt":"2015-01-31T20:34:25","slug":"292","status":"publish","type":"post","link":"https:\/\/jimgworld.com\/blog1\/?p=292","title":{"rendered":"The Economy As Mud Wrestling Pit"},"content":{"rendered":"

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.<\/p>\n

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. <\/p>\n

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<\/span>. 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. <\/p>\n

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<\/a> 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. <\/p>\n

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? <\/p>\n

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. <\/p>\n

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!<\/p>\n","protected":false},"excerpt":{"rendered":"

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 […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,23],"tags":[],"_links":{"self":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/292"}],"collection":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=292"}],"version-history":[{"count":2,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/292\/revisions"}],"predecessor-version":[{"id":5150,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/292\/revisions\/5150"}],"wp:attachment":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}