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Tossing Pebbles in the Stream

This blog is my place to sit and toss pebbles into the stream. The stream of Life relentlessly passing before us. We can affect it little. For the most part I just watch it passing and follow the flow. Occasionally, I need to comment on its passing, tossing a pebble at it to enjoy the ripple affect upon Life's surface.

Tuesday, March 18, 2008

Economics: I Don't Get It


I have been watching the economic paroxisms of the United States with a sense of disbelief and amusement. The economic goings on I find bewildering. Here are some of the things that I just fail to understand.

We are told indebtedness in the United States by individuals and the government it at an all time high. Both the government and the individual American consumer are spending more than they make. There is a lot of cheap credit and the country looks to the consumers to spend. . . . spend , . . . . spend to make the economy go. There seems to be a widespread understanding that "we are living beyond our means."

Now that the sh** has hit the fan they are faced with a "recession". There is no longer enough credit to allow people to consume beyond their means and the economy is slowing down. The housing crisis is the best, but not the only example. People were buying espensive houses they could not afford. With little or nothing down and cheap credit. People were trying to create the American dream before they earned it. With no equity in the homes, homes decreasing in value and credit getting more expensive people have to walk away when they can no longer afford the payments and/or don't want to pay more than the house is revalued.

When I was in the market for housing one had to put down $25% of the value of the house and the guideline was that not more than 25% of your income should be used for housing (capital and maintenance costs.) What happened to this cautious approach to home ownership and money lending?

I suspect radical free enterprise and deregulation allowed parasitic lenders to change the rules.

http://www.commondreams.org/archive/2008/03/18/7745/

A generation of people had grown up thinking they can have it all and borrow so they can have it before they earned it.

Well now there is an economic crisis. What is the solution? It seems the solution chosen was to stimulate spending. ( taxpayers are being send money to spend and federal interest rates are lowered, and lending agencies are being given access to cheap money. ) THAT'S HOW THE MESS WAS CREATED IN THE FIRST PLACE. More consumption may have helped the American economy when American people worked at making things but increased consumption by Americans only creates jobs in the third world.

I suggest this stimulus will fail. The wise middle class American will take the gift from the Federal Government and pay down some debt rather than spend it. It the government was serious about stimulating spending, the money should go to the poor and working poor, perhaps, by dramatically increasing the minimum wage. The poor will spend it on consumables ,for sure, for they have a pent up demand for necessary things. (Increasing the minimum wage is always argued against as inflationary). But making the "undeserving" poor less poor is so un-Americans .

It seem to me that the US government and consumer need to bite the bullet and feel the pain of getting their economy under control by paying down debt. Less consumption is called for, . . . not more!


It is only discipline in spending that will build confidence in the American dollar and give it real value.

The US has been paying for two wars on credit. Borrowing from the Chinese and Arab Oil Producing countries doesn't seem wise. Of course, government can always print money and devalue the American dollar.

When war was declared there should have been a war surtax enacted to help pay for it and a limit to profiteering by companies supplying the war effort. Instead, someone decided to give well off indiviuals and companies tax relief and pass the debt on to American's grandchildren and great grandchildren. This never made sense. If the present generation of individuals and corporations had to pay, the war might have been a lot shorter.

So far, Canada, has not been affected by the economic woes of the United States. If the recession is deep it will certainly affect us. Three reasons Canada has escaped being affected so far are: Canada lives within its means ( for over a dozen years Canada has suplus budgets, a portion of the suplus goes to lowering the debt) ; Canada is a resource exporting country (Think oil and minerals) and Canada is slowly lessoning its dependence of the US for trade. When Canada was accused of risking becoming a third World economy by deficit financing, it was a deliberate policy of the Liberal government to reverse this situation. It was not popular at the time by it has proved to be a wise policy.

One more wonder of the Amercian economic crisis is how quickly the fress enterprise types got their government politicians to prop their banking enterprises up. The most glaring example is the salvation of Bear Stearn Bank in one day. It seem to be true that if youown the bank $100 they hound you for it, if you owe them $1,000.000 they fall all over you to keep you afloat. It seems the economy cannot have one of its major banks fail. It looks bad. Whatever happened to the discipline of the market place.

It will be very interesting to see how all this works out. Americans seem to believe they can have both "guns and butter". Have you noticed no one ever suggests decreasing deamatically military expenditures.? Spend. . .Spend . . . Spend and all will be well. . . . . .Right!!!

6 Comments:

At 8:24 PM, Blogger thailandchani said...

This sounds too rational for capitalism though. What better way to enslave people than to encourage them to remain in debt. It serves the system well to have people struggling .

 
At 2:34 AM, Blogger Gattina said...

What you are writing seems very logical to me. When we had our house built we had to give a minimum of 30 % of the value and a lot of guarantees to get a credit (in Belgium)and I don't think it has changed because owning a house is still something special. Most of the people are renting because they can't afford to buy a house. And that stupid war, no comment, it would take too long !

 
At 12:05 PM, Blogger Janet said...

You are exactly right. We are in a mess, and every incentive only makes it worse. My husband runs a non-profit organization that builds houses for low-income folks at very low-interest. Banks and real estate agents tell us that we can afford to spend 29% of income on the house. However, they don't include taxes and maintenance costs in that 29%. That's what gets a lot of the middle-class in trouble. They end up with too much house and not enough money. Scott is forever trying to tell people that the formula should be changed, and he won't allow his clients to spend that much money on their houses.
We are indeed taking our tax rebate and putting it toward our debt (when we got married I owned a house in another town - it took us 2 years to sell that house, and for most of those 2 years I was unemployed. It was credit cards or starve).
Taxes are another thing that's messed up. We have a regressive tax (everyone pays the same percentage of income 6%, which means that those with salaries of $100,000 pay $6000, but still get to keep $94,000. Families making $20,000, which is what many families around here try to live on, only pay $1200, but then have to live on 18800. (And no they don't get all that back in spite of tax credits.) The organization I am a member of has worked for years to try to establish a living wage as opposed to minimum wage. So many families have parents who work 2-3 jobs, especially single parent homes, because minimum wage doesn't keep up with cost of living, particularly the high cost of groceries and gasoline. We all have to drive because public transportation is non-existent in this part of the state.
And don't get me started on this war that most of us never wanted to begin with. If we as a nation elect another Republican president I will give us all up as being just as stupid as everyone thinks we are, and prepare for Armageddon.

 
At 12:08 PM, Blogger Janet said...

P.S. I recently read a quotation from Winston Churchill: "You can always count on Americans to do the right thing - after they've tried everything else."
And we still haven't learned from that observation.

 
At 7:32 PM, Blogger Loretta said...

I agree with you on this post and the one above it. I am deadly sick of Bushs war. Yesterday when Vice President Cheney was ask what about the high percentage of people that wants us out of the war, he answered "so"...I guess we don't count since Bush won't be running for office again!

As far as the money we will get, yes, i will pay off bills to. It isn't a "gift"...we have to claim it as income next year, and pay income tax on it.

 
At 8:51 PM, Blogger edifice rex said...

I agree with you and all the comments too. Our society (U.S.)just doesn't get it for the most part.

 

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