A few thoughts on the economy
Published Tue, Jan 12 2010 10:10 PM
Tell me, are you still feeling the recession? Depression? Whatever? Did it even affect you? Do you remember the things that precipitated the economic downturn? I’ve got a few thoughts on that subject for you today. Just remember, I’m not an economist. Heck, I don’t even play one on TV, or the web for that matter.
First of all, do you remember the “tech bubble” of the 1990s? Those heady days of speculation for every IPO of a new tech stock? When stocks were trading at $120.00 per share while the companies that issued the stocks had never in their existence turned a single dime of profit? Oh it was a fabulous decade for making money. That is, it was until people and investors came to their senses.
Then the bottom seemed to drop out of the technology market. Seemingly overnight technology stocks took a serious beating. Not too long before this happened I was encouraged by my stock broker to use my Microsoft Stock Options to buy other stocks. He suggested that I borrow against my stock options and that by doing so I could control close to five times their value in other stocks. It seemed a good idea at the time, and I almost took him up on it.
I had never known a time when Microsoft Stock wasn’t a fabulous investment. In all of its history as far as I bothered to look back it had done nothing but go up and up and up. Several people I knew were multi-millionaires because of that trend. People were telling me there was no place but UP for MSFT. Then Judge Jackson had something to say about how Microsoft packaged Internet Explorer. It didn’t take long for stock that had been trading at close to $120 a share to plummet down to about $26 per share. That hurt – a lot, but not nearly as much as if I had believed that there was no end to the days of continually rising stock prices.
The next decade had its own “bubble”, the “real estate” bubble. Real estate was touted by some as a “foolproof” investment. People were saying that there was no place but UP for real estate prices. The federal government got into the act too – encouraging, no practically requiring, banks to loan money to people for real estate with little money down and with practically no credit. Actually, the government had been into this for quite some time – and it was all about ending the racial disparity among homeowners and giving “the poor” a chance at the “American Dream” of home ownership.
No small amount of speculation and greed were involved either. People were buying up homes and “flipping” them, selling them for a huge profit, as fast as they could. Fortunes were being made – and the late night infomercials were selling this idea as a foolproof get-rich-quick scheme. Real estate prices kept climbing and climbing. People were encouraged to take out home equity loans to pay off their credit cards – and to refinance their homes into variable rate mortgages – not a bad idea if the home value keeps going up and interest rates are artificially suppressed by the federal reserve – to encourage lending and stave off the specter of inflation. On the other hand, it’s guaranteed to hurt if interest rates suddenly start to climb – your mortage payments can balloon quickly – and it hurts more if your hope decreases in value.
People who ordinarily couldn’t afford to buy a home were buying homes. People who had bought homes were borrowing against their homes inflated values to fix the problems caused by their rampant consumerism and revolving credit lines. All sorts of new gadgets and toys kept coming onto the market, and everyone just had to have them – and the fancy houses – the fast gas-guzzling cars (a personal favorite of mine that I’m NOT about to give up) – and they bought it all on credit – paying off those credit cards with home equity loans.
Some of the financial pundits were warning that just like the tech bubble, the real estate bubble would eventually burst – but few were listening. And the American people were sold credit as the way to buy everything.
Eventually reality has to intrude upon the most idyllic fantasy lifestyle though. A heavily regulated economy isn’t really an efficient economy, and nowhere is this more true than in one of the essential driving factors of our economy – energy production. We (America) have vast energy resources – if only we’d tap them. We know how to do it in an environmentally sound way too. For decades we have tapped less and less of our natural resources in proportion to what we import – because of pseudo-environmental concerns. Our economy depends on energy production though. None of our fancy gadgets will work without a ready source of energy. We need energy to move our goods and services – and our food from place to place. We need energy to run our businesses. We need energy to keep our info-tainment devices working.
In the name of the “environment” we refuse to tap our own resources – instead demanding that other nations tap their resources to meet our growing energy needs – despoiling their environment rather than our own. Because we won’t use our own resources we leave the extraction of those resources to people with different environmental priorities than ours – quite possibly resulting in more severe damage to our “global” environment than if we’d gotten those resources locally. Think about it for a moment – how many oil spills would there be from accidents while shipping crude oil from the Persian Gulf to the United States if we drilled for oil here, rather than buying oil from across the ocean?
Eventually though, we have to pay for policies like this. Couple greed, inefficiency and a culture that dismisses the notion of individual responsibility and the price can be high indeed – as it was two summers ago – when Americans suddenly had to pay dearly for their energy supplies. Gasoline prices went up while Congress debated whether we should tap our own reserves or shaft the executives of the oil companies for doing what businesses do – making a profit (Remember that technology bubble? High priced stocks with no profit? Remember what happened?.). With gasoline prices going up, other prices went up too. Food prices rose. The price of corn rose – remember the outcry over Mexicans and their inability to buy tortillas because the price of corn was too high (and we’re still pouring corn into our gas tanks)?
Suddenly people were faced with hard choices – food, fuel, or shelter : pick any two. People started defaulting on loans. People stopped buying real estate that couldn’t normally afford to in the first place except for the policies of those evil mortgage lenders. Real estate prices started dropping – yes, the real estate “bubble” finally burst. People started finding themselves with no way out of the debt that they had foolishly acquired – because their equity was suddenly gone. Peoples homes dropped in value – to the point where some people would end up having to take a substantial financial hit if they sold their home – instead of the profit they had expected. People started walking away from mortgages they simply couldn’t pay and that were losing them wealth rather than preserving or increasing it.
All of that bad debt started taking out banks. Some of the worst offenders were ruined, others were quietly bought up. The banking “crisis” was caused in no small part because the government encouraged banks to make bad loans, because some bankers were greedy, and because people were emulating their government – borrowing money without the ability or income to pay it back.
Do you remember those financial wizards I mentioned? The ones that said that the "real-estate" bubble would burst? Do you remember those financial wizards I didn't mention but that nevertheless still existed? The ones that said the "tech bubble" would burst?
I think I’m going to try to emulate them. I may not succeed, but I’m going to put my words out there now. See if in a few decades I turn out to be just as prophetic as they were…
One of these days the “federal debt bubble” is going to collapse. That’s right, our nation’s profligate borrowing and spending our blood and treasure for frivolous things is going to have a cost. At some point massive government spending and borrowing is unsustainable for any government. When it comes time to pay the piper we’ll face bankruptcy as a nation.
Somehow though, I don’t think that the United Nations will bail us out.
“We must not let our rulers load us with perpetual debt.”
— Thomas Jefferson, letter to Samuel Kercheval, 1816
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The Machiavellian responded with:
 | Hopefully Obama is the last in the line of politicians that offer easy solutions rather than hard choices. I'll add Clinton and Republican Congress of 2000-2006 and George Bush to that list.
We need a common sense person to get a grip on things.
-smaller, limited government
- tax cuts
-everyone pays at least a nominal amount of federal taxes
-limit our military excursions (now that doesn't mean decimating defense spending, just that American blood doesn't get spilled unnecessarily). Big navy, big air force and a big stick, just not the policeman of the world thing....
-balance the budget
-defend the borders and discourage illegal immigration
-abolish federal funding for schools
-push back against the eco-communists in academia, the media and elsewhere.
-encourage domestic manufacturing through the lowest corporate tax rates in the world |
ablur responded with:
 | If we cut our business taxes by 10%, we would see business coming here faster then leaving. If the government wanted to get serious about putting America to work and ultimately make real money. The more people at work the more tax money paid in. The more companies working here the more tax money pours in. Both in combination leads to even more taxes as the circle is forever turning and the tax man has a cut at every spoke.
In a rush to greed we are killing ourselves with the government we now have. |
David responded with:
 | The Machiavellian: "We need a common sense person to get a grip on things."
We need millions of them at the local level who will stand up and say, "NO!" to federal ANYTHING that is either unconstitutional or harmful. And those millions must involve themselves in the selection of candidates on the local, state and federal level who are worthy of our votes.
ablur, we could do even better than that with the simple provisions of The FairTax, AND take the power to do social engineering via taxation out of the hands of D.C. politicians *spit* at the same time. |
Angel responded with:
 | The States all owe literally bilions at this point! have a great weekend my friend!:) |