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It's sickening. We just gave how many trillions of dollars to "under-developing countries" while our own people cannot find work. Unemployment is near 9%. There have been two million jobs lost this year alone, and its just the begining of April!
And there was this huge fuss in congress over a 800 billion "stimulus" bill to provide funds in the US while we easily pledge trillions out to foreign nations and the IMF.
Our foreign interests help out the bankers... as it gives them more "customers" to be indebted... and provides additional cheap labor for big businesses to outsource even cheaper jobs (didn't you know, the BRIC countries are getting too expensive ).
I didn't say everybody should be savers. I'm knee-deep in a wonderfully exciting () macroeconomics class right now, so I do have somewhat of a grasp on reality. Somewhat.
My point was that people have to draw a line at how much personal debt they are willing/able to carry. Those lines have been fuzzy for a lot of folks recently, and that's where their troubles lie. Hopefully in the future things will be clearer for them.
I guess I'm one of those people. DH and I have a grand total of $390k worth of debt. Yes, most of that is our house, but $70k is consumer debt - credit cards, car loans etc. We have a small cushion in savings. If one of us should lose our job, times would get very tough, very quickly. Knowing that, and seeing how much of our income goes to getting rid of that debt, we vowed to never be in this position again. The debt we have is too much, and we realize that. Does that mean we're going to cut up all our cards, never take out another loan and save like misers? No. Are we going to make occasional big purchases, but be a little wiser about spending. Absolutely. It's about balance, and a lot of folks are only just figuring that out.
Luckily for us, it didn't take losing our home to figure it out but, for a lot of people, that's exactly what is happening before they realize it themselves. Yes, there will always be winners and losers, but the losers wouldn't fall so far if they were just a little wiser.
Someone who got a little out of hand and is admitting it and changing their ways on future planning etc. Also, has the balls to admit this on a forum. You are on the right track going forward. Beautiful post by the way!
I commiserate entirely. Those of us who made a point of living within our means now and before have little sympathy for those who thought they were entitled to a rock star lifestyle on a fry cook's salary.
I agree there, many stories focus on people who were doing great during the boom...but often waits to the second page to say how they were doing well was often heavily leveraged, often heavily involved in construction/mortgages (jobs, businesses, investments), and were expecting things to only get better forever.
I feel sorry for the people hurt by the fallout, with layoffs affecting every industry..but those who did really stupid things (especially with debt) I don't feel much sympathy for. It was like giving a teenager a credit card, they didn't want to, or even care to, understand more about how it works they just want to use it to buy to their hearts content.
I would like to know how many people who are saying that "people should have saved,etc.." "they have always been frugal,don't buy things they don't need" how many of "you" own those big ,flat screeen tv's that you needed???
THis is the thing,every single person has bought something that they did NOT need! they have bought clothes,went on a vacation that maybe the shouldn't have gone on,etc...
I would like to know how many people who are saying that "people should have saved,etc.." "they have always been frugal,don't buy things they don't need" how many of "you" own those big ,flat screeen tv's that you needed???
THis is the thing,every single person has bought something that they did NOT need! they have bought clothes,went on a vacation that maybe the shouldn't have gone on,etc...
It is everyone "calling the kettle black".
It isn't about being frugal. It is about living within your means and ensuring that there is a cushion if times get difficult. It is perfectly possible to afford those little (and sometimes big) luxuries and still be prudent.
I agree becwells,
That there is a more "suitable" level of debt for households. The problem with our economy is that, If everybody were to just spend and save at that suitable level (currently savings rate is at around 3%, capacity utilization was at 70% (Feb), and unemployment is at 8.5% and increasing).... we get 5.5+ million people unemployed, underemployed, and seniors coming back from retirement to work. BEA : Personal Saving Rate Industrial Production and Capacity Utilization
The U.S. Department of Labor Home Page (http://www.dol.gov/ - broken link)
So, what happened? Where did all the jobs go? What happened to the buying power of wage earners? Where did all the capital and wealth disappear to? Why do we have to continue to go into debt in order to sustain the economy?
Well, jobs went out the window to the developing countries (BRIC) and through technological advances (efficiency/productivity). More workers and fewer jobs and global competition for resources stagnated wages and purchasing power. A lot of the capital and wealth got funneled to the wealthiest of the nation (upper 5 percentile holding 80% of the wealth) and their counterparts around the world. And we have to continue to go into debt to grow the money supply because the interest on debt is always going to be higher than the current money on hand (usery and fractional reserve system).
So, there goes your formula for disaster in a nutshell. What is a sustainable economy? Well, if 3% savings is good, then 8.6%+ unemployment is also the natural rate of unemployment. If we continue saving, and being frugal, I believe unemployment is only going to get higher as the unemployment benefits disappear.
The only way to get more jobs, is for households/businesses to take on more debt - which banks and govco is already working on by loosening the requirements by taking bad debt from banks and transferring available credit from the responsible to the irresponsible. Alternatively, other Countries have to take on more debt. But, their wages don't support it, and the Chinese, Indians, etc. aren't people that take on credit as willingly as the folks at home.
-chuck22b
This post confuses me. Feel free to elaborate - it's probably that I'm just completely misunderstanding what you're trying to say.
Yes, we're an economy that operates on the credit system. It's what we keep hearing on the news - we won't get out of this mess until the bad debt is gone and consumers are able to take out new lines of credit, thereby increasing spending, yadda yadda yadda. That part I understand.
But why do we need to INCREASE the amount of debt held by consumers? If people are being financially responsible, spending what they need and saving what's left, doesn't that lead to more investment spending without the need for more debt? If households and businesses are taking on more and more debt, it's going to reach a level that is impossible to sustain. That doesn't make sense to me.
I understand that spending creates revenue, which creates jobs, etc etc. But can't that spending come from investments? Am I looking at this too simply?
This post confuses me. Feel free to elaborate - it's probably that I'm just completely misunderstanding what you're trying to say.
Yes, we're an economy that operates on the credit system. It's what we keep hearing on the news - we won't get out of this mess until the bad debt is gone and consumers are able to take out new lines of credit, thereby increasing spending, yadda yadda yadda. That part I understand.
But why do we need to INCREASE the amount of debt held by consumers? If people are being financially responsible, spending what they need and saving what's left, doesn't that lead to more investment spending without the need for more debt? If households and businesses are taking on more and more debt, it's going to reach a level that is impossible to sustain. That doesn't make sense to me.
I understand that spending creates revenue, which creates jobs, etc etc. But can't that spending come from investments? Am I looking at this too simply?
Hi becwells,
I was once like you and believed of fiscal responsibility and a balanced level of debt/incomes can be reached. The problem fundamentally lies with how money is created. And that money as we know it IS debt. Without an expanding money supply of credit/debt none of the current existing economic system would function (ie, money is the lifeblood of an economy). And because debt is levied with Interest (usury)... a perpetual level of debt must be created to service the previous debt.
At the end, the result is the same, debt is issued by the Fed (selling treasuries), consumed by banks, in which they create additional debt (loans) at interest. No matter how much existing "money" is in the system, there has to be more money to service the interest on debt... and thus more debt is required to be issued. With the bail out of banks, bank debt is also money.
Debt is required for this monetary system to work. Whether it is absorbed by our government, our citizens, our businesses, or absorbed by foreigners is remained to be seen.
This post confuses me. Feel free to elaborate - it's probably that I'm just completely misunderstanding what you're trying to say.
Yes, we're an economy that operates on the credit system. It's what we keep hearing on the news - we won't get out of this mess until the bad debt is gone and consumers are able to take out new lines of credit, thereby increasing spending, yadda yadda yadda. That part I understand.
But why do we need to INCREASE the amount of debt held by consumers? If people are being financially responsible, spending what they need and saving what's left, doesn't that lead to more investment spending without the need for more debt? If households and businesses are taking on more and more debt, it's going to reach a level that is impossible to sustain. That doesn't make sense to me.
I understand that spending creates revenue, which creates jobs, etc etc. But can't that spending come from investments? Am I looking at this too simply?
Actually, you are exactly right. We do not need to increase the debt held by consumers. What we are experiencing right now was due to too much credit to greedy consumers. We as Americans need to cut back and save more. We are in a deep recession due to over extending ourselves with credit. Extending more credit to people who don't deserve it will only make things even worse. The greed in the housing market is what did this to us. We needed this correction we are experiencing so we will all wake up.
Actually, you are exactly right. We do not need to increase the debt held by consumers. What we are experiencing right now was due to too much credit to greedy consumers. We as Americans need to cut back and save more. We are in a deep recession due to over extending ourselves with credit. Extending more credit to people who don't deserve it will only make things even worse. The greed in the housing market is what did this to us. We needed this correction we are experiencing so we will all wake up.
And that is what they are trying to do... loosen up credit (0 - .25% Fed Rate for banks) so that consumers and businesses can take on more credit/debt (reducing credit availability for those who don't use credit - the responsible, and giving it to those more irresponsible is good business).
The housing market and the rapid expansion of credit only hastened the inevitable collapse that would of happened anyways as productive capital has been weening out of the United States and current account deficits growing.
Your prudent advice, is exactly what millions of people are already doing. Guess what? It's causing the largest contraction in decades and an unemployment rate unseen since the 80s (and we're not even done yet).
The loosening of credit and the absorption of debt is what can get us out. Who absorbs this debt is remained to be seen. Businesses can absorb the debt, government can absorb the debt, households can absorb the debt, or the like entities overseas.
I'd prefer that we re-tool, re-balance the debt load so that the poor and the rich have a better distribution of debt share (which our government is doing through taxation), and that we sell over seas increasing our production capacity/incomes so credit wouldn't be a necessity.
But, there are many factors that will prevent us from being able to export our debt load (including the extreme reluctance and difficulty of foreigners to absorb debt, political influence from our creditors, etc.)... so, I have a feeling that we'll see credit flowing for consumers (as bank junk is lifted from their balance sheets and the loosening of accounting rules at the expense of taxpayers and investors), and our productive capital sold/transferred overseas (Chinese/developing nation job creation and capital injections from our investors). After all, it's extremely difficult to go against the tide of the status quo and why bother to actually fix a system that is broken?
-chuck22b
Last edited by chuck22b; 04-07-2009 at 03:20 PM..
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).
) macroeconomics class right now, so I do have somewhat of a grasp on reality. Somewhat. 
Feel free to elaborate - it's probably that I'm just completely misunderstanding what you're trying to say.
