Dealing With Our Economic Climate Shift
– by David Matthews 2
You’ve heard about it right? You can’t help but to hear about it. It’s all over the news. It’s all over the political discussion. It’s all over talk radio. Any time the weather gets freaky, it’s all because of “Global Warming”.
Of course they don’t really call it “Global Warming” anymore, do they? No, because people don’t know if we’re going to endure “Global Warming” or “Global Cooling”. So they’re instead punting and calling it “Global Climate Change”.
The basic theory is that our environment is out of whack, and it’s really forcing the planet to shift things around to compensate. Liberals are quick to blame it all on every stage of human advancement since the Industrial Revolution and condemn mankind for “killing the planet”. In truth, however, we’re not killing the planet… the planet is killing US! Or it’s at least making it that much harder for us to survive.
But we LIKE talking about “Global Climate Change” because at least it explains what is happening in terms of killer storms and flooding conditions, without necessarily having to assess blame for it all. That’s why conservatives like talking about “Global Climate Change” when they originally haggled over “Global Warming” or “Global Cooling” and started calling environmentalists who use such phrases “quacks” and “frauds”. Change the terminology and suddenly you defuse the argument of the terms.
You’ll notice the same thing when the discussion involves our economy. When are we in a depression? How about if or when we are in a recession? How about stagflation?
Well just about everyone has their own definition of those words. Nobody can tell you with any certainty when we really ARE “officially” in a depression or recession as these things are happening. They can only use such terms after-the-fact. We don’t know when we are actually IN a recession or depression, but we know when we WERE in one.
Part of the reason, of course, is all politics. NO government official would ever want to admit that we’re in some economic bad times as they are happening, and if they did, they would want to make sure that people knew that it wasn’t “their” fault that they’re in it.
George W. Bush and his people in the White House certainly REFUSE to admit that we are in any kind of economic trouble. He continually drones on about how “great” the economy is, even as jobs are lost and millions of Americans are losing their homes in foreclosures. He’ll say that we’re in a period of “slowdown” or “rough patches” or “troubled waters” or “economic uncertainty”, but he’ll never say the “R-word” or the “D-word”. It’s not going to happen. Not while he’s in office.
Recessions are bad. Depressions are worse. And when you’re an ego-centered president who thinks that he’s in office because GOD put him there instead of the voters, you don’t want to hear the words “recession” or “depression” or “stagflation” being used at any time during your tenure.
Meanwhile, of course, you have plenty of investors, financial experts, and ordinary people who are arguing whether we’re in a recession, depression, stagflation, if we’re at the cusp of these things, or if we’re experiencing the very worst of it all and that it can only get better from here.
Well there is no doubt that we’re in a period of economic troubles. Mortgage foreclosures are climbing, the housing bubble has imploded, the value of the U.S. dollar in international markets has sunk so low that it’s not even being accepted in places like the Taj Mahal, the price of gasoline is more expensive now than it ever way and is expected to get even worse in the coming months (sorry neo-cons, but your “adjusted for inflation” excuse no longer applies), everything is getting more and more expensive, and the banks – because of the mortgage crisis – are cracking down even harder on the very customers that they rely on for their continued survival.
It’s debatable whether we’re in a recession, a depression, a period of stagflation, or if we’re anywhere close to these things or we’ve already passed the worst of them. But there is no doubt that the economic climate, much like the weather, has shifted for the worse.
So let’s talk about this “Economic Climate Shift” and how we got here.
First, you need to understand that nothing works in a vacuum when it comes to the economy. The price of gasoline going up or down has a chain reaction when it comes to the economy. When it costs more to fill up the tank for the trucks that bring the food to the grocery story, that cost is passed on to US as the consumers of that food. When it costs US more money to buy food, then we either don’t buy too much of it, or we have to cut back on other things that we normally would buy to compensate. So, for instance, that means no more dining out on Saturdays. That hurts the local restaurant business, which means they aren’t making as much food as before, which means they’re not BUYING as much food as before, which means the grocery store won’t buy as much food from the farmer, which further hurts the drivers who transport the food, so they have to raise their overhead to make ends meet or else go out of business. See how that works?
There is a balance that is naturally generated in our economy. It exists between those who buy things and those who sell things. It exists between borrowers and lenders. It exists between employees and employers.
Now any time you mess with that balance, the system compensates for it in other places. And our government LOVES to mess with that balance! They live for doing it! They have whole agencies dedicated to doing nothing but MESS with that balance.
They do it for one reason, of course. They do it for greed. Partly for their greed, but also partly for our own. We look at people like Warren Buffett and Bill Gates and Ted Turner and Paris Hilton and we see how “the rich” live on MTV’s show “Cribs” and we tell ourselves “That ain’t right” and then we tell government to go out and make them SUFFER for being so damned wealthy! And because our government is full of millionaires and billionaires as well, you know that THEY don’t want to suffer because they’re wealthy, and neither do they want their friends like Buffett and Gates and Turner and Hilton to suffer. So they have to write the rules in such a way that would allow themselves and their friends to keep their money while making SOMEONE suffer.
So they mess with the balance. And they screw the economy up.
And our government messed with that economic balance on SO MANY levels that it’s not funny!
First, let’s talk energy resources. Our government has been on a catastrophically destructive energy policy for decades now, even back in the days of “Tricky Dick” Nixon. We have been dependant on foreign governments to provide our oil for decades; and it’s now to a point when they provide more than HALF of our needed resources. We have to make nice with the leaders of those governments in order to keep the oil flowing, which means that we sometimes have to support evil, tyrannical, dictators that oppose everything that we believe in. So when their governments are threatened, we are forced to help them. When something bad happens in those countries that either potentially or actually interferes with keeping the oil flowing, that causes speculators in the stock market to panic, which drives the price of oil up. We also encouraged the auto makers to come up with gas-guzzling vehicles, which further increased the demand, and thus encouraged even more dependency on that foreign oil.
So when there is trouble in the world, speculators panic. The price of oil goes up, and eventually so does the price of gasoline. People start caring about gas mileage again so they stop buying gas guzzlers. The US auto makers lose money because people aren’t buying their guzzlers so they lay off employees and shut down factories. People don’t have jobs, so they can’t spend money like there is no tomorrow, so it affects other businesses. The whole economy shifts because of our government can’t properly manage our energy resources.
Now let’s talk about mortgages. Lending institutions would never have given predatory subprime mortgages if there weren’t some encouragements from certain groups first… including, and especially, our government.
First, lenders had to get the okay from banking regulators to adjust rates to whatever they wish. They would never be allowed to lend money if their interest rates were stuck with same rate that the Federal Reserve Board gives, especially when it as low at one point as 1.25%! And it’s not like this was the first time that the lenders were given the green light for something like this. Ever wonder why your credit card lending rate is higher than anything the banks lend themselves?
Then they needed to encourage people to accept those loans. That’s where the realtors come in. They were financially encouraged by the lenders to convince their clients that it would be better to accept an adjustable rate mortgage now because the rates are so low. They don’t mention that the rate would eventually escalate to a much higher number to make up the difference.
At first this seemed to be a good thing, because it meant that more people were buying homes and refinancing their mortgages, which led to the great housing bubble. This was the secret behind the so-called “Boom times” for our economy for the first few years of the Bush White House. It’s not that WE, the consumers, had more money; we just leveraged more of it. We were being encouraged by our government to spend more at all costs.
Banks also sold the responsibility of those loans off to other lenders, knowing full well that the other part of the deal in those adjustable rates had not kicked in yet, and the group left holding the loan would have to worry about defaults when those higher rates kicked in. And just about EVERY business got into mortgage lending too. Insurance companies, tax preparation services, car dealerships… Again, all of this was perfectly fine and dandy and accepted by the banking regulators… our government. The same government that was encouraging us to spend and borrow and spend like there’s no tomorrow… for the sake of the nation, don’t you know.
The other thing that banks needed was to make sure that when we as consumers signed our lives away on those loans that we would be STUCK with them. This was the BIG reason why such predatory lending practices wouldn’t really work for the banks, because they knew that borrowers who got driven into bankruptcy would have their debts absolved, which means that lenders would get NOTHING. So while we were being encouraged by our government to spend and spend away and sign away our futures, they turned around and changed the bankruptcy rules on us. Now when we go into bankruptcy, we can’t have our debts absolved like we used to.
So now the other shoe has dropped. The adjustable rates kick in and millions of homeowners are forced into foreclosure. That in turn has a catastrophic effect on communities, because whole neighborhoods are turned into ghost towns as one by one they are driven out by foreclosures. That forces property values in the remaining houses to go down, and it takes away a huge source of taxable revenue for local governments.
Again the whole economy shifts because our government, which was supposed to be watching out for US, encouraged and allowed the banks to make loans they shouldn’t have. And all of it supposedly to stimulate an economy that was suffering from the previous shift.
Do you understand now how our government can do things that really have a detrimental effect on our economy?
Of course NOW that we’re in the thick of the problem, we’re turning to the same government to help us out. Well the government is VERY eager to bail out the LENDERS, but… surprise, surprise… they’re extremely hesitant to bail out the rest of us.
Sure, the Bush White House and the Congress signed off on a so-called “stimulus package” that will give out money to the taxpayers, but they are actually expecting that we SPEND every penny of it on businesses instead of holding on to it or paying down any kind of debts that we have incurred. Other then that, though, they’re really not going to do anything more to help the masses out.
And why should they? After all, they’re the ones that helped to CREATE the shift that we’re experiencing today!
Let’s get brutally honest here… if we’re going to get through these economic bad times, then we need to understand that our government does more to ENCOURAGE economic climate shift than it does in trying to “correct” it. They’re the ones with the bad policies and the shoddy regulatory supervision. They’re the ones that allow banks to charge us with interest rates that are ten or even twenty times what they charge each other. And they allowed the banks to subvert the interests of realtors so they would be working for the lenders instead of the borrowers. And all for what? A higher profit percentage… not to mention bragging rights.
If our government was TRULY interested in restoring that balance in our economy, they would adopt policies that encourage self-sustenance, encourage savings over spending, and encourage a reasonable awareness of the risks being taken instead of covering them up and then bailing out the perpetrators afterwards. They would help out both lenders AND borrowers, and they would prevent the buying and selling of our debts like they were stock shares.
Unlike the environment, our economy is something that is intrinsically man-made, and also maintainable. But it has to come from those who acknowledge that there IS a balance and work to keep that balance intact. As long as they favor one side of the equation, though, and they treat debt and risk like musical chairs, then they will continue to cause an imbalance in the system, and we will continue to be subject to extreme shifts in our economy.