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the writing on the wall…

This is my two-cents on the impending recession:

Spending Sustainability: The theory that if one incurs debt to sustain spending the market will catch up, bolstered by the unfettered spending of US consumers.

It seems that relationship “freak out” has finally happened, US spending has hit a lull and the world is reacting to the mortgage burst that hit this past Fall. Hence the “spending sustainability” theory being busted! For the last 10 years the US consumer has consistently spent more than they have taken in… a reality perpetuated by the ridiculous interest rates on mortgage lending. It was common for a home owner, in seeing that the housing market was booming, to refinance their home based on the ballooning property values, low interest rates and ease of access to mortgage lenders. This prolonged the continued spending at a rate that was beyond the average homeowners means. Everyone was telling us to spend, the media, the government, and the Jones’s (your neighbor who bought a new car this year…).It was a suicide machine.

Suicide Machine: A metaphor used to help us visualize the invisible, and make the intangible, tangible.

“When the social, political, and economic machinery of a society gets out of control, or through some flaw of design or operation begins to destroy its creators and intended beneficiaries, then it has become a suicide machine.” - Brian McLaren, “Everything Must Change.” 2007, Thomas Nelson Press; pg 54.

Now we are coping with the balancing/recalibrating/stabilization of a nation and a world (a machine) that has been so anxiously pursuing excess. These next few years are going to be interesting.

The question that continues to haunt me is why on God’s green earth, are we told that spending our way out of a recession is a good idea… (thank you mr. prez). This was done after 9/11 as our economy began to quiver and people began to save rather than spend, and is now happening again.

What kind of economics are we subscribing to here…? To gain in the short run only to push back the inevitable crash in the future… this is NOT doomsday economics I’m referring to, but rather a troubling “band aid on a bullet wound” response to a lot of economic, political, and global problems. Ok. I’m done. Comments.

Comments

maury on January 21st, 2008

I agree. Huckabee ‘08: bring on the fair tax.

Sam I Am on January 22nd, 2008

unfortunately, Huckabee’s flat tax plan could be the answer, but there is no way he will be elected… what do the libertarians think, it seems every economist I have met is a strong libertarian…? I’d like to see some more on their point of veiw (economically speaking).

Jason on January 23rd, 2008

Well I can certainly concur with you on the ridiculousness of trying to spend your way out of a recession on borrowed money. But it’s not an impending recession. I’m of the opinion it’s been one for at least a year and the full force is starting to bear down on even those that like to think they’re immune from the problems of the small people. Though being personally adversely affected by this new recession, I’m probably a little biased and definitely bitter about the situation as I’ve lost a job and my home is facing jeopardy with no source of income and a rate adjustment looming in the coming months. Nonetheless, it wasn’t like this wasn’t foreseen. Stagnant wages since the last bust at the turn of the century and continuing rising costs in fuel, petroleum-dependent products and services, insurance and health care costs were good indicators that continued economy-boosting spending would not continue indefinitely. Yet, the stock markets continued to steadily rise and certain peoples were making record profits which made it look like (at least to those that pull the strings) things were A-OK, not bothering to look below the surface to see that bottom was crumbling eventually swallowing them up as well in the turmoil. What’s more biting is the fact that with all these profits and upwelling of revenue, not much of it was rolled back into business. More of it just went into the coffers of rich while everyone else was being placated with scraps. But I’m rambling.

I feel it’s a necessary recalibration for the economy that while painful for those fueled by excess gain and excessive consumption, it’s the buffer to a more spectacular bust if you subscribed to the boom and bust theories of capitalism. To those shortsighted and only concerned with the immediate bottom line, then I could see where you would think that this would be the end of the world. Yet, it’s not. However, the irrational mode of continued spending in the face of piling debt would certainly make it self-fulfilling prophecy. Then again how can we expect people to be more prudent about spending when our own government continues to set the example of spend and borrow for everything you want. The rush to prevent this impending recession is border-line retarded and ultimately not going to stop what is desperately needed in this country. A return to fiscal responsibility. Unfortunately, it takes this kind of pain to get people to realize they should probably rolled back on their consumption. Unfortunately, those in the upper echelons that need the lowly consumer to spend, spend, spend so that they can win their bread don’t really want consumers to start saving and become more conservative with their finances so they will do whatever they can to keep the gravy train rolling. A gravy train that was built on credit by the by which is certainly tenuous foundation at best.

The cynic is saying that this is just a desperate ploy by a president who is realizing that in fact history will judge him, his policies and administration as being the worst in America’s history. With nearly every policy being ineffectual of it’s desired goal or just down right disastrous, he can’t bear to think that yes even the economy itself, the thing he’s touted as being strong and resilient under his watch is broken as well. Of course it’s probably just another shallow attempt at trying to fix a problem they’ve proven to be under-equipped to deal with. Another attempt at a bailout is not what we need. More borrowing from foreign investors is not what we need. Hell, can these people not honestly see what the problem has been and realize that the better solution in the long run would be to let pain work it’s self out without causing more damage?

And no, the fair tax/flat tax is definitely not a solution. While I agree that tax reform is desperately needed and some of the elements brought up in the fair tax system are appealing, the real reform that is needed is the ridiculous spending the government does. First and foremost is the repriortization of the outlays and at the very minimum, get the damn “budget” balanced… oh and not start unnecessary and wasteful wars.

Sam I Am on January 23rd, 2008

Jason, as eloquent as always… I sometimes wish for a time when a president was not worried about his legacy or reputation, but rather with the legacy and reputation of the country, of the people… but I guess when that happens people get shot. Wiki John Kennedy or Bobby Kennedy, if your confused on the reference.