So pitch your theory!

[VT-Chicklit]

Part of the problem with the economy is that people have spent more money than they have, and businesses have staffed and produced products to accomodate that over spending. This is why the limited lending by banks is causing the economy to shudder and shift gears. The government, by pressureing the banks to lend is not doing the economy any good, in the long term! Sure in the short term, it will stimulate business to produce, but it will also produce more debt. This increased production and job growth will only be temporary and will be an artificial bubble. That is because the lending will not be based on prudent banking but will be based on Washingtons pressure to lend no matter what the cost.

Washingtons attitude about allowing people o get credit for things that they can not pay for is what got us into the housing bubble. Congress (Barney Frank and commitee, and Chris Dodd and commitee and others) pressured Fanney Mae and Freddie Mac and the banking industry to lend to people that didn't qualify for the normal "prudent" types of loans. Over time, they pressed for looser and looser loan requirements. The banks, who were able to sell these loans to Fanny and Freddy were no longer conerned. Thru changes in various laws over time, the type of lending that was a sound thing for banks to do, morphed into loans to those who could not pay. No income verification loans, credit cards being given to people without even a SS# having to be provided, credit limits on cards increased when the card owner had no hope of paying what they had already charged. These shakey loans then morphed into credit default swaps and other mutations to be sold off to those who had no clue that they had no real value.

It is obvious to me that the people in Washington still do not realise, or they will not admit, that they are the root cause of the housing bubble and banking problems that we are in now. Sure greedy bankers, greedy businessmen and greedy citizens were also to blame, but Washington started the ball rolling when they required that the lending institutions make 50% of their morgages and loans to low income families. It is noble to want everyone to own their own home, unfortunately not everyone can afford it. It will take quite a while for this to settle out.

I figure this bubble has been building for about 10 years. That is when laws started to be changed to make it easier (less money down) to own a home. We will not be truely out of the woods until the government stops trying to further stimulate the economy and force banks to do what they feel is not prudent. The huge amount of additional government spending on bail outs and new social programs will only further weaken our dollar as the Feds print more money to pay for it. We will be in this hole until they stop! THE PROBLEM IS THAT WILL NOT STOP!

 

[Big Daddy]

It's funny but people have cut back a lot and that is one of the reason it keeps getting deeper. Most people are buying only essentials. Have you noticed how many restaurants are closed up? Jewelery stores are dying. Wal Mart is the only retailer that's doing okay.If people continue to stay scared and don't start spending again it will become a depression. It's interesting to see what this will turn out like.

This speaks volumes. Commercial real estate is teetering on the edge of a knife. As consumer spending dwindles, more and more shops are closing their doors. When shops close, the owners of the CRE properties can't pay their mortgage. I don't know about other parts of the country, but around here, ads and billboards for office and retail space available are everywhere. With unemployment still on the rise, I don't see how this situation is going to get better any time soon. If the CRE market collapses the way the housing market did/is, I don't see how a full blown depression can be avoided. JMHO

Our whole economy is based on spending. That's why Washington is trying to get the spending going again. Just imagine what would happen if people only bought what they absolutely needed to live on. Only a small portion of our economy is based on supplying essentials, food, water, clothing, electricity, etc. So all the other businesses go out of business. Then the only people that have jobs are those that work in essential businesses. Next thing you know there are masses of people needing food and shelter with no way to pay for it. The same problems are happening in Europe and Asia.

I'm hoping Washington is doing the right thing. The problem is it's impossible to get a true reading on it. Politics is everything, country be damned. The 2 parties are more concerned about who's in power and how to get the other party out of power. They wont work together. It's a really messed up situation. I have no faith in our political system.

 

[Wifezilla]

It's funny but people have cut back a lot and that is one of the reason it keeps getting deeper. Most people are buying only essentials. Have you noticed how many restaurants are closed up? Jewelery stores are dying. Wal Mart is the only retailer that's doing okay.If people continue to stay scared and don't start spending again it will become a depression.

What's the solution? Keep spending??

I was always taught that when you find yourself in a hole, the first thing you do is stop digging. Even though this upsets the shovel manufacturing business, it is STILL a good idea to stop digging.

 

[patandchickens]

It's funny but people have cut back a lot and that is one of the reason it keeps getting deeper. Most people are buying only essentials. Have you noticed how many restaurants are closed up? Jewelery stores are dying. Wal Mart is the only retailer that's doing okay.If people continue to stay scared and don't start spending again it will become a depression. It's interesting to see what this will turn out like.

Yeah but IMO the size and state of the economy has been a house of cards since at LEAST the 80s, really longer than that. So much luxury spending based on speculating and borrowing and riding bubbles. I just truly do not see how such a thing can be supportable or stable in the long run. It isn't *pretty* when bubbles burst, but to me this has just been a giant overinflated bubble and a pop -- and return to much more modest living conditions more comparable to other people on the planet and throughout history -- has always been inevitable.

Sure, if everyone kept spending like drunken sailors (i.e. the last 30-50 years) we could prolong things a bit longer, but not forever, probably not *long*, and the bigger things get the harder they fall.

It would be nice if people (as a society) learn something from this, and it doesn't continue or get repeated, but I honestly do not think that's possible. The lure of potential riches is just too strong.

JMHO,

Pat

 

[patandchickens]

Just imagine what would happen if people only bought what they absolutely needed to live on. Only a small portion of our economy is based on supplying essentials, food, water, clothing, electricity, etc. So all the other businesses go out of business. Then the only people that have jobs are those that work in essential businesses. Next thing you know there are masses of people needing food and shelter with no way to pay for it.

Except, it's not quite that simple. For instance, take food. You can be employed to make money to buy food from other people, or you can take the time to grow it yourself for basically free (to varying degrees depending on situation, but even in a city apartment you can grow quite a lot of your own food, look at what people do elsewhere in the world achieve). You can buy new clothing, or you can mend/sew your own. Etcetera.

While this is not going to take care of 100% of anyone's needs, it can make a pretty big dent in 'em. And on top of that you have barter, e.g. 'you let me live here and I will perform x work for you', or 'I will trade you this good Chevy engine I have little use for in exchange for some firewood', etc etc.

There IS considerable middle ground between everyone expecting to live like Rockefellers (which is the current situation) and masses of people starving and dying of exposure. And I would suggest there our society's current behavior is far from ideal in terms of avoiding mass poverty.

JMHO,

Pat

 

[Big Daddy]

What are they going to do with all the houses. I agree with Pat about it all being artificial. People bought things in the 70's too. I guess the problem lies in the fact that the US doesn't make anything but cars and everyone is letting those go too. We used to make clothes, TV's, Furniture, Appliances and a lot of other things that were required to live. They were made well and we repaired them when they broke. Now everything is junk from China. The only people in the US that benefir from their manufacture is the corporations. They get a much bigger bottom line by not having to pay fair wages and benefit to employees here. Time for a new thread.

 

[DrakeMaiden]

I'm not done catching up on this thread yet, but I had to say one thing: I saw this coming and this is what I believe is what we are witnessing right now -- what the wealthier people DO NOT FATHOM is that once prices on everything go up (let's just say food for example) the lower classes have less money to spend as discretionary income. At some point that feeds back to the wealthier business owners, because NO ONE CAN AFFORD THEIR PRODUCTS/SERVICES! If you don't understand this, I don't know what else to say.

Also, today it is worse because the lower classes have tried to keep up and put their purchases on credit, which in my opinion means it will take longer for the lower classes to recover. JMO.

 

[patandchickens]

what the wealthier people DO NOT FATHOM is that once prices on everything go up (let's just say food for example) the lower classes have less money to spend as discretionary income. At some point that feeds back to the wealthier business owners, because NO ONE CAN AFFORD THEIR PRODUCTS/SERVICES!

I think lots of wealthy people fathom this perfectly well. The response is on the order of "Yes, and that's why I should try to make as much money as I can *right now*"

Pat

 

[me&thegals]

Even unwealthy people "get" this. My farming husband has been saying for years that if he were paid what his product was actually worth (rather than being subsidized), people could not afford it.

With most things, you pay one way or the other, unless you're willing for mass poverty and starvation.

Yes, people can cut back. But when they have NO income and NO skills for self preservation, then what?

 

[enjoy the ride]

Some things in this situation are new -unlike the depression, banks have insurance so, as long as tax money holds out, average people can recoup their money. There are food stamps and unemployment- all things that came because of the Great Depression. So for poorer folk there are some resources where it used to be the only resource was charities or family.
But most things, like inflated housing prices followed by busts, gambling in stocks with money that they didn't have , tent cities, food lines, etc have happened at least once or twice every century. Just because our life spands do not encompass these, we tend to think our situation is unique. People ramain people- that is greedy and gullible.
I think that what will happen is that, people are spooked and will make irrational choices- with the stock market, they will buy because they are afraid of missing the really good profits or sell because they are worried that others will panic and sell. Neither will be based on any material facts- just emotions.
Some people will keep working and will have less increases in wages while price do climb some so things will be tight for more people for quite awhile.
Some people will risk and make out like bandits. Some will risk and lose everything.
Most people, even if they lose their house, will recover although they may never be as rich as they thought they were going to be.
The idea of having a service based ecomonmy irritates me as we have little to sell to those who can still buy and still are held ransom by those who do make things to sell to use. But even if you have a manufacturing base, you can't sell if people aren't buying.

I suspect our salvation will come with some item or products that some wheeler dealer can pursuade all of us that we can't live without. We will then spend some money and, if the world doesn't collapse, we will start plunging in more and more.

BTW, my father was a furniture salesman during the late twenties and thirties- he was never unemployed. And that is a rough industry in a recession- very little furniture is a neccessity.