In fact, that is just what happened. Everyone started leveraging everything and because everyone was doing it, it seemed to make it all right. We piled on debt to pay for everything to be able to live for today and it was all o.k. because once all our cards and accounts reached their max we could just consolidate everything into one big newly refinanced loan by tapping into the freshly created inflation generated equity that the investment in our homes had just produced out of thin air. Pretty neat eh?
This worked so well that we got used to it and came to expect that it would work every time. Jobs were consist enough that we could count on the income to always be there and so we went ahead and obligated ourselves to make consistent payments that matched those consistent paychecks. Most Americans had it worked out so well that everything that came in was exactly the same as everything that went out. It was a smooth running machine, until one day when the price of gas went up. Now instead of it costing $20 to fill the tank it cost $40 and you don’t have the other $20 in your pocket. Something has to go but everything you have is already spoken for. Witness the pin that popped the bubble.
So stupid people make stupid decisions, this is nothing new. It has happened before and it will happen again. The key point to take from all this is that we don’t make the innocent pay the price for the ignorance of others. That is where the second comparison has come into play. The knee-jerk reactions that followed the bad choices of others as happened following the first great depression should not be replayed this time around. Obama and Congress are launching on the biggest mistake in this nation’s history and it is not without forewarning. The “stimulus package” will seal the fate of this nation as a full blown socialist state with little hope of return. There are far too many critics that have been far too quiet concerning this matter. It is not because they have not spoken in the past or in the present, but the current mass media markets have decided not to listen. Make no mistake about it, voices are being suppressed. The America of our forefathers is in jeopardy of being no more, and for the sake of being politically correct we will squelch the voices of wisdom. We will label them crackpots or worse.
There are of course differences between now and then. FDR waited several years and I imagine went through quite a bit of debate before implementing the new deal. Obama and his congress have rushed the current new deal through in a matter of days. This surprises me especially when you compare it to the regular congressional budget that usually is past after the new fiscal year has begun, and sometimes months after. Why this rush? Banks closings are up but not anywhere near the level of the Great Depression. Unemployment is up, but also not anywhere near what it was in the Great Depression. 7.5% vs. 25+% do the math.
The economy was a hot button item during the election timeframe and usually is during campaigning. The Democrats and their media talked up how bad things were when in reality things were not really bad at all. This is not to say that there were not some bad areas and some people experiencing bad times. That has always been the case in our nation’s history. There are boom and bust cycles going on all over all the time, nothing new. But like so many political campaigns, you can’t convince others to vote for you unless you can convince them that the other guys are doing worse than you would. Standard fare, I mean I many times have you heard that the last few years under the Bush administration were the worst years ever in recorded history. Kind of sounds like the same thing Bush said about Clinton and Clinton said about the Bush before that. My question is why do we continue to believe it when the truth says otherwise, or at least is somewhere in between?
So the Democrats have convinced us all that the economy was falling apart and only they could make it work again. They said it so long that we and they started to believe it. Is this the case of a self fulfilling prophecy? Pretty soon people started making decisions based on this doomsday prophecy, confidence in the system was shaken and those decisions triggered other decisions which started us down the path of an economic slowdown.
If we can raise this slowdown to the level of a crisis, then we can implement all kinds of legislation without any questions or obstacles. What better way can you think of to get your policies in place before anyone has time to think twice? It has to be done now because it will be too late tomorrow, and beside we have to do something…don’t we? The knee-jerk caught a lame duck president with a first financial bailout and followed on to the new president with the stimulus package.
This isn’t the first real estate driven crisis, remember the 1980’s and the savings and loan problem. Remember how it wasn’t solved with a massive spending bill but a revamp of the banking industry that combined savings and loan institutions with bank bringing them under the FDIC insurance for depositor safety and then orderly liquidated bad real estate deals through the use of open market pricing? Why are we subsidizing the bad institutions this time and trying to keep them in business when we should be helping them liquidate in an orderly fashion? The FDIC could play the role of insurer as it is chartered to do and protect depositors money up to the agreed upon amounts, sell off the assets of the defunct business at market prices to willing participants and we could all get on with the business at hand.
Instead we are putting the patient on life-support, one that only prolongs the misery and the pain. Japan went through a period of denial with its real estate boom of the 80’s and they are still paying the price. Instead of clearing the books they finagled them through adjustable accounting. We are doing the same. Where oh where has wisdom gone in our elected officials?
And where has our wisdom gone? This article has taken a lot of thought and effort to write. As I have watched the proceedings take place in the news and the actions taken by our elected elite, I am both in awe and wonder. I am totally dumbfounded by what is taking place. It just doesn’t seem possible that this is actually happening in real life, and maybe when I get up tomorrow I can find that I just read it wrong. That was several days ago and I am still seeing the same thing, it is really happening. I can’t stop it, I am not an insider so I can’t profit from it, and I shudder to think what it will take to reverse it now that it is in place.
When reason fails with man, and the world begins to tumble, I guess the only thing left is the thing we have had all along. Turn to God. Pray and know that God lives. As the world tosses and turns and changes with the winds and tides; know that God is the same yesterday, today, and forever. Therein lays our strength, our guide, and our salvation. Ours need not be a fleeting moment in time if we are willing to look to our Father in Heaven with eternal eyes. My prayer for us all, leaders and citizen alike is that we have the wisdom and the courage to make the right choices and to stand for what is right.
This is Ed Nef with a view from the Farr West.
Click here if you want to see the new Great Depression Part 1 or to go to Part 2.
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