Monday, September 15, 2008

1929 versus 2008

Perhaps I should add "economics" to the title of my blog now. Anyone following the news has probably noticed that the large financial firm, Lehman Bros., has filed for bankruptcy. Merril Lynch was purchased (or perhaps it should be said, bailed out) by Bank of America to prevent its collapse. The stock market not surprisingly took this news badly and dropped like a rock fairly quickly. Certainly no crash yet despite not being too pretty, but one must wonder: are we in for a new Great Depression? Certainly there are some eery reminders all around us of 1929. Banks collapsing like houses of cards, jobs being lost all around us, high numbers of foreclosures, repos of items bought on credit and more. There can be some comparisons to what happened before 1929: the roaring twenties were not all that different in some ways from the 90's and, more recently, and more important, the real estate bubble and economic boom that went with it in recent years. People were like sheep, all lining up to buy an expensive house, new cars, and anything else that could be bought without really being able to afford it. Bad credit? No problem, have an interest only mortgage, we'll look the other direction while you sign the papers, we want you to have a house. No downpayment? No problem, 100% financing available. Want to remodel or buy some fancy toys but have no cash? No problem, with the soaring housing market your house is worth triple what you paid, so cash in on that equity with a loan. Yet all bubbles must burst, and burst it did! Home prices are dropping like lead sinkers in water. Those who keep their asking prices high won't sell most likely. Those who took advantage of that creative financing? They're losing their homes in record numbers. Those banks that gave out loans to people they never should have given them to? They're collapsing. Perhaps there is some justice in that. The fools who got in over their heads in debt should have known better, but so too should the banks have known better. The bankers created this mess with their greed. It reminds me all to well of Thomas Jefferson's warning: if we let the bankers control our money supply, we will wake up homeless on our own soil.

The Federal Reserve has made easy money available, with low interest rates, leading to this mess. Our politicians created this monster back in 1913, and FDR (removing gold from circulation) and later, LBJ (removal of silver from coins) and then Nixon (ended the gold standard), in steps took silver and gold out of our money, replacing it with base metals and paper backed by nothing. Imagine what difference there would be if the Federal Reserve could not simply make up money out of thin air (electronically) or out of paper and ink (federal reserve notes). Our government would have to more carefully control its spending, banks could not lend so much money out, checking real estate prices to a degree, inflation would not eat savings in such short order. Unfortunately, we the people have allowed our servants to become our masters, and our masters are the servants of corporations and banks. Jefferson also warned us against corporations. Why have we so long ignored sound advice?

We have followed greed, materialism and selfishness for far too long. Our state religion is consumerism and our national god the almighty dollar. People today by and large are not content with being well fed, clothed and sheltered. They must eat out every night or have food that takes little work to prepare (and which is also more expensive and damaging to health, giving the medical industry more money). Having some decent clothed that last a long time and taking care of them isn't enough, people need to buy new clothes frequently no matter if they're needed, people must have the latest fashions, etc., all expensive. It's quite amusing to me to see people pay top dollar to wear an advertisement on their bodies! People aren't content with a small home that shelters them and conserves resources and money. People must have a 5,000 square foot mcmansion with more bedrooms and bathrooms than residents, a kitchen full of stone and expensive woods and appliances, that rarely sees much real food being prepared in it. People are not content with a small car and using it until it wears out, they must have an SUV bigger than their neighbor does. And, one can not forget the TV's, the stereos, the computers, the video games and cell phones and more. Afterall, would anyone want to be laughed at for not having the latest? And, all of this must make you think the average person is swimming in money to afford this all, right? The more likely answer for most Americans is that they are swimming in debt. The mcmansion will never be paid off, everything goes onto credit cards, and if the minimum payments are made each month, the average person thinks they're doing okay financially. The fact of the matter is that most people are incredibly irresponsible with their finances. We must give up our materialism, accept less and be content with it, and realize something our grandparents likely learned the hard way in the 1930's: do not rely on credit, banks and try to stay out of debt. There is no reason for the SUV's and mcmansions, our rampant consumerism, our wastefulness of our valuable resources. We should be smarter than this, but sadly, it appears that we are not. We want bandaid solutions to keep the house of cards standing, to keep our wasteful lifestyles going. Americans long ago, by and large, tossed out the ideals of independence and self-reliance for big houses and expensive toys. In return, most Americans have accepted dependence on others, slavery without the chains. The so-called American Dream is nothing but a hoax propagated by bankers and materialists. A false religion and false promises. God have mercy on us for having such foolish thoughts! October 24 is not too far away, will we see a repeat of 1929 or shall this be a slow process of collapsing? Only time will tell. Needless to say, endless economic growth is a fallacy.