The American economy has been shown to be a pyramid scheme in which individuals and institutions "grow" by borrowing more and more money. Now we seem to have run out of money to borrow, the debtors can't pay their debts, and as the pillars of our pyramid collapse, I wonder if we will reach a point in time when it will be too late to save America itself?
Every one is in hock up to their eyeballs. Nothing seems to be worth anything anymore. Buying something that turns out to not be a piece of crap is the exception rather than the rule.
When I was a kid, people made jokes about products labeled, "Made in Japan," because the quality was so terrible. Today, we don't make things here, and we buy the cheapest thing we can find no matter where it was made or how. Sneakers made by 12 year olds making 60 cents a week? No sweat. Non-union labor in the south giving foreign companies a competitive advantage? Let's make the union workers take less. Off shore customer service representatives whose English speaking skills are so terrible that you can barely understand them, if at all? What did you expect?
In the early '90s, the administration of George H. W. (read my lips) Bush eliminated the tax deduction for interest on credit cards and car loans. Not to worry, the banks expanded the good old fashioned home improvement loan and turned it into the Home Equity Loan. Suddenly, you could buy a boat or a car or take a vacation that you really couldn't afford. All you had to do was offer your home as collateral. At the time, I wrote to my senators about my concern that many Americans would have no equity in their homes, and that a severe economic downturn could result in record foreclosures. I was assured by my senators that such a situation could never occur.
Of course, to be able to get a home equity loan, you had to own your home in the first place. When I purchased my first home in the mid-80s and then again in '93, in order to qualify my monthly mortgage could be no greater than 28% of my gross monthly income and the sum of my monthly bills, including the mortgage payment, could be no more than 43% of my gross monthly income. When I purchased my current home in 2005, the only qualification was that my debt to income ratio could be no greater than 50%. This was for a conventional loan at 5.625% fixed for 30 years. How easy it could be to achieve the American dream! Of course, once you got the home you could get your home equity loan to take the vacation you needed to recover from the stress of buying your dream castle.
The fax machine I bought at Office Depot broke after six months... the washing machine I bought at Lowes broke after 18 months... the used washing machine I bought to replace the new machine broke after eight months... the tripod I bought a Circuit City broke after three months. Silly me, what did I expect?
The pyramid continues to crumble. Folks are losing their jobs, their homes, and their health insurance.
A few days ago in Gulfport, FL, two armed thugs held up a convenience store. After being handed all the cash by the two workers, they shot them (they survived). The surveillance video shows that the gunmen saw the three children of the workers cowering in fear on the floor behind the counter. Holiday sales are way down, but shoplifting is way up. As Brecht wrote, "First feed the face, and then talk right from wrong."
The Obama administration will push through a stimulus package that will result in even more borrowing. But what if the worldwide economic slowdown forces those who have been buying our bonds to stop buying them? What if our creditors look down their noses at us from on high and, in the style of a southern senator, tell us that we need a haircut? What if America fails?
As doom and gloomish as this reads, I really am hopeful that we can pull ourselves out of this, and I am glad that we will soon have a leader with the ability to inspire us to try.
If there was ever a time for the power of hope, it's now. We have a lot of work to do.
Merry Christmas