I'm not an economist, and I'm not hugely well-read on the subject. For that reason, I'm hoping someone here can explain our current economic crisis to me, because from what I'm reading it seems... well, batshit crazy.
This is what I've gleaned from my minimal research:
- We have a debt problem. Increasing house prices, as well as stagnant wages, increasing costs of living, skyrocketing education and healthcare costs, etc. as well as our general inability to control our consumption, has lead to a situation where many people own houses they can no longer afford. Banks took on loans that weren't safe (often ignoring risk factors, while consumers often lied about their income and other factors to secure loans), which many people defaulted on. When debt can't be met by production, someone loses out--either the indebted loses their home, or the creditor loses their investment, or both.
- We have a liquidity problem. Lenders are seeing a lot of mortgages go bad, which means that new investments are less attractive. As a result, people can't get mortgages sufficient to cover the cost of new houses, new businesses, etc. This hurts economic growth by stifling investment in business, hurts consumers who can't pay for nice houses, hurts homeowners who can't sell houses they also can't really afford, etc.
- We have a currency problem. The economy looks precarious, and the Fed keeps cutting interest rates, which makes dollars look like a less attractive investment, and thus less desirable, and so the value of the dollar is dropping, because something by definition has less value if less people want it. Weak dollars have the advantage of decreasing the actual value of debt, but the disadvantage of decreasing the actual value of, say, your salary, as well.
- We have an inflation problem. As the dollar falls, the relative cost of commodities increases, and commodities are viewed as a safeguard against inflation, so commodities become popular, and thus more expensive, contributing to inflation. A weakening dollar also means businesses charge more to try and get the same value out of their money, costs go up, yadda yadda, more inflation.
Okay, if I've oversimplified enough for the moment, let me talk about what I don't see here:
I don't see any reason any of this has to happen.
Sure, we have increasing shortages of commodities, from oil to copper to grain. But houses? We have no fewer houses today than we did yesterday. We just have more houses sitting around with no one living in them. Labor? Unemployment must be the most ridiculous thing in the world. You have able-bodied people sitting around doing nothing because no one will give them money to do something. As if there's nothing that can be done in this world. Maybe they should be out there trying to figure out how to conserve oil, copper, and grain!
Has everyone in this country just closed up shop and gone home? Is Apple going to sell less iPods this year because they ran out of molded white plastic (and yes, I know plastic comes from oil, not the point)?
Are we really facing spiraling costs of raw materials because people are competing for who gets to make money off of them rather than who gets to use them to increase our wealth?
Are we really forcing the fed to slash interest rates and drive down the dollar because people are just too scared to invest? Are we really driving up interest rates on ARMs to try and make our money back on bad loans, which turns yet more loans into bad loans?
What am I missing here that any of this makes any sense? Four hundred years since that fucking tulip fiasco and we're still doing this?
Please, and I mean please, someone who knows about these matters tell me where my mistakes are. Thanks.