So when does it all come crashing down?

[TrogL]

Here's the story so far as I understand it.

During our national nightmare of peace and prosperity some people got involved in a bout of irrational exhuberance and drove the stock market to unreasonable heights (eg. DOW 14000). People refinanced or sold their homes to raise capital to throw at the market. A housing bubble resulted.

Under sane financial management, the economy could have been allowed to cool off slowly. Instead, Dubya opened his big yap (during the campaign) and said the R word. Instead of deflating like an old balloon, the bubble burst.

Accustomed to their lifestyle (or having quit their jobs to become amateur day traders) Joe public hit the plastic with a vengeance. Those who blew their house equity found themselves with a whopping mortgage and a handful of (relatively) worthless stock to show for it.

Business went on a job-cutting orgy and either used NAFTA to send their jobs to Nexico or took advantage of low-cost workforces in China and India. IT took a a particularly large hit. Manufacturing has come to a standstill, the stores are filled with good-quality, inexpensive Chinese goods (which nobody can afford) and the tax base for community and state level has gone to the crapper.

On rather dubious evidence and a screwed-up game-plan, Dubya invaded Afghanistan (and a bunch of dry wells), then Iraq. He's now presented a bill for $97 billion to pay for it.

The greenback is overvalued (actually it's been sliding for quite while) and the IMF is recommending currencies slide for a while. If the greenback slides against the Euro, the Asian currencies and the loonie, people are going to start looking elsewhere for affordable goods and a stable currency to invest in, shedding greenbacks and bonds(?) in the process.

US interest rates are already suicidally low, but outsiders won't want to borrow greenbacks if they're falling. Foreign nvestors will be looking outside the US for better interest rates. US investors will be paying with a shrinking currency for foreign rates that may not rise faster than the greenback falls - a losing proposition. If US interest rates do rise, so will the rate on plastic, forcing many to default.

Having blown the wad on war, Dubya would not be able to do a Keynes style infrastructure spend (even if the money did go to his cronies).

The problem I'm having is, people have been predicting the collapse of this house of cards for over a year and it's still somehow managing to limp along.

So when does it all come crashing down?

[ursacorwin]

1. well, i'm no expert

but i've been asking the same questions for a long time. i would add to your list such realities as record personal bankruptcy filings, continually regular unemployment reports that show people not only failing to find jobs but failing to be able to even stay in the same income/education class, and the oft-discussed but never dealt-with reality of 50+million uninsured time bombs...i'm sure there is more.

but if numbers were the only thing that mattered, we'd have had a big change long ago. but rhetoric, entities like the PPT, and many "false positives" like selective reporting on the "good" parts of the economy keep things from coming to a natural conclusion.

we shouldn't forget either that there are really TWO economies in the world. one is for the 99% of the population that works, or tries to, buys things and sells things and basically lives like humanity always has. the other is for the super-rich, those for whom a couple of million here and there is like pocket change to you and me. it is for this latter group that much of the world's economic "wisdom" is created, and for this group that most if not all of our policies are written.

the bottom line: the tiny, less than 1% of the world's population that really controls the world's "wealth" (i don't believe that paper has value) could care less if the US or any other nation suffers dramatically in a depression or other major economic upheaval. as long as they can control the flow of wealth, and get in on the front side of speculation, they will be happy. the rest of us can live, or die, so long as enough of us continue to follow orders by buying junk, signing up for military service to fight their wars, and reproducing enough to make sure there is another generation of suckers.

capitalism is a big ponzi scheme, and the only winners are those who don't have to follow the rules. we'll have a collapse as soon as they decide it's safe for us to have one, and that a scheme exists to help some or all of them make money off of it.

[el_gato]

2. Great Post!

I think you laid it all out very well.

[Don Galt]

3. Uh, no.

You're right about the paper money being worthless... I really think people should buy gold. Since we've been runnign trade deficits, there's a lot of dollars out of circulation in foriegn banks. Eventually they will come back and their existance will affect the value of the dollar (eg: percieved inflation)... and this is not good. Right now they sit there and don't circulate and so its like they dont' exist.

But the reason most people have a negative worht is they don't manage their money well at all.

Yes, refinancing houses to buy stock, becoming day traders ,relying on debt-- especially credit card debt-- are all bad activities.

When we had the boom in the economy from 1995-2000 people's incomes went up and their free cash flow went up as well.

But they did not invest this, on average... they spent it, and more on credit.

The average net worth went DOWN.

I know dozens of co-workers who bought too much house, fancy cars, and lots of toys ... they made really good money but are in debt up to their eybals. These are top %5 incomes in the country type people but they have zero net worth because they spent more than they were bringing in.

I, on the other hand, spent very little money. I lived on a bit more than I had when I was making minimum wage and saved the rest. I have a decent net worth now. The difference between me and them is not income-- one example- a boss of mine, was making almost twice what I was making during this period.

The difference is I saved my money... so even with stock mistakes and a general decline in the economy and being out of work for over a year, I am "rich".

At the same time, I ahve a friend who grew up dirt poor. Father ran off, etc. She got a part time job and made a little over minimum wage. Over the next three years-- starting literally with less than $100, she has managed to save 6 months worth of income and grow to a decent salary with few skills other than the ones she picked up on the job. She went from welfare to "rich" in three years with a GED.

Capitalism is not a ponzi scheme. It is the best weapon yet found against poverty. The reason so many americans are poor is that they chose to live for today, rather than save for the future.

Its amazing how easily you can get into the realm of the top %20 of net worth in this country--- only because the vast majority of people have a negative net worht because they bought a huge house, on debt, spent all their money on stuff, etc.

Oh, and had kids. Kids are really expensive. You have kids and you're setting yourself up for poverty... so don't have them if you can't afford them. I doubt even %1 of the population who has kids actually thinks about how much they cost, and extremely few of them actually try to calculate it out.

Its really easy to blame the president, or the economy, but the facts show that people have only themselve to blame-- during the greatest economy we've had in the last 50 years, they spent far more than they took in. Now things are tight and they're hurting? Hmmm... I wonder why.

[TrogL]

4. Glad I didn't take your advice

Switzerland just dumped 250 tons of gold on the market, driving the price down. Seems it's rough all over.

[Japhy_Ryder]

5. Um, no

The reason so many americans are poor is that they chose to live for today, rather than save for the future.

The reason so many Americans are poor is because we live in a world of limited resources. Tell someone making $6.00 and hour that they should be saving more, and not "living for today". Living for today for them means eating. Tell someone who grew up poor and spent $100,000 dollars getting a college education for the promise of that great job and is now stuck with a $1000 a month payment and no job that they were foolish to not save instead.

The situation you speak of certainly did occur. But people aren't poor because they overspent. Perhaps in your social circle that's true, but for the rest of the 80% of the population stuck with no education (and no way to afford one), a lousy low paying job, an overpriced housing market, buying groceries on credit they went from a bad situation to worse.

They lost their jobs, and with the declining rates to borrow, more people borrowed, driving up prices for housing. So they have higher expenses, less income, high debt, all because they assumed that they could get and keep jobs indefinitely.

It's very easy to blame people for being poor. It makes those of us who aren't sleep better at night. Are some people poor because they were foolish? Sure. But to say that most are is an irresponsible cop out that saves us from having to look inward at our society's flaws, and continue buying our own big houses and expensive cars.

[German-Lefty]

6. Right about now :-)

Have you seen stocks and the dollar this last week?