America's Broken Economy: How, Why, and the Only Solution

[FlyingSquirrel]

*** Disclaimer: I do not swallow ANYTHING whole and this article is no exception. Just posting it for purposes of discussion, as there are many interesting points brought up. ***

America's economy is broken. We hear it everyday when we turn on the news, open our Internet browsers or listen to talk radio. Everywhere you look... more bad news. Layoffs, stock market misery, falling home prices, massive unemployment and, worst of all, President Obama pontificating about economic Armageddon. The government's response has been underwhelming... stimulus, bailouts, blah, blah, blah. None of it seems to make any difference. Realistically, the government cannot do much of anything in the short term. Anyone who understands anything about economics could tell you that and yet we have dozens of classically trained economists recommending every possible solution with no clear consensus. Why? No one wants to talk about the real problem... you and I. That's right, the system did not fail, we did.

(snip)

We have all heard of the "greatest generation". They were the folks who survived the Great Depression in their childhood years, fought and secured victory in WWII and saw us through the Cold War. That generation experienced life before the advent of radio or television and many survived to see the information age. This generation persevered through economic misery, poverty and unprecedented bloodshed while leading us to unparalleled political supremacy, a luxurious standard of living and explosive economic growth. Some of them reveled in the past while others forged the future. One thing this generation had in common was respect for hard work, a positive view of our nation and a level of frugality that subsequent generations never fully understood. Most of us can remember our grandparents who lived simple lives but seemingly had limitless money to give to the church or piss away on worthless family members. They had this money because they saved and most of them did it in arcane ways.

They had coffee cans, swollen checking accounts, certificates of deposits...you name the boring and low risk avenue for money and they had it. Their children, The Baby Boomers, would try in vain to get them to put their money into the stock market or real estate and they would typically refuse. They had seen economic disaster in their lives and they didn't trust fancy investments. Their kids would usually walk away mystified by their parents' stubbornness and backward view of how money worked. The "greatest generation" valued monetary security over the promise of exponential returns in the stock market or real estate.

(snip)

Anyone my age (30) can attest to the fact that our grandparents started dying en masse in the late 80s and 90s. When they died, many of them left sizable estates to their children. These children, The Baby Boomers, had never lived through a true down period in our nation's economy. They immediately took that "old money" and dumped it into hot stocks, mutual funds and real estate. Many of them were so glad that they could put that money that had been sitting in savings accounts to "good use". They never understood how their parents could be happy with 1-3% returns. To them, the stock market was every bit as safe as coffee cans AND you could get 10-20% returns quite easily. For their entire adult lives, the stock market had averaged a 7-9% return so why would they not put their parents' money there? So they did...

While the Baby Boomers dumped billions of recently freed up dollars into the stock market, banks saw their current reserves slowly melt away. The Baby Boomers were doing very well financially but what smart 40 or 50 something would have $50k in their savings accounts? Their approach to money management was diametrically opposite from their parents. They would use their checking accounts for day to day expenses and the excess was sent off to their brokers or money managers at the "hot" mutual fund companies. The end result of this changing lifestyle paradigm was that banks had to find a different source for cash reserves. Banks knew that Baby Boomers were not going to be happy with CDs or savings accounts, they were off chasing the limitless returns of the stock market. There is an old saying "necessity is the father of invention" and banks starting inventing new ways to create money. One of these brilliant ideas was the mortgage backed security.

(snip)

The real cause for the current economic situation was an orgy of spending by the American consumer. Were there outside forces that helped create the right conditions? Of course. But blaming political leaders or The Federal Reserve for this economic disaster is no different than blaming the "assault rifle" for a school massacre. Just because you have the rifle and ammunition does not mean that you should go to school and start plucking kids off. We have to take responsibility for our collective mistake and stop looking to our government to save us from ourselves. What can we do, as Americans, to dig ourselves out of this shallow grave? From my vantage point there is only one solution...

START SAVING MONEY! Stop buying Blu-Rays for your lazy child and tell him to go play outside. Stop replacing your car because it has 60k miles and the wife wants something with more fucking airbags. Use your credit cards as target practice for your Mosin Nagant. Our banking system is taking BILLIONS from us, the taxpayers, to give them the necessary liquidity to provide loans to deserving businesses and individuals. If we collectively started saving money the health of the banking system would improve immediately. Our banking system is the backbone of our economy and if banks don't have money to lend...businesses close and you lose your job.

Sometimes the solution to a complex problem is plainly obvious. Our spending habits destroyed our banking system and made them dependent on a politically motivated and arguably incompetent Federal Reserve. The Fed did us no favors by allowing banks to have as much money as they wanted but that does not absolve us from guilt. You won't hear a politician say this because no one wants to hear it. We want to hear about stimulus packages, tax cuts and the evil transgressions of CEOs in the banking industry and that is what politicians will say because, above all else, they want to remain in office. We created the problem and we are the only ones who can solve it. We need to save money and get rid of the politicians who pressured banks into bad loans (Democrats) and who thumbscrewed the Fed into artificially low federal funds rates (Republicans). Then and only then, will we get back to work and wake up from this economic nightmare.

http://arthurshall.com/x_2009_economy.shtml">Full Article

I don't agree that Democrats are the ones who "pressured banks into bad loans". As far as saving money goes, it's a good idea ... but one that is impossible for most at this point. After all, if you have credit card debt at 21%, are you gonna put money in the bank at 2% interest or are you gonna pay off the credit card that's costing you 21%? I just don't see how we're supposed to pull ourselves up by our bootstraps at this point (except by spending less, which it's clear we're all doing right now and this is also ruining the economy). In the long run, I agree with the premise that we need to start saving more and avoiding stock market risk. Not that I've ever owned stocks myself, and I'm still up the creek without a paddle.

[Skink]

1. Everybody is now trying to save making other sectors of the economy vulnerable.

[FlyingSquirrel]

2. Not exactly..

We're not trying to "save" in the sense of the word that our grandparents understood. We're trying to "save" in a more short-term sense. The second the economy "gets back to normal", (something I don't think will happen), we plan to start spending that money again. Or put it into the stock market again, figuring we're at the bottom and can't afford to miss out on this opportunity.

Only living through a long, sustained Depression comparable to what our grandparents endured will change our mindset.

[DonCoquixote]

3. I agree and disagree

I know I will show my Gen X stripes here, but I fully agree with his assessment of the Baby Boomers. Yes, I know there are exceptions, so don;t everyone throw knives at once, but the truth is, the Baby Boomers were not only handed more money than any generation in History, but they were also given fewer strings. Yes, some Boomers did good, but many a Hippie became a Yuppie, and saw not the least hint of paradox. As far as bad loans, please, the banks were all too happy to prey on people, taking full advantage of the fact our education system does NOT teach people math.

We do need to save more, especially since a lot of the economy is built not just around spending, but STUPID spending. It's not simply a matter of the favorite whipping boy of Boomers, Technology. I did wrinkle my nose at the "blue-ray" comment, as if we would all be better without all that nasty tech. The problem is not that people want tech toys, it is that people who do not even bother to get a clue will spend five times what they have to, especially when they walk into places that rely on ignorant customers like the big box stores. What do I mean?

First off, most people do not know what a Blu-ray is, or why they want one. Those who really, really do can shop online from somewhere like Amazon or TigerDirect and get a used or refurbished one for half the price, and little to no credit involved. There is almost always a store brand, but people never buy those, even though they are often just as good. As far as Computers go, I tell you as former tech support, ANY brand you buy is ripping you off, you would do far better to buy a machine made at a local computer shop, one of the few mom and pop type shops still around.

The point is, the act of buying is not in and of itself the evil, it is the fact that our culture encourages us to be STUPID when we buy, which of course, feeds the credit card monsters. Gen X and Y are slowly coming out of that stupor, the key is, will the Boomers, who STILL have most of the money that there is to be had out there, put away the sharper image catalogs and trend worship, or...will they cling to their role as the arch consumers. Yes, the young are targeted by Madison avenue now, but once madison ave realizes that the young people are mostly broke, you will see Madison ave hit the boomers full blast! After all, why do you think the Eagles and Stones can get away with Charging 200 bucks a ticket? Believe me, you ain;t seen nottin yet!

[FlyingSquirrel]

4. Stupid spending

exactly. When you realize you're going into a trance, it's time to snap out of it and leave the store. You have to put yourself into a mini-trance to buy something that's 5 times more expensive than you need. You have to convince yourself to buy it, and the stores and companies of course know how to help you along. You have to be hard-headed, and unfortunately most of us have been so weakened by tv and slick advertising (not to mention not having lived through hard enough times) that we just don't have that important muscle in the brain developed well enough. Sure, we might resist some temptations - but not enough of them.