Americas Debt-Will we learn?

American Debt. So here we are with Obama in office, looking to pass a stimulus bill for $825 Billion, and as much as I think a stimulus is necessary for the economy to turn around, I just don't feel this type of stimulus is the way to "right the ship". I feel that debt in this country is what leads to this down cycle, and that printing more money and creating more debt is supporting that, which flawed us to begin with! I feel that the volatility we have seen over the past ten years in our markets is due to over-inflation of product (US GDP) with the 2 systematic failures that we witnessed from 99-09 being the prime examples, i.e. the dot-com (“.com”) bubble and the "credit" crises of 2008. These crashes were created by over-inflation of product. The dot-com crash was caused by a few things: super-liquidity creating the illusion of the growth of wealth.

Low interest rates and the liquidity in the financial markets made it easy for "would be .com companies" to "Borrow" money in order to finance ventures that ultimately failed. Most people had good ideas and intentions but lacked important characteristics to be successful entrepreneurs.

see http://en.wikipedia.org/wiki/Dot-com_bubble

This is a great article written in 1987 on the subject of debt and economics… Why didn’t we learn here? http://www.time.com/time/magazine/article/0,9171,146120,00.html

Of course, when you have no product or an over-inflated product, the inevitable happens; things collapse eventually. That’s all that debt does... it over-inflates wealth, wealth undeserved. Let’s say you go to a store to buy a $3000 TV but you have no money; so, you sign your name on a line promising on your name to pay it back over-time. Yet, after the 30 days with the TV you lose your job and are unable to continue payments... but you don’t want to give the TV back. So you ignore the calls from the collector and tell yourself it’s going to be OK! Well it’s not going to be OK, you’re about to smash your credit, making it hard for you in the future to do anything that requires a financial loan, because the trust you have built up on your name has been crushed. Hopefully nobody does loan to you again until you rebuild that trust, yet you walk into your local WAMU Bank, and your banker tells you, "You could own a nice house; we'll approve you." You buy a giant house that you can barely afford, and you miss one payment by accident and the bank instantly hikes your rate as a penalty. Then, you can’t keep up with the payments at all, so you start balancing your mortgage and living bills on your credits cards to keep up... This only lasts for so long, then Foreclosure! Here we are in 2009 after the "Mortgage Bubble" popped in 2007, and we witnessed a decline in our economy that was steeper than the great depression from 1929-1939. All because inflation of wealth, wealth that is not there!! Yet, we didn’t learn our lessons; here we are again borrowing money in order to try to rescue this economy from a 20's esq- depression. Come on!! How many times are we going to bang our heads against the wall before we stop!

Ill tell you what is going to happen, they will pass this stimulus bill, maybe a few more, and one of two things will happen. The economy will not correct and our industrialized world will fall into a 10+ year depression. 20-40% unemployment rate, with the majority of people going to their local town halls for food... Sleeping in local schools and buildings set up as shelters to help the entire newly poor survive to survive. This will continue until the government shrinks, becomes smaller and manages its budget properly. Over time as we balance our budget and deficit, things will right themselves and our economy will crawl out of the gutter and back to prominence... This will take decades. The sooner we learn to build on our nation’s strongest natural resource, (INTELLIGENCE-needs better EDUCATION!!) the faster we will return to prominence. There is a reason that financial analysts feel that the Chinese economy is going to overtake the US economy; most feel that will happen by 2020 and some even thought it would happen after the 2008 economic crash, most unlikely. Obama is trying to give hope to people with his charisma; the problem is you can’t give hope to people, you need to inspire it within people, so people achieve greatness on their own … What is hope when not earned? The other thing that could happen is that we do see job losses to job creations balance out a bit, housing prices stop their decline and the debt we put our nation into declines, and we shrug it off! “It’s OK! We’ll pay it off eventually” we say to ourselves. With more tax revenue, possibly, we manage debt slightly better. What happens if this new growth is built on false wealth once again though? So the market turns around in response to the stimulus and we once again get comfortable in our habits as Americans. We don’t learn our lessons and once again we will have to deal with another market crash, maybe a few more; they will happen with more frequency, until the eventual depression happens and we respond responsibly.

So what do we need to learn? What do we do? How do we fix things? We start with basics! We educate, we teach people to be more responsible with their money, learn the risks of credit, when is it ok to use credit and not ok to use it. We teach people how to save and not chase the fancy cars, or nice luxuries. The truth is that only the top % can afford luxury, and we should keep it to the top 10%. Is this unfair? No. You don’t earn it; don’t buy it on false hope. These are the things we need to teach our kids. Yes, this means a slower growing economy at first as we adjust from the pop and crash cycle that we are used to. It will take longer to build up our market economy again, but at the end we would have a more consistent and ultimately more stable economy that is grounded in reality, not fantasy. In another direction, there is no escaping that the government needs to shrink. Spending $3trillion a year needs to be cut by 50%, with the focus of the money that is spent on government directed towards the development of our best natural resource, education! The money that was being spent by our government ultimately gets into the hands of our people and thus the cycle of prosperity begins again but without the deceits of debt! This is our solution whether we like it or not…Now, or later it will happen, because we will learn, because society is progressive.

I’m going to do my part and try to help. I am going to make a push for educating our kids in high school on how to be financially responsible. How to manage cash and balance a check book, how to manage credit and learn about the risks of poor credit management. I am going to try to teach our kids to spend within their means!! I want to inspire a generation of kids to seek to achieve what they want rather than skip on to false hope. I am starting a non-profit that will seek to do this, so that schools will create a specific class that will address what is missing and maybe inspire a stronger focus on education..