When will the people be able to borrow on their house, buy that Big Screen TV and live the life they wanted? When will our current belt tightening era go away?
Well, according to the various politicians out there, "soon", or maybe when the stimulus goes through, or perhaps once there's a rebound in housing prices, or maybe the magical pixy fairies will deposit economic fairy dust on our bank accounts.
The answer is: They won't. At least not like we've had them over the last 10 or so years.
The problem, just as the Japanese found out when their bubble collapsed was that this is imaginary money. Your house really isn't worth 250,000 dollars, not until someone buys it for that. The banks were handing out easy credit based on the fond belief that the perpetual motion machine would keep driving prices up, and so people would just keep refinancing and would never, ever have to actually make good on these debts.
Don't blame the banks alone. Yes, they bear much of the blame for the situation, but honestly, how many people said: NO! when they were told they qualified for that loan? There needs to be far more regulation of these markets, that's obvious, but remember that nobody was forced to take these loans.
Today we have billions and billions in bad loans. Homes that are likely going to be sold for pennies on the dollar at auction. Unless you're very lucky, you probably have at least one house in your neighborhood becoming a weed trap after the occupants left.
And so, even after we create some stability in the economy, it's very, very unlikely that banks will be so eager to hand out these loans. Get ready to prove your income, to prove your financial worthiness to prove that yes, you are good for this loan. The same thing is happening in the credit industry, especially now that Congress is moving to end some of the nastier practices that have traditionally made much of the money for the credit card industry.
That means that the coming economy, even if nothing else goes wrong, will likely be far less tolerant of amassing large amounts of debt.
Is that bad? In my opinion, no. But it will mean that a great deal of consumer spending will either be scaled back or cease. A large number of people who have been disguising a lack of actual work based income via the use of various sorts of credit dodges will now have to confront the fact that no, they don't have enough money to "live the dream."
And that's why the good times are not going to return-- over the last ten or so years we've enjoyed the mother of all New Years Eve Parties. However, now, it's the next morning, we have a hang over, the living room is trashed and now comes the very hard job of cleaning things up, and explaining to the police why there is a goat tethered to our mail box.
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The problem, as we've talked about many times before, is the politicians are not willing to solve the actual problem and just be honest, that would be political suicide. Instead, they all want to return to the days of cheap and easy credit and people buying far more than they can afford as a means to keep the economy at artificially inflated levels. Instead of acknowledging that we as a people and as a nation have to live within our means, politicians want to keep the big spending ball rolling no matter what it takes. If they don't, they'll get voted out and someone who is willing to keep telling people the "you deserve lots of stuff you can't afford" lie will be voted in.
ReplyDeleteThat's really where this mess came from and where this nation, and perhaps even this planet as a whole, will fail economically. Pie in the sky spending beyond any reasonable level simply cannot continue, but far be it from any politician to actually say so.