Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Well, before we get ourselves completely whipped into a lather (me especially), we need to put some things in perspective.
I recently read (but can't remember my source) that approximately one-third of Americans own their houses and have no debt, another third are debt-free except for their homes, and the other third is what raises the average household consumer debt to the five-figure range. Those folks in the third group are the ones who will feel the weight of planet earth descending upon them if this gets away from us. They depend on credit to live day-to-day, and in a depression that credit will not exist.
For the folks who owe nothing and have cash reserves, in a deflationary scenario their money is worth a great deal more. In an inflationary scenario, they can invest their money at high interest rates. Being a net lender is far preferable to being a net debtor. Always. "Duh..."
The folks in group two...well, they might stand a real risk of losing their houses (or of walking away from them when they get too upside-down in the mortgage or there's a job loss or wage decrease that makes the mortgage payment unbearable).
But...10-15% unemployment still means 85-90% are working...but at falling wages, with reduced benefits, etc. But from my time living in South America, I can tell you that 10% unemployment looks and feels pretty crappy.
That said, a depression or severe recession is not the end of the world. As Jazzlover points out, it would be a far-reaching disaster for many. But we've survived these before, and arguably, the survivors of the First Great Depression were a much hardier lot because of it. There's an economic theory of long-term economic cycles called the Kondratiev wave theory, and some theorize that depressions happen when those who lived through the last one are aged out of the population (that's a nice way of saying "die off"). Many of us had grandparents that wouldn't sign their name to a loan under any circumstances based on what they saw happen to their families and others in the 1930s.
With respect to the "First Great Depression," it's certainly jumping the gun to imply that we're approaching the Second (even if we are). But I remember that in the interwar years between WW I and WW II, that WW I was called "The War to End All Wars." Little did they know that they hadn't learned the lesson, and that 20 years...one generation...later they'd be repeating the same sins. Let's not fool ourselves into thinking that, with all the control measures, and the Fed, and a zillion computer models on Wall Street that we're somehow immune to repeating the mistakes of our forebears in another dark time in our history. It's all about human behavior and human failings, and the disastrous results of bad human behavior only escape those who remember the lessons taught by a long history of bad human behavior. Or lessons going way back. Like an old scroll somewhere that says "...and the borrower is servant to the lender..."
.... Many of us had grandparents that wouldn't sign their name to a loan under any circumstances based on what they saw happen to their families and others in the 1930s....
TRUE! When my sis bought a house from an old guy in the 1970's, he insisted that he be paid in all-cash at the settlement table. He did NOT trust banks, had seen them fail outright in the Great Depression. They paid him in cash.
TRUE! When my sis bought a house from an old guy in the 1970's, he insisted that he be paid in all-cash at the settlement table. He did NOT trust banks, had seen them fail outright in the Great Depression. They paid him in cash.
If he's still alive, that cash is probably still sitting under his mattress. From the picture being painted in this thread ( I'm not saying anyones guess is wrong...or....right for that matter ) the mattress just might be safer than the bank! When my aunt ( a teenager during the great depression ) died in the 90's, $38,000 ( cash ) was found in a shoe box in the closet.
Well, before we get ourselves completely whipped into a lather (me especially), we need to ....
One of the great tragedies of our time is that we, starting with the Baby Boom generation (that's my generation) and all the generations since, have largely rendered the study of history to the trash bin in the misguided belief that it is irrelevant in today's world. It seems especially true these days when the mantra is that technology is all--it will solve all of our problems and that the old rules just don't apply anymore. The ignores the fact that, while technology and societies have evolved continually for thousands of years, human nature has not. The same motivations and foibles that have molded us since time began are still there. When we succeed--or fail--it is because of the same reasons that people, leaders, societies, nations, dynasties have succeeded or failed for thousands of years. If we make the same mistakes that the Greeks, Romans, Anglo-Saxons, British--whatever--made, we will likely suffer the same inglorious end to our "empire" that they did. So, history does matter.
I agree with Bob from Down South when he quotes the "status" of many Americans. Obviously, the less debt the better for most people. I absolutely agree with the Kondratiev wave theory he advances. The financial ramifications of what likely lies ahead are sobering, to say the least. My bigger concern is that a "Second Great Depression" could sufficiently destabilize the US politically to allow a serious breakdown in civil order similar to the destabilzation of order in Germany in the early 1930's that brought Hitler to power (lots of people forget that he actually was initially elected). I worry that far too many apathetic, consumption-addicted, history-ignorant Americans might be willing to sell their souls--and the democracy--to someone who might promise them a mortgage payment or to get the gas stations open again. Like some Italians said about Mussolini, "He was a son-of-a-*****, but he did make the trains run on time." I absolutely believe this country faces greater perils now--from many directions--than it has faced at any time in its history--even the Great Depression, World War II, or the Cold War. The ramifications of ignoring or dismissing those perils are horrible to contemplate. Will it be as the title of the book describing the events leading to Pear Harbor, "At Dawn, We Slept"?
Last edited by Mike from back east; 01-21-2008 at 02:35 PM..
so, what is your solution? in the near term. in the longer term. if we are now on the brink, how is the precipice averted? by individuals. by the fed and the federal government. by societies. perhaps we "wear sweaters" as jimmy carter suggested relative to the conditions (high energy prices, e.g.) of the 70s? perhaps we stop buying plasma TVs and 200 channels of cable and pay our more basic obligations and bills, read some history, go to school and actualy learn about our places in this world from a variety of perspectives as they are interwoven with the rest of world? perhaps we actually plan what we will purchase at the store for waht we need, and go once to buy it, perhaps even on the public bus? or we walk? and so we save some money, and our health improves so we spend less on overpriced medication and medical bills that are driven up by insurance interests, the biomedical establishment, petroleum interests, and the cycle thereof? we act in concert with other economically interdependent societies as opposed to confronting them with OUR WILL, and so reduce the wills of theirs which manipulate our costs, as we do theirs? or, perhaps we resort to something akin to the New Deal, while becoming more educated as to the consequences - internationally, interwovenly - of your actions and our habits? while i think it's good to consider the possibility of "dictatorship" emerging out of desperation, i also think of FDR (roosevelt). some might consider him an unconstitutional anomaly, though i guess others might consider he did more good than harm and got the "trains running on time".
what would YOU suggest?
Last edited by hello-world; 01-21-2008 at 02:42 PM..
so, what is your solution? in the near term. in the longer term. if we are now on the brink, how ....
The pickle we're in has been caused by a societal addiction to credit. When you think about it, people now are paying for groceries and McDonalds cheeseburgers on credit. I just read that the average length of a car loan in the US is 5 years 4 months, and that 45% are over 6 years. We have kids graduating from college with six-figure student loan debt, and thinking that's normal and/or acceptable.
We have to break the cycle, and kick this addiction. That means deflating (in real terms) the cost of houses (and education) to the point where normal people can afford them again without taking a kamikaze stuntman loan that's destined to fail. That means not permitting financing of autos or other depreciating assets out to the end of their useful lives, leaving the "owners" upside-down for the majority of the life of the loan. It means breaking ourselves of the weekly credit-funded impulse-shopping trip to the mall, or WalMart. It means recalibrating consumption expectations in the country to that which we can sustain with our production, rather than seeking growth as the holy grail even when we know it comes from the cancer within.
It means letting the banking industry take it square in the pooter for the hideous mess they've created. It means regulation and legislation that makes it painful for the credit industry to offer credit carelessly--it means restricting the availability of credit in a way that makes its unwise use so much of a pain in the butt that people won't want to. We need some strict regulation of usury, just as we regulate other useful but widely abused tools like opiate drugs. Frankly, I'd rather people went to the local loan shark for the money for their plasma-screen or their boob job when they can't really afford it, because that's ultimately going to be a self-critiquing experience they aren't going to want to repeat too often. And "Tony Soprano" won't let those unpaid bills end up discharged in bankruptcy at the expense of all the rest of us, either. At least with the local leg-breaker, there are consequences for poor judgement leading to failure to pay your debts.
I think the economic smack-down that's coming is the only way we're going to pay attention to the wake up call, and in that regard I hope it's so hard and so fast that even the most complacent among us can't ignore the reality.
I'm thinking BB might try dropping a 100bp rate cut from his helicopter right before the open tomorrow...but I don't think it'll do more than take the edge off, even in the short term. Aspirin might dull the headache, but it won't fix the tumor.
Bob
Last edited by Mike from back east; 01-21-2008 at 03:38 PM..
There are not easy or painless solutions but I will suggest a few things. First, people need to recognize that debt for anything other than one's basic shelter needs--or, in business, for productive (not speculative) investment--is an expensive addiction at best, and a cruel, ruthless master, at worst. The debt "drunk" we've been on for a few decades now has to stop--even if it means a big economic hangover.
In addition to living within financial means, Americans need to adopt a conservation ethic when it comes to resources--especially water and energy. If we do not, things are going to be beyond miserable within a generation or so, if not sooner. Getting more efficient automobiles won't even be close to enough--we have to figure out as a society how to live with way less than 200 million or so of the damned things (and I actually like driving and cars, by the way, but I know the auto age as we know it can't last). That is going to mean our suburban lifestyle is going to have to change, and a whole lot of other things, too. The sooner we let go of all of that and move toward better solutions, the better. As the book says, "You can't find new cheese if you're hanging on to old cheese."
We are going to have to start saving again--this again will call for some self-discipline and sacrifice by Americans. "I want it all, and I want it now" has to become extinct. We are also going to have to rebuild our manufacturing and agricultural industries, especially those that supply critical components for our personal and national survival--food, medicine, basic materials, armaments, essential technology, etc.
We have to recognize that we are in a worldwide fight-to-the-finish for diminishing resources. There are people, groups, nations out there that want what we have, possibly hate us for what we have, or just hate us, period. We are going to have to defend our interests, defend our treasure, and defend our borders against those whose tacit or covert goal is our destruction. This may be costly in treasure, and costly in lives more than anything we have seen for decades, but there are those out there with that goal to either dominate us or destroy us--and we can't "wish" them away.
We need leadership that will not tell us what we want to hear, but tell us the truths we need to know--and leaders with the knowledge, judgment, and conviction to lead, even when that direction may not be popular or easy. Most of all, we Americans need to quit acting like over-indulged, spoiled, irresponsible, and clueless teenagers--and start taking responsibility for ourselves, our well-being, our communities, our children, our environment, our resources, and our government--and quit expecting "the other guy" or "Big Brother" to do it for us or to pay for it. The days of having the luxury of that are past. Apathy needs to die.
To do any or all of this shouldn't require a national crisis for us to see that it is necessary. If that IS what it takes, that speaks volumes about how self-absorbed our entire national character has become--and that we are on the way out as the most powerful country on the face of the earth.
it seems that some of this comes down to personal liability. if the banks' "perceived" (or modelled) risk of failure by default-en-masse is smaller than the potential for profit from late charges, interest, etc., it seems that preying on irresponsibility and lack of discipline will continue. and people easily fall prey, evidently (for a variety of reasons). so, government intervention and regulation. that seems like something that is counter, to many americans, to "liberty and the pursuit of happiness". how does one get through to others that "immediate gratification" as "liberty and the pursuit of happiness", for example, is not sustainable, even for those individuals?
in a similar vein, people claim to want leaders that do not look at the polls, and do not "tell them what they want to hear", though people stay out of relationships that don't tell them what they want to hear, and people don't hire people that don't tell them what they want to hear (not as a rule, but seemingly as a tendency; i suspect election campaign manager X and marketing firm Y know this VERY well). so, how do we get leaders that actually work with what we thought we were voting for and the wisdom that ought to come with what eventually shapes a "leader" while not offending people's "delicate sensibilities"? or, do the people need to change? how do you propose prompting THAT?
it sounds like you may be talking about a "shift in consciousness" of the culture itself. how does that shift happen? education? calamity? how do you encourage the public's movement in directions you're interested in seeing without the latter? how do you speak to, or through, that "self absorption"?
Last edited by hello-world; 01-21-2008 at 04:02 PM..
and so what are some of the glaringly obvious opportunities - even in general terms - to YOU now?
At this point, I would suggest that nothing is obvious or to be taken for granted. The range of possible scenarios is wide, and the probabilities of some of the most extreme downside scenarios are not nearly as remote as anyone would like. One thing glaringly obvious to me is that there are a hundred ways of losing your a$$ in the near term if you're not exceptionally careful. The other is that any major decision looming that assumes availability of credit should have a contingency plan associated with it...particularly something like a mortgage refi, or selection of an expensive college that's going to require a large student loan to pull off.
With my retirement just months away, my tolerance for risk is at rock-bottom. My money is in treasuries and FDIC-insured deposit accounts and instruments spread across the banking sector in a number of smaller institutions that I feel worthy of some measure of trust.
Bob
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The mattress bank!
When my aunt ( a teenager during the great depression ) died in the 90's, $38,000 ( cash ) was found in a shoe box in the closet.
