Dangerous times are ahead. Of this there can be no doubt. The United States of America is in a mess of historical proportions. The economy is foundering, government at all levels spends too much money, the public debt is soaring and the first of eighty million baby boomers has become eligible for Social Security and Medicare. Making matters worse, we are in the midst of two wars and a struggle against terrorism.
How we got in to this mess is not very complicated. Much of the economic growth over the past few years was driven by credit. Individuals and businesses were able to borrow money easily, based on the equity in their homes. Congress pushed this further by coercing banks to lend to those with less than perfect credit through a law called the Community reinvestment act. This coupled with low interest rates caused the prices of houses to rise. This was an artificial price rise not based on a limited supply of housing. This artificial rise in prices allowed homeowners to borrow more and more money against the artificial equity. Banks, investment houses and other businesses bought these loans and put them on their books as assets that were rising in value. Everyone jumped in the pool and borrowed more and more money based on the rising property values.
This simple bubble was not sustainable. When property values began to fall back to their real levels the assets were worth less money, and offered less security to the lenders.
When the big banks and investment houses went back to the other banks to borrow more money, they didn't have the assets to borrow the money and were thus denied. The same thing began to happen to individuals.
In the business world this happened because the board of directors would hire a financially savvy CEO, CFO executive management team. These highly educated businessmen confused the balance sheet of the company with the cash flow statement. They were running their businesses based on a bottom line of assets that were at the core tied to property values, instead of monthly cash flow. When the property values shrank, their ability to borrow money shrank, and many of them went bankrupt. This type of pyramid business management only works as long as property values are rising, and you can borrow more money against future values. The same thing happened to individuals. Homeowners were not living on their income, they were living on the future value of their homes. Businesses that were on the edge , in other words could make it on cash flow, but just barely, also began to collapse as the economy shrank and their revenues shrank accordingly. The department of treasury tried to fix this problem by giving the banks and businesses another loan. Congress tried to fix the problem by increasing spending on specific projects, instead of increasing productivity and cash flow throughout the economy, which also cannot work as the money doesn't circulate throughout the economy. That is the entire mess in a nutshell. People were living beyond their means, and businesses were run by those with no real experience in the cash flow side of operating a business. All was well until the never ending supply of credit ended.
This is just stage one of the crisis, and is in fact the good news. What do you think will happen to the commercial property market when all of these bankrupt businesses wind up operations and the oversupply of office space goes on the market? This will be the bad news.
What will happen next?
Congress will try to spend our way out of this mess, by selling bonds against the future. Only now the assets that may have helped secure that future have fallen, so investors will be less likely to buy the bonds that the treasury issues. So the department of the treasury will buy them, by simply printing money. This will cause inflation, which will increase the value of assets. But it will cause so much inflation that interest rates will need to be raised to astronomically high rates to offset the risk of further inflation, thus freezing the markets from the lenders side.
In about four years the businesses will fire the CEOs who managed from the balance sheet, and hire small business owners to run the businesses the way they were run in the 1950's (from a cash flow basis). The people will realize the government can't spend our way out of this so they will vote for politicians who tell the truth. The only way out of this is to reckon the debt. The only way to do that is to increase productivity and effiency by lowering taxes and paring back regulations. The only way to lower the taxes is through massive cuts in federal and state level spending.
At this point we will go through a long stretch of very minimal government spending, very few wars, and lower the public debt. Then we will have the bases for a solid foundation for growth, at which time the whole cycle will be repeated.
In the meantime, it's going to be a rough ride.
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Icababe, Lincoln did some things that aren't in sync with American ideals, but those very ideals werev threatened by a civil war...not to mention the millions of blacks that were enslaved. Lincoln violated the constitution, but we forgave him because he saved the union and freed the slaves in the process. Bush did things that contradicted American ideals that harmed our country and divided the possibly the most its been since the civil war. Lincoln is a patriot that contradicted American ideals in a time of crisis in order to preserve those ideals. Bush is not an a patriot because there is nothing less patriotic than constantly fucking things up for America.
Congress did what was best for congress, thats all.
The spirit of the US is dead thus ........
Good luck you will need it
"Congress tried to fix the problem by increasing spending on specific projects, instead of increasing productivity and cash flow throughout the economy, which also cannot work as the money doesn't circulate throughout the economy."
I don't think enough people understand this. This is KEY.
"Let me guess...you also don't like Lincoln because he violated "states rights"?"--- Yes Imagine, that is one of the many reasons I don't like Lincoln. He has the distinction to be the president who violated the constitution more than any other. People whine and complain about Bush (who I don't like either for different reasons). Bush never closed down newspapers, suspended Habeas Corpus for people who opposed his administration, or ordered the arrest of the chief justice of the Supreme Court because the court deemed his policies as unconstitutional.
lol, I just posted that below and saw the front page of the site.
If you live in Kansas or California and you owe taxes, are you allowed to suspend your tax payments to them they way they have the refunds?
well if we started making goods in the usa instead of in china maybe we would have more jobs people love made in usa not made in china or whatever else
The anonymous post was made by one of the Democrats at reddit.com. They are the dumbest of the rats. They have an attention span at the level of a four year old, so when a blog like this is posted over there they attack it as right wing ranting. If you want a million stupid comments from libs on your blog post it at reddit.com, and have a title that says something bad about dems, or Obama.
I agree Smashey it is about personal responsability yes owning a home is a good thing. But if you cannt afford it you dont get one. Or you start out with a not as nice home fix it up and then when the time is right you sell it and move to a nicer home. But it was greed on all sides from banks who offered to good to be true deals who people who couldnt wait for a home but got greedy and bought the nicest one on the block. Both sides are to blame. Fredi and Fannie where told by the Government we will gurantee your loans no problems. And with that bam they just started handing out loans who cares they said the government aka the tax payer will save us. Well look how that all turned out.
"So do you blame the person who bought the snake oil or the snake oil salesman?" -posted by anonymous It's called personal responsibility, the crack dealer may tell me the crack is good for me, but I think I'll make that decision myself.
posted by ericgurr on 02/17/2009 @ 4:01
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--------------------------- Freakin Bingo!!!!!!!
I hope someone will carry Ron Paul's message into 2012. He has warned people for a long time.
oops that wasn't imagine it was a chicken shit individual that hdes behind anon. Sorry imagine... my bad.
Imagine is a bit uninformed... Fannie and Freddie had a great deal to do with the mess we find ourselves in today. Jimmy Carter and CRA also played a huge role. The government practicly forced lenders to lend to people who could not pay them back. they called it red lining and said they were discriminationg.. so the lenders figured out a way to lend money to people who couldn't pay them back and passing the loss along to someone else.. Good business if you ask me! The government needs to but out and allow the markets to adjust.... they will adjust and we can get on with our lives, the more government gets involved the worse things will be. Today was another dark day for America, the pork bill was signed into law and our children will pay dearly.
I should note that I don't blame those that lose their homes because of job loss, that is collateral damage. I do blame the man that buys a $600,000 home on a $60,000 dollar income, and the investment firm that leverages the $600,000 to $6,000,000 in debt.
"So do you blame the person who bought the snake oil or the snake oil salesman?" -posted by anonymous
It's called personal responsibility, the crack dealer may tell me the crack is good for me, but I think I'll make that decision myself.
Let me guess...you also don't like Lincoln because he violated "states rights"?
I can't attribute anything good to FDR besides reacting when the Japanese attacked Pearl Harbor. His administration, under his guidance, seized too many personal fortunes, properties, and created too many government agencies. Basically, took from everyone to create a welfare, nanny state. No thank you.
Yes, Icababe. The New Deal was good for nothing. Oh wait. That's not true at all.
Umm... FDR didn't have a damned thing to do with getting us out of the depression. What saved America was getting into WWII. We needed military ordnance, and people needed jobs. By making the ordnance, people found jobs and started buying goods and services again. This allowed more businesses to open up...... FDR only has the distinction to be the second president who violated the constitution most. (2nd place behind Lincoln)
Here's the short simple truth: Irresponsibility of the average America played a role in this depression. It was a tiny role, but a role none the less. The major contribution was corporate greed and economic policies that allowed this greed to grow. Thats its. Nothing more, nothing less. And I'm tired of hearign republicans say that the government can't fix this. Read a history book. Herbert Hoover sat on his ass and did almost nothing and we sank deeper into the depression. FDR created some massive government intervention and pulled us out of the depression. How are you going to tell me the government can't fix a depression when it has before? Conservative fiscal policies fail so hard it's actually sad.
I wait with baited breath for the identity of this given Anonymous.
Dead wrong analysis. Congress and Fannie & Freddie Mac had virtually nothing to do with the housing bubble and sub-prime scam. Home owners were told by the real estate and financial experts that buying a home was a good deal. So do you blame the person who bought the snake oil or the snake oil salesman?
Loan origination offices throughout America used every means, including illegal, to create a home loan and sell it directly to Wall Street financial firms to be packaged, rated AAA and sold as bonds to any unsuspecting investor around the world.
This guy is obviously a Right-Wing Extremists who wants desperately to blame someone other than the Republicans.
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