are we spoiled?

[Hamlet]

ladelfina, I think don't think things are as gloomy as all that.

Some things to remember-

1. We are still producing more than we ever have in the past. For all the talk of Americans not producing anything, we seem to have record exports every year. Our problem is that we import even more than we produce. That is bad, but given our standard of living, reducing our consumption to bring us into balance is not the end of the world.

2. The basic credit markets are working just fine. Consumers with decent credit have no difficulty in getting reasonable loans. People are calling this a credit crunch because the availability of foolishly bad home loans have gone away. This isn't a crisis, this is a restoration of historically normal conditions. It will be painful for a lot of recent homeowners and the fools who loaned them more money than they could pay back, but ultimately, people will survive it.

3. Falling home prices have some very positive effects in addition to the negative ones. A big portion of the squeeze on the middle class has been a result of having to pay historically ridiculously high housing costs. Those costs are dropping substancially for new buyers. We will have a large increase in affordable housing if prices fall dramatically.

4. So far this has been a pretty mild recession, despite all the gloom in the media. Job loss has been pretty minimal. Granted, it may get a lot worse before it gets better, but so far I haven't seen the total collapse everyone is talking about. It seems like everytime there is the slighted bump in the road everyone panics. Recessions are not unusual. We have them every 5 years or so. This one will probably be worse than most, but I don't expect a return to the Great Depression.

5. While the falling dollar is really hurting you (sorry about that ), it isn't the end of the world here on the home front. It has been a massive help to any business that sells stuff to the rest of the world. It's helping the US job market to have business be good for exporters. While the negatives outweigh the positives, its not totally one-sided.

1.) the USA actually produces ever less and less on an historical basis, yet personally and as a country we are more and more in debt (Cheney: "deficits don't matter")

2.) some measure of increased 'product' was booked during the dot com years.. some of this was actually productive, but the majority not. When that became obvious: recession.

3.) Then people looked for new places to invest, and with low interest rates homes became attractive. So did other debt-backed spending. The gov. measures that were supposed to spur lending and convenience for business did so in spades for consumers. This despite the fact that consumers were borrowing not only to make steps up "the ladder".. but felt they needed to borrow just to keep even with the TRUE Cost of Living.

4.) GDP kept increasing, but only because of the bloat in home "values", mortgages and consumer credit. "Financial services" became 40% of GDP, I believe.. and consumer-related GDP 70%. This was also somehow "productive"... in the way that if I have to pay for pointless packaging, that's productive.. and so is the garbage service that hauls it away.. and so is the space taken up in the landfill... all positive!! There's NEVER a downside! Huzzah! House-swapping, mortage-selling, house-financing became ever more of GDP.

5.) Unnaturally low interest rates meant people could afford "more" house on the same monthly payment. So housing prices rose to meet that threshold.. which was itself further distorted through fraud, wishful thinking, and the fact that banks and mortgage brokers kept making points and commissions on the fervid churn.

6.) But we were "rich"!! The assets on paper were as phenomenal as they were fake.

7., 8., 9., 10.) Plus all the other fun stuff like under-reported real CPI.. under-reported real joblessness (not unemployment measured by who actually signs up for immediate benefits.. JOBLESSness... more than double the unemployment figures).. then ever more people w/o health ins., health ins. covering less and less despite often double-digit premium increases.. now gas doubles in price, now food doubles in price.


Somehow, this all worked great and people were supposedly happy until someone balked. The goat. The Charlie Brown of the faccenda. "Ya know... I'm not suuuure that house is really worth $1.2 million.. 15+x my annual salary"... or .. "ya know, I'm not suuure your AAA-rated MBS/CDO/CLO is really all that and a bag of chips".

Real wages are where they were in the 1970s. The consumer can no longer be counted on to pull the economy forward. The fact that they did for 30 years is due to increased indebtedness otherwise known as reduced solvency. There's no more blood in this turnip.