Archive for March, 2010

No cred!

2010/03/18

Imagine a world without credit.  If you want something, you have to pay cash for it, whether it be a dress, a television, a car, or a house.  As you might imagine, the pace of home sales would slow down somewhat.  Auto sales might take a hit, too.

Well, this is where we are headed.  The force of Greed has managed to screw up the credit system so badly that credit is about to disappear.  You see, you can make money by lending people money, and Greed has pushed that to the point where we borrow money to do everything.  Everything! States borrow money to make payroll until taxes come in.  Companies borrow money instead of selling stock.  Business people borrow money so that they can stock their shelves without having to pay for all the merchandise themselves.

This system was created by greedy people who wanted the everyday person to buy more stuff, from refrigerators to houses,  because they would be able to profit from the sales.  Credit became easier and easier to get, until a mere signature would secure a loan.  Greed got so intent on making money that it lost it all, because it kept lending the same dollars out over and over again, until somebody couldn’t pay them back.  All of a sudden, the people who had deposited their money in to some kind of investment, because the investments paid more than the interest on bank accounts would, those people watched their money disappear.

And money is still disappearing, as loans come due that cannot be paid.  The government is borrowing huge sums of money, to try to get people wealthy enough to spend again, but the people are too far in debt to be able to spend any money that is given them without defaulting.  Just before the economy fell in the toilet, a large number of companies decided that the cheap money swirling around everywhere was just too good of a thing to pass up on, so they borrowed a whole bunch of money.  Those loans are coming due in a couple of years, and the companies are not likely to be able to pay them back.

All of which means that you might as well pay off your credit card, cut it up, and learn to live without, so that the shock won’t be so bad when things really collapse.  Learn how to make things that you need, like clothing, furniture, food.  Put money into some kind of saving account, even though it doesn’t pay very much interest.  If the Federal Deposit Insurance Company cannot insure that your money is safe, than things are already in free fall.

Everyone seems to have forgotten that credit used to be very hard to get, generally only given when some kind of solid collateral could be held, such as a house.  Borrow money to buy a car?  Forget it, you might wreck the car the first week you own it.  Borrow money to go on vacation?  No way, you might not come back.  That was the way the world was, until Greed got in the act.

Because of Greed, we are going to go back to that kind of world again, it looks like.

Advertisements

Making money

2010/03/10

Your credit card company charges you for a late payment.  Your bank charges you for an overdraft.  A payday loan company charges you for borrowing money.  These are all examples of wealth creation.  The money that you are charged does not exist until the charge is made, and then it becomes numbers in computers.

This is the kind of wealth creation that the financial services sector performs.  This is the kind of wealth that evaporates overnight.  It used to be that banks made money by lending money that had been deposited with them to people who were going to build a company up, or to governments that were going to build bridges and roads.  That is how America grew into a large and wealthy nation.

But the pace of growth wasn’t enough to satisfy some greedy people.  They wanted to get rich faster.  So new methods of making money were developed, like bank fees, credit card charges, and payday loans.  Using these new practices, wealth was created at much faster rates.  But is it real wealth, or just an illusion.  The bank claims that you have the money it is charging you for the overdraft.  The credit card company believes that you will come up with the money to cover the late payment fee.  The payday loan company is certain to get your next paycheck.

But this money doesn’t actually exist until you earn it.  By calling debt real money, we have grown our economy tremendously in the last few decades.  However, we have not earned that money yet.  By claiming that the money I am owed makes me worth more, I can convince someone else to loan me money.  And so the velocity of money increases.  But what real value has been created?  What has been built, or paid for?

Nothing.  And that is why we are in such a bind right now.  Most of what is being called wealth is merely numbers in computers.  There is no bridge, or road, or building, or house, or airplane, or anything else, to back up the numbers in the computers.  It is a house of cards, a shell game.  We can claim that we are wealthy even when everything that we earn for the next year is already spoken for.

2010/03/07

What happens when government shirks its responsibilities?  If the US government had decided not to play a part in opening up the American west, how long would the process have taken?  Without some kind of assistance, the railroad companies would not have been willing to risk millions of dollars to build a railroad from St. Louis to San Francisco.  Without government involvement, aviation would still be primitive, limited to short hops with few passengers.

One of the primary purposes of government is do that which the private sector can’t, or won’t do, when the results would be very beneficial.  The interstate highway system could never have been built by the private sector alone, because of the high cost.  Many people in rural areas would still be living without electricity if the Rural Electrification Act of 1915 had never been enacted.

Investors are constantly seeking ways to make more money.  Without leadership from government investment, they will put their money into whatever seems to offer the best returns.  Thus, we had a period where money was invested into financial derivatives, real estate, and leveraged buyouts.  Several trillion dollars of investor money poured into making more money, but the investments were not sound, and over 1 trillion dollars disappeared because of that.

It is my belief that the government refused to invest in what should have been the most rewarding technology we have ever discovered, choosing instead to focus on weapons technology and extending American influence into energy-rich parts of the world.  Without clear leadership from the government, investment capital was thrown at any idea which might possibly pay off.

Now, we are seeing the consequences of that lack of leadership.  The American economy is collapsing, our industries are moving overseas, and debt is choking growth.  America is creating very few things that the rest of the world wants, and is forced to sell off land and infrastructure to purchase what we do not produce here.

It didn’t have to be like this.  In the 1970’s and ’80’s, the US could have been creating the infrastructure of the next industrial revolution.  We had the know-how and resources to pave the way for wealth creation on a scale that dwarfs anything that has gone before.  Instead of using the most advanced technology in the world to open up the next frontier, we choose to squander it.  We could have been building space stations, more advanced versions of the space shuttle, and exploring the Moon.  We could have been learning to process materials in zero gravity, creating products which can not be made here on Earth.

Had we taken the path into space, investment would have followed.  Private space stations would have been built, private expeditions to the Moon launched, and real wealth would have been created.  Investors would be putting their money into new industrial techniques, new transportation systems.  Products would be available that would revolutionize life on Earth.  Right now, we have no idea what can be done out there, just as no one could have conceived that aviation would completely alter the world.

So, instead of creating new wealth, investors are chasing imaginary wealth, wealth which evaporates overnight.  Instead of building the next generation of spacecraft, which would be in use for generations, we are retiring the only working spacecraft that we have.  Instead of expanding our world, we are watching it shrink.

Being counted for our benefit

2010/03/06

The upcoming census is not interested in who you are, what you do, or what you believe.  It is all about how many of us there are, and where we came from.  That is the only information which will be kept from all of the responses.  Your identity doesn’t matter, your wants and desires have no bearing, as far as the census is concerned.  Nor is there any way for what the census learns to be used against any individual.

In order for our nation to govern itself properly, it must know how many of there are, and where we live, so that we receive our fair share of what is ours.  Every possible means to protect our individual identities is taken, so that we are treated only as data points.  At the same time, steps must be taken to insure that fraud and deceit do not distort the information, so that you will only be counted once.

Those who founded our country believed that it is important to know how many of us there are.  They made it part of the United States Constitution that we be counted every ten years, part of the responsibility that goes with being of this country, so that we can share equally the benefits this country brings us.

Enjoy what you have, because you won’t be getting any more

2010/03/05

The rich folks have won.  They have all the money now, so the rest of us can’t play anymore.  No matter what we do, we will not get any further ahead.  Indeed, many of us will sink even further, in spite of working as hard as we can.  Health care is going to become impossible to get, no one will loan us more money, because we already owe more than we can pay back, and new jobs are not going to appear.

When the 5 percent of the population that used to control 95 percent of the wealth refused to share even a 100th of 1 percent of that wealth, they made it impossible for those without any wealth to gain more.  Greed has destroyed the game, making it impossible to continue.  We might as well walk away.