Economy

Sunday, March 16, 2008

I know I will probably take some heat for some of this but I really don't care. I'm gonna give my two cents on this economy.
For those who don't know, there is currently strong debate as to whether or not this country has entered an economic recession or simply has a hit a “bump” in the road. The president has said that it is merely a “bump”, that people shouldn’t worry, and that the rebate checks will help smooth things out. I however strongly disagree (big surprise huh) and think that the economy is already in the beginning of a recession with a clueless government at the helm. The government is not the only one to blame. I think there are three main factors: debt, inflation, and ignorance. All of which tie together and have combined to bring us into this recession.

Debt –
This country and its consumers have been borrowing themselves to death. Not only has the government (the government is a consumer) been recording record deficits but average people have been relying too heavily on credit cards and continually buying what they can’t afford. The mortgage crisis is a perfect example of this. Thousands of people got mortgages on houses they KNEW they couldn’t afford, especially if the rate on their loans drastically increased. Interest rates did increase and suddenly those people had house payments they could no longer afford causing rampant foreclosures. This in turn caused lenders to lose money and in some cases to go belly-up (the Fed has already had to bail out one investment bank). So now more people get into debt and the cycle just feeds on itself.
The government’s deficit spending is also adds fuel to the fire because it has been borrowing money from other countries to make up the difference between its revenues and actual funding needs. The more they borrow, the greater the risk to lenders that it won’t be repaid which in turn lowers the value of currency. Lower currency value means goods become more expensive which leads to more debt. Again the cycle feeds upon itself.
The only way to stop this damaging accumulation of debt is to stop spending that which we don’t have. Taxes must be increased, spending must decrease, or a combination of both. The average consumer needs to stop buying what they can’t afford to pay back. People should ONLY have as many kids as they can comfortably afford and only have them when you are in a financial position to afford having any. Don’t go having six kids when you KNOW you probably can only afford two of them. Start giving less, or nothing, to your religion until you are no longer strapped for cash. Why give money away when you can use it to pay your debts down faster? If you can drive less and in more efficient vehicles.

Inflation –
Inflation is another reason that this country is in a recession. Now some inflation is ok but when you have rapidly rising inflation, as we do now, it is a sign of economic problems. The Federal Reserve’s current plan to stop a recession is to throw more money at the problem. More money in the system means more people can earn more money and buy more goods. The problem is that when you add larger and larger amounts of money into the system without enough security to back that money up (such as gold) you cause inflation to rise. Higher inflation means that a dollar buys less and less. Less buying power means a lower value currency which leads again to more debt. So by increasing the amount of money can cause more problems than it actually solves.

Ignorance –
I feel that ignorance has caused a lot of the problems we now face. For far too long people have not thought about the dangers of having so much debt that they can’t pay off. Fiscal responsibility has been completely ignored by the public and the government and now we are paying for it. Ignorance from a president who can’t seem the fathom that the only way to pay for a war is to raise taxes! An ignorant government not recognizing and acting on early warning signs of trouble. Ignorant people not knowing that making sacrifices here and there and budgeting (even in the simplest of terms) will save them grief and money in the long term.

All of these factors have brought us to where we are now. How long and how bad the recession becomes is up to us, the people and the government. If we don’t make some drastic changes things are going to worsen as time goes on. Debts must be paid down, spending brought into line with available revenues, and taxes raised.