Economy

American Economy - Sound or in Danger?

How many times have I heard over the past decade that our economy has never been stronger: low inflation, low unemployment, rising incomes, increased standard of living, high levels of home ownership.  We were assured and reassured by Bush, Paulson, and Bernanke that what was only recently occurring in the housing market was “contained” to a fraction of the sub-prime lending business. I think they knew better, but didn’t want to tell the truth to the American people for fear of starting a panic-driven run on banks and financial institutions.  Instead what we have heard emanating from Washington are phony reassurances that “all is well” and “not to worry.”  Nothing could be further from the truth.

What has been very obvious to many for several years should now be obvious to everyone: the United States economy was a house of cards waiting to crumble, that was kept afloat only by epic levels of government and personal debt. What we are seeing now didn’t just occur all of a sudden, even though its worst manifestations have only recently come to the surface. The bailout bill will do nothing more than postpone the day of reckoning since it simply prints more money and adds to our already crushing national debt. You can’t do that forever and get away with it, regardless of what the politicians in Washington may think.

This financial crisis is a culmination of many years of budget-busting government spending, reckless fiscal policy, out-of-control entitlement programs, and a Congress that is more concerned about the next election than doing what’s right for the country. We are now faced with an economy that is in shambles and in imminent danger of falling off a cliff. That is not a statement to be taken lightly, but the reality of our dire condition is something that our leadership has only begun to acknowledge. How did we get into this mess?

The dot-com stock bubble imploded in 2000 and was followed by the terrorist attacks in September 2001.  The Federal Reserve panicked and lowered interest rates too fast and for far too long.  With the stock market wobbly and directionless, many investors turned to real estate as the next get-rich quick scheme.  Pouring billions of dollars of cheap money into properties they never intended to occupy, speculators known as “flippers” drove prices up significantly for the next five years. They were aided and abetted by a federal government that was leaning heavily on lending institutions to make the American dream of home ownership available to everyone, whether they could afford it or not.

As home prices escalated, owners refinanced their mortgages and began an explosive buying binge fueled by the equity they had pulled out as cash. This created a false sense of demand for everything from cars, to boats, to recreational vehicles, and more.  Rather than invest any of this money, people spent like there was no tomorrow.  Gargantuan shopping malls sprang up around the country to feed the surging demand for new electronic gizmos, plasma televisions, exotic coffees, and designer clothing. This could not last forever and it didn’t.

The lesson to be learned from this is that the government will be the last to admit when things are spinning out of control.  They will never do that since they know that they would only create more fear and panic in the process, causing the original problem to snowball and escalate exponentially.  The messages coming from our leaders have all been designed to calm fears and instill a sense of hope that things will get better and return to normal.  People should keep abreast of the news, analyze it thoroughly, and form their own opinions of what is going on in our economy.  Relying on those in power to do this for you can be a painful and costly mistake.

Freelance Writing by Michael Sanibel ^SM —  Freelance Writer