An Artificial Economy
Let me start by saying I am not an economist, a financial advisor or a Wall Street trader. I’m a middle class working mom. I do have many years of experience in the insurance industry, so I know something about risk and managing risk. I also believe I possess a bit of common sense and (most of the time) good judgment.
This evening I heard two or three different talking heads on TV saying that a trillion dollars vanished today. Wow! What a neat trick! A trillion dollars can just vanish? How does that happen? Did Houdini come back to life?
The only thing to explain it in my mind is the trillion dollars was never there in the first place. Our dollar isn’t backed by anything. When you think about it, what is a dollar anymore?
We all have mortgages on our homes. Many mortgages are worth far more than the homes that secure those mortgages. Our homes are worth no more than someone else is willing to pay for them.
The stock market is no different. The value of a stock is the amount you receive from the sale of that stock. If there is nobody wanting to buy the stock, the stock is worthless. All of us who have saved in 401k’s and IRA’s are gambling that when we retire someone out there will purchase our stocks for more than we paid for them. In a totally free market this might not be such a bad risk, but we’ll never know because we’ve never had a totally free market.
Social Security isn’t a better bet for my generation or my children’s. With the way our government is spending money, how on earth will the goverment be able to live up to its obligations? Thanks to modern medical advances we are living longer, but spending more to stay alive.
To me, we have an artificial economy. When a trillion dollars can ”disappear” in a day, something is very wrong. How is it a good thing for our government to magically produce a trillion dollars and inject it into the economy? Won’t they simply reinflate that bubble that someday has no choice but to burst?
I certainly don’t believe all hope is lost. Rather than investing in bad mortgages, we need Congress to get out of the way and let us invest in our own natural resources. While the media and left bash Sarah Palin they totally disregard her knowledge of the energy industry. When she talks about energy being key to our economic strength and national security she’s sneered at. But she’s right! No wonder they despise her.
Energy is probably the last commodity that we KNOW is valuable. We should start basing our economy on that, and keep those dollars here at home. Enough with the false economy.
There’s quite a bit of information out there and I’m working on pulling it all together into one coherent piece, so please stay tuned.
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12 Responses
Great insight!
JAC
Posted on September 29th, 2008 at 11:41 pm
Thanks!
Posted on September 30th, 2008 at 12:00 am
WARNING!!!!!
If you get an e-mail with ‘Nude Photos of Sarah Palin’ in the subject line, do not open it. It might contain a virus.
If you get an e-mail with ‘Nude Photos of Hillary Clinton’, do not open it. It might contain nude photos of Hillary Clinton.
Posted on September 30th, 2008 at 9:31 am
I didn’t get either of those, but I did get an email telling me I won the African lottery! Whoopee! I’ll wait for the market to stabilize before I invest my winnings:)
Posted on September 30th, 2008 at 9:41 am
Good Post….stock up on canned and frozen foods, toilet articles, guns, and ammo. If the worst comes, they will akin to Gold.
Posted on September 30th, 2008 at 12:13 pm
Great post, thanks.
The current push by some analysts, “we have to de-leverage Wall Street and Main Street.” We can delay the pain or we can get into it now. The Paulson plan is designed to make it less painful. I still don’t buy it.
Let me market clean it out, then we can bunker in for the tough times until Main Street gets rid of it’s over leverage position.
I do not have a mortgage, and virtually no other debt. That puts me in a minority. So, I am ready.
Posted on September 30th, 2008 at 12:49 pm
I fail utterly to see why everyone is so cranked up by the mortgage meltdown.
LBJ’s War on Poverty cost $6 trillion over a thirty-year period. The entire effect of the WoP was negative, mostly the destruction of Black family life in the USA, from which destruction we have not yet recovered. Maybe no one is concerned about WoP because it only cost about $200 million a year on average.
The hi-tech Bubba Bubble cost nearly as much. At the start of year 2000, President Clinton’s last year in office, the value of NASDAQ was $5 trillion. By the end of Clinton’s term, the value of NASDAQ was $2.5 trillion and falling like a rock until it was down to $1 trillion a few months later. But this money belonged to so-called investors, and at any rate President Bush took the proper corrective actions and brought us out of the Bubba Recession with minimal damage, as recessions go.
So, why has the mortgage problem become such a great attraction when much bigger problems generated much less comment and concern? Probably because it came as such a shock to taxpayers and voters.
The Democrats passed the Community Reinvestment Act in 1977 (under Carter) and assured people that forcing banks to make mortgage loans to unqualified borrowers was a GOOD THING. When that did not immediately destroy the economy, the CRA was amended in 1993 and 1995 (under Clinton) to make it even easier for unqualified buyers to get loans. Throughout President Bush’s term, the President and Republicans in Congress tried to tighten up mortgage loan requirements, while Democrats, specifically Dodd, Obama, and Frank, insisted that mortgages were on a sound footing.
It is probably only a coincidence that Dodd, Kerry, Frank, and Obama received record amounts from Freddie Mac and Fanny Mae while pretending that everything was cool in Mortgageville.
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html
Posted on September 30th, 2008 at 3:14 pm
Iago, everyone seems to be talking about CRA, Acorn and Freddie and Fannie except the MSM.
Posted on September 30th, 2008 at 4:09 pm
LC -
The Marxists have invented a new meme - all the recent bad effects are the result of deregulation. Zero said that during the first debate, and that has become the Marxist Explantion for Everything. But that is nonsense, of course.
There are relatively few violations of the law, including the laws governing mortgage lending. The Democrats, in CRA 1977 (Carter Adminiistration), applied legal penalties to banks that refused to make unsound mortgage loans. The Dims further loosened requirements of CRA 1977 twice during the Clinton years. And all these unsound mortgages grew and festered, like a boil under the surface. Most people did not start to realize the dimensions of the problem until the overbuilt housing market slowed down. Suddenly we are in trouble now because of political foolishness thar stated thirty years ago.
But the Dims have an attention span that is measured in minutes, not decades.
Posted on September 30th, 2008 at 5:11 pm
It’s so outrageous, they cause the problem, blame Republicans and most of the public buys it!
Posted on September 30th, 2008 at 6:26 pm
An artificial economy is right on the mark. A study of true real estate prices in Amsterdam over the last 450 years with inflation taken into consideration shows that the current prices are as high as any peak in the past. They always fall back down about every 50 years on average. That last low peak was around 1960. Pardon the Dutch language headings, but this graph at http://www.fundmasteryblog.com/wp-content/uploads/2007/11/amsterdam-re-prices-091107z_huizenprijz_197427a.jpg , shows that real-estate only grows at 1% a year, not the 10% that real estate agents like to tell you. 1% would match population growth. It is time for a serious shakedown in world real-estate, and selling now may look like a brilliant move two years from now.
Posted on October 24th, 2008 at 5:45 pm
[...] credits offer a fool-proof way to place an artificial value on carbon and as even non-economists know, artificial markets are the most important wealth generators we have [...]
Posted on November 14th, 2008 at 12:09 am
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