Our problem is that Wall Street and Congress and the Fed and the White House are all on drugs. They are addicts desperately looking for their next high.
At this point in the addiction sequence, there are no good options. Some of the possibilities are worse than the others, and — surprise! — it looks like the political bailout plan manages to incorporate those proposals that will ultimately yield the worst results.
The financial system is in trouble because of a host of reasons, but “most recently”, the straw that broke the camel’s back were the “toxic loans”.
For years the government encouraged bad loans by finagling the interest rates to artificially low levels.
Their purpose was to stimulate/create/encourage more credit for political reasons. (The artificially low rates also penalized savers, so we’ve been subsidizing the grasshoppers at the expense of the ants.)
If we create new credit, it must go somewhere. And so it came to pass that practically anyone with a warm body could get a Very Large Mortgage, plus a second mortgage, and a line of credit secured by the property. As big huge piles of cash were shovelled out the door into the real estate market, prices soared and the nation entered into a mindless orgy of material consumption unequaled by the worst excesses of the past.
So what’s the favored solution from the politicians? Even more of the same policies that got us into trouble in the first place! It’s the Washington way — if something doesn’t work, well, let’s just do MORE of it, and then maybe it will work.
It was a great party. But it’s about over.
We shot the system full of financial methamphetamine. For those of you who aren’t aware of the effects of meth. . . At first, by all reports (I have no personal experience with meth, but I have known many meth users), it is a really great high. You are finally Truly Somebody! But then you come off the high — so immediately, more meth is required. As time goes on, each individual dose of meth lasts a shorter period of time, so the user keeps taking more quantity more often.
Sooner or later comes the crash.
The longer you delay the crash, the worse the crash will be.
So as we approach a “financial meth” crash, what do our politicians and pundits advise? MORE financial meth! They say — “Let’s get higher, and higher, and higher!” It’s an addictive pathology, running rampant at the highest levels of politics and business.
This high will probably work through the election, maybe even through the next couple of years.
But make no mistake about what will happen: This will not be the last multi-hundred billion dollar bail-out of the imperial economy. There will be more and more financial meth until – as with the homeless crack smoker, crouched under a bridge toking on an empty pipe desperately trying to get one last rush – there is no place else for us to go.
We are in big financial trouble.
Letting the system get rid of its bad debts through bankruptcy, foreclosure, and write-offs would be painful — but the alternative, most likely an inflationary depression, would be much worse, and last much longer.
“We the People” would be hurt, but it will be even worse later when it becomes impossible to issue any more bail-outs and the final reality of the decade(s?) long Second Great Depression is upon us. That would bring “even more” bankruptcies, foreclosures, and write-offs. In some counties of Oklahoma, during the original Great Depression, 85% of the property went through foreclosure. “Compare this with” the 3-4% foreclosure rates today, and you can see we have much further to fall.
We do no favors for meth addicts when we help them get another fix to avoid the terrors and pains of methamphetamine withdrawal. The only way towards healing is to confront the withdrawal and go through it. I feel very sorry for meth addicts, but there isn’t any other way forward than the withdrawal.
The same is true for We the People, the politicians, the bankers, and our collective financial methamphetamine addiction. We made this financial bed where we now lay. We demanded it, wallowed in it, lusted for it, voted for it, and willingly participated in it. . . but comes now the piper with his bill and he will be paid. The longer we delay, the more excrutiating the payment process.
The present macro-economic situation makes it even more important to build/create/grow local economies of production and exchange to replace the failing systems in which we presently live, more, and have our being. This isn’t just something pious that Bob likes to say (well, it is a “pious statement” and I do “like to say it a lot”, but it’s importance is deeper than my personal affectation). This is “personal safety net”, as in, “if you don’t have one, you may be seriously sorry” as all this unfolds around us.
Financial self-defense calls for all of us to think about a way to make a living in a local economy. Practice makes perfect, so start a small family/household micro-enterprise now, before it becomes necessary.
My advice to people with money in the stock market is to take the money and run to the safer financial havens of paying off your mortgage and other debts, energy conservation improvements for your living space and lifestyle, and developing a new job for yourself in a local economy. Food storage is also a good idea.
If you are presently in a debt reduction program (making extra principle payments on household debt), think about this. The conventional wisdom is that you pay off your high-interest debt first, like your credit cards. But in Oklahoma, the homestead exemption prevents the house where you live (your “homestead”) from being sold to pay any debt not actually secured by your property.
Given the speed that things happen these days, folks may not have enough time to pay off their mortgage AND pay off their other miscellaneous debt, so if you live in a state with a homestead exemption for debts, it may be better to pay off your house first. Then you have a secure place to live, come what may in the financial world. If you lose your job, you are not at risk of homelessness. Paying off credit cards now, and then losing your home to foreclosure later, doesn’t get you much.
The present financial system is neither stable nor sustainable, and there is no amount of lipstick that we can smear on that pig to make it anything other than what it is. An unsustainable system, by definition, will not continue indefinitely. It will collapse.
Financial methamphetamine withdrawal will not be pretty, easy, or fun. We might as well accept that right now and act as best we can to protect ourselves.
In other words. . . Slash household spending, curb your consumption, save money, live well below your means, move your money to a credit union, and get ready for a Category 5 financial hurricane.