ashpelham
07-27-2007, 11:08 AM
As if anyone cares what I think, I am fascinated by the economy and all things related to money and finance. What is most fascinating to me is the psychology of credit spending, margin spending. Yesterday's stock sell-off was partially triggered by high crude prices, partially aided by homebuilder woes, and finally by fear of sub-prime (as well as prime) home loan defaults.
And what this whole sordid tale tells us is that much of the economic impetus of the past 6-7 years has been driven by cheap credit and the ease of home ownership. Whereas in years gone by, one would need to save 20% before owning a home, easy credit and bad lending practices have put some credit risk individuals into homes, and given them cash back, to boot. This isn't meant as a slander against those with poor credit; quite the contrary. I think those who've struggled paying their bills in the past, including myself, need to be protected FROM THEMSELVES, by not allowing them access to huge amounts of credit that they could mis-manage.
Home-ownership is a responsibility. It's not a right, or some obligation of the government. Making money too easy to lend, making rates too low, are responsibilities of the US Federal Reserve, but lending to sub-prime borrowers at unbelievable levels is a new thing. Was this meant to continue fueling the home-building market? Or, did the credit come first, making home-building a viable demand market? I think it was the former, not the latter...
What I'm saying is the the addiction to credit is much more pervasive and terrible than the addiction to oil. While foreign oil represents a threat to national security, the addiction to credit threatens to bring down the most sacred of American institutions: the United States Family.
Like any addiction, if credit is truly to be kicked, and no longer are people and businesses extended huge lines of cheap money to blow, this economy is going to go through a very rough withdrawal stage. Home values will fall, as demand dries up. Big box retail stores and interstate-exit casual dining chains will be boarded up. Lots of unskilled labor is going to be unemployed, as they are always the first to be hit by downturns.
I'm talking 10-15% unemployment rates here, and worse possibly in rural areas without a strong job market.
The upside is that after this time of credit withdrawal, we will re-learn the importance of saving for rainy days, and we will possibly value the money we earn a bit more. We will expect good service and good products for the money we spend on them. Wal-Mart's lack of quality and service will be considered offensive.
I look forward to that day. And, no, this isn't about my 2nd Ipod video breaking down on me. :D
And what this whole sordid tale tells us is that much of the economic impetus of the past 6-7 years has been driven by cheap credit and the ease of home ownership. Whereas in years gone by, one would need to save 20% before owning a home, easy credit and bad lending practices have put some credit risk individuals into homes, and given them cash back, to boot. This isn't meant as a slander against those with poor credit; quite the contrary. I think those who've struggled paying their bills in the past, including myself, need to be protected FROM THEMSELVES, by not allowing them access to huge amounts of credit that they could mis-manage.
Home-ownership is a responsibility. It's not a right, or some obligation of the government. Making money too easy to lend, making rates too low, are responsibilities of the US Federal Reserve, but lending to sub-prime borrowers at unbelievable levels is a new thing. Was this meant to continue fueling the home-building market? Or, did the credit come first, making home-building a viable demand market? I think it was the former, not the latter...
What I'm saying is the the addiction to credit is much more pervasive and terrible than the addiction to oil. While foreign oil represents a threat to national security, the addiction to credit threatens to bring down the most sacred of American institutions: the United States Family.
Like any addiction, if credit is truly to be kicked, and no longer are people and businesses extended huge lines of cheap money to blow, this economy is going to go through a very rough withdrawal stage. Home values will fall, as demand dries up. Big box retail stores and interstate-exit casual dining chains will be boarded up. Lots of unskilled labor is going to be unemployed, as they are always the first to be hit by downturns.
I'm talking 10-15% unemployment rates here, and worse possibly in rural areas without a strong job market.
The upside is that after this time of credit withdrawal, we will re-learn the importance of saving for rainy days, and we will possibly value the money we earn a bit more. We will expect good service and good products for the money we spend on them. Wal-Mart's lack of quality and service will be considered offensive.
I look forward to that day. And, no, this isn't about my 2nd Ipod video breaking down on me. :D