The party could be over

September 21, 2008 at 6:15 am 1 comment

I’ve said before that my parents were pretty thrifty. My mother was a great recycler. I remember one year, she gave me my birthday present ensconced in the wrapping paper I had used the previous year to wrap her gift! We had a good laugh. My father always said “if you can’t afford it, tough, go without” or “put it on lay-by”. So I grew up not having some things that other kids had; I did household chores to earn my pocket money (grand sum of $2.00 a week); I have always saved 10% or more of my salary. But like the rest of us in this rampant consumerist society, I’ve come to expect the “good life”.

I’ve been lucky to earn good money in my career and there was a time when “The Brands” were important to me. But the last couple of years – really since starting the ThinkingShift blog and researching into climate change, poverty issues and so on – I’ve returned to being frugal, although I admit it’s a struggle sometimes. Goods are not made to last. We are encouraged to throw away stuff and just go out and buy more. It’s an easy mindset to succumb to.

Our capitalist society has urged us to take on that huge mortgage so we can live happily ever after in our very own McMansion. I was chatting with a work colleague the other day who told me he has mortgage debts amounting to $AU 2.6 million. Granted he has two homes but a multi-million dollar debt strung around my neck would keep me wide awake at night, don’t know about you.

So we’ve all been partying away on other people’s money and whipping out the credit cards to buy the luxury brands or over-extending ourselves taking out that mortgage. Seems the party could be over and we just might have to return to the day when we all lived within our budget.

That grand old dame, the United States, is looking a little shaky right now and preparing for a visitor that a superpower might just not want to receive – the International Monetary Fund. The IMF are whizzing into Washington to conduct a stability assessment. They are not mistaking the US for Haiti or Pakistan. Nope, they are zooming in on an economy teetering on The Edge.  I am using capitals for The Edge because my mother always referred to any financial doom and gloom as possibly teetering on The Edge. She would then whisper the dreaded D word – Depression. She lived through The Depression, hence her frugality. So I’ve always had in the back of my mind: would I one day live through a depression or severe recession?

Seems we might all be wondering that now. I’m no economist but let’s have a look at what’s going on. What I think is really interesting (putting aside the collapse of major financial institutions) is the new role of the US Government wading into a space occupied by (let’s be honest) greedy bankers and a financial industry largely left alone to party it up and make obscene profits. It’s ending up as a quasi-nationalisation of the financial economy (not the real economy as that is growing quite well at 3.3% in the last quarter) with compulsory mergers or a Government takeover as in the case of AIG (with the Government having an 80% ownership stake).  Apparently, the Feds bailing out the likes of Fannie Mae, Freddie Mac and AIG is costing $US 700 billion (£382bn) with the total cost estimated to be more like $US1 trillion (£545bn). Add to this the cost of slugging it out in Iraq – $550 billion or $3 trillion if you ask Joseph Stiglitz.

And who will paying these staggering costs?  Mum and Dad US taxpayer of course. Bush has admitted that the bailing out exercise means putting “… a significant amount of taxpayer dollars on the line”. But he added: “I’m convinced that this bold approach will cost American families far less than the alternative. Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars and college tuitions”.

Well you know, possibly if Bush and his cronies had a strategy to begin with, we might not be facing this meltdown. Bailing out Fannie Mae and Freddie Mac but not bailing out Lehman Brothers, then bailing out AIG gives the impression they are on the back foot, desperately trying to figure out who to save and who to throw overboard. But possibly Lehman was different as they were the only one facing bankruptcy. I don’t think we can sling it totally at Bush though because what he has done is very faithfully execute the modern  Republican agenda, which is less regulation, less taxes and pro-corporate policies. Perhaps we need to trace this back to the Reagan Administration and his dismantling of what was left of the New Deal.

As Wall Street finds itself nationalised one firm at a time, leading thinkers are pondering where the credit crunch mess will lead to next – this I find very interesting, particularly from a lessons learnt POV. One leading thinker has this to say:

“The current crisis in consumer capitalism – which has precipitated a mortgage crisis, a housing crisis, a spending crisis and a savings crisis in the United States and the West – has many causes. But consumers themselves bear major responsibility for these multiple crises. Where once capitalism produced goods to meet real human needs, today it manufactures needs to sell all the goods it produces. With billions spent on marketing, consumers are easy marks. “Shopaholics” head for the mall with no goal in mind except to buy something, whatever.”

Yep, whilst we’re busy blaming banks for excessive lending decisions or the US Government for not boldly regulating the behaviour of financial institutions, we should take stock of our own role in this mess. The “I Want it Now” society sees us demanding iPhones, McMansions, designer handbags that are the GDP of a small country, gas guzzling cars and so on. The rampant consumer spending and borrowing was simply unsustainable. But if the pointy headed economic gurus didn’t see this coming, then I’m not sure that Average Consumer could have either and eased up their spending. And so now we face an uncertain economic future with the dreaded D word being more than whispered. I think that politicians have to be extremely careful right now: send messages of confidence and hope, and not mention the D word. Because what happened on Black Tuesday in 1929 could just as easily happen now – a rush on the financial institutions with people withdrawing money and investments.

Don’t know about you but I am following the ThinkingShift tips to surviving economic doom and gloom because the party is probably over and we’ll all have to learn to live within our means. And since I’m in a dark phase let me say: the new role of Government in taking over financial institutions is one step closer to the doom of the United States. The freedoms and civil liberties Americans espoused and once enjoyed have been eroded, happiness has gone down the tubes with mortgage foreclosures, the IMF will no doubt trim things such as social-service programmes. So in the name of resurrecting capitalism, at the other end, we will see America no longer the superpower it was. And let’s remember that profound economic crises have led to fascism or socialism.

Hopefully, I’ll be in a better frame of mind for the next post.

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Entry filed under: Economics, Politics, United States. Tags: .

I can has book dealz? Bush is being sued

1 Comment Add your own

  • 1. omgdidisaythat  |  September 21, 2008 at 10:45 am

    And let’s remember that profound economic crises have led to fascism or socialism. – We can only hope 🙂

    Reply

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