Here's a quote from a story I heard on NPR this morning:
Twin Peaks
David Beim, a former banker who is now a professor at Columbia Business School, has something to say for people who want to pin this whole thing on the banks.
He has a chart illustrating how much debt American citizens owe, how much we all owe — with our mortgages and credit cards — compared to the economy as a whole. For most of American history, that consumer debt level represented less than 50 percent of the total U.S. economy, as measured by gross domestic product.
And then…
"From 2000 to 2008, it's almost a hockey stick. It just goes dramatically upward," Beim says. "It hits 100 percent of GDP. That is to say currently, consumers owe $13 trillion when GDP is $13 trillion. That is a ton."
This has happened before. The chart shows two peaks when consumer debt levels equaled the GDP: One occurred in 2007, the other, in 1929.
And that scares Beim.
"That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets in banks. It's something that has little to do with the mechanics of mortgage securitization, or ethics on Wall Street or anything else," Beim says. "It says: The problem is us. The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us."
We have over-borrowed, Beim says. "We've been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen."
In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.
If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don't have to pay anything, that's not going to happen.
It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn't. There is no magical solution where the U.S. gets out of this mess without any pain.
Here's the link if you want to hear the entire story: Taxpayer Beware: Bank Bailout Will Hurt
Interesting, isn't it? From what I understand, essentially the net worth of the US is zero. Our national assets amount to 13 trillion dollars, our collective debt amounts to 13 trillion dollars. And the last time that happened was in 1929. Wow, all I can say is wow. Hopefully, this turns out to be more like K2 and the Great Depression was Everest, but either way, it looks like we are going to have to make this ascent together.
5 comments:
I was recently reading an article that was talking about how the recession is making people realize all the things they can do themselves- like pulling weeds, manicuring their nails, etc. My first thought was DUH! but then I started thinking, how many jobs are tied to that. If people are self reliant and responsible, are there actually enough jobs for everyone?
And that thought is what scares me.
I think that is a valid question, I've thought about that a lot. How many jobs does a sustainable economy need? Is the answer different than the number of people that need jobs? How do we care for those that want to work but the economy doesn't provide jobs for them? A lot of tough questions.
My mountaineering side has to remind you that K2 is a much tougher peak to climb than Everest.
As scary as that is- it is nice to hear someone spread the blame around a bit. My husband works in finance at a bank on Wall Street and so much of what is reported is SO far from the truth it drives me crazy!
Wouldn't it be wonderful if the whole world would actually spend less than they made....
you can still have that manicure - or landscaped yard - it should just be paid for with cash instead of credit. it's not necessarily the jobs that are out there, it's the way we choose to self gratify and act on impulse instead of delayed gratification with saved cash. don'tcha think? (and now that society pays with future earnings instead of past ones, the nonessential things get cut.)
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