No One Could Have Seen This Coming

This is the second post in a multi-post series on macro-economics, oil, politics, and the near future.

No one could have seen this coming (in reference to current economic downturn).

I have heard some very smart people say this. They are wrong. It was very easy to see the crisis coming, and a lot of people did. When people say things like this it tells me they have not formed their worldview (economic worldview anyway) on understanding the facts and then thinking critically about them.

No in-depth analysis is needed. In the main stream media you will hear a lot of technical talk about how we have to free up credit….so people can borrow…so they can keep consuming…so the economy can keep growing. When the economy is truly “fixed” this type of reasoning will be dead. More credit is not the solution. Living within our means, as individuals, as a society, and as a world is the solution. The economy cannot grow infinitely. We can make it grow for a longer period of time if we do stuff like make it easier for people to borrow money (people who shouldn’t), and borrow and steal from the future ($700,000,000,000 bailout ring a bell?) to prop up the present…in the end though, the higher we prop it up…the harder it will fall. It is not hard to predict. It is easy to see the train coming down the tracks right at us.

Some of you may not yet be drinking the kool-aid I am serving, so let me put it another way. If you make $100,000 a year and spend $50,000 a year on your house and $50,000 a year on other stuff and still need $30,000 a year for your 3 cars….would planning to borrow $30,000 a year, every year, be a good solution? If you cut back and rent an apartment you can afford, eat at home a few nights a week, and pay cash for a Chevy Cavalier that would be a disaster. Why? Because if everyone did it what would happen to the mortgage company? How could they increase profits if everyone decided they didn’t need a McMansion? How would the Lexus dealer survive if he didn’t have a bunch of 30 year olds making $80,000 a year taking out six year loans to buy a car?

If that happened organizations like Freddie Mac and Fannie Mae and lots of other mortgage banks would be in serious trouble AND auto company CEOs would have to beg the government for money…because…NO ONE COULD HAVE SEEN THIS COMING. Give me a break.

By the way…if you didn’t get the sarcasm (I hope it was only one or two of you)….a bunch of mortgage firms did fail and auto company CEOs are on capital hill begging for money as I type this.

Tune in tomorrow for more in this mult-post series about the future.