Thursday, May 10, 2012

Assessing and Planning for the Potential of Financial Collapse

The way the US economy is going, this will become "funny money". The US needs to start making solid and intelligent financial decisions, and stop spending other people's money.  (Picture: )
                                    This is the first in a series of posts on this subject
     A great deal of what I read lately talks about the "need to prepare for the coming financial collapse".  I am completely sold on the need to plan for whatever natural disasters occur in your state, or your nation. I am completely sold on the need to prepare for those disasters which have only rarely occurred in your nation. I think preparing for aberrations in weather is only intelligent. I am also sold on being able to run your home with almost nothing from the outside for a period of time following a terrorist attack.  I am also sold on being able to evacuate from home for a period of time, for any number of reasons. (Hazardous spill, forest fire, flood, etc.) I am less sold on the "certainty" of nationwide and worldwide financial collapse.
             First of all, the financial dire straights in which the United States, for example, finds itself, are man made problems.  The US quickly became accustomed to the plenty it enjoyed in the 1950s and 1960s, and frugality was all but forgotten.  Those who were frugal, at home or in government, were perceived as stingy, cheap, or miserly.  The US adapted rather well, to being a land of plenty.   In some ways this was understandable, and it helped to fuel some of the great generosity which the US has shown to other nations at times.  However, it was also responsible for many people and families never learning to budget, and for local governments learning to spend for schools which looked more like upscale shopping malls, when education can take place in any clean and safe building. Schools do not have to look like spas !  As a nation, we simply forgot frugality.  In the 1990s, there was still relative abundance for many people, and those people spent on top of the line vehicles, pools, and what we affectionately call in the United States, the McMansion.

A smaller McMansion     Traditionally, these are mass produced, sometimes tasteless and extravagant, and are often poorly or sloppily constructed.

  The McMansion is most often a suburban home, in a subdivision of like homes which has abundant space and features which formerly would only have been found in a very expensive country home occupied by a wealthy person.  The McMansion allowed lower or upper middle class people to have features in a home that before that time, were only found in the homes of the wealthy.   Traditionally, a couple who buys one has put a minimum of money down, and is making a hefty monthly mortgage payment.  In addition,  our nation began to think that it might be fundamentally unfair for people who had saved money to get a nice home, where people who were not good with money could not.  All of a sudden the banks were pressured by the government to make home loans to those with questionable credit, hard to verify or unsteady income, or those of a minority.  The banks began to make loans to many people who likely could not continue to make such high payments in all weathers and all circumstances. (Let alone who could maintain such homes.)    So, in 2008, during an economic slowdown the process began, and for four years now, we have been seeing job losses, and home losses as the people who took on mortgages they couldn't really afford lose their homes.   Next, the people who worked in construction or homeowner dependent businesses also lost their jobs, and after two or three years of being unable to find one, defaulted on THEIR homes.  Then, the people who owned businesses tried valiantly to keep those businesses afloat, for themselves, their families and their employees, and some of them mortgaged their own homes.  Now, THEY TOO are losing their homes.  The result is a terrible glut of homes on the market, many of whom have been vacant for an extended period and weren't maintained well when they were occupied.  In addition, with everything up for sale for a song, even solid homes now are worth a good deal less than they once were, thus eroding the wealth even of those who were responsible throughout the entire recession and before.
              Now, the opportunities in the US are limited.  Many jobs have been moved to Mexico, India or Canada.  The middle class in the US is shrinking.  There are a few wealthy people, and many, many poor people.  Before the last couple of years, I had never known anyone whose home was foreclosed upon.  Now, I have met and I know, many.

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               I am not a fan of Mr. Obama, and I never have been, however, he should not take the blame for ALL of our financial problems in this nation.  The 2008 big bank bail out began before Barack Obama took office.  In a capitalist system, large banks which don't work by virtue of making risky toxic loans, are bad businesses, and bad businesses fail.  In capitalism, when a bad business fails, the "know how" of the other employees goes to forming new smaller banks who make more solid decisions than their predecessors.  Capitalism works !    Rather than bailing out the large banks as a family might bail out a high school student with a new credit card, perhaps the government should have aided the remaining employees in terms of organizing smaller new banks.
             The Federal Reserve for example thinks that "quantitative easing" the printing of additional cash is a positive thing, when it fact it has been proven to cause inflation.
             The repair of the US economy could be accomplished in a couple of ways.   Dropping the federal tax on businesses to 10% for the next three years would start a bevy of new businesses, and would put many people to work.  Some of these businesses would develop rather quickly into highly successful entities. With so many people working, the federal government might not see the shortfall it would fear.   Dropping Obamacare completely, and simply carefully refining some of the rules by which health insurance companies operate would remove some of the uncertainty for families and for new businesses. This would help them to be more comfortable about hiring new people.  We need to completely revise immigration practices in the US.  Canada has a very clear system, yet we do not.   We need to send home criminals, and create a rational reasonable way in which people who benefit our country can come here to live.  When Canada does this, it's tolerated.  When the US does it, we are keeping poor people from opportunities.  I have news for you all.  There are no more opportunities here.  The jobs are gone except for fast food and businesses you create yourself.  We are living on borrowed time here. There is no recovery. It's a sham.  Our nation is headed for a collapse.
           Can the US make changes which allow it to gradually recover ?  Yes, indeed they can. Will they ?  I don't know. It isn't looking very good.  Our leaders quibble about things that will injure our economy furthur. They allocate huge sums for projects which cannot deliver as promised due to technological deficits, i.e. Solyndra.   Our educational system over all, is, and has been,slipping compared to the remainder of the world.  Much could be done to avert a US collapse and Depression.  However, our leaders would have to stop lying to themselves and to us concerning the supposed US economic "improvement".

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Gorges Smythe said...

I'm not the least bit optimistic, but I keep praying that God will turn this country around by drawing us closer to Him. If he does, the problems that caused this problem will be solved, and this one along with it.

Crystal Mary said...

Hello, I am an Australian who lived in the U.S. for three years and married an American. We now live back in Australia. Some things I was stunned by over there was how people often ate out almost every meal. And so much is throw away. People live beyond their means. I hated using a clothes drier, not only is it expensive but I don't believe its healthy. I like the old clothes line.A drier may be helpful in winter, but in the warmer months, why can't people use clothes lines. Over here windows are open almost all the time and aircons are not used to the extreme as in the U.S. Please don't think I am running your country down.. But there are many ways of saving money that people should all be doing to pull their own weight against a collapse. Credit cards are another disaster. I grew up saving for what I got and not having it until I had the money. I still do this, and am better off for it. As a woman on my own I owned two homes. One has been sold since I married again. I owe no body anything, I give to charities, and I feel I live well. I believe many people need re-educating as to how to live. For myself I believe it has to begin with everyone being accountable for themselves...and that means politicians also.

JaneofVirginia said...

Gorges, Thanks for your recommendation I saw today on your blog. I vacillate between being positive about the world to come, and being downright annoyed and occasionally depressed at how so many people are incompetent in their jobs, and this puts our nation at a decided disadvantage when competing with others. I know that my own children and their friends are fine people and that the world would do well in their hands, but it can be tough going some days. I pray continually.

JaneofVirginia said...

Crystal Mary, Thank you for your comments. Just as in Australia, and Russia, and England and Belgium, there are lots of different types of people in the US. In different states, and in different communities, people conduct themselves differently from one another. My Amish friends, for example, squeeze pennies beyond most peoples imaginings. I have always been frugal, and this allowed us to send our children to college, allowed us to build and pay for this farm, to prep, and have an alternate place to live if/when necessary. There are frugal people, who always have been, but they are quiet. Yes, in some places in the US, particularly some of the cities, they do eat out often, live beyond their means, and age their clothes prematurely using a clothes dryer, when hanging it on a hanger for 20 minutes would do the job. Their spending patterns are based on what my father used to call "conspicuous consumption". The one good thing that this recession has done for people is it has forced some of them to see that we should buy things we need, and that our families need, not things which cause our neighbors hearts to beat with envy. Thanks again for posting.