Lessons from Bush's address

[fccool]

It was very interesting hearing about the emergency intervention as proposed by Bush today. First of all, I'd like to note than neither Bush, nor Obama or McCain even touch the Fractional Reserve landing as a part of a problem.

Bush only told a part of the truth, when he said that the current economic system is financed by the foreign investors, but you got to give his speech writer / advisers some props for even mentioning this in the script. Yet in a way it is misleading, as it almost seemed like people were all jumping around to invest into USA (granted many were), but the mechanism of the fractional reserve money creation that got us into this mess went totally unmentioned.

If the Bush described "reality" is true, then the foreign investors should be holding the bag, and not American people.

But what's so horribly wrong with the address is the fact that Bush openly state that American way is based on excess debt. You see... in order to have our "prosperity", we have to have loans for the cars, college, houses and etc. According to Bush, without people spending these enormous amount of money, which sucks the nation dry by means of interest payments.... the "wheels of the economy" simply come to a halt!

We are so used to the idea of the debt being "normal" that the entire nation is #1 debtor in the world... and we don't see it as a problem, even when GDP would only be 2 trillion dollars ahead of debt after the bailout (and that is excluding the consumer and business debt).

The fundamental function of any economy IS SAVINGS!!! The savings rate of the average American is NEGATIVE. Without savings, THERE IS NO CAPITAL. Without savings, the society will inevitably polarize into the mega rich who collect the interest, and super poor who struggle to make the interest payments with no hopes of ever repaying the principal and begging the government to pay for their failures.

The way I see it, the bailout is not only bailing out the insolvent institutions, but it is baling out the insolvent and irresponsible Americans who just don't get the concept of saving!

I'm sure that you and I agree that debt may be a luxury that allows us to pay as we go the large things that are "necessary" . But is it really necessary to buy a 20k car, when you can work your way up? Is it really necessary to buy a 250k house for a young person, instead of starting with something smaller... while saving for the future.

I think, if the people at the top would be streighforward and honest (as some are), the presidential address should have been:

" My Fellow Americans. You might be worndering how is that we came to the situation that we are in today. It's easy to blame the financial institutions... all those "evil" credit card companies, and mortgage landers... as the root of all of our financial problems. I think it's about time time for personal responsibility and honesty.

The reason that we are in this trouble is because we bought the convenient idea that saving is hard and that we can mortgage our future at high compounding AMR rates, without any consequences for the present.

While we like to blame the loan sharks for the excessive interest rates, it is us who took the bate and loved every minute of it.

As much as I enjoy seeing the bad guys going down in flames, I also know that you will cut me to the little pieces if I dare to take away you lifestyle of borrowing the future prosperity. Therefore, I have no choice but to turn this country into a epitome of communism and nationalize the failing institutions by borrowing more money on your behalf, like you already don't have enough debt to deal with. This will surely make things better, because we all know... while the music is playing, it does not matter how many children are running around how many chairs... even if there are no chairs left. My fellow Americans... don't stop the music.

Good night and good luck."

[carolaa]

Yeah, I got the same message from him - that the entire economy would collapse if people can't get loans. Sad.

[Dr. Shane]

It is sad but true. It is sad, in a way, that we have become a credit based society that cannot function properly without credit. However take a trip back in time and look at what the world looked like before our modern banking era.

[carolaa]

Maybe back then was reality and this is just an illustion of reality. That's how Suze Orman put it yesterday on Oprah when she was talking to people about their debts. She emphasized that they were not victims, but were suffering the consequences of poor choices. So I'm thinking maybe the whole last 50 years or so has been a big illusion - we've been pretending to be rich or middle class, when really the bank owns it all.

[Dr. Shane]

Back then the poor considered themselves lucky to find an affordable pair of used shoes at the Salvation Army. Newly weds would start life in a wood shed and build on rooms as they had children. Wives would patch holes in their husband's socks and children's clothing.

[fccool]

Isn't that what God promiced? That we would toil in sweat for our wealth and comfort???? What you are saying that this lifestyle is worth the consequences we are experiencing today. It's worth the problems that our children will have to work through.

I's almost like Adam (or eve) coming home and saying don't worry abut what God said. The nice snake gave us the Visa Card. Sounds like a good idea for a commercial.

Many of my coworkers are hoping to live the American dreams sitting near the computers watching their stocks "grow". In reality, if the companies are not productive, or in debt, or under-reporting their losses by cooking the books... the stocks are only worth as the shareholder equity and dividends these yeld. But these are viewed just like you view the "old ways" where people had to work for wealth. Instead we bought the idea that prosperity is easy, and all you have to do is to wait for money to grow on trees.... or just pay things back later.

The history proves that this does not happen. Eventually it all boils down to productivity, and the transfer of wealth. There is no reason that we should face this type of things in our era of accelerated productivity. Yet we do, and it's ironic.

I've seen Soviet Union going through the collapse, and the reason that people were hardly fazed by the collapse... is because they were ready. The micro economies were widespread. People got by means of small private farming (dachas), and it was pretty common for multiple generations to share housing in spite that it was given free to them. They were unhappy, but it prepared them for a collapse. The public transport was electric based... and still functioned even if the economy went flying. People still needed to go to work, and public workers needed a job. It was a social contract. It was amazing to observe these types of systems to go phased with hardly any interruptions. The life was largely based around production of sustainable goods. The life just went on. I think mainly because people were used to take a "beating" from the government and they just did not care anymore. They let them conduct their little artificial schemes, until the government themselves dismantled the system by trying to improve it... aka Gorbachev's Perestroyka.

Do you think this would happen in US? I don't doubt that the collapse will have a little affect the micro economies of small town USA... as these people learned to live with each other, yet it will ravage the Cities, because these depend on the current system at large. We have an enormous financial sector here that makes money simply by having money and "investing" it. It's artificial. You can't have a society that lives off manipulating currencies and equally prospers by it. Somebody has to loose. And instead letting the bankers to take a hit, the government lets the people to swallow the costs because we are too dependent on our credit system.

I guess I'd have to ask the question that should be addressed in the speech, instead of Bush asking the questions for us. This question would be... is the bailout really solving anything long term? Or is it just a pain relief medication that covers up the symptom of something larger, while only providing a short temporary relief?

The Fed and Bernanke today kind of stand out as a financial "gods" that everyone runs to for advice and salvation to. They regurgitate a couple "sound" phrases that everyone pretends to understand... and they don't address the underlying causes and long term consequences. You can't live by Keynes' philosophy of everyone being dead in the long term.

[carolaa]

I believe you're exactly right. Especially at the end, I wanted to stand up and shout amen. What we are doing is NOT and can NOT be sustainable. It is a bandaid, postponing the collapse for a few years, if we are lucky. It's like paying off a credit card with another credit card. The chickens are going to come home to roost someday. We can put it off a couple years, maybe, but this is not sustainable.

[carolaa]

Back then the poor considered themselves lucky to find an affordable pair of used shoes at the Salvation Army. Newly weds would start life in a wood shed and build on rooms as they had children. Wives would patch holes in their husband's socks and children's clothing.

I totally understand that. But it was real. It was not based on an illusion, as the lifestyle of most people is today. Today people feel rich, but it is the banks and credit institutions who own everything. The average person does not really own much of anything.

[fccool]

Originally Posted By: Shane

Back then the poor considered themselves lucky to find an affordable pair of used shoes at the Salvation Army. Newly weds would start life in a wood shed and build on rooms as they had children. Wives would patch holes in their husband's socks and children's clothing.

I totally understand that. But it was real. It was not based on an illusion, as the lifestyle of most people is today. Today people feel rich, but it is the banks and credit institutions who own everything. The average person does not really own much of anything.

I think that what you've said above is well demostrated by this add.