Steve Pearlstein, business columnist for the Washington Post, ‘guess-timates’ that Americans have been living about 6% beyond their means (p.12) for some time now. As most of us know, the culprit is credit. It became very easy to spend $1.06 for every $1.00 earned. Taking into account the size of this country, and its vast population, it’s easy to see this runaway horse galloping across the land, leaving a wide trail of debt in its wake.
Though information was out there, it has been suggested that many Americans were not really aware of our impending economic crisis until later in 2008. I remember hearing radio broadcasts predicting the disaster lasting until the first quarter of 2010, and I still hadn’t really felt the pinch of it yet. In fact, it was news to me! It seemed to come out of nowhere. I wasn’t that worried, as I’ve never had alot of money and am used to counting my pennies, tightening my purse strings fairly often. But I wondered, how did this happen? Where did it come from? Why didn’t more of us see the signs? Pearlstein compares the apparently sudden manifestation of this financial malady to Wile E. Coyote, when he runs off the cliff, moving so fast that he just keeps going & going, still in mid-air, then suddenly – Whoops!! “That’s the dynamic, because there’s so much built in momentum, that it appears that that which should be happening isn’t,”Pearlstein explains. Looking back, I think my first indication of a coming economic meltdown was a subtle but startling change in the size of my favorite super-large Hershey’s chocolate bar. Seriously. The price didn’t drop, but the size did. Sometimes, it’s in the small stuff…
Articles warning of the coming financial crisis appeared in the New York Times, as far back as about seven years ago, according to its senior financial writer Diana Henriques. Newspapers nationwide reported on troubling mortgage industry issues. But not everybody reads the New York Times, or the finance pages. The average American’s interests are focused elsewhere, not on high finance. More street level, let’s say. As for business moguls, supposedly very knowledgeable in their areas of expertise “…people were buying things in the financial world that they didn’t fully understand, and they were paying a great deal of money for them.” (Ali Velshi, chief business correspondent, CNN)
Author of Give Me My Money Back: Your Guide to Beating the Financial Crisis, Ali Velshi (quoted above) explains how such an ‘overheated’ financial environment was initially created by the repeated reselling of mortgages,resulting in a handful of organizations holding multitudes of them. When homeowners couldn’t make the payments…down, down, down came the ‘house of cards’, as Velshi calls them. Now, as we all know, rebuilding is necessary, one way or another, throughout our society.
So, I’m thinking, why were homeowners unable to make their mortgage payments? Well, why do any of us not make a payment, for anything? Clearly, not enough cash to go around. (And though there are many reasons this can be true, one of them is buying too much.} So we opt for – credit. (Even as I write this, I must confess that for the first time in many, many years, I was forced to avail myself of a credit card. I am grateful for it. Without this little piece of plastic, I’d be eating even less than I already often do. But food is essential…so even though, as a rule, I personally am against using credit cards, buying on time, there are exceptions. I try to live by grace, not law, so in faith I took the plunge and signed up. So far, so good…)
But overdoing the credit routine can result in disaster.
“The American dream made you feel that it was always going to be better and always going to be more. And, by the way, that better and more was available through credit,” says the CNN correspondent. Your payments go up, you become strapped for cash, so you charge more, the payments go up…and the cycle continues. Well, here’s a novel idea – “think of the way we spend money as maybe having it first, and prioritizing what we spend, ” he continues, suggesting: “I think to bring it to its most basic terms, we need a society where you save for two years to buy a TV, not buy a TV and pay for it for two years.” (See my post “What We Need”)
I keep seeing the term ‘unsustainable market’ popping up. Makes sense. Eventually you reap what you sow, and things catch up to us. We’re in this together, not only as a nation but as a worldwide community. Months back, at the World Economic Forum, discussion pointed to the belief that the United States has caused international economic crises, and that the United States is needed to remedy them, as well. (Alexis Glick, vice president of business news at the Fox Business Network.,p.14) As a nation, we are the problem and we are its solution, apparently. As America goes, so goes the world. Whether or not we individually contributed to the downfall, we feel its impact. It’s to all our benefit to seek & implement solutions to this economic disaster, when possible. Ms. Glick, who has a staggeringly impressive business & economics background, sees the political risk of continuing financial instability to be ‘incredibly dangerous’, so, again, it behooves us all…
Quoting the CEO of General Electric, Dick Gregory, host of Meet the Press, said this past winter, “The economic crisis doesn’t represent a cycle; it represents a `reset.’ It’s an emotional, social, economic reset….” I’ll wrap up this post with the response of one of his guests that week, leaving you with a wonderfully practical, hopeful outlook –
“…I love that he said “reset,” because–I am actually glad that we had this recession because we were on a path that we couldn’t get off, and we did need that reset. We need, we needed people to step back and stop taking on so much debt and really go back to the basics. The basics are the basics because they always work no matter what the economy is. Live below your means, don’t take on so much debt and save.
But, you know, there’s hope. This, too, shall pass. And if people do the right thing, take the message that you can’t keep on the same path that you were before, we will be OK.” -Michelle Singletary, Washington Post financial columnist (source)