The latest episode of This American Life (mp3 download) is all about the banking crisis and gives a pretty good rundown of what's happening if you don't know a lot about banking or economics.
There is a point in the episode where, in my opinion (and seemingly, their own), they get to the heart of the matter: American consumer debt has risen to 100% of annual GDP, or "the total annual economic output of the United States." Now, they basically say that it's the fault of the consumers, which many (including myself and Dean Baker) would dispute, but the basic analysis here is dead-on: the use of credit in the United States is entirely unsustainable in reality, no matter how worthy or profitable it seems that it used to be. Every level of American society (average consumers, businesses of all sizes and most all types, the federal government, and government at many other levels) has way too much debt. The amount of money being lent out is more than the money the country generates. You simply cannot live like that. You can't borrow against your whole income every year and function. Period.
So, this is gonna suck and this is why. Hope y'all can get something out of this one . . .
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- fondfire
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3 comments:
I have a nagging feeling in the back of my mind that it's going to become more and more of a bad idea to own one's own house. Or at least to get a mortgage. Have you read/heard anything to suggest this?
i'm just about to jump into debts and loans.. inevitable at this point. wish me luck! :|
In the short term, mortgages may prove to be a bad investment, as housing prices might still take another steep drop (or even a few more of them). Housing prices largely fell through the thirties and that could well happen again. In the long run, housing is never a bad investment, mostly because of (1) once you pay-off the mortgage, you might manage to save or invest money you'd otherwise spend on rent and (2) because housing values really do rise slightly (but usually not enormously) over time, meaning you can usually reutilize the money spent on the base price of a home (but maybe not maintenance costs) over time. As housing is usually such an enormous expenditure of income, finding ways to conserve and reduce that expense over time simply pay off. Putting that off too long will bite you later in life.
Well, Sou, you might actually fair better than we Westerners on this one, since I do believe you're in a country that has experienced such a significant rise in real (inflation-adjusted) wages over the past couple of decades. Americans have actually had static real wages (after inflation adjustments) for over thirty years (with a slight exception for those with college educations). Given all that, you may be in a better place than us, personally speaking. How it works out of India and (especially) China over the next decade or two will be truly fascinating.
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