Just a little bubble, that’s all. (Reassuring self-talk)

Just tap your heels together three times and think to yourself . . . charge it!

So there’s a bubble in the gas line. We’ll have more soon. And because the housing bubble burst (OK, it flat-out busted), there’s a slight problem with the banks. They don’t really know if they trust one another enough to loan money.  But hey! It keeps our minds off the drought, right? Everyone is so focused on shortages of credit and fuel, we can almost forget we may run out of water.

To  cap off this Mad Max scenario, my microwave, the ultimate appliance of convenience, has quit.

The sky is falling!

Scary times.  To fuel ever-higher growth in business profits and tax revenues, we’ve built a culture of overconsumption so pervasive it will be very difficult to change. People borrowing for houses they can’t afford because mortgage bankers want to make a buck. Folks accustomed to living above their means through second mortgages.  Financial institutions fueling profits by leveraging (that’s borrowing, too) to make money out of thin air.  Read this “Bubblenomics” article about the recent bubbles in stock and housing markets >

The bailout only heightens my worst fear: that my children will live a lower standard of living because they have to work so hard to pay the debt their parents’ generation allowed to happen.

Will we learn a permanent lesson and change our behavior?

Friedman’s new book is on the way to me from Amazon. I hope it is all about living lightly on the land and creating jobs and profits by investing in technology and innovation to foster sustainability.  And I hope everyone’s reading it.

When I want to run screaming into the street like Chicken Little, it’s nice to remind myself it could be worse. We could be in Nashville >



Filed under in the bubble

7 responses to “Just a little bubble, that’s all. (Reassuring self-talk)

  1. Jennifer

    Not to harsh on anyone’s buzz, but there are a lot of aspects to this housing & credit crisis that have gone largely (if not completely) unremarked in mainstream media reporting.

    To me, it’s pretty clear what happened: since 2000, productivity has increased by 20% but none of that got passed on to workers – instead, wages have been stagnant, as prices for basic necessities have continued to increase – gasoline, 300%, groceries, 35%, home heating, 100%, health care over 50%, and so on. The end result was that by 2002 or 2003, the vast majority of people had nothing left over for “discretionary spending” – which you must have in order to keep a consumer economy moving along – and were also completely maxed out on their unsecured credit lines. This led many to take out second mortgages or refinance homes in the hopes that things would turn around, income-wise, and they would be able to pay it back. That did not happen.

    At the same time, we’ve seen an ever-increasing share of wealth concentrated into fewer and fewer hands, to the extent that again, by 2002 or 2003, the haves were finding it difficult to find places to invest where they could earn a return on all that money they’ll never be able to spend, because lord knows, they need to pile up even more money they’ll never be able to spend. Can’t invest in manufacturing, because for one thing, we don’t make anything, and for another thing, people don’t have any money to buy. Can’t invest in retail because everyone is tapped out on purchasing power. So what to do with all this money you can’t spend? Increasingly, it flooded into the mortgage market, the underlying rationale being that “real estate is always ‘safe’ and never loses value” (not true) and “mortgages are ‘secured’ because in the case of default, the tangible asset remains” (true, but only if a very small percentage of mortgages go into default and values continue to rise or remain steady). And as in all else, supply and demand operates in the mortgage investment and lending business as well – there was a flood of investment which created demand for borrowers, which exerted a downward pressure on lending standards, and here we are.

    The complete picture is of course a lot more complex, but this is an easy to understand part of it. But let’s not miss this point: this was not one of those “no one could have foreseen” moments we’ve all become so accustomed to during the Republican misrule of the past 8 years. You don’t have to be an economist to figure out that something wasn’t right when we continued to hear that “housing remains strong; it’s the engine driving the economy” for 6 or 7 consecutive years. How could that be possible? Purchasing of low-cost consumer goods was moribund, but people unable to scrape up a few bucks to continue buying cheap Chinese crap at Wal-Mart somehow were able to qualify for loans on $350,000 houses? It isn’t that no one knew what was going on; it’s that they elected to do nothing about it because it was the only thing keeping the economy from going into recession 4 or 5 years ago, and ever since.

    Bottom line: it may be that this bailout will stave off a complete meltdown, but the underlying illness will remain unless and until the issue of maldistribution of wealth is addressed. You can’t run a truly healthy and functional consumer economy when the bottom 40% of your population owns a mere 2/10ths of 1% of the nation’s wealth, while the top 10% owns 70%. (And those figures are from 1998; it’s gotten more lopsided since.) You have to have more money circulating throughout the entire economy to keep things moving. Republican governing philosophy has been to tax the haves as little as possible; progressive taxation is anathema to them and the so-called “death tax” an issue of particular hatred. But those things are all designed to slow down the upward concentration of wealth, to keep the economy healthy for all of us. It’s ironic that in terms of overall losses, they stand to lose more than the rest of us if the whole thing goes in the shitter; the primary difference is they won’t find themselves homeless and standing in a bread line, but their wealth will absolutely take a very big hit – just one that they won’t feel as much because they have more of a cushion to fall back on. Also ironic is the fact that under the slightly higher income tax rates of the Clinton era, they actually made more money than they have, even with lower taxes, under the current regime. The rising tide that lifts all boats and all of that. So again, while we may stave off a complete meltdown with the bailout, it won’t fix the underlying issues that got us into this mess. Only higher wages and higher taxes on high incomes, estate taxes, and the like will do that. Which will give the Republicans something to bitch about for the next 40 years, until people trust them enough again to let them fuck everything up again.

    Regarding Friedman, good luck with that. I think the Mustache of Understanding is a huge tool. I still haven’t forgotten his support for the Iraq War, based on the premise (and I quote) that “every 10 years or so, we need to take some crappy little country and throw it up against the wall as an example to the rest of the world.” He’s not a good person, nor a particularly bright one, in my view.

  2. bday321

    Yeah, well, thanks for bursting my happy little self-talk bubble. In which I try not to think about the fact that the standard of living in this country will never be higher than it is today.

    Yes, you can fault Republican trickledown. But we all let the TV tell us every day how much we need — even if we can’t afford it — to be like those people who live inside the box. So, in this as in all things, I blame the Brain-Sucking Tube and the culture of consumerism it spawns.

    If you have an hour to watch five economics profs weigh in on both sides of this (too much borrowing, too many big investment banks/financial institutions making money out of thin air), check out this panel on Krugman’s site: http://krugman.blogs.nytimes.com/2008/09/26/crisis-at-princeton/

  3. I enjoyed reading this blog and Jennifer’s follow up comments. I found myself nodding my head in agreement…a very well thought out argument indeed!

    I am puzzled about the very last comment about Friedman. Are we talking about Thomas Friedman? I was surprised to read that he had made that comment and dug a bit deeper. My first thought was he was veiling his sarcasm for U.S. policy. He is highly critical of U.S./Middle East policy, as evident by his editorials and the book, “From Beirut to Jerusalem.” I apologize for appearing arrogant in correcting you (not my intention as I loved your comments) but “some other dude” named Michael Ledeen apparently said those words.

  4. Jennifer

    You’re right, Allison, my bad. Friedman wasn’t the one who used those words; he just heartily agreed with those who did. Friedman’s quote from those heady pre-war days was “Suck. On. This.” As Greenwald underlines with many examples in the linked article, Friedman was more than any other “liberal” media opinion leader responsible for the Iraq War.

  5. Jennifer, I did read the Greenwald column. Thank you. I do understand your point, however, I humbly disagree. I have read Friedman’s columns and books on the Middle East for years (a topic I am interested in).

  6. Jennifer

    Allison – No problem; yours is probably the more rational position. After all, being wrong about one thing doesn’t necessarily make Friedman wrong about everything. I’m just completely disgusted with him because, like most liberal media hawks, instead of owning up to the fact that he was completely wrong about Iraq, he’s maintained the position that he was “wrong for the right reasons” – the implication being that those of us who never allowed ourselves to be snowed by what was a frankly quite transparently false “case for war” in the first place are the ones who were really wrong and naive. As such I have no patience with him, because I have no respect for anyone who maintains that they were more right than the people who actually were right, simply because they’re a “serious” person as opposed to a Dirty Fucking Hippy. It indicates to me that he’s someone who’s resistant to learning from his own mistakes and therefore more likely to repeat them – and since I don’t want to encourage him, I pretty much ignore him now.

    But like I said, that doesn’t mean he’s wrong about everything, or even anything, else – though if he was, I wouldn’t count on him to admit it. This is one of those your mileage may vary things.

  7. I prefer to be a dirty fucking hippy!

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