Here's a crystal-clear explanation for How We Got Here. Boiled down even more, it says that US wages were kept low via globalization, but consumption goosed through money borrowed from foreign sources of capital. Now the US is broke, and, having outsourced its manufacturing base, and can't build itself back up on the basis of service economy jobs.
That's this guy's story, anyway. Seeing that, I remembered going home with my friend Paul one weekend back in college. Paul's dad was a local union leader. I well remember him telling us -- this was 1987 -- that the US was going to rue the day it ever started sending manufacturing jobs overseas. He kept saying that no country remains a superpower without a strong manufacturing base, but that nobody wanted to believe that nowadays. He sounded to my young ears like he was saying, "Hey you kids, get off my lawn!" But today, not so much.
Anyway, it puts the Detroit bailout prospects into a certain light, dunnit?
By the way, did you happen to catch the David P. Goldman column I linked to earlier this week, in which the economist crunches numbers and concludes that the US is running out of sources of finance. And surely you saw John Whitehead's comments yesterday saying that this thing might be worse than the Great Depression, because runaway government spending is destroying the creditworthiness of the USA.
We should all be checking in more often with Sharon Astyk for practical advice on frugal living. Perhaps, too, Iceland today is something of a model for what we can expect here in our country tomorrow -- here's a must-read Letter from Iceland from the Financial Times. Excerpt:
And here is the nub. Iceland's banks borrowed more than $250,000 for every man, woman and child in Iceland, and placed an impossible burden on the modest reserves of the central bank in the event of default. And default they have.Voices of caution - there were many in Iceland - were drowned out by a media that became fixated on the nation's emergence from drab pupa to gaudy butterfly. Yet, Icelanders' opinions were divided. For some, the success of their Viking Raiders, buying up the British high street, one even acquiring that most treasured bauble of all, a Premier League football club, marked the arrival of a golden era. The transformation of Reykjavik from a quiet, provincial fishing port to a brash financial centre had been as swift as it was complete, and with the musicians Bjork and Sigur Ros and Danish-Icelandic artist Ólafur Eliasson attracting global audiences, cultural prestige went hand in hand with financial success. Icelanders could hold their heads high before the rest of the world.
Hallgrimur Helgason, well-known for his novel 101 Reykjavik, said in a letter to the nation in a Sunday newspaper on October 26: "Deep down inside we idolised these titans, these money pop-stars. Awestruck we watched their adventures and admired them when they supported the arts and charities. We never had clever businessmen, not for a thousand years, not to mention men who had won battles in other countries..."
For others, the growth was too rapid, the change too extreme. Many became uncomfortable with the excesses of the Viking Raiders. The liveried private jets, the Elton John parties, the residences in St Moritz, New York and London and the yachts in St Tropez - all flaunted in Sed og Heyrt, Iceland's equivalent of Hello! magazine - were not, and this is important, they were not Icelandic. There was a strong undertow of public opinion that felt that all this ostentatious celebration of lavish lifestyles and excess was causing the nation to disconnect from its thousand-year heritage. In his letter to the nation, Hallgrimur continued: "This was all about the building of personal image rather than the building of anything tangible for the good of our nation and its people. Icelanders living abroad failed to recognise their own country when they came home."
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Re: JonF, I'd like to see the data for the actual cohorts involved here, and that would be the entire borrowing population, not just those who have used bankruptcy.
The entire borrowing population is (almost) the entire adult population of the United States-- and includes of course plenty of people who have not been profligate. There is such a thing as "prudent credit use" after all.
The bankruptcy figures are probably the best place to go for this sort of thing since the actual debts and income stats are matters of public record. Also, people in bankruptcy are a pretty good marker for people who have gotten into serious trouble with credit (for whatever reason).
Jon, I don't mean to put you off. My reluctance to engage the debate at this level is based on academic training and experience in data collection and analysis.
There is no risk in measurement. All you're doing is saying "from this data pool, I observe these things." The problem is two-fold: applying the data from a restricted pool to the general population, and drawing conclusions therefrom.
Call me a statistical conservative, but I would look askance at any such analysis. As a comparison point, here is how I imagine a survey starting out, one that would measure the data according to the context in which we are debating.
What is your total annual family income?
How many credit cards do you have?
What is the total credit line of the cards?
How much of that credit line have you borrowed?
What is your usual/average monthly payment(s), based on the last 12 months, on the card(s)?
I'm not an expert in this field, to be sure. The questions could likely be phrased better, and there may be (and likely are) other questions that belong on the survey. I'm thinking here about the "leveraged" measurement for investment companies, where they talk about an X-to-1 dollar measurement of borrowed money to actual assets. To respond to your comment in kind, there are plenty of frugal companies around with a low leveraged ratio, quite a few with a large one, and the companies and banks in the news lately all have very large ratios.
Find that ratio amongst consumers. Analyse the frequency of bankruptcy/foreclosure correlated with the ratios. Make the comparison to the general case: If (grabbing numbers here) 75% of bankrupted families had ratios above 25-1, and 25% of the general population has a ratio above 25-1, then we'd have solid numbers on which to base our debate.
The post timestamped November 17, 2008 4:34 PM is mine.
It was a 5 Pronged Attack!
1: The Computer Jobs were lost and Housing Sector Boomed
2: The Mexicans took our jobs and claimed 2-9 kids TAX FREE and companies
with stupid greed allowed this to happen
3: Our Computer Jobs were sent over seas by companies and more Companies followed!
4: Gas companies raised the price of GAS!
5: The people that control our GAS and Job market over seas control what happens to us here via economic terrorism.........
With all this crap in play -> you then have the US Manufacturing sector claiming big sales and massive profits with investors spending into a Fake Bubble!
Next : you have the Mexicans being chased off from the bubble
Tourism Declines Mexicans taking the job market illegal doing construction
and working where ever a company allows with a FAKE ID and Social Security Number.
Once that crap takes hold and they leave the Financial Fake crap takes place
The Company losses profit showing loss and laying off workers
Now you have Honest Americans without JOBS! then they can't spend money
to help other companies out via normal spending! now
you have a downward spiral....... People losing jobs and not being able to support the economy illegals taking jobs at a reduced rate...
Companies losing money and firing people... the very people that spend money
to keep there company ALIVE!
So you have this = Company Fires people = People can't spend Money
= Companies will fail = Banks will FAIL = People have out standing loans!
= Everyones Credit gets very BAD = Banks FAIL = Manufacturing Sectors go's to Crap! = People lose more jobs! = The Job loss and firing people will cause
many people to keep losing jobs...... and a depreciation of all things until we realize where this all started from and not do it again! The way to turn it around is hire people part time and get rid of the illegals not just firing tons of people ,because there the ones keeping you alive! Extend the Unemployment!
I personally think we should start our own little networks 100's of them around the US with business people, medical people, sales people, fashion designers, entertainers, realtors, and6kn for any one that wants to get things rolling again. Get network sites started on the net for each state and then get together for meetings, talks, or whatever it takes to get together and make new ideas work for our economy. Someone now should start the ball rolling before we get ourselves deeper and can't get out. I'm retired, but I'm offering you this idea because I think it could help a lot. It's not the "government" that is going to get us out of this mess, it's us the people who are smart, creative and are hard thinkers and workers. I know each little town could help out by offering a space for meetings, conferences, and other ways of getting together. Churches, fire companies, town halls, homes, are just a few places that would work. You could call them up and ask if they would be willing to help out in this time of crises. America is made of the people, by the people, and for the people. It's time to take a STAND for WE THE PEOPLE OF THE UNITED STATES OF AMERICA. Let's get some good plans for the working people going again. mimi
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