The Economic Crisis

Is there an economic crisis?

By Michael H. Kim

            However bad the economic situation is and whatever is the cause, government is not the solution.  I do believe that these are tough economic times.  Unemployment is the highest since 1945 according to several news sources.  A recent Washington Post poll says that 94% of Americans believe the economy is bad.  The national debt is at $10.6 trillion, and continuing to rise rapidly.  The Dow Jones Industrial Average has fallen approximately 40% this year.  The savings rate has averaged less than 1% for the past three years.  There have been a record number of home foreclosures this year.  We are clearly in a recession. 

            How bad is it really?  No doubt it is devastating for so many households suffering from job loss, foreclosures, loss of savings, etc.  The nation’s economic prospects are dim.  The numbers don’t lie, do they?  You’d have to be in one of those recession proof jobs and quite oblivious to reports on the economy to think otherwise. 

            There is an old joke among economists that states: A recession is when your neighbor loses his job.  A depression is when you lose your job.  The joke can be interpreted different ways depending on what your point of view is and what you definitions are for these terms.  The total number of unemployed is at its highest, but that is because our population is at its highest and the unemployment rate has risen since a 2007 low of 4.5% to a current 7.2%.  (By the way, the unemployment rate is under 3% for college graduates.  In an actually depression, any of us could lose our jobs.)  The unemployment rate was higher three different times since 1976.  Yes, it is high.  But far from the double-digit rates of France, Spain, and Germany.  I wonder if our unemployment rate would rise to those levels if our nation’s welfare policies were as socialistic as those countries.  Yeah, it would. 

            As for the stock market, it is still the one of the best investments in the long run.  In any ten-year period since the 1929 crash, it has averaged a ten percent return, and that includes the 1987 crash.  I lost quite bit in the last year, but I am confident that I will recover in the long run.  Yes, it can be risky to be in the market.  That is why I gave up day trading years ago.

            Real estate has always seemed to be safe and lucrative investment.  The housing market is abysmal.  But for whom?  Who said it was wise to take out 120% of your equity?  Who said people should be able to purchase a home with zero percent down without income documentation?  That would be one’s greedy little conscience and the predatory lenders.  There some banks out there employing a rather innovative leading policy these days.  Well, innovative in these times.  They are requiring borrowers to put down a certain percentage down payment and prove that they have a stable income.  I can imagine a bank president upon hearing this novel idea saying, “That so crazy it just might work.”  And it has been working.  Don’t get me wrong, the process of losing one’s home is a devastating ordeal.  Many foreclosure are a result of job loss or injury.  But when one purchases a home which they can not afford to pay for, with no down payment, and the home is foreclosed on, just what did they lose? 

A year and a half ago my brother’s family was looking to purchase their first home.  They had a certain budget they thought they could afford.  When I showed him what the payments would be with property tax, he said he couldn’t buy even though he would be able to get a loan.  They chose not to based on facts, not dreams.   Last month, I told him he needed to buy now with interest rates and home prices being so low.  Those who were priced out of the market a couple of years ago are now back in.

So, why does it seem that I’m not worried?  Actually, I am terrified.  The government fear mongers are leading us to believe that they are the only ones who can solve the financial crisis; the liberal media has exaggerated the economic condition to promote their candidate for president.  This has led the American people to believe that bailouts and stimulus spending are the ways out of a recession.  Have you heard of the fool in the shower?  He turns the hot water all the way up.  When he burns himself he turns off the hot and turns on the cold all the way up.  When he starts to freeze from the cold water, he turns off the cold and turns the hot water all the way up.  The fool in the shower represents the government and its hyper-reactive propensities which tend to exacerbate fluctuations in the business cycle.  The new president wants to spend $700,000,000,000 in stimulus to create 3.5 million jobs.  Wow, a lot of jobs.  That’s only $200,000 per job.  The Treasury has already doled out $350 billion to bailout the banks.  And they don’t know where the money went and how it’s being used. 

There are many examples why I don’t trust the government in this “economic crisis.”  I am one the 94% who believes that the economy is bad overall.  They’re going to do what they’re going to do.  I just hope they don’t destroy capitalism too much.  What we can do for ourselves is be responsible in our own microeconomy: live within your means, don’t spend what you don’t have, save, and don’t expect the government to bail you out.

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