You see since WWII the normal modus operandi to fix any economic bubble passing its gas and leading into an economic downturn (recession) was to cut interest rates and increase the money supply. The American consumer was thus fired up to... consume. The scam was to induce ÜBER-consumption. Spending was “the fix” and if consumers didn’t have the money, they could borrow it at cheap rates and have all the stuff they wanted – now! The difference was that during the 1950’s, 60’s, and 70’s much of what the public was urged to consume was still made here by American workers earning a living wage with benefits - including a “defined benefit” retirement plan.
Any retrenchment from a boomlet, boom, or bubble was seen as anathema. Why endure the normal, longer, and more painful corrective process from the last over-stimulation if you can move on to the next boomlet, boom, or bubble with induced spending fed by a debt driven public or a debt driven Uncle $ugar? The 80’s told US/us “Greed is good” and “that deficits (debt) don’t matter.” Big mistakes!
The 1980’s, 90’s, and 0X’s saw a continuation in the cult of the fix a bubble bust with a newer bigger bubble - but here there was a twist! Inflation was taking an annual bite out of the buck, but wages only “seemed” to be increasing enough. More cash flowed thru the fingers even though it bought less. Supplemental “income” from borrowings (at the household AND government levels) fostered the illusion that we were no worse off. The “on-paper” appreciation of any so-called marketable values of stocks, investments, and real property gave a false sense of well being and also gave the illusion of an easy out.
If push came to shove, “assets” could be sold at the inflated values and the fixed debts could be paid off with the proceeds. This fix would work, if and only if, somebody new (most likely with more borrowed money) came along and paid the higher price. It also required that a finite group took their money and ran at any given point in time. Households and government were running their own Ponzis!
Meanwhile the nation as a whole continued moving from an economy which actually made things to a nation who traded, swapped, and leveraged - making their primary (un)real gains on paper appreciation alone. Tangibles behind US Gross Domestic Product (GDP) continued morphing from agricultural goods to manufactured products to services to the virtual paper values added by a new economy. GLOBAL took on a double significance in that we as a nation depended more and more on entities outside our borders for supplying the goods and energy we consumed. We also depended on these overseas $ugar daddies to underwrite this ballooning debt financed consumption of their products.
This new-bubble-for-old-bubble fix it methodology “worked” for almost 60 years. Every twenty years, the fix it model from the US Treasury and the FED added three more zeros to the fix-mix. MILLIONS became BILLIONS; which now became TRILLIONS! Unraveling actually began in 2007 (in some respects 2006). 2008 was an election year so denial and a political song and dance attempted to keep the writing on the wall obscured thru November. The DC politicos and the Wall Street moguls almost pulled it off! This week you got background for the debacle that was 2008. Next week you get the appalling numbers.
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on December 29, 2008.