off-topic dmackey on 26 Sep 2008
The U.S. Economy?
Today I (Dave Mackey) am going to briefly jump off-topic and talk about the economy. WaMu has just sunk due to a “run on the bank” and its assets/liabilities sold off to J.P. Morgan. This follows a series of significant and stunning crashes - Countrywide, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG. Companies that are household names - and underlie the financial cornerstone of our nation.
Lets begin by talking about my qualifications to discuss this economic crisis…Okay, glad that is done. Seriously though, I am not an economic expert, and perhaps some “experts” can throw light on why everything I’m saying is wrong. My knowledge of economics comes from a high school course and personal entrepreneurship. My knowledge of the current economic crisis comes from daily online news readings, watching the Colbert Report and Jon Stewart (yes, they are comedians), and reading articles from my weekly subscription to Newsweek. All that to say, I come to this debate with only what I would consider the fundamentals of logic - rather than any understanding of the magic complexity behind our financial system.
There are so many topics we could discuss. For example, “Whose fault is this economic crisis?” “How could this crisis have been prevented?” or “What will be the effect on web 2.0 companies?” But I’d like to look at just one particular topic in general: “How should the average American respond to this crisis?” This advice comes with no warranties - utilize it at your own risk.
Do not fear. Why? Isn’t there something to be afraid of? Most certainly. These are uncertain times in which corporations we trusted to act responsibly have failed to do be responsible and our government does not inspire us with confidence. The question, however, is not whether there is something to be afraid of but what our fear is gaining us. Quite simply - our fear gains us a tighter downward spiral towards economic depression. Why did WaMu go belly up? While we can point the finger at mismanagement the immediate cause was a classic run on the bank. People became afraid and withdrew large amounts of money from the financial system in a short period of time.
So what do we do? I for one am going about life as normal. Do I know that I will have finances in the future to continue in this matter? No. But do I know that flipping out will only make matters worse? Yes.
Lets think about the positive results of our fear. What do we get out of withdrawing all our money? Stopping all our spending? Nothing. “But wait, if I withdraw my savings, I have money…and it can carry me through!” Hmmm…
- Do you have enough? Most average Americans don’t have enough finances to last more than a few months. This is guaranteed by the FDIC (up to $100k) and most likely if we were to enter a severe depression it would last much longer than our measly savings could carry us.
- How much will it be worth? We can expect the U.S. Government to print money to keep fluidity in the markets. Ever hear about what happens when governments do that? Money loses its value rather quickly. So, by withdrawing we are taking a gamble - we are hoping that things won’t get bad enough that the government will print money (and our money will lose value) while at the same time we are helping the economy become worse.
The articles I am reading - the things I am seeing on the news - are all talking about the importance of “restoring confidence.” What if we simply chose not to lose confidence? I’m not saying longer-term we shouldn’t be smacking around some of these companies and individuals who brought us to this brink, I’m just saying that the quickest way to come out of this economic crisis (IMHO) is to drop the fear.
Now, if everyone would tell me why I’m wrong…I’d appreciate it.
