Saturday, October 4, 2008

A Country In Hock

I am not an economist, I am the first to admit that I do not fully understand the current economic crisis in the US. What scares me more though is that I feel like people that are supposed to understand it don’t seem to either.

What has stood out for me though is just how much in debt this country is. I’m not just talking about the official US government but also the citizens and business owners.

The debt of ordinary citizens has been well documented. Credit card debt is out of control. Way too many people have taken out mortgages they can’t afford. Consumer debt is hurting our economy.

The thing that amazed me the most though is how much debt businesses routinely operate in. I’ve heard numerous stories in which businesses do not have cash to pay their employees, etc. They borrow money to meet these debts. So in other words, they borrow money overnight to meet payroll the next day or to pay for the load of steel.

Now, as I said, I am not an economist or business owner, so I am a little ignorant. Maybe this is how businesses routinely work and maybe it’s how they should.

The question is, am I the only one that this terrifies. If we did have a scenario in which credit froze and the flow of funds stopped, it would not be unthinkable that our entire economy could collapse.

Let’s use General Motors as an example, to be fair I don’t know that they use this practice, they’re just an easy company to use as an example. Because of the fiscal crisis, lenders freeze funds and GM can’t get their loan. They can’t pay their employees. This is a major hit to the economy, but we’re not done yet. They can’t pay Delphi, a parts supplier for them. Delphi can’t pay their employees and they can’t pay their suppliers, companies that supply them with components, steel, etc. These companies can’t pay their employees and suppliers and so on.

In a very few days the ripple is felt by retailers, the restaurant industry, the service industry because of the payrolls not being met at the manufacturers. These companies in turn cannot pay their employees and suppliers.

I realize that this is a far fetched scenario but with some of the events lately, I think it’s a conversation we need to be having. No matter how remote the chance, if the above were to happen, it would quickly damage our economy far beyond anything we have seen so far and it would do fairly long standing damage.

I just think taking a step back and thinking about how we conduct business in this country is not a bad idea. This high wire without a net act is a little scary.


Jennifer said...

[I am not an economist, I am the first to admit that I do not fully understand the current economic crisis in the US. What scares me more though is that I feel like people that are supposed to understand it don’t seem to either.]

I completely agree! I am certainly not an expert, but I think so of this is just commom sense. Yes, the bailout passed, but I think that was just a band-aid. We need to figure out why and how this happened and make sure that it never happens again. All I can seem to think of is the Great Depression. Are we so far off, or were we?

Jennifer said...

So *much*.....I really should proofread.

Conservative said...

Excellent post Chuck and yes, this is the truth.
But lets face it, They spend like drunken sailors and we get to pay the bar bill.

Only in America!

Chuck said...

Jennifer, welcome and thanks for stopping by. I am still not certain I agree with the bailout and I suspect I never will. But I think something needs to be done.

Conservative, I'm of a mind that we need a balanced budget amendment. Make them live within our means. Maybe have an exemption with a super majority of COngress?

shoprat said...

That's how my previous employer ran and I am now am unemployed because of it.

MK said...

You know what worries me, the actual economists seem to have no clue either. You have to wonder about these highly paid CEOs, executives and what not, they are running these businesses and they get paid quite handsomely for it, yet all these seems to have caught them off guard.

I guess this is why many didn't want the bailout, better to let them learn from the pain of their mistakes.

Papa Frank said...

What is even scarier to me is that the federal government is about to own a house or two or twelve in every neighborhood. Talk about bad neighbors. Open the floodgates, socialism has arrived.

Pasadena Closet Conservative said...

Don't worry about not being a top-notch economist. Here's the bottom line: a majority of gutless wonders passed this thing, so kiss your ass goodbye.

Always On Watch said...

The bailout is a mistake. In addition to the very strong possibility that it won't work, it also sends the message that wasteful spending is okay. There shouldn't be such a safety net!

How did we get in this mess? Alan Greenspan's idea of easy money, with too much focus on Wall Street. That same kind of focus led to the Great Depression.

The markets -- Wall Street, real estate, credit -- need to correct. Yes, such a correction would be painful. But it wouldn't last long.

What is often overlooked right now is the fact that Congress did have the power for oversight. But Congress didn't fulfill the duty! Why should we believe that they will now? I don't.

PS: Chuck, I've blogrolled you. I meant to do so a while ago, but it slipped my mind.

cube said...

The free stuff mentality has taken hold of too many people. I've heard many complain that it's the fault of rampant capitalism, but I think that's a bogus argument. It's not capitalism that expects something for nothing.

Mustang said...

I think you know how I feel on this issue; earlier, I was Tom's Place where I watched a video of a senator telling us how unconstitutional the bailout bill was ... and then voted for it.

I was amazed that any politician so readily relinquishes his principles for expediency. But Tom also made another excellent point: it isn't the presidency that makes this country go ... its the legislature. Meanwhile, most Americans do not even know who their Representative is.

Aaaarrrghhhhh!!!! Do you do therapy in addition to good writing?

Semper Fi

Chuck said...

Sorry, Shoprat. Unfortunately, the ones that pull this nonsense rarely pay the price.

MK, we need fewer economists is what we need.
“GIVE me a one-handed economist, All my economists say, ‘on the one hand...on the other'”.
Harry S Truman

Papa Franks, I grew up in Flint, Michigan. The Federal government in one of their "Great Society" experiments went through and built a bunch of houses. They were poorly built and are now nothing more than slums. I've seen this movie already.

Pasadena and Cube, one thing we have to do is stop the bribery of our elected officials. Every one of them are for sale.

AOW, I've thought for years we have ceded too much control to Wall Street. They are effectively gambling with our ecenomy.

Mustang, I have always found it amazing the credit (or discredit) given to the Presidency. We do not live in a dictatorship. Congress has far more control over issues like the economy and gas prices than the President does.

Chuck said...

AOW, thanks for the add to your blogroll