Wednesday, November 26, 2008

I'm confused

I was listening to NPR again and, as usual, I'm confused. This time, I'm confused about the economy. Part of the solution being proposed by the experts is to put more money into the system to loosen up the credit markets....so people will borrow more.

What?

I thought the problems began in the first place because people were buying homes they couldn't possibly afford, spending more than my monthly mortgage on a pair of shoes or a purse and buying cars with all the bells and whistles even though it was way outside their budget.

Now that their credit cards are maxed out and the houses are being taken back, the economy is suffering because people aren't buying things they can't afford. Being a responsible consumer is bad for the economy?

Wh-What??

Banks and credit card companies are rightfully denying loans and lowering credit card limits, which they should have been doing all along. If people don't have enough sense to do a little simple math ("I make this much money, ergo I can afford to spend that much money"), someone has to draw the line somewhere and not loan money for nonessential purposes or extend credit for luxury items to people who can't afford it. To do otherwise is criminal.

How is opening up the credit market so people can once again spend more than they earn going to make things all better?

5 comments:

Leslie said...

I don't get it, either.

Grimm said...

I'm broke. I have no credit. AND I am working tons more hours.

Somewhere in there something doesn't add up.

Larry Jones said...

You probably mean this rhetorically, but just in case, here's the answer: The economy is stalled. The credit markets are frozen. Banks are afraid to lend, customers are afraid to borrow. No lending and borrowing means no new cars, washing machines or homes, which -- if it continues -- means no jobs, which means even less purchasing, which means even more job loss, and so on. No one wants to go back to the insane, unregulated behavior of the past decade, but the cycle of fear has to be broken. Pouring money into the top of the funnel, as the current administration is trying, hasn't worked. The bankers and brokers at the top simply grab the cash and salt it away, and it never trickles down. A better solution is to get the consumer buying again, through job creation and loosening of consumer credit. In a panic situation, normal, sensible thinking doesn't work. You need Depression Economics. The trick will be to get things back on track once the depression is over.

Happy Thanksgiving, Laurie!

Steve said...

The vast American public has learned its lesson and will only borrow responsibly from now on. No worries. Really. We all have the self-control we lacked just a few short months ago. Not gonna get in that mess again. No Siree, Bob!

Laurie said...

Leslie - Glad it's not just me.

Grimm - It just ain't right.

Larry - Thanks, Larry! You always know stuff. :)

Steve - I don't know if you're being sarcastic, but I sure hope so.