Posts Tagged ‘credit’

Obama’s Double Talk on Economy

March 14, 2009

When President Obama reassured China and the world that their investments in US bonds and the dollar were safe, he made the following quote:

“And that is not just in U.S.-issued treasury notes, but also in the private sector and the commerce and the industry that has made this the most dynamic economy in the world.”

If our economy is so great and dynamic, why did he just go about ripping it when he was pressing for his stimulus package?  Didn’t he say it was unsustainable and that we needed new clean energy jobs to take us into the 21st Century?  The double-talk from Obama is starting to get ridiculous.  With Bush, at least we knew where he stood.  Obama is a much smarter man, but he seems to be trying to please too many people.

Also, just to clarify things, our economy is not in great shape.  When almost 60% of our GDP has been fueled by spending, I don’t see how we’re in great shape.  This year, in order to make up for the lack of consumer spending, almost half of our GDP is predicted to come from government spending.  Also, we’ve had almost zero savings for the last decade, we have no manufacturing base, and we are up to our eyeballs in debt.  To me, that is anything but a dynamic economy.

We can fix the economy, but no one wants to re-route the ship.  Instead, we’re burning through trillions of dollars trying to keep it down the same path to oblivion.  We need savings and investment from the private sector to provide capital, and we need to start producing goods and services in the US.  We have the best and most skilled workers in the world.  We also have some of the best creative minds.  What we need is more competition to lead to better innovation and new products and skills to turn us around.  We need to strip away layers of government interference that burden businesses and hinder their ability to compete in the global market.

Obama really pushed hard for his stimulus package, telling us how bad of shape our economy was in.  Now that his stimulus isn’t really working, he’s pushing hard to tell everyone how great our economy is.  He needs to decide where he stands on all of this and provide a consistent message to the world.  We need a strong dollar, and we need to start producing and stop spending.  It can be done, but our leader has to come to this realization as well, and not believe the words coming out of his own mouth.


Advertisements

The Myth of Pent-Up Demand

January 22, 2009

Over the last two days, I’ve been involved in three conversations where the person I was talking to said that people aren’t spending money because they’re scared and because of how the media is portraying this financial crisis.

Is that what everyone thinks?  That if the media was saying “go spend money” they’d go out and do it again?

I think it’s a bigger problem than that.  The economy has been supported by consumer spending for years, and now, the consumers have finally run out of money.  As the bubble grew, their sources of disposable income grew.  First, it was credit cards, allowing people to buy what they wanted and worry about paying for it later.  The last straw was using their homes as ATMs, allowing them to cash out paper gains to buy big ticket items like flat screen televisions, dirt bikes, quads, and toy haulers.

When two-thirds of your economy relies on consumers to spend money, this was inevitable.  Instead of developing sustaining industries, we shipped all our production overseas so people could buy more stuff.  Now we’re paying the price.

I really don’t see any way of this turning around either.  Things are going to have to change dramatically and our need for instant gratification is going to have to be replaced with thrift and savings.  It’s not like all of a sudden, a switch is going to flip and people are going to start using their credit cards again.  They are probably maxed out to begin with.  They won’t be able to fuel their purchases with their home’s equity either.

All of the fixes the government has tried so far have done nothing to help this problem either.  It’s our fault for making bad decisions, but they’re more than willing to throw billions at the banks for even worse decisions.

Our consumer based economy is failing, and we’re going to have to adjust our economy and our standards of living in order to come out of this ahead.  People aren’t spending money because they are already in too much debt, or they don’t want to go further into debt.  The media and this “pent-up demand” have nothing to do with it.