What we are all about to learn-THE HARD WAY!!!!
For the past seven years, bags and bags of money has been given to American individuals, businesses, and governments. Some years, the hand outs totalled over 2 trillion dollars or over 15% of the GDP.
These handouts came in for form of loans. Mortgages, HomeEquity Loans, Private Equity Debt, Auction Rate Securities, Credit Card Debt, Auto Loans.
Each time money was borrowed, we accumulated debt. Never in our nations history did we borrow so much. Not only that, we thought our assets would keep rising in value so if we ever had to pay it back, we could just sell assets and everything would be fine.
We borrowed. Banks lent. We spent. Incomes were wonderful so long as we could service debt.....and boy did debt grow....to higher levels than our nation has ever seen before.
About a year ago, banks stopped lending so easy. We stopped borrowing so much. We spent less. Business slowed. Incomes decreased. And when our savings ran out, we started defaulting on debt. Defaulting debt starting causing our assets to fall in value. Now many of our assets are not worth enough to cover debt.
Right now, America has something less than $10 trillion of cash in the bank and something over $50 Trillion of debt. As our incomes have fallen to the point where it can't service debt, we either have to tap savings or default if savings runs out.
America is finally waking up to the fact that free bags of money is no longer forthcoming. As a result we have started spending less and selling assets. Auto sales are down 30%. Airlines are shutting down. Banks have few to lend to and its loans are defaulting. Restauarants are slowing. Retailers are shutting down. Office and Retail vacancies are skyrocketing leaving even less income to service debt.
We currently face a very serious problem. How do we replace the trillions of stimulous we became dependent upon. The amount was massive. Not only was the stimulous massive, but the accumlated debt has become a huge drag on our economy.
As our incomes decrease, debt consumes a greater and greater percentage of income and there is little left to spend in the economy. The contraction has been growing steadily and really started to accellerate in June. Just ask shippers, restaurants, retailers, auto companies, airlines, health care companies....just about anyone you want to outside of energy, agriculture, and defense.
Energy, agriculture and defense only account for a relatively small portion of our employment base. The more resources we spend to those sectors, the less available for the rest of the population....and let's make no bones about it, over the past six months, the amount of money flowing to food and fuel has sucked the life out of many other areas of discretionary spending and ability to meet debt obligations.
Without the stimulous of easy credit and the current burden of excessive debt...our economy is breaking at a pace never seen before. You are hearing it from government officials who have never seen tax receipts evaporate so quickly. Businesses wondering why many of their customers are cutting back and when others will come back.
Folks, the evidence is everywhere, jobs being lost, homes being foreclosed, businesses closing, vacancies rising, and tax receipts evaporating.
Now what are we to do? Income is shrinking. Savings is depleting. The banks can't lend. Business is slowing. And we have to keep on going and pay down debt as our assets are crashing in value.
The only asset really not crashing in value is the stock market....for now.
Anyone have an idea what's next????