Tuesday, February 19, 2008

Sinking Sand

I read this article, which sounds pretty much like doom and gloom. But I am not sure it is.

After all, if the economy is based on emotion, consumption, and the uncontrolled granting of credit, the bottom has to fall out some time. The scenario sounds more like a huge correction than doom and gloom.

That being said, even approaching the worst case scenario could cost a lot of people their savings and their 401(k)s. Many companies could have problems. Banks could go out of business. There could be mass hysteria, rioting in the streets, people mandating that government provide for them (oh, that last one is happening already, I forgot). Maybe even governments defaulting.

So that means the federal government must step in, right? The writer of the article tends to think so. But isn't it the government that has fostered all of these moves - lending credit to those who don't deserve it in the name of fairness, attempting to control the markets through the Fed, and promoting an economy based on consumption - that put us in the situation we are in?

I will truly be sorry for the U.S. if this scenario happens. Many people will have built their financial foundation on what they believed was right: retail investments, such as stocks and bonds. They may lose that foundation after decades of building it, or retire with drastically less then they had 5-10 years prior.

The wise will keep both eyes on the economy and the markets. But that is not the rest of the story....

Not all our wealth comes from the markets. It comes from the gifts and talents we have been given...our ability to think and reason...our ability to bend, but not break...our ability to work...our ability to live below our means. You know, the stuff WE were taught - and hated to hear - when we were growing up at home.

The traditional, orthodox method of survival: working hard, saving what you could, and investing what you had left over. It's still the best program for success. It keeps us humble and aware of our environment. It keeps us from thinking the almighty markets or, heaven forbid, the government can straighten things out for us. It keeps us from becoming lazy, and keeps us mentally acute.

And last but not least...when were we supposed to depend on the markets, anyway? I cannot remember a time when Christ said to lean on government for our livelihood, or look to the market to financially save us, or to strive for the work-free lifestyle. Those are all by-products of our society, not the teachings of Jesus. We praise God for the good times; let us remain faithful in Him when all about us are flailing because of their reliance on mammon.


chaplain7904 said...

Quip writes:

"...when were we supposed to depend on the markets, anyway? I cannot remember a time when Christ said to lean on government for our livelihood, or look to the market to financially save us, or to strive for the work-free lifestyle. Those are all by-products of our society, not the teachings of Jesus.

Reply: The (free) market is a means or tool to create prosperity. It's a God-given tool and blessing. However, what we have is a highly regulated and manipulated market. This is much less of a blessing, to say the least. But...we still need a market. Even if it's neighbors bartering. No one can provide everything for himself. Men have always traded goods and will continue. The question is, will it be efficiently done in a free and un-manipulated market, or will it be hampered and cause more misery?

As for depending on government for our livlihood, all I can say is: you won't have much of a livlihood. The government only knows how to spread misery around. It makes no one prosperous.

Lastly, a work-free lifestyle SOUNDS appealing. But it is pure misery. Our very survival, peace of mind and happiness requires! that we have some meaningful work to do.

Scott said...

How funny it was that when I clicked the link and began to read Mr. Greenspan's quote in the first paragraph, "we were facing not a bubble but a froth," that the advertisement block immediately below that text was for a Dunkin Donuts Latte!

At any rate, the markets recede. It's a fact. Big ones happen every 20 to 30 years. We've been here before. We'll be here again.

Hold on tight, buy good companies as they continue to go on sale CHEAP, avoid credit spending, live below your means, and you stand to come out the other side a very rich person. Coca Cola is not going to fold. Exon is not at the edge of bankruptcy.

The biggest difference today is society and the welfare norm. It is expected that the government take care of everything. Our parents and grandparents knew it was not so, but today, the majority of the population doesn't think that way. Unfortunately, that includes many of our parents!

The rugged individual which the United States was known for is a nostalgic ghost. We all want to suckle at the teat. we're snivelers and frightened little girls.

GDAEman said...

If the correction is big enough, and long enough, it might qualify for the "gloom and doom" category.

Some people who got a college education on the GI Bill might differ about the government's role in spreading prosperity. The government guarantee of mortgages after WWII also helped build the middle class.

Maybe it's just a coincidence, but once Reagan came in and started all this corporate free lunch, I mean free market stuff, it seems the jobs started going off shore and the middle class started to see the next generation not doing as well as the last.

Less government isn't always good. Good government of the people is good, but it takes vigilance.

Rick said...

Chaplain: I'm not slamming the markets, just putting them into perspective. We seem to have two parties in this country (ick, another two-party system): those that want government to fix everything, and those that rely on retail investments (i.e. the market) to make everything better for them.

Scott: Yabut, to trash a Clinton campaign slogan, "It's NOT the market, stupid!" (Not directed at you.) The point is that people tend to decide their fates based on the markets. Whether the market is performing well or poorly, a good majority of us still have our individual ability to produce. (Yes, there are exceptions.) So why do we look at the market to solve our problems when, realistically, we can improve our lot in life regardless of the markets?

GDAEman: I am not for corporate welfare in the least. That skews the profile of the American economy. If industries or companies should die a natural death, let them. Let's be sure to differentiate between free markets and entitlements.

chaplain7904 said...

Reagen wasn't responsible for this. The Fed, is responsible for it all.

Left alone, the free market works out most things sooner or later. But wage controls, price controls, regulation, and especially the control of the cost of money is what has ruined our nation.

Not only this, though. It was inevitable because we couldn't keep a secret like America very secret in a world of radio and television. Everyone saw what we had, and want it too. Now suddenly we've got competition by people who are hungry and willing to work harder for less.

With the possible exception of ancient Egypt, no nation in history has ever retained the lead for long. Empires wax and wane.

But we didn't have to do so quietly.

Scott said...

The point is that people tend to decide their fates based on the markets.

You left out the word "ignorant" before "people."


Tough times happen, and I guess folks use the markets as their barometer for when the sky is falling.

Your investments may be worth less now than they were 6 months or a year ago, but stats show if you hold for five years, you will see gains. Short-sightedness makes trouble.

GDAEMan, "Free trade" is much different than "free market." The free market is the best thing economically. The government is supposed to be "hands off." They have no constitutional authority to be as involved as they are.

Other people who would disagree about the gov'ts role in spreading prosperity are the Cadillac-driving, 15-child-bearing, able-bodied-yet-work-loathing welfare leeches whose home and food bills are all paid for by me. Yeah, I should listen to them. No conflict of interest there! ;-)