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Doom and Gloom Redux

In 2008 – four years ago! – I penned a doom and gloom email that Greg posted to this here blog (with my permission). Soon thereafter, he invited me to join as a regular writer.

To sum it up, I thought (and still do believe) there is no way the government can automagically print currency in an effort to create real wealth. Paper is not wealth.

I expected inflation to hit much harder and more dramatically than it has. It’s been far more restrained. I suspect this is because that paper has been disproportionately sent to particular areas of the economy – large banks, for instance – that continue to hoard it.

I’m sure you don’t need me to tell you how easy it was to get credit in 2005 (when I bought my first home) compared to 2012 where the bank made me jump through all sorts of hoops to refinance a home I’ve got even though I’m in a much more financially sound position today than I was in 2012.

Still, my prediction that this recession would last years and years has borne out. I believe we are still in the first half of this financial crisis. That it simply feels like a crappy “normal” existence is a consequence of its duration.

But you aren’t getting the worst of it, unless you’re a recent graduate from a college or, wait for it, law school and now finding yourself saddled with six-figure debt earning a low five-figure salary.

Educational debt – non-dischargeable in bankruptcy – is like mortgage debt which is not cram-downable. That effectively keeps a whole class of citizens in debt-poverty. You can say, as you can say about indebted homeowners, that they made that choice of their own free will (I don’t agree with this view…), but the fact remains that hundreds of thousands of people in their mid-twenties and thirties are saddled with enormous debts punishing them for choices they made when they were 18 and 19.

This is not good for the economy, or society.

The consequence is an economy that limps along until this debt is cleared out, which means for the next 10 to 15 years.

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  • 10 comments

    10 Comments so far

    1. Ashlee Anderson December 30th, 2012 12:16 pm

      Although we are only making short strides to improvement and we perhaps have not seen the worst of it, I can say that things could be a lot worse. I do not even sort of agree with many of the decisions our government has made in the past few years but at least they have kept us from free falling, maybe out of shear luck? I likewise saddens me how much we as a nation have become complacent and accustom to our financial issues. Actually that scares the crap out of me. Hopefully it is not another 10-15 years, but that will necessitate a government that does not make counter productive decisions that affect the middle class, our backbone if you will.

    2. Jeff Brown December 31st, 2012 9:52 am

      Hey Damon — What would be your solution?

    3. Damon January 1st, 2013 4:08 pm

      Make mortgages cramdown-able in bankruptcy. Make student loans dischargeable in bankruptcy. End federal guarantees on any loans. Cut military budget by 75 percent

    4. Greg Cremia January 2nd, 2013 11:55 am

      “Paper is not wealth.” True. The paper represents the wealth in all of America combined.

      If the paper only represented the wealth in gold possessed by America then our currency would be subject to the market fluctuations of gold. When this gold bubble bursts we will all be thankful we are not on the gold standard anymore.

      I agree with cutting the defense budget. $1.2T a year to fight a rag tag mob of terrorists is overkill to say the least.

    5. William Miller January 4th, 2013 6:34 am

      Money and paper? – Interesting issue! How about a 16 billiards debt? And it’s rising every second.. What can we do about it? How many years do we need to make this figure fade away? How many generations? I think this boat sinks, gradually. And we need to save our souls and departure in different, more stable countries.
      I would choose Sweden or Saudi Arabia for a good place to live in.
      What country would you choose or do you think we still got a chance?

    6. Thomas Johnson January 5th, 2013 7:26 am

      William: If Saudi Arabia is a safe harbor, you must be male with no female family.

    7. cooksquared January 6th, 2013 4:22 pm

      I think a lot of people are arguing from a place of convenience. If we were to do as the tea partiers suggest and cut spending dramatically, people would still be without jobs and we would be a bigger version of Greece.

      Cold turkey fixes only make the problems worse. I personally, think we are all in much better shape than we were 4 years ago and I see prospects getting much better.

      Real estate prices are stable or going up most places even with tight credit markets. Say what you will about the policies that got us here, but it would appear that we are poised for growth.

      More people have jobs and those jobs are paying more. Look around the world. We are in better shape than every other country. I guess we all have to complain about something, but I personally think we have the least to complain about.

      Our national debt is a global problem. I dont believe any discussion of a reduction of our national debt without the consequences to the global economy makes sense. I am open to discuss this issue, but in my opinion, we have endured a better 2008 – 2012 than any other major nation in the world.

      Please prove me wrong.

    8. Derek January 8th, 2013 1:37 pm

      I agree! I luckily went to a school that was more affordable than others and don’t have much longer to pay off my debt but I have friends and family whom did not. The amount they will be paying for most of their lives will be completely outrageous! Some were unable to get jobs in their fields resulting in student loans that are almost unpayable. Often I think our education system is assisting in the floundering of our economy…

    9. Eric Bramlett January 10th, 2013 4:07 pm

      If you make student loans dischargeable in bankruptcy, rates will jump as high as any other unsecured loan. The standard OP would become “graduate, BK, rebuild credit, back to normal.”

    10. jimi January 11th, 2013 9:05 am

      Cooksquared -

      For every $22 the Feds are collecting, they are spending $38. That’s on top of the existing debt. We have to address spending and entitlements. A no-growth economy while burning up the Fed Credit Card.

      Poised for growth? We just added 8.4% (to 23.4%) to the Cap Gains and Dividend taxes, making hurdle rates tougher for all investors. Sure real estate is firming, mostly due to stopping the new supply for the past 5 years, but where are the jobs going to come from? Other than domestic drilling, what US growth industries do you see?

      Actually, the nations that have done the best over the past 5 years are tied to commodities – Norway, Finland, Canada, Austrailia – they’ve showed modest growth without adding debt.

      The one thing we agree on is the need for economic growth. Your endorsement of federal spending our way to prosperity is where we part.