Can someone talk me out of my economic opinion...

[CoffeeCat]

Like Sarah Palin, I only have a degree in journalism--so I'm fully aware that I'm no
economics expert.

I would like someone to enlighten me. Someone...please tell me that my concerns about
our economy--which I believe is headed for a massive shock--are wrong. I'd love to be wrong
AND enlightened!

I see nothing but a deep, traumatic and long-lasting economic shock that will bring
our country to its knees. I'm not talking about a Wall-Street-driven meltdown. I'm
talking about a seismic shift that originates in a fault line that runs straight through Main Street.

This is why I believe this: For the past 20 years, our economy has been propped up by good
little consumers spending money that they don't have. Major credit cards were overused. Most
major retail outlets (Home Depot, Target, Pier1, etc.) have their own store credit cards and these
were overused as well. Also, many Americans used their homes as ATMs--borrowing their home equity
and spending it on all sorts of "things"--vacations, furniture, etc.

I see a major paradigm shift in consumer habits that will slowly evaporate these sources of cash--
and finally cause MOST of this behavior to cease.

In other words, the party is over. Many people are maxed out on their credit cards. They
can't use them if they wanted! Others are panicking and have switched from "spending mode"
to "paying off mode".

Furthermore, I just read an article about credit-card companies playing a role in lessening credit-card
spending. Apparently, Bank of America is saying, "No more dollars on this card" to the lower 60 percent
of their customers. If you have bad credit or if they deem you "uncreditworthy", they cut you off.

In addition, home-equity loans are very difficult to get now. That cash source has dried up.

I think we've all ready seen the beginning of "credit dollars" evaporating. Unemployment is 6.1 percent--the
highest in a decade. People have all ready begun restricting their spending.

The high prices of gas and groceries will only exacerbate this problem, as people will have less
discretionary income with which to "stimulate the economy." The price of home-heating oil
will cause more pressure.

I see a massive downward shift in the U.S. aggregate demand curve. We'll all be demanding less of everything--because
people don't have the money, and those "credit dollars" are evaporating. People won't be going to restaurants, hiring
landscapers or lawn services. They'll stop buying small luxuries, like flowers, gifts, toys, and other trinkets
for the home. People will make use of what they have, instead of buying new--when it comes to big and small
appliances, cars, computers, televisions and furniture. I see many small business failures which will cause
further unemployment and further declines in spending.

I just can't fathom how we avoid a massive, debilitating contraction that causes unprecedented unemployment
(yes, I said unprecedented) and pain for the majority of Americans. I am just an average person, looking at
where we are--and seeing our "credit-based economy" as an unsustainable bubble that will slowly fall to the
ground and eventually pop.

Again, I'd like to know where I'm wrong--or that I'm overlooking some facts or information. I'd like someone to
tell me that I'm misguided or that I'm smoking my socks.

[Warpy]

1. I'm no economist, either. I approach it from an historical perspective

and have come to the same conclusions you have.

We won't be alone, though, this is going to be massive and worldwide.

[flyingfysh]

2. your concerns are not wrong

There is a source which is surprisingly useful, in spite of the title: "American Theocracy" by Kevin Phillips.

He compares long-term prospects of the US with those of the Spanish, Dutch, and British empires. He forsees economic collapse of the US, followed by religion taking on much less importance than it previously had.

[Mojorabbit]

3. I can't help you out

because I'm with you. I see the same thing coming down the pike.

[Jackpine Radical]

4. The main problem with your thinking

is that it is entirely correct. We are about to hit the wall, and at a fair speed. The answer is not to do the bailout, but to rapidly switch gears. We will need to borrow to dig us out of the coming mess, but I believe the way to feed the money back into the economy is with public works projects to rebuild the infrastructure--or, more accurately, to build a green infrastructure. We need high-speed rail, wind farms, solar energy collectors, and massive research projects to develop the next generations of technology. Putting money into that, and helping people pay their mortgages directly, will allow the wealth to "trickle up." Let the high-class Ponzi schemers go hang with their insane derivative packages. Actually, though, if the mortgages that form the basis for the derivatives gain value by virtue of Federal guarantees or copayments, then the whole system is saved, as near as I can figure out.

[ayeshahaqqiqa]

5. Not everyone bought into the "credit is good " meme

but then folks like me have never fueled the economy, because we lived within our means. As more folks try to live frugally, it impacts folks like me because suddenly the second hand shops and salvage grocery stores are crowded with folks I've never seen there before. I'm thinking that now is the time to hunker down, make sure of your connections with your local economy, and to start growing your own food if you can.

[Pyrzqxgl]

6. Well, a sure as hell negative attitude like yours isn't going to help.

I'm no economic expert either but I have to believe that Obama gets in and appoints people to the right positions that are, & we turn this
thing around. It does noone any good to constantly preach doom & gloom (thats only if the Republicans get in).

[ElboRuum]

12. I've lived through a few recessions...

...the S&L scandals, fuel embargoes, bursted bubbles, and repeated stock market dives over the past near 40 years, this is a different beast entirely.

Negative attitudes, though seldom helpful, are certainly understandable. As someone earlier upthread said, we're charging at the wall at a fair speed here.

[emilyg]

7. I agree with you.

[Frustratedlady]

8. I keep thinking this is going to last long enough for George to get out the door...

IF he leaves, that is.

[Waiting For Everyman]

9. Recovery won't happen by doing nothing or more of the same.

The banks and their rates and practices have to be reined in bigtime.

I just heard on CNN that the credit companies made a combined profit of $17 billion this year... and $12 billion of that was in fees.

I know from working at Wells Fargo (the largest and primary mortgage servicer we have) that 100% of the servicing banks' costs come from fees. None of it is "cost of doing business" for the investor.

Rates are way too high from what they would be in a normal market (about 5.25%) and the fee-gouging is killing us. All of it goes to the banks in EXCESS PROFITS. Nobody has limited them at all, and they have rewritten all of our transaction and bankruptcy laws in recent years. The system just won't work that way, it's impossible.

It's a mass delusion, that we're expected to make work. It won't. 2+2 doesn't equal 5.

All of this has to be turned around by a very willful Congress. Do we have that? Not so far. Just for an example - the Consumers' Bill of Rights was overwhelmingly passed by the House recently, but the Senate didn't act on it. And the bankruptcy provision for homeowners wasn't fought for in the bailout.

It can't go on one-sided this way. It simply won't work. It's killing the middle class for nothing but out of control greed (not profit but craziness), and then what?

[nancyr]

10. I wish I could disagree with your assessment.

Unfortunately I know a lot of people who totally agree with it....including me. This thing isn't going to be pretty. There really is a limit on how much more mindless crap the consumer is willing or able to buy. I think our national economy has been built on nothing but a mountain of worthless junk for too many years. It was programmed to fail.

[coalition_unwilling]

11. Certain Keynesian remnants of the

New Deal, chiefly Social Security and Unemployment Insurance, should serve to preserve aggregate demand.

Hence, I don't think we'll see unemployment reach Great Depression levels, but the current recession will be lengthy and severe. I do not envy Obama in the slightest.

[TexasObserver]

13. Reagan, Bush I and Bush II all used massive debt to fuel the economy.

Only Clinton instituted sound fiscal policies, and an era of real economic growth. The GOP presidents broke the country.

Under Bush II, all reasonable restrictions on the credit world were abandoned, and the citizens of the country began borrowing money to live at a higher standard of living than they could actually afford. The past three years have been the tale of a country completely lacking fiscal responsibility, both at the federal level and the personal level.

We are going to be in a trench economically the next year or two. I doubt the real estate market comes back before 2010.