Against Goliath

The housing bubble popped because the government encouraged, through tax loopholes and support of insurance, legal, and government bureaucracy, the spiralling debt of its citizens.   The same thing is about to happen now with student loans.

In 2008 people began to notice that the investment houses they bought for a mortgage of $250k (paying as little as 1% of that amount) could not be sold for $251k or more and stopped paying their mortgages.  The banks noticed that they had a lot of property and not much money.  And no one wanted the property.  It was the definition of an economic crash: loss of confidence means loss of value.  $250k in value changed overnight to no value; the money just disappeared.

Economists call that a “market correction”.  In the stock market you buy stock for $1000 and the next day it is worth $100.  The money is gone, and cannot be recovered unless someone else invests and people begin to believe the stock is worth $1000 again. It is a matter of confidence.

 In larger terms the entire US economy is a matter of confidence world wide.  There is no other currency that enjoys the confidence the world has in the US dollar.  If that ever changes we will instantly join the third world, unable to buy imported goods at affordable rates.  Our dollar, worth less, will not buy “cheap Chinese goods” anymore.

Today we see all over the news, as though the government is trying to prepare us for a disaster and a new rescue program, that US university students borrowed billions but cannot find jobs.  What happens when banks find that no one is paying back their loans?  In this case the banks don’t even hold mortgages to empty properties.  And many of these loans are guaranteed by the government, and the government has special powers to recoup the money from the former students.

Is this all too complicated?  Historically we can see what happens:  a new and expensive government bailout is on the way.  Almost every penny the ex-students make on the books will go to paying back their loans, and interest accumulates.  At minimum wage the loans will take a long time to repay, and they will ex-students will have no take-home pay.  The government will need to provide jobs for those who default on loans or they will be consigned forever to the roles of those, like illegal immigrants, who can only work for cash so the government can’t track them and they don’t starve.

I hesitate to explain the only sane alternative at this time because no one, as of yet, seems to understand the problem.

copyright 2012 Kent Johnson

The American system borrows money to encourage investment in the industries spending the most money on Congress.  Many of the consequences of this system will only be seen when someone has to pay back the loans.  We can all see some of the implications, but the irony of our National Student Loan situation is new to me.

As a nation we have a congressional student loan as large a percentage per capita as any individual graduationg our schools systems.  And we have not yet graduated.  Our governement continues to spend our borrowed money to educate we the people to the importance of all the industries which invest in our Congress.  Money we don’t have is invested in protecting our lawyers and the judicial and taxation industries, insurance and environmental industries,  and now with the SOPA and PIPA laws the arts and entertainment industries.  We are indoctrinated to the necesities of hiring people who add little to the national treasure, and we pay for it with the future earnings of our children.

Our government has already convinced us that making a new law is the way to solve a problem.   This supports the growth of our government and its supporting judicial industries such as law enforcment and law and business schools.  There are several problems with the social dynamics this system creates, and many of those problems will not be evident until it is time to pay the bill.

But much of the destructive dynamic is evident now.  As many as 20 million “illegal” immigrants can work cheaper than Americans because they cannot invest in the system and pay into the welfare and banking systems, creating a huge second American economy suspicious of government.  We imprison five times more citizens than other countries costing us over $60 billion yearly.  Congress alone costs us over $5 billion yearly.  No one knows how much it costs us in mandatory insurances for cars and homes. We have laws that make it impossible to sell a hotdog without insurances, inspections and permits.  There is practically nothing we can do that is not illegal in some aspect without first paying for government help.

Government provides the help, of course, with required lawyers and insurances and taxes and permits which are practically if not explicitly required.  And those industries dutifully pay back to Congress just enough to be sure the system remains the same, that only those invested in the system get elected.  But this system will paid for, in large part, by our children when the bills come due.

When will the bills come due?  It seems to me that will happen when confidence slides in the American dollar.  Economies are only as strong as the confidence of those invested in it.  When confidence slides so does investment.  For a long while our economy has enjoyed world confidence, and investments even from our nominal enemies.  But now the influences of our indoctrination of our citizens to support industries which produce nothing, and deficit spending higher than the Gross Domestic Product, and almost every developing country growing by leaps and bounds by comparison with us due to the fact that they do not legislate every move by their citizens, it seems inevitable we are headed for an economic fall.

Copyright 2012 Kent Johnson