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jlyer
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Name: Timothy
Country: United States
Birthday: 10/11/1980
Gender: Male
Interests: IV Christian Fellowship, Swing Dancing, and writing computer scripts
Occupation: Computer related
Industry: Computers (Software)
Message: message me
Member Since:
10/13/2003
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| What is at the root of this economic crisis?Because nidan and I were talking about this problem on his weblog, and I referred to this unpublished SearchingForAlethia post. Right now, I don't feel now is the right time to publish this over there, but since it was a topic of discussion between myself and nidan, I decided to copy it here. So here goes.
According to Generational Dynamics -- back in the 1950's, there was no doubt in anybody's mind in what caused the Great Depression. Everyone knew. And believe it or not, it could be summed up in one word.
Greed.
In the Great Depression, a whole generation learned the value of saving, the value of working for a living, and the value of living within your means. Those with thousands of credit card debt were in the minority. It actually used to be that you saved 20 to 25 years just to buy a house. In the Great Depression, people moved into the same house together, lived in cramped quarters by today's standards.
Problem is...that generation is now senior citizens or dead. They are no longer running our country. Today, we have baby boomers and their offsprings, the generation X-ers. And we think we know it all. Where is the humility, and respect for our elders?
Today's generation took risks -- they let their greed get the best of them. This is true at pretty much every level in society. Let's start from the top and go down.
1. Wealthy people got greedy.
A: Never before have we seen CEO's making 500 times what the average workers earn. Yeah, even when they run businesses down into the ground, they still walk away wealthy. Accountability is out the window. I think I remember reading in one of Robert Stearn's book that Winston Churchill wrote two letters to the head of England in the midst of a major war in World War II. One of the letter was his resignation letter for a failed military action. The second one was to praise the troops for a task well done. They were successful, so the resignation letter got discarded. But the point is: Winston was fully prepared to resign if his military strategy failed. Do we see that kind of attribute today?
B: They invented ever more complicated, and oftentimes unregulated economic instruments. Like credit default swaps -- which basically lets companies say "if I fail to pay my debt obligation, then you have to cover for it". That is kind of like life insurance for companies. Except...it was abused.
Let me step back a bit -- how could it be abused? Problem is if you sell CDS, you are basically insuring someone else's debt. But if you buy CDS, you get paid when that person defaults. Back to life insurance: it is illegal to buy life insurance on someone else. Why? Because if I buy life insurance on somebody else, then run them over with a car, I get paid (ignoring the legal consequences, that is). Now, this is almost exactly the type of entangled web the financial world has gotten itself in. There is trillions of dollars in this interlocking system where people bet on another company not being able to pay its obligation, sometimes the "bet" involves more money than the debt itself!
C: If a competitor comes up that might be viable, lobby the Congress, shower them with money (some politicians did get greedy here) so that they will pass laws that will help MY business, and help me kill the other guy's business.
D: More recently "Hey, I'm too big to fail, bail me out!"
2. The middle class got greedy.
Admit it: many people have lived beyond their means, running up credit card debt. They also bought house not for the sole purpose of living, but also out of hope that it will continue to increase in price. Yes, even if they couldn't afford the actual mortgage, they listened to the greedy lenders who got commissions on the bigger price tag house. Yes, the real estate brokers and lender brokers were greedy since by selling the house, they get a hefty commission. There was nothing in the system to make them accountable if that loan was to fail! So lot of them made loans that they knew was destined to fail.
3. The poor got greedy.
First, and this is probably part of the politics blame wars -- but out of desire to "help" the poor people get into good houses, the Clinton administration set up a law that required lenders to approve those who cannot afford the loan.
Second, there is plenty of attitude of "entitlement" among the poor that "poor me, I don't have a job, so you have to pay my bills". Seriously, I see it in some deaf friends (love them anyways) that are on SSI and don't see a point in getting a job!
4. Government got greedy
Our elected representatives have jobs too. Their job is to make laws on our behalf. Their job is to represent us. If you are a politician, the last thing you want is an economic collapse on your watch. Little thought is given to the long-term viability. Especially if it is election year this year. You know, if there was anything unique about George W. Bush -- he is the first president in many years for which we were in a recession each time there is an election coming around! Most politicians usually do what they can to be sure the economy is doing well when their job is up to the election.
Nevertheless, what did this lead to? This led to the mindset that the government is responsible for the economy. The politician's job, for better or worse, is often to make sure that if there is the slightest bit of hiccup in the economy, they need to do something to stop it. The stock market actually perpetrated this short-sightedness since businesses and stock owners increasingly focused on short term. Since when does earning 15 cents per share make such a big difference because it doesn't match the "analyst's" 17 cents per share! Show me a business that has stable earnings that grows at 10% every year! That simply isn't realistic, and I don't care if my business earns 10 cents one quarter, then 20 cents the next, then 15 cents the one after that. Lumpiness is how real business is. Enough about that, short term focus is also where Federal Reserve came in. Anytime there was a hint of a hiccup, they had an idea: lower interest rate to pump money into the economy and all will be well. Except...they did that in 2003-2004 with the interest rate at 1% for a year in a time when housing prices were shooting into the stratosphere. Oops. I think Greenspan and Bernanke ought to get on the news network and publicly apologize for their serious lapse in judgment.
That is strike 1. Strike 2 is I suspect that there are businesses that are pouring money into some representatives so that they will vote for issues that interests them. If you decide not to vote for those interests -- they will find someone else who will, pump money into their campaign, and convince the rest of the citizens that the guy they don't like is no good. Remember that those corporations control the media -- so don't believe everything you read or see on TV.
Strike 3: This has been going on for too long. But since when is it a religion that once you are hired as a government employee, you are free to stay a government employee the rest of your life. I'm thankful that lately we see SOME layoffs and cost cutting, but that isn't normal for the government. Especially Federal government. I'd also like to add another one: if you are a government employee, you are shielded from inflation. They automatically raise your salary with inflation, even when the rest of the business world is suffering and people are making cost cutting moves and lifestyle changes in order to deal with their reduced buying power.
Wrapping it up
Yes, sometimes greed, and desires that we have as human can help drive us to improve our life, and the situation around us. The problem is that it is counterproductive when it propels us to do things that we know we cannot afford to do. There is also a somewhat prevailing attitude among today's generation to give a few examples:
1. If he doesn't take care of himself, too bad, tough luck.
Problem with that mindset is that is a bit harsh. That is not conductive to having people work together, and being generous with each other. We need to learn to love one another.
2. I want to do it myself, I don't need anybody else's help.
Look: human need social interaction, we need each other. I see this more often among the disabled who feel entitled to living independent whereas there might be a time coming shortly where it simply is not economically viable to provide the expensive equipments to make such an endeavor possible.
3. There's a program to help that guy, let him get help there, I don't need to do anything.
Seriously, people do think that way, even if only subconsciously. It is hard to see this attitude in our own society, but it is more obvious when you look in another culture. South Korea to the rescue:
Blind masseurs in South Korea
Think through that example. *IF* there was no law saying that all masseurs shall be blind...would you think that this attitude would be prevalent in South Korea that massaging people is the only thing blind people can do? See how laws affect attitude: when there are laws that helps the disabled, people start assuming that the law defines the person's capability, and worse yet that it takes care of ALL their needs. Sorry, but that isn't true.
I'll close with a good story I heard at Flying Hands of Faith. There was this precious brother in Christ who routinely helps deaf people, and advocates for rights of the handicapped. One day, he was at DC for a protest for handicap rights. It was hot and sunny outside, and there was a long line. There was a lady in front of him in a wheelchair that couldn't really move her head or something. He saw a place selling hat on the street side, went in, bought a hat to block the sun, and put it on her head. She was quite grateful that he took care to make sure that her head didn't get sunburned. Let's learn this type of human decency -- it is every one of our responsibility. | | |
| Oh man, another reason NOT to take HPVNow, I know some of my readers have said that the HPV vaccine is dangerous, and railed against it because it causes women to get sick, and sometimes causes permanent, chronic health problems in them.
Hmm...Dr. Mercola, a leading natural health site analyzed the HPV. He said that, well...
1. Only 400 girls in England die from it...most time Cervical cancer is NOT fatal -- our immune system is capable of fighting it.
2. 98% of the cervical cancer is not caused by the virus the HPV vaccine protects against.
If it is not a major public health concern, why are they pushing HPV to this extent?
Mercola's theory is shocking:
Because it contains an hidden anti-fertility agent in it called Polysorbate-80, that once a woman is vaccined with it, she cannot carry a child to term. The idea is to use this as a worldwide regulation of population growth. They are doing this in another country like Brazil (there is a massive, mandatory vaccination program in Brazil over a minor health issue too), and in Brazil the agent is HCG (human Chorionic Gonadotropin (hCG)). But mind you, at this stage Polysorbate-80 has not been proven to have this effect in humans -- whereas the Brazil vaccine ingredient has been proven to have that effect.
Link here. You probably need to register to view it, but registration is free.
-Tim | | |
| You get to see it first!I just started a new blog over at wordpress.com. Here is the link:
Searching For Alethia
I've been thinking about spinning off a different blog for a long time. I finally took the plunge, and I have a couple of posts on my mind planned for that blog. Let me know what you think about the name of the blog, the goals, etc. I think that eventually, I'll supplant "Searching For Alethia" with a different blog later.
The thing is that, over the past few years, I've posted a lot of things on a wide variety of topics here, and more recently on my facebook notes. But I've often felt that some of the posts were a bit too "impulsive" for my liking. I'm trying to work towards maturing in that area, especially with a blog that has a goal, and a set of overriding principles that I'm to follow. I feel that learning how to discipline yourselves in what you say and don't say on blogs is an ongoing process, and "Searching for Alethia" is but one step in the process, I think I'll eventually be able to do better than just "searching".
In my personal growth, the last 3-4 years has had its shares of up and downs, often I encounter situations where I feel overwhelmed with the volume of contradictary reports in the media, news, various forums, or journals. In the last couple of months or so, that seems to have changed. I seem to be more stable, more at peace with what I know, and more able to look at the situation and the different reports from 3rd party perspective. This gave me the confidence that I'm ready to move to the next stage.
Will I still post here? Probably. I might post some things I'm thinking about, but am not comfortable enough posting over there. I'll still be subscribing to other people's xanga's, etc.
-Tim | | |
| Unemployment can be a good thingBy now, I've been siding more and more with the people who believe that we will have another depression of the same scale as the Great Depression. The stock market has gone down much, but I think the worst is still to come -- there is going to be a day when everyone is going to be trying to sell everything on the same day.
I also think that we will see a big failure in Keynesian economic policy. Now, Keynesian does have some point, by and large lot of economists today subscribe to it where if you keep expanding the economy and encouraging mild inflation, that is a good thing. Keynesian also believes that recession or depression is avoidable by lowering interest rate.
Problem is, Keynesian economic policy misses one vital part of the equation. That of the consumer demands, let alone the problem that you cannot have a whole nation in debt and I'm talking about the $9000 credit card debt an average American has. Anyways, why do I say consumer demands? If you think about it -- what you want to buy today differs substantially from what you want to buy even 10, and most definitely 30 years ago. This means that what the businesses need to be producing today has to differ from what businesses are producing 20 years ago in order to satisfy the consumers. If businesses fail to adjust to consumer demand, then it is fair for that business to collapse.
Now, consider that, for many years we have had low unemployment rate. Less than 5% is definitely low. The problem with low unemployment rate is that if most people are employed, and you are a businessman who has a very good idea that will really make consumers happy, it is harder to find workers. Especially good workers, because those workers would already be tied up in employment in another area of the economy that has less of a consumer demand.
This is why career mobility and occasional unemployment period, including recession (or depression) is essential for a thriving economy. When unemployment is high, it is now easy for business that really do serve the consumer's desire to find workers. Especially since there are many workers willing to work, and sometimes even for less than they used to earn in the past. As opposed to what Keynesian are trying to say: recession shouldn't be erased off of the map, recession should actually be embraced as an essential component for our advancement as a nation.
The problem, however is that because Keynesian economists don't see it that way, they try to stop any recession as they show. This maintains the status quo of where people are working, and interferes with the effort of the economy to realign employees with consumer demands. This is why Japan had a depression for so many years, despite repeated efforts by central banks to lower interest rate and even pay companies to employ "window sitters". In another words, the effort to fight recession (including the Feds lowering interest rate to 1% and keeping it there for 1 year in 2003-2004) actually prolongs the problem, and further stretches the distortion in the economy. It would be nice if we could prolong the corrections indefinitely, but the problem is it isn't possible to prolong the correction indefinitely. The efforts to prolong it only increases the number of problems that has to be corrected. When correction finally comes, it is even bigger, and worse than if we had never bothered to try to fix the problem in the first place.
In another words, in a true free market, there are cycles, yes. But those cycles aren't as big as the cycles we see when there is a central bank trying to smooth out the cycle as much as possible. As I explained, the central bank actually makes the cycle bigger.
As for what to do in an event of another Great Depression -- now might be the time to look into what industries you think would be most in demand during a time like this. Problem is that a depression itself can distort things because in this instance, there is a credit crisis. This would make it harder for new businesses that would meet consumer demand to raise to the fore (especially when you have Feds lending to existing businesses to the potential detriment of those that have a fresh idea that would be successful). Furthermore, there is also the fundamental problem that lot of our consumers are in debt, so even if they want something, some of them can't afford it.
As for debt, I think it is part attitude of the consumer, part federal government policy that actually discourages saving, and part the accessibility to easy credit (fueled by Federal Reserve). It will have to be unraveled, and I think that is why we will probably see (and in a sense we need) a depression.
-Tim | | |
| Thought Experiment: Do we need lending?Like I said in my prior post -- I think lot of the problems we have today is because people are borrowing for pretty much everything. Hey, even banks are borrowing -- lot of times, you deposit $1,000 in a bank, then based on that money, they are legally able to lend $10,000. Where do they tend to get that borrowing: from the Federal Reserve. Anyways, this phenomenon is called fractional reserve banking.
Anyways, what has happened lately is that lot of people got rich by borrowing money that they didn't have to invest. Lot of this is because the Federal Reserve allows it to happen -- out of the idea that more money is better, especially when we are in a recession. I'm not saying borrowing is a bad thing -- rather let's think through what it would mean if we didn't have borrowing at all -- make borrowing money illegal.
Now, suppose you have a cool business idea that you want to be funded. How would you get the money to start up your business? One way to do that is to save money yourselves from your day job to start with. Then when you have enough, you can start putting the money that you have saved towards starting this business. If it flops, it flops, and you haven't hurt anybody else.
Another way, which can work in combination with your personal saving is to find somebody who has money they don't know what to do with, and ask them if they would be willing to fund the business in return for some of the profit. This isn't lending -- this is part ownership, basically an equity stake. The crucial difference between lending and equity ownership is that equity owners know that if the business goes under while they maintain their stake, they shouldn't expect to get it back. If they want to relinquish their stake -- they need to find somebody else who would buy their stake. The difference between lending and equity is the former is a liability, the latter is a capital.
What about car? Hmm...we can pay per ride on the bus, lease a car (meaning someone else owns it, but you pay monthly to use it), or some car sharing programs like flexcar or zipcar. It is increasingly becoming my opinion that borrowing to buy depreciating assets (that includes car) is an horrible idea. This doesn't mean I'd never do it, but it does mean that when it comes to "investing", you are actually throwing money away the moment you buy a car. The moment you leave that lot, you probably can't sell it for the price you paid for it.
What about house? Well, renting is always an option -- it wasn't until about 50 or so years ago that people got the idea that they have the "right" to be homeowner. Sorry, nobody has the right to be an homeowner -- if you don't make enough money for whatever reason, then, no, maybe you shouldn't own a home. Most people were saving for 25 years just to buy a house in the olden times. During the Great Depression, two families would actually share the same roof (and consider that the houses were smaller back then). In other parts of this world, lot of people don't have nearly as much as the least of us Americans have. There is nothing in the bill of rights that say that we all have to be homeowner. It also wasn't until recently that lot of people have been sold the idea that "oh, owning a home is an investment that will pay off", encouraging them to get loans that they couldn't afford anyways. Another new invention was the no down payment loans, sometimes even with 1% introductory interest rate! Is it any wonder that home prices went up to twice their historical inflation-adjusted value by the end of 2005? BTW, it has only backtraced maybe 25-30%, there is still 25%-40% to go from here.
What's more is: I don't think that healthcare coverage or retirement benefit is a given. If somebody wants to retire bad enough -- let them save, let them invest and find a way to make it possible for them to retire. If someone wants health insurance, let him buy it, or look for a different job until he finds an employer who provides health insurance. Apostle Paul said that if anybody isn't willing to work, let him not eat. Eating -- that is even more of a necessity than a house, a comfortable retirement, or health insurance.
Speaking of health insurance -- I think the cost of the insurance would be best controlled if more of it was paid for out of the pocket. Consumers would demand that the prices come down -- there is nothing more effective at reducing cost than consumers looking for alternatives. If they want to buy insurance, and the insurance company does preliminary physical test, find they have unhealthy lifestyle -- let them fix that, then see their insurance go down. Mind you, even if insurance companies disagree with the consumer about the true definition of "healthy". Keep in mind that some insurance company, if they have done sufficient research, could spring up that realizes "oh, the consumers are right, their health diagnostic doesn't really reduce medical costs over the long run", and therefore undersell other insurance companies using the old system of evaluation, or with a different set of benefits. Then the prior insurance companies will have to rethink their approach. Right now, medical costs are going sky high and lot of people are losing insurance because of one reason: the consumer's true desire in insurance products is not allowed to be measured correctly. What I mean by that is: consumers do want to have those physical exams, they do want to see a doctor when they get sick, and they do want to have the medicine that will cure them (that third point is debatable -- some medicine makes people worse). But, wait a minute -- those services isn't REALLY what consumers want. Let me tell you what consumers really want, and I think you would agree: I think consumers want to be healthy! Nothing else matters -- insured or uninsured, we all want to be healthy, and live comfortably, right?
But the question is how much do they want those services? If it only costs them $10 a visit, lot of them are game. But if they are asked to shell out the true value of $100, lot of them would balk at seeing a doctor, unless they are convinced that it will truly help to keep them healthy. Anyways, bottom line: because the true cost of care is not seen by the consumer, it is a whole lot harder for the market to control healthcare costs. If consumers were paying out of the pocket for more of those cares, and using insurance only for catastrophic coverages -- I'd think that healthcare cost wouldn't have gone totally out of control like it has today. Consumers would have had to do their homework, figure out what service they need and don't need, and the relative prioritization of it in comparison to other things in life. Sadly, I think even consumers are brainwashed by drug companies. When they get sick, the first thing they think of is "what medicine can cure this?"
Just FYI -- I'm not sure I trust my doctor, my dentist, or any of those healthcare service people. I think most of them have been brainwashed by the drug companies and they are basically there to sell drugs. I'm more apt to trusting alternative medicine approaches to different problems. I think that the diagnostic is very good right now (meaning, it is useful to get your cholestrol, blood pressure, heart rate, etc tested). But the treatment is often wrong. Sometimes rational patients have to decide "we're not going to accept your treatment", and look for alternatives. But for that matter, the risk factor of someone with high cholestrol is not as much as lot of medical establishment would have you think, especially if you never had a heart attack. Sadly, both medical establishment, and sometimes even alternative medicine tend to use scare tactics to convince people that they need to follow their recommendation or else.
I think bottom line is: I don't think that the economy should be as dependent on borrowing as it has been thus far. We can make a comfortable living without being in any sort of debt.
-Tim | | |
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