Diana and the Culture of Death & America’s Sinking Economic Ship
Pieter Dorsman wrote a fascinating post at my own blog about – what he calls – culture of death. It is Pieter’s first post for The Gazette (my blog) and, when you read it, I am sure you will understand why I asked him to co-blog (again at my blog not at TMV). A small excerpt in an attempt to persuade you to read the post:
Diana’s death accelerated the emergence of a new and very public culture of death, now an integral part of the lives of the ‘commoners’. Personally I subscribe to the more private approach to mourning – whether it is a loved one or a public figure – but in our highly individualistic society where tradition and restraint have given way to the unfettered celebration of the self that is apparently no longer the norm.
Meanwhile, Michael Linn Jones wonders whether the ‘unsinkable US economy’ should be renamed as “The U.S.S. Titanic.’ Is the US ship about to sink? Michael writes:
I have said for years that without credit cards, our economy would not look a whole lot differently than it did in the 1930’s. Credit, in whatever form, provides a mask for what really lies underneath. It is illogical for anyone to tout the benefits of keeping incomes suppressed while at the same time bemoaning the fact that things just aren’t selling like they used to.
In the short term, having stewards bring table scraps down to the lower decks (and lower classes) may seem not only munificent, but wise. In the long term it is an insane, cannibalistic process whereby those who drive the economy are starved.
I agree whole heartedly with Michael’s post: the US’ economy seems to be based on credit. People are spending money they do not have. How long can this continue?
6 Responses to “Diana and the Culture of Death & America’s Sinking Economic Ship”
Michael, all modern economies are based on credit.
Reports of the demise of the U. S. economy are highly exaggerated. Don’t get me wrong: there are plenty of problems to worry about. For example, that excessive insurance in various different forms has lead to excessive risk-taking (moral hazard). That’s why our savings rate is so low.
IMO the real concern is that there’s not enough business capital spending.
We have the knowledge, skill, and, I hope, the will to deal with the present problems in the financial markets.
Credit has always been a fantastic economic lubricant.
As long as the creditors can pay.
How does one say this without sounding too unfeeling about those particular individual consumers that have overspent?……….(and of course, while they could justify spending $200,000 on a house, they couldn’t justify $200 to have a lawyer read the mortgage note language for them?)
There is absolutely no higher increment of delinquency or default in fixed rate conforming loans despite the doom and gloom headlines. If you have a FICO of 675, a downpayment of 20%, you can walk in today and walk out with a conforming mortgage pre-commitment letter………..and who with a sound economic mind would buy a house under any other leverage scenario?
At the same time, business is sitting on more cash than it knows what to do with. While the much-touted “private equity” firms have gotten strapped because of their over-levering using higher borrowing rates, regular cash M&A deals continue on at a healthy clip.
While some will suffer a hard lesson as a result of the subprime lending/borrowing and perhaps other forms of over-extension, the US economy continues to post historically very healthy stats overall.
What Dave Schuler said. ALL modern economies are based on credit. All succesful ones, anyway.
I also agree with Dave, and for once Casual. Having credit to spend on things is absoluting the central tenet of capital generation in an economy. Hopefully it gets spent wisely, and when it doesn’t we run into the points Casual hit on.
This whole subprime issue strikes me as very similar to the dot com bust. The economy was stable in general, and with that stability came some folks that were making some money on high risk gambles, in this case subprime loans and last decade in companies that had P/E ratios in the thousands. So after a few guys started making money on that gamble, some real money investors started throwing bad money after good, next thing you know you have huge funds neck deep in these practices that a few years ago any serious financial player would have laughed at.
Its seems like a form of mass hysteria in an otherwise meticulously planned industry takes over. And like the dot coms everyone had to know that the ride was going to stall sometime yet the money kept poring in. Now the entire economy is forced to take a big bit of the Reality Sandwich and things are shaky again. It was preventable and we have to pay a price now, but things will settle down and keep growing. Its all part of the cycle.
“If you have a FICO of 675, a downpayment of 20%, you can walk in today and walk out with a conforming mortgage pre-commitment letter………..and who with a sound economic mind would buy a house under any other leverage scenario?”
I guess this logic works for most places, but conforming mortgages only work up to $417K, if I remember correctly. It costs about that for a 400sqft studio with no parking or outdoor space where I live. There are lots of places in the country where even upper-middle class people would never be able to own their own homes without different financing options. I would agree, though, that things have gotten far, far out of hand with the amount of credit extended and to whom it is often extended — those who cannot or wil not pay it back.