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Economic Apocalypse: What If?
What if the stock market fell from 11,000 to 5,000?
What if loose credit evaporated overnight?
What if people who took outrageous mortgages and debt were sent back to a reset point?
What if people had to rent a place to live and save up until they had a reasonable down payment and mortgage payments they could afford?
What if some people lost their highest paying jobs and had to take lower paying, local jobs (or even two) to make ends meet?
What if credit became tight to the point where average households couldn’t have nine credit cards each, couldn’t spend 133% of their annual income every year and actually had to save up money to buy things?
What if they had to save their money for retirement in fixed rate savings accounts and lower interest bonds or treasury bills?
What if CEOs couldn’t make hundreds of millions per year because the market collapsed on them?
What if companies who ship American jobs overseas and offshore their manufacturing operations no longer had a market to sell their goods at “home” because nobody could afford to buy them?
What if this exhausted, heavily-whipped engine of commerce collapsed on its knees on the track?
What if those companies had to begin hiring people back home to make their products so there would be a market for them again?
What if speculation became impractical because people would only pay what things were actually worth?
What if people couldn’t afford the next biggest flat screen TV and the next thinnest Jesus Phone every season and had to make do with what they had for a few years?
What if manufactured items had to focus on quality instead of disposability because consumers could not afford new versions every year?
What if we had to repair some of our own clothes and household items so they would last longer?
What if some of us had to either grow some of our own food or provide services for people who provided food for us?
What if we all had to sweat out some hard work and hard times and eliminate all of our empty debt and actually live within our means?
What if our government was actually forced to do the same?
What if?
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31 Responses to “Economic Apocalypse: What If?”
You know, a version of this scrolled through my head earlier today. Nearly every finance expert seems to agree that without a bailout, the economy is headed towards recession. I am young and have not had to earn an income during a recession, but I think it is interesting that the people pushing the bailout say “recession” like it should be the only motivation needed. But what if a recession actually helped us to right our financial house? What if the market doesn't need a slap in the face, but the American people and American government need a slap in the face? Maybe we could then get some real leadership that will make some hard choices about cutting spending, increasing taxes, and asking the American people to get to work moving our country forward.
Honestly, I don't see any of this as a bad thing. I've thought for years that we are headed for disaster because we are spoiled, entitled brats. Maybe it's time we wised up a little and had to live a little more locally and a little more frugally.
It would be heck of a reality check eh? Imagine a country run on personal responsibility, trust, common sense, cooperation – and maybe even a worthy vision for our country – like a commitment to the common good!!! Who knows, maybe we could even recapture our national soul. The transition from where we are now is a long long road. We need to start looking farther ahead though, all this short-term, politically inbred, self-serving, divisive governing is ruining us.
JSpencer and author, I appreciate the positive tone that this article and your comment takes. I wouldn't mind living in a country like this, even if it takes a lot of pain and work to get there. I'm having a hard time stomaching the whole “the sky is falling” stuff that seems to be coming from everywhere.
Author and others above, I also agree. My wife and I have been trying to live life as described above – modest rent, one credit card, no excessive debt, public-transportation-riding single-vehicle household, second-hand clothes and furniture – not because it was all we could afford, but because it felt like the “right” way to do it. Many times we questioned our sanity as others around us bought fancy cars, pricey electronic gadgets, nice new homes – and we wondered how the hell they could afford it. I certainly don't wish economic pain on others, particularly those looking to retire within the next few years, but it is certainly a bit of a relief to know we weren't the crazy ones afterall.
May I just say that both my wife and I are feeling far less silly than we were when she helped me compose this? Thank you all.
Duskglow, after your comment I became concerned about the positive tone of my post, and so I added a little more.
Seriously, I didn't want to make it sound like I hold the govt. any more responsible than I do the citizenry.
Why would you feel silly? You're being proven right every day..
Jazz
As you may recall back in the Running Scared and MEJ days four years ago I said we never had a recovery because it was all based on credit. What if indeed? What if companies had to keep some good paying jobs here in the US if they wanted customers? The pain might be worth it if we end up in that more realistic and sustainable condition.
What if people had to rent a place to live and save up until they had a reasonable down payment and mortgage payments they could afford?
Meanwhile, back in the real world once your credit rating is trashed you can't even find a place to rent.
What if some people lost their highest paying jobs and had to take lower paying, local jobs (or even two) to make ends meet?
And back in the real world many many people wouldn't be finding jobs of any kind to make ends meet. The wonderful free market doesn't manage to provide them, you see. And anyone who thinks that it does is a hopelessly ignorant doofus. Sorry, but they just are.
Romanticizing a crash worse than the Great Depression. How refreshing. Because that's the kind of pain that is being so casually bantered about here. It's the only level of disruption that might produce a completely destroyed society that if everything worked out just right could be reshaped that radically. I don't think that one person posting approvingly of this magic return to the good old days really has a clue to the kind of suffering they are dismissing so casually.
Eh, Ron, you and I are old fossils and people don't think like that anymore. Particularly people like Jim. Of course, in days past it seems like people somehow got through harder times, but we're facing a lot of people who can't imagine not having that next big screen TV. Not ever adjustment is 1929. Adjustments are all hard, but they're not always dogs eating the flesh of corpses in the streets. But if you don't have what you have today, it probably seems that way.
Jim, I don't have any romantic illusions about such a change; it would obviously be painful as all get out. We didn't get to this sorry state overnight, it's been building as a decades long party that is finally crashing. Along with such a transition would be an upsurge in crime and hardship beyond what even those who struggle now experience. I remember hearing of stories from my grandmother about the depression, and much of it was sobering, to say the least. Nope, nothing fun about it. Too bad the powers that be (and the self-involved, clueless citizenry) didn't learn anything from all the science and all the warnings and all the available information that's been around encouraging the taking of a different road, but oh no. We have to learn the hard way. Not such a bright species eh? Still, I find merit in Jazz's post. That silver lining can be elusive, gotta take it where we can!
Jim, I actually don't see what is so dramatically radical about many of the items on the list. A refocusing away from rampant consumerism, paid for by money we don't have, and the growing expectation of something for nothing. How will things change is people don't even know there's a problem? It's part of the reason the Midwest is atrophying. I don't see it so much as the “good old days” but something new and much more sustainable and responsible.
America is strong. However the internet will destroy this country because lies perpetuated by liars will prevail over the truth.
Barak Obama was a senator from nowhere. He arose on the national scene and lies and scandal have hounded him from the moment he arrived. It has only been thru a massive effort by riled supporters that fear the reaper that have kept him propped up and away from life support.
Sarah Palin was a small town mayor who became governor of a large state with a rather small population. Her world was not about Foreign policy and international events. They were about the lives and dreams of the people of her state.
Yet we have lied and called her a liar. We have called her every name in the book. We have smeared her name, smeared her ability and smeared her viability. All in the name of the Truth. The truth is “she is unfit or unqualified to lead”.
Is this really the truth. Or is it Lies perpetuated by liars in order to Win at all costs.
That is the internet. The mark of the beast is upon this planet. 666. Bits and bytes formed together in a great DNA social experiment that will end in the destruction of this world. Yes I do believe this.
The beast is not coming. It has arrived.
Thank you for your time.
APR, how do you get there? My point is that the only way to possibly reach the wonderful idealist place that Jazz speaks of is for everything to collapse completely first. That entails more people suffering than the romantics want to admit to. Or, as seems to be the case based on some of these posts, they find it an acceptable price to pay.
I mean this question seriously as I may well be missing some essential point.
But if the US stock market bottoms out won't some of those central banks (China, I'm looking at you) who are sitting on enormous amounts of cash just rush in and pick up bargains left and right.
Isn't that what Japan did when the US economy tanked in the early eighties, go on a Manhattan shopping spree?
And wouldn't that influx of cash free up the credit markets?
I must be missing something here, can somebody help me out?
Jim, I've been living with extremely little credit for the past 7-10 years. Every apartment and house I've rented has been done via cash deposit or otherwise. Most purchases are for full amounts or down payments with payment plans. For the most part, I've lived within my means, which varied between $15-40k/year.
It's not as comfy as amassing good credit ratings. You don't get the flashy car you want right away. That nice leather coat will have to wait until next year. Some repairs, you learn to do yourself instead of charge them to a handyman. Sometimes, you have to make hard choices and give up things you like (to take up again when you can).
People will suffer, I agree. For a time, I did. Being financially strapped isn't that grand. Families will lose their homes. Some families won't have as much money for food. Belts will be tightened.
But… American society as a whole can and will change in the face of it. Families might move in together after being apart for a while. Maybe they'll cook at home more often to save money. Kids will have to use their imagination instead of instant gratification. Those aren't bad requirements to have in life again.
Peter,
Did you choose this path? If you weren't forced into it by long term unemployment which is what would happen to many in the chaos some here seem so willing to see happen it just isn't the same. The two bear little resemblance to one another. I'm just amazed and appalled by the willingness of some here to just shrug off the idea of even more of their fellow Americans being homeless and poverty stricken in pursuit of some idealistic view of the past. Unless you can come up with a better way to achieve your goals I would suggest that an increase in empathy levels are called for.
I've often thought about this… (maybe not as comprehensively as Jazz). But my Mom was born just a few years before the Great Depression started and she lied through it.
Times were difficult for the family- her father (my grandfather) was an attorney and often found himself representing people who could not pay. So he worked, but didn't have much money. My Mom is always telling me how I throw money away, which I don't think I do…. but I know I'm not the spendthrift she is.
But then I look at people younger than I and often think how THEY throw money away. So JSpencer is right when he says it has taken us decades to get to this place. The lessons of financial responsibility (and planning for the future as though we may not always have money) seem lost with each successive generation after the depression.
Quick answer to your questions: the entire American economy would collapse.
Why? Our economy is based on leverage. We borrow, even if we individually live within our means. Companies need capital and they only get from investors. But they also need loans from people willing to see through the risk. Without credit there is no money floating through the system. And without money floating through employers cease to function.
The sanctimoniousness of frugality on the individual scale does no good on the national scale. We don't make anything anymore. In an economic collapse frugality is guaranteed – for survival. We've been a consumer economy for a very long time. If China stops bankrolling our habits we will be in big trouble.
While I too value many of the things suggested in the questions, intentionally going through an economic collapse is not the way to achieve them. In the Depression, large numbers of Americans went malnourished or worse, lost all their savings, couldn't pay for any medical care, dropped out of school to work, and lived in tent cities.
If one wishes to encourage greater savings, less debt, more family, and less excess consumerism, there are likely better ways to get there. It's also worth noting that it will be more difficult to invest government money to get out of the Depression (though only WWII really did it anyway) since our government already has a huge debt.
[...] Read: Economic Apocalypse: What If? [...]
To the above commentors who took issue with the original post, bear in mind that the author did not advocate economic collapse as the *best* (or even desirable) means of reaching a society that embraces greater savings, less debt, more family, and less excess consumerism. In fact, in re-reading the post, I don't believe Jazz even makes a value judgement – depending on the reader's perspective, it would be just as easy to view the above hypothetical world as completely *undesirable* as opposed to a romanticized view of days gone by.
Kudos to Jazz for posting such a thought-provoking piece.
There is already a sizable portion of the country who live in this “what if” world. Not everyone lives beyond their means, eats out every night, or buys a big screen TV every year. If the economy collapses, I would imagine a very large swath of lower middle class folks end up very near toward the bottom. While in some ideal sense, this tough love approach seems like “the good old days” returning, I cannot imagine this would bring about good old days for many out there who are already having problems just making ends meet.
What an excellent thread and an excellent title, too. (In more ways than one, in my case — I'm getting another copy of a book by that name, may make one chapter from it available to one or more people on this Web site. It has to do with Atlanta specifically as well as latitude 34…)
Of course what and who are destined to fail should be allowed to fail, rather than bailed out. Sadly, that will not be the case.
If what was postulated were to happen? We'd not only survive, but it would force many to wake up and would do a lot of people, particularly those with a childish entitlement mentality, a lot of good, whether they could and would appreciate it or not.
And for the federal government to vastly diminish in size and in _power_? Fabulous.
Even a gloomy Japanese-style deflationary post-bubble, reluctant-spender, savings-reoriented situation (something not impossible here in the USA in the next several years) would do a lot of people a lot of good. And that would go all the way to Washington. Imagine that monstrous, vastly oversized and overreaching glutton being forced to go on a crash diet, pun intended, and having to greatly restrict what it does, and letting us observe people in Washington having to make tough choices and behave as adults and not only live within their greatly reduced means, but do other adult things like set priorities and be honest about valuing all federal functions.
A big crash followed by deflation even worse than Japan would do many a lot of good.
To reorient people from frequently-idiotic and often-self-absorbed consumpution to more discipline and maturity and increased saving, it might only take new, higher taxes on motor vehicle fuels or other higher taxes, such as those needed to save not only Social Security but Medicare (or to extend Medicare to everyone), or new big taxes specifically to retire existing federal debt and perhaps to pre-fund this nation's gargantuan future federal government liabilities. (Combined with cost controls and revisions downward of government retirement expenses and benefits, of course, which need a good pruning.)
“We borrow, even if we individually live within our means.”
While I still see plenty of people here using credit cards to eat out or buy things in the morning at Starbucks, I and plenty of us have been on a cash basis since childhood, and we _don't_ routinely borrow for commonplace everyday expenses! We _don't_ borrow to replace our motor vehicles. (The used truck I bought and own now and the used truck I bought before that were paid in full from the start, with cash.) It is far from correct to say “We” borrow; plenty of “us” do _not_ borrow for everything we “pay” for!
“Kids will have to use their imagination instead of instant gratification.”
Yep, like the older guy who was one of my bosses in Seattle said to me one day during a long chat about anything and everything in his office. Kids would actually get a damn stick in their hands and play “army” or build a fort outside rather than play video games!
The ironic thing is that a number of people who robotically (or helplessly and hopelessly!) assume there should be a bailout, without question, are often among those who say we should drive less and ride our bicycles more or walk more. At least, that _others_ should do this.
“difficult to invest government money to get out of the Depression”
*** CORRECTION *** _spend_ government money
1. This is something Obama was asked about in the first debate, and he failed badly. His spending programs will be impossible to undertake without large new taxes. He and others can argue that the spending will be stimulative, but obviously the taxes are going to create the opposite effect. And about that stimulation,
2. As we saw not only with the Great Depression (yes, it was World War II that ended it) and as we saw with the modern Japanese deflationary episode in the 1990s, all the public works and other forms of spending failed to end the deflation. It's public sentiment that counts, and no amount of stimulative spending will stimulate the economy if the public is reluctant to spend or has learned to wait for lower prices! (To try to force people to spend by negative interest rate schemes, levying taxes or other charges on savings, or more broadly on currency, is immoral, perverse, tyrannical.)
(Getting out of deflation has been considered by a number of minds since Japan's deflationary experience in particular.)
http://www.res.org.uk/society/mediabriefings/pdfs/2003...
http://www.jcer.or.jp/eng/pdf/kinyuE8.pdf
http://www.princeton.edu/svensson/papers/jep2.pdf
http://www.nber.org/~wbuiter/liqnew.pdf
“the author [Jazz Shaw] did not advocate economic collapse as the *best* (or even desirable) means of reaching a society that embraces greater savings, less debt, more family, and less excess consumerism”
Of course he didn't, and only the intellectually immature would believe that. It is simply a fascinating topic meriting time and thought, and it's obvious fact that such an event (or a less striking version of it) is not something to be simply dismissed or seen blindly and stupidly as nothing but disaster and strife.
Good thread here. Floor yielded.