My Musings

Thursday, April 10, 2008

The Causes of the 'Great Recession'

Recently in the news there has been a lot of talk about the 'recession' that America is entering into. In fact, a British news agency has referred to America as entering into another 'great depression.' The housing market has crashed and foreclosures are at an all time high. The financial markets have crashed. The price of oil and gasoline has been skyrocketing and the 'experts' are predicting that it will continue in that direction. Inflation is racing forward as the price of milk, wheat, and other staple items continue to rise.

Then the fingers are pointed. Democrats point to the policies of president Bush. Republicans point to the fact that the Democrats have controlled congress and should have legislated a solution to this long before now. The media blames the banks and the mortgage brokers calling them names like 'predators' and 'sharks.' Some have even blamed the media claiming that their announcement of a recession has created a self-fulfilling prophecy. People hear in the news of a recession so they spend less money to prepare. Since they spent less money the economy becomes stagnant.

In a small sense, every person listed deserves a small portion of the blame. The banks made poor decisions in able to sell their loans. The media beat this recession into our heads because the sound of that word sent their ratings a fraction higher. Democrats in the congress have actually been putting pressure on the financial industry to make more loans to lower income families so that they can own their own homes. That sounded noble until you realize that a huge portion of the foreclosure market is comprised of lower income families who would not have been approved for a loan five or ten years ago. They weren't done a favor by being granted a loan that they could not afford. Their blame, however, is only deserved in a very small way.

Nobody seems to blame the individual Americans whose houses are being foreclosed. No one wants to point the finger back at their own irresponsibility. Recently in the news they announced that a large percentage of Americans feel like they have less money than they had five years ago. The report went on to claim that a majority of Americans feel like they have more debt and less money saved than they did five years ago. Yet not one person wants to point to the poor savings and budgeting habits of the American people. In fact, they were using these statistics to point to the idea that America needs more legislation and better government policies to curb this negative trend from moving forward.

We truly do live in a welfare generation. We have developed a society that believes that they deserve to have more than they have and that it is the governments responsibility to make it happen. I watch every day as the people around me who make far more than I do spend all of their money, complain about the banks and credit card companies charging them fees for spending too much or for paying a bill too late, and go looking for added government hand-outs! We laugh at our grandparents and call them 'old fogeys' when they talk about their experiences through the great depression and in so doing we dismiss decades of wisdom.

As I write this article, I think of my personal financial situation. I have thousands more today than I had five years ago and I would be considered lower income. I have almost no debt and I have money in savings. I make far less than many whose lives are in ruin and I live in an area where the cost of living is extremely high, Washington D.C.

What America needs is a revival in the concept of personal responsibility. I realized a long time ago that I wasn't going to be a success financially by relying on the mandates of Congress, the generosity of a bank, a policy of the president, or by the good fortune of the stock market. I learned early the truth of hard work, saving money, budgeting, carefully and conservatively investing what you have saved, and a few other tricks that our modern generation seems to have forgotten.


In Christ,

Nick

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