Tuesday, January 22, 2008

Recession in the American Economy and the Greed Cycle

Economists say that right now we are potentially on the verge of entering a national recession. Retail business had low Christmas sales. People are not buying houses, so developers have stopped building them. Corporations are laying off workers.

Defining the Problem

To get started, let's understand a recession. A recession is the financial condition of a country in which it declines in economic growth---that it essentially shrinks instead of expanding. An economy grows when it produces more than it consumes. The national economy is measured every quarter and we see if the gross national product of the country has grown, plateaued, or shrunk. In a technical sense, a recession occurs when a nation declines two quarters in succession. A severe and long recession becomes a depression. Since the Great Depression at the end of the 1920s, the United States hasn't had another one of those.

So what caused this recession? Greed. What caused the Great Depression? Greed.

Why Greed?

After bringing my daughter to orchestra rehearsal on Saturday morning, I hung around and talked to a PhD economics professor who is visiting University of California at Berkeley for this year from Korea. His daughter joined the orchestra three weeks ago and plays cello. I asked him about the recession, and like almost any economist, he mentioned the mortgage bubble. He made the observation, even as I had previously, that this is similar to the dot com bubble that burst in the middle of the 90s.

President Bill Clinton was recently here in Oakland as part of the campaign of his wife, Hillary, and he gave a speech explaining why the mortgage crisis took place. It was vintage Clinton. He essentially depended upon a huge amount of ignorance for political advantage by saying that the mortgage problem was created by the Bush administration in order to cover-up for their lack of creating any new jobs during the present presidential administration. It was sad, but so lame that I laughed out loud---well, also because of the classic, conniving smile of Bill Clinton when he said it. It reminded me of the famous quote attributed to Abraham Lincoln:
You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.
This country has an increasingly growing number of people who the Clinton's can fool all of the time.

Anyway, the government does not make jobs. People get government jobs and recently there have been more and more of them because of the expansion of the federal government. However, the government didn't create those out of thin air. They represent, as I'm sure my readers know, redistribution of wealth. Taxpayers produced wealth that was confiscated by the government and then given to a federal employee. You can't sustain a growing economy with government jobs because they don't produce any new prosperity.

But I digress to some degree, because I was talking to the economist from Korea and told him that the problem was greed. He smiled like he hadn't heard of this. I explained, first by describing what took place before the Great Depression.

The industrial revolution resulted in mass production. Marconi's invention, the radio, increased advertising. Consumers began buying on credit. Covetousness. I want the refrigerator in the advertisement. I must have a Model T like my neighbor. The economy exploded in the roaring twenties. The factories were churning out goods to meet the demand. Men began speculating on the stock market, even borrowing money to invest in a rapidly expanding company.

And then the money ran out. People stopped buying things. Now they were just paying on things. Demand for items nearly ceased, inventory mounted, and the factories stopped producing. They laid off workers in debt, who in turn could not pay off their loans for their purchases and their risky investments. When banks started to collapse under the monumental burden of debt, the customers made a run at the banks. Stocks plummeted. Men and their companies were ruined.

The Great Depression started because of greed and the solution was fueled by greed, but that's another topic altogether---Roosevelt versus Hoover. We fastfoward to the twenty-first century. The federal reserve attempted to sustain the American economy after 911, which had taken a hit literally and metaphorically, by lowering the interest rates. Mortgage companies, banks, and brokers saw an opportunity to cash in by becoming overly creative with their loans, offering unheard of interest only loans and microscopically low adjustable rates. Future homeowners saw this as an opportunity, especially in expensive housing markets (like California), to get into the dream house and stop paying rent. Some of them could afford a smaller house, but they went for the gusto fueled by the artificially created optimism of the low interest.

It has all been greed. Greedy home ownership painted like Grant Wood's American Gothic. Greedy mortgage lenders looking for a quick buck. Greedy illegal immigrants who think they're entitled. And then the greedy politicians who overspent in the time of plenty, instead of creating budget surpluses for the time of leanness. Well, now the bubble has popped and it isn't looking very pretty.

The Solution to the Greed Cycle

The typical solution, which is what has happened, and almost instantly, reminds me of Captain Rennault at the end of Casablanca. I'm not endorsing that film, but I think you'll see what I mean when I say it reminds me of the last scene. Rick has killed Strasser and Renault tells his men to "round up the usual suspects." That's how we'll deal with this crisis---round up the usual suspects. Who are those? An economic stimulus package. It's mainly symbolic---the Korean economist suggested this and I nodded "yes." And then a massive 3/4 point interest cut. Mr. Bernanke doing his part. There we go. All solved. Right?

My Korean economist laughed and enjoyed my economic term for all this---the greed cycle. He agreed, and he is concerned. His afraid for what will happen in the future. The mortgage bubble isn't like the dot com bubble popping. People live in their homes. This affects everyday life. This is a deep rooted problem.

But of course, it's very deep rooted. It's sin. Man is depraved and greed is part of it. He is willing to sell his birthright for a mess of pottage. He wants to spend now the portion of his inheritance. Who cares if he ends up in the hog trough tomorrow? What's the solution? I told the Korean economist. It is change in the most inward way---transformation of the soul. That alone will end the greed cycle. And we all know that it will never really end until we see Christ.

The Lord Jesus will lead a perfect kingdom that anyone can have a part who will turn to Him alone for salvation. But for now, too many people are willing to give up the kingdom then for the kingdom now, one often "paid" for with a very "low" mortgage rate. That bubble will surely pop. What man needs is to end cyclical living and turn to something totally stable---a life of contentment, a life peace and fulfillment that is much better than whatever this world has to offer, and it can arrive when he receives Jesus Christ.


Nicholas Z. Cardot said...

This is a great article about the American economy. I love to read as much as I can about finances and stock markets. I put as much money as I can into stocks and savings so that when I am no longer in the Military I will not be hampered in any way financially from serving God in full time Christian work. I love the fact that you nailed this head on from the Scriptural perspective. I linked to this article from my blog. Keep up the good work!

Anonymous said...

Somehow it didn't take a rocket scientist to see where you were going with you "Clinton and greed" policy. Clinton (either one) invented to concept of greed.
But, I was sure that ultimately the bottom line was going to be "S I N".
Which brings us to the old scripture ...."the LOVE of money is the root of all evil"
Funny how that always works out for you....

Blessings my friend

Anonymous said...

Awesome article! I clicked in from Tim Dunkin's Blog, "Meditate in Thy Precepts", and I'm glad I did.

Keep on keepin' on!

Lord bless!

From CS_n_LA said...

I know this article is a year old but I felt compelled to write after arriving here via a google search.

What you say is sooo true. God said that in the coming kingdom no one will labor for another. No longer will you build a house and someone else live in it.

What concerns me about where we have been headed, and it looks to increase now, is the U.S.'s march towards collectivism/socialism/communism (whichever you choose to call it)that forces people to "give up something for the good of some/all" and hearing many people claim that Jesus was a socialist. He was NOT. He never FORCED anyone to give anything and he never TOOK anything from anyone to give to another. EVER!

We had all the power to reach heaven and then God took it away (tower of babel). Why? I believe it was because we didn't have the wisdom to go along with it. We have to learn (apparently the hard way) to do/be good on our own. All those collectivist/socialist values... never take more than you need and give when you can. When these values/morals are made laws it takes away the value of a lesson learned and the receiving of grace from God for something done from the heart and of your own free will/choice. It FORCES people and cause resentment and rebellion, which lead to HATE, not love.

We are hear to succeed or fail pretty much on our own. What's the worst that could happen?... you die... is that bad? Those who know the bible know it's not.

Our Government was instituted to protect our natural rights and those can be assessed by looking at our basic needs... Food and water, clothing, shelter, communication, and defense of it all and your very life. For most of those you need land/property which is why the phrase started out as "life, liberty, and property". Your property was your "pursuit of happiness" as happiness was to live freely and give you the basics in life.

You could grow/raise your own food thereby eating healthier. IF you had knowledge of plants (or could communicate freely with someone who did, or even could read a book about it) you could cure or alleviate most sickness without even having to see a doctor.

Health care, as it is thought of today (among other things... like "higher education") is not a "right" to be "given" or guaranteed by government.

Kent Brandenburg said...

Thanks for coming over and reading. I'm glad you did, because I forgot about writing this. Now that I read it, it seems like I was prophetic over a year ago about what has happened, and I wasn't really as tuned into what is happening like I am now. Thanks again.

Anonymous said...

thank you for you article, You reminded me that what we seem to be chasing now in this life wont last and really isnt secure, Gods kingdom is supreme and God bless you for this message! Time is at hand, Glory to God and his kingdom! Fear God and keep his comandments is mans main duty!

Anonymous said...

I came across your article and I have to say that this article seems less about greed and more about a self serving affirmation that you as educated as an economist.
I understand your points, but it really does feel like a ego stroke for yourself

Unknown said...

The economic ignorance in this country is amazing. Greed did not cause the Great Depression or this current recession. You really think the answer is that simple? Greed is constant in human nature. Humans don't have follow a cycle were their level of greed spikes and bottoms out. I suggest you put down your bible and god knows what other economically ignorant books your reading and read books by actual experts on this field.

Reading this crap on the internet make clear to me why so many disillusioned Americans believe wall street is bad, free trade is bad, and outsourcing is bad. Then again ignorance is bliss.