OUR BAD ECONOMY FOR DUMMIES

We have a bad economy. High unemployment. Terrible housing market. Skyrocketing deficits. Poor stock market. Tiny savings rate. Why?

When President Clinton was president, after the Republican congress was elected in 1994, the economy produced budget surpluses. Clinton gets much of the credit for this. But was the economy really growing? Two things in particular caused the astounding economic growth of the Clinton years. The first was the beginning of the dot.com industry. The second was the deregulation of the home mortgage industry.

A huge number of people knew about the founders of the home computer industry and the billionaire status of the initial investors. You never know if you weren't investing in an Apple or a Microsoft or a Hewlett-Packard. With the internet came the beginning of the online company. People did not want to miss their opportunity for the ground floor of another amazing success, so many invested huge amounts of their equity in start-up internet businesses, really gambling on another "Apple." Relatively few of these dot.com businesses succeeded. They spent people's money to get started and then failed, having used up all the original investment. Some companies, which were successful ideas and well managed, made it. But most didn't.

After all the initial offerings and investments, these dot.com companies were hiring new people and spending lots of money to get started. All of this resulted in a jobs boom. Cash was freed up and flowing. Only some survived. Most failed. Most companies burned through the investment capital like a dying comet. This movement began in 1996 with no relations to government at all. President Clinton was president, but he did nothing better then stay out of the way of what was happening, as well as a Republican congress. The dot.com bubble popped shortly after the 2000 election. The end of the bubble was artificially propped up by the continued hiring of hi-tech workers to deal with the potential disaster of Y2K. Once the potential of that catastrophe passed, the firings began.

Democrats say that President Bush took a surplus and turned it into a deficit. What really happened was fake surpluses unmasked as the frauds they really were. Much money and many people were engaged in building companies that would never make it. Many gambled their savings for the possibility of a lottery win. And on top of that, right at the beginning of his presidency, the United States was attacked at the World Trade Centers. This severely disrupted the economy, almost extinguishing for awhile the travel and tourism industries.

Despite the bad economic conditions that began the Bush presidency, which were no fault of George W. Bush, the economy survived and moved ahead, fueled mainly now by the housing bubble. The Clinton economy had not only benefited from the dot.com bubble but also by the start of a housing bubble. Clinton can take some blame for himself deregulating the mortgage industry. I've written about this elsewhere, but lots of jobs were created by borrowed money. Housing prices doubled and tripled because it was so easy to get a loan and the interest rates were so low. People poured their equity now into houses they could not afford.

Jobs multiplied in building, real estate, mortgage, banking, and then the trickle down from all of those benefiting. This kept the dot.com bubble from popping too violently. This propped up the amazing spending by the state and federal government. During the worst of the Bush years, the unemployment never rose above 6%.

And then the money ran out. People stopped buying. Jobs were lost. Home owners foreclosed. Banks collapsed. Without equity, people stop spending money and more jobs are lost. When more jobs are lost, even less money is spent. Many Americans lost half to two-thirds of their equity that was found in their housing. Now many houses are worth far less than the amount the homeowner owes on his loan. I've read that one out of ten homeowners are still yet to foreclose. Banks have not released these because of what that would do to the prices of the homes they now own that are already on the market. Despite record low interest rates and government incentives, people are not really buying houses, when it is the best time to buy a house in over a decade.

Because people are not buying, the housing prices are getting even smaller. People's equity is shrinking even more. They have less money to spend. And when people aren't spending, there are less jobs. And with less jobs, there is even less to spend. It's a mad cycle.

Normally after a period of time, because of ingenuity and hard work and savings, the economy will get better. In this case, more than I've ever seen it, it doesn't seem to be doing that. Why? People are afraid. And I'm not just talking about main street, the rank and file population. People who have money and would ordinarily be spending it, that would pull us out of our bad economic conditions, are not doing that. What are they scared of? They are frightened with the Obama presidency. Business conditions are unstable. Corporations and big businesses, who give people jobs, hire people based on their understanding of the expenses and profit. Right now they don't know what their expenses are going to be because they don't know what new expense will come from this present government.

The Obama presidency has policies that don't encourage corporations to grow their business, which results in more people being hired. The government take-over of the health-care industry destabilized business. The owners and leaders of business aren't sure about what things are going to cost. They also don't know what unfriendly regulations and laws might be coming in the future.

On top of this, banks are understandably afraid to loan money. Now it is much more difficult to get a loan for a new business, a new business venture, or to buy a house. Building stops. Business stagnates. Jobs are lost.

Most jobs are being created, and artificially so, by federal money that is deficit spent. Why is it artificial? Because it isn't creating anything new or lasting. It isn't creating new industry and profitability. It is keeping people working in either government jobs or jobs subcontracted by the government. It is not wealth being produced but wealth being redistributed, really by no one presently living. It will be paid for by future Americans when the bill comes due.

The first hope for a better economy would be a repudiation of the present administration by voting for those with different policies than he and his party. If their party loses, the economy might take a step forward from the sheer motivation from that loss. I say "might" because we still haven't seen some of the really bad effects of this housing bubble. They have been postponed as I earlier mentioned. However, it is very possible that some of the capital that has been accumulating in corporations too afraid to spend it will be released by them if business friendly candidates win the election in November. If the economy then bumps forward, the Obama administration will take credit for it. Most of the media will probably say it happened because of the economic policies of the administration. Many people will believe that. The new Congress will stalemate any further dangerous policies and things will get better. We'll get to 2012, President Obama will take credit for the improved situation, and then if he wins, he'll cause more instability and we'll be back right where we started in 2008.

The economy might not improve at all even if the best people win office. It might get worse because we still haven't been dealt the worst of the housing situation. Once all the reality of that gets flushed out of the economy, which might take more than a year, everything might be looking better, oh, about summer of 2012 right before people vote for the next president. The man in office could benefit from something he had nothing to do with. At that point, please reread this post.

Of course, there are other factors that come into play---greed, sin, God's providence. I don't want to downplay the effect of sin or ungodliness on a nation. But in the way of sheer economics, this is my explanation.