By Richard Moody Jr.
I got you beat by two years! In September of 2005, I sent an email to a gal I know in England. I predicted two things in that email: 1)Credit would dry up, 2)Foreclosures would drive market value. As a former real estate agent who lived through the bear market in the late 1980′s and early 90′s when housing prices were dropping, I immediately saw the housing bubble as a bubble.
Here is food for thought: The real culprit in the financial meltdown is the computer revolution. We can go back to Eisenhower and the growth of suburbia and the Interstate Highway construction in the 1950′s as a booming infrastructure economy where one parent breadwinners were commonplace and parents had a choice of a two breadwinner family or a one breadwinner family. Most Americans no longer have that luxury.
Without the computer revolution, local banks would give loans to local businesses and provide fixed rate mortgages to local homeowners, mortgages that would never be sold or packaged as securitized mortgages. Banks would require documentation that required proof of capacity to repay.
Usury would be outlawed; the financial services sector (FSS) would be less than 1/4 its size today. There would be no credit or debit cards; consumers would have to pay upfront for their purchases. Home owners would have built up equity in their homes and engaged in prudent investment and built up their savings. Their purchasing power would be much greater then than now. With average credit card debt of $12,000 for a family of four, the average family pays over $1000/year in interest on their cards. This means that the average income where famililies of four have any disposable income has risen from perhaps $20,000/year to $40,000/year. This has a massive impact on the consumer society.
The FSS, made possible only with the computer revolution is a cancer growing on the economic body of the world. It permits the sloshing of money around the world. Exotic instruments of lending or finance are only possible with the computer revolution. There should be no hedge funds, derivatives or any other vehicles of high finance. If we were to cut financial services by 75% would this really be bad for the economy? What useful product do the credit card companies really produce? Every time a borrower misses a payment which costs them perhaps a $35 late fee, that permits the credit card companies to send out perhaps 10 new credit card applications. Is this really good for the economy?
If nations could be placed in prison for bad debts, then America belongs in prison. The massive shift of our wealth overseas means that China now owns the entire state of Kansas.
Here are financial considerations no one is talking about: If the government by infusing money into the financial sector has a positive multiplier effect according to Keynsian economics, do savings result in a negative multiplier effect i.e. if we save $1000, does the lessen the GDP by $2500? We have schizophrenic financial adviors. As a nation, we must consume more but as an individual we are supposed to decrease our expenditures by restricting purchases!
By buying on credit, we feel wealthy, provoking more consumption. We have borrowed from future purchases by bringing what should be future purchases into the present. We have brought and spent future taxes into the present because we are taxing future purchases. When the future arrives, there will no money for present day purchases, and, of course, no taxes on the absence of spending. If the average American were to pay down $500/year in credit card debt, we would be in a depression within two years.
Without the computer revolution, talent would matter; Disney animators would still have jobs and produce such classics as Bambi instead of the crutch of special effects. “Hi Tech” communication would be restricted to the radio, a few television channels, the telephone, telegraph, letters, newpapers, and interpersonal relationships. This would result in a much more civil society.
Without the computer revolution, our children would be forced to be more athletic, because there would be no distractions such as computer games. If we spent .1% of our military budget on training experts in nutrition, this combined with much greater physical activity would cut down obesity by 75% and a similar drop in heart disease, juvenile diabetes and countless other ailments. The quality of life associated with better health would be obvious. Our bad health, which is swamping the health care system, is clearly a matter of National Security and can be traced to the computer revolution.
In view of all this, can anyone prove the computer revolution has been a net positive impact on humanity?