Debt for dummies
By Malcolm Berko
Dear Mr. Berko:
Can you explain in words that my 17-year-old can understand why and how the economy is in big trouble?
Then, can you explain in the same simple sentences whether QE-3 will work and whether the national debt will decline?
NR, Aurora, Ill.
Dear NR:
Some define “stupidity” as doing the same thing over and over again and expecting different results.
Some define “politics” as the act of using short-term, feel-good solutions to solve bad, long-term problems – sort of like putting a finger in a dike to plug a hole, and then adding a second finger to plug a second hole, and so on to plug an escalating number of holes. Eventually, of course, we run out of willing people with willing fingers, and the dike collapses.
Well, the first round of quantitative easing, or QE-1, did not work, and nor did QE-2. And QE-2.5 (they won’t call it QE-3) will prove both aforementioned definitions.
Congress intends to fund the $473 billion QE-2.5 with modifications and changes in the tax code, eliminating egregious loopholes, restricting useless environmental and OSHA regulations and quitting numerous federal oversight rules that impede business formation and growth.
How noble! And after Congress distributes this largess to the “bosses,” it will then debate which programs, tax laws and loopholes to modify or eliminate.
But special interest groups for corporate farmers, big oil, defense contractors, unions and environmental, religious, cultural, and social causes — all of them employing highly paid lawyers and lobbyists — will gridlock the debate.
They will battle hard to maintain the status quo for their clients’ billions of special benefits.
So, unless a miracle happens, only token legislation will pass, the $457 billion won’t be funded, and water will begin to spring from new holes in the national debt bucket.
The only way Congress will act responsibly is to put a gun to its head — a big gun loaded with public angst ready to segue into a spontaneous chain reaction of demonstrations that might trip the trigger.
So now’s a pretty good time to tell Congress, “Vote to raise the cash before you vote to pass the trash” – or Visa will cancel the card.
We should put the cart behind the hearse. But we won’t! We won’t because neither Congress nor the administration wants a lower national debt. And we won’t because most voters, when their oxen get gored, won’t stand for a lower national debt. And we won’t because a reduction in the national debt will cause painful pockets of economic and social dislocation.
First, be mindful that the construction industry and its ancillary supporters comprise 22 percent of the U.S. labor force. Then, be mindful that the consumer is responsible for 70 percent of our GDP.
In 1997, millions of couples like Sam and Sue had median incomes of $41,000 and bought median-priced homes for $125,000. Ten years later, millions of couples still earned $41,000, and inflation grew by 61 percent, but the value of those $125,000 homes grew even more and zoomed to $400,000. So, to maintain their new standard of living, millions of Sammies and Suzies refinanced their homes with $400,000 mortgages and began an orgy of acquisitions: costly toys, appliances, motor homes, jewelry, boats and pickups. Capitalism at its finest!
During that decade, consumer debt grew more than it had in the combined previous 100 years, and the fit began to hit the shan.
Other Sammies and Suzies with median incomes of $41,000 couldn’t afford to buy those new $400,000 homes.
So Lennar, Pulte, KBH and others laid off plumbers, electricians and roofers, while manufacturers of carpets, windows, air conditioners and appliances also pink-slipped people due to slack demand.
Then, the recently re-mortgaged Sammies and Suzies began to lose their jobs.
Soon, most folks couldn’t meet their higher payments, and for-sale signs began to sprout up like ugly weeds on every block.
Prices took a nosedive, demand plummeted, millions of owners defaulted, the banking system nearly collapsed, and even more Sammies and Suzies lost their jobs.
And today, we are slowly easing into an era of trickle-down poverty, downward mobility, high unemployment and a generation that will have a lower standard of living than their parents.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
© 2011 Creators Syndicate Inc.
