Our "False" Economy

Let me start by saying I am no economist. I am an average person of reasonable intelligence who does listen to news, politics, business news, etc.

I have said for quite a while that I believe our economy over the last couple of decades is increasingly based less and less on "real" money fueling the growth and instead on "borrowed" money or put another way, not real money. Our savings rate in this country (U.S.) has plummeted in that same time period. Everything we do on credit ends up costing us more than if we saved first and then spent our money.

Our whole financial infrastructure is based so much more on credit today that our current situation is exacerbated by our mentality of "buy now, pay later".

Perhaps the simpler days of "layaway" (when was the last time you put something on layaway?), paid cash or only used your credit cards or small credit accounts occasionally and not as a "tide me over because I am overextended and owe more than I earn each month?" How about putting away $100 per month for a year and plunking down cold hard cash when you go out to buy that big screen TV? No free interest period to worry with, no piddly "incentives" to cash in later, but the peace of mind that that new HDTV is really yours, no strings attached.

Credit card companies and more recently banks, loosened their credit standards to the point that allowed the free wheeling real estate market to rise fast and high, only to come down like a lead balloon, and with it, a lot of people are now being stung by others misguided enthusiasm to make a buck, or live in more house than they could afford.

I see a silver lining in this economic downturn. It should be tougher to get a car loan or a house loan. No one deserves a house or a car loan. Maybe this event will help garner a new era of frugality. I don't have my hopes up to high because where there is money to be made, there is the temptation. And without the basic core value of "live below your means", we are doomed to repeat a lot of this again.

I don't want it to get so bad that we have double-digit unemployment or sustained deflation, but it has to get bad enough to make banks, credit card companies and consumers wise up. Just like $4.25 per gallon gas finally jolted people to drive less. This pain might be good for us.

If you have lost your job and you are reading this, you are part of the larger and larger statistic of those affected by the downturn and probably want things back to normal real quick.

So, let's set a new bar and build a sustained reasonable growth in our economy over the long haul based on real money. Let's cheer for small increases in our GDP and let's reduce our government's debt and our own debt. If we can accomplish those things, we will have a stronger foundation based on a real economy, not a false one based on your future earnings.

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