Wednesday, November 26, 2008

#153 - What is to come


working in the financial industry, I've been getting to watch the havoc of the current economic crisis with a nice front row seat. I've met many people who've been laid off, who've lost major amount of money in the market or in houses, and I've seen firms collapse. The house of cards is falling and while it's hard to watch it doesn't change the fundamental reality.

An economy cannot expand on credit alone, savings and production of goods must be at the foundation to sustain it. It's really that simple.

- Overregulation by Congress has pressured businesses overseas to remain competetive. While CEO's of these companies may seem overpaid, it doesn't change the reality previously stated.

- Manipulation of Interested rates by the FRB has incentivised debt and the inflation that has gone with it has destroyed the incentive to save. What's the point of saving, if you actually lose money in actual buying power if the money isn't spent NOW.

Money flows in and out of nations dependant on the imports/exports of the nation, if we don't produce the goods no matter how weak the dollar exports can't keep up with economy steroidal expansion.

If all our money is spent on imports, and no money is saved, what money is left?

So what does someone like nobel peace prize winner Paul Krugmen suggest? Lower Interest rates even more, give people even less reason to save? Expand the credit that's overexpansion caused the problem in the first place?

When a cup of water is overflowing, you don't pour more water in the cup. You let the excess water flow out till it reaches surface tension.

Wow... the current state of economics thought makes me sad.

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