Today I’ll take a quick departure from Tech & Social Media to talk about the Economy, personal responsibility, and government policy.

These days, you can’t turn on the news without hearing a story about the credit crunch or the current economic malaise.  A lot of bankers put a lot of assets at risk striving for a few more points of return by lending money to people without finding out if they could truly afford the loan.  Now the rest of us, including a lot of folks who saved money "the old fashioned way," are paying the price via a depressed dollar, a lower stock market, and the continued over-inflation of housing prices in many metropolitan areas.  It’s almost Orwellian that responsible people… people who spent within their means… are now the "dumb ones" for not taking advantage of the credit bubble.

It really makes you wonder what future generations will think about financial responsibility and greed.  Many of the current bailouts, while necessary to keep the entire economic system from temporary collapse, only create incentives for people to not do the right thing… to spend and borrow responsibly in the future.  If the government is there to bail you out, why not take advantage?  And don’t forget the realtors and homeowners in this equation.  Realtors pumped up the "long term value" of real estate while homeowners took the opportunity for a quick buck.  A lot of greed all the way around caused the situation we’re in, yet a lot of the same people who caused the problem are running around looking for some help now.  I’m not entirely sure "greed is good" in all contexts.  Behaving responsibly is a social responsibility, especially when the free market is not allowed to remedy the situation.

Perhaps later I’ll go into detail on a 10-step plan for fixing our economic woes — just because it will make me feel better.  :-)

But I am concerned about the next 12-18 months — the implications of tightening credit are just now beginning to make themselves known.  Despite the Fed’s interest rate deductions, lenders aren’t exactly eager to loan money to qualified homebuyers.  I have heard a lot of anecdotes lately about people having trouble
getting home loans.  I’m not talking about unemployed folks though…
I’m talking about gainfully employed people who are now forced to jump through a lot of hoops to get a loan that would have been very easy just a year ago.  Most people don’t have hundreds of thousands of dollars of cash lying around to buy whatever they need.  Purchases of homes, cars, equipment for business, etc. are all largely driven by borrowing.  And when highly qualified borrowers struggle like hell to get loans, we’re in for some short-term trouble.

I would contend that the problem is a lack of available money for lending.  What investor is willing to lend out his/her cash at a few points of interest that likely *won’t* beat inflation?  So expect a slingshot effect resulting in higher interest rates over the coming months.  It will be positioned in the media as a bad thing — especially as housing prices continue to crumble since higher interest rates result in worsening affordability (interest rates and housing prices are negatively correlated.)  But it is a great thing long-term — the business cycle is refreshing.

high interest rates, a relatively moribund stock market, faltering banks, higher unemployment, increasing crime in dangerous cities, high energy prices, the promise of renewable energy, family vacations in the Family Truckster, exotic American destinations like the Great Smoky Mountains, Death Valley, and Disney World, increasing national debt, fear of the rise of a rival superpower (China this time), entertaining at home, "worker unrest", and the prospect of recession.

It may sound like 2008 & beyond to you, but this environment was almost exactly the same just a generation ago.  Though it took some time to emerge from that period, the economy did grow.

Sometimes you just can’t get rich immediately in America.  Now it just takes more than owning or flipping property.  As all of this returns to equilibrium, remember that inefficiencies need to be worked out of the system when they develop.  There is almost always short-term pain, but it’s just part of the boom & bust cycle that helps our economy grow.  Don’t let anyone let you believe that a bust or the difficulties of highly irresponsible people is a bad thing.