Eric Margolis: Time for America to get small

[marmar]

from the Toronto Sun:



Time for America to get small
U.S. citizens must retrench, stop borrowing, and save their way back to prosperity

By ERIC MARGOLIS

Last Updated: 8th February 2009, 7:16am


PARIS -- Last month, Russia's Vladimir Putin went to the economic jamboree in the ugly little Swiss town of Davos and blasted western capitalists for causing the current global financial disaster.

With delicious irony, Putin took special aim at the United States for allowing Wall Street fraudsters to build a financial house of cards that wrecked capitalism.

Meanwhile, social unrest simmers across Europe as unemployment surges and government handouts fall sharply.

European and Asian governments are deeply concerned that President Barack Obama's multi-trillion dollar economic rescue package may prove far worse than the sickness it is meant to cure.

Politicians everywhere are panicking as voters demand they do something to keep their debt-driven economies running in high gear. This is impossible. The debt bubble has burst. But politicians are afraid to tell voters the hard truth: The party is over. Retrench, stop borrowing, cut spending, start saving, live smaller.

The U.S. economy, 25% of the world's total, had become fatally addicted to the steroid of debt. Consider this: America's total national debt (liabilities) amounted to 3.5 times its gross domestic product (assets). The U.S. treasury kept running on loans from China and Japan. .......(more)

The complete piece is at: http://www.torontosun.com/comment/columnists/eric_margolis/2009/02/08/8308201-sun.html

[Waiting For Everyman]

1. This might've made sense before the bubble burst, but not now.

Nobody's going to save anything with millions more job losses coming this year, and home values expected to drop a lot more.

The fact is, a significant percentage of people are soon going to be unable to pay the debts they were paying prior to this. They will be unable to pay at all, much less to pay them off.

No banks are going to lend at all with millions of job losses expected and home values dropping much more by next year, as I said above. People whose home equity is still positive today, will be negative by next year. New mortgages made today will have negative equity by next year too... because the market is still going DOWN. (That's inevitable because of the job losses. Job loss leads to foreclosure, leads to a price drop.) So why would banks lend to anybody? They're not going to. It isn't a matter of liquidity, it's that they're expecting more of the same that has already happened. A lot more.

Until the government steps in and creates new low government mortgages for the people near foreclosure, and those who will go into default before this is over to stop the home loss... the home prices will fall. As long as they fall, the layoffs will continue and no private loans will be made - not even to business.

Nobody's going to "save" their way out of a big burden of high-priced debt (referred to in the OP), especially while jobs are being lost at this rate. That's preposterous. The government will have to take over the banks, and take over home financing - and fix it. The longer we don't do that, the worse it will be. There is no getting around that. The fall will continue. Why? Logic. Common sense.

There ARE things we can do. We refuse to do them. But there isn't a whole lot of time. At some point, which we're close to, nothing will stop it.