Economic turn of events may not be so bad…

December 14, 2008

(Copyright 2008)


By Tony Walther

Let me get this straight: the government is giving (lending?) billions of dollars to the banks so that they will extend credit to businesses and consumers, but instead, the banks fearing that loaning money out in that fashion would be too risky right now, are buying Treasury bills, in essence, loaning it back to the government. And they’re in many instances getting either zero interest or even negative interest.

Well, that can’t be quite right or can it? but maybe someone will help me to understand this better.

Meanwhile, on Meet the Press this morning I heard the CEO of Walmart say that “Walmart moms” are being frugal and spending more money on food rather than consumer luxuries and are using leftovers for dinner more. He also said that restaurant owners are using yesterday’s receipts to go to Sam’s Club (a Walmart operation) to buy today’s restaurant dinners (as opposed to buying on credit, I suppose).

Consumers it is reported are holding off on big purchases and saving back to some extent – or maybe they lost their jobs and simply don’t have the money.

We already know that the drop in driving caused by that gigantic spike in fuel prices a few months back has led to a just as dramatic drop in fuel prices (although I read in today’s news that fuel has started to go back up in the last two days). That is good for the pocketbook and good for the environment.

Actually the only problem I see, and it is a big one, is that if things continue on the downward trend in our economy a huge number of folks (yours truly is not immune) could go without food and shelter.

But if we can keep roofs over the heads of folks and food in their stomachs, the overall economic picture is not so dire after all. I mean it seems like the realities of life and the market place and simple economics has injected some sense into the picture (giving money to the banks and talk of bailing out Detroit automakers as a result of their poor business decisions notwithstanding).

Decades ago I wrote a paper for one of the few economics courses I ever took in college. I don’t have it, but I recall something of what it was about and the fact that it was indeed a sophomoric approach to the subject. On the other hand, I am not so sure that I was too far off track. I disparaged the wide use of credit and opined that if people had to buy things cash and had to save back to do it, prices would be lower.

And now the part that hurts. At the time, my wife and I had just entered into a government subsidized mortgage that required very little down and I think our monthly house payment was something like $100 over 30 years and the principle was $28,000. Had we stuck with it, we’d be living in a paid-for house now. The CEO of Walmart said on Meet the Press that in the early 70s (the same time frame as us) he and his wife purchased a home through a government program for $30,000. Apparently he made better life decisions.

Give me a few moments to cry….. Okay, I’m over it.

Personally, I think everyone, individuals and businesses, needs to go back to the basic principles of economics, such as don’t spend more than you bring in and be wary of credit. And our government must enforce practical rules of businesses and strict oversight in the public interest.

In the meantime, the government will have to take unusual steps to avoid mass homelessness and starvation. But we actually do have the resources in land, raw materials, and even capital (the money is not actually gone – it’s just not being distributed in the normal way) to move forward.

If we really did believe in that higher power as so many of us profess, rather than worshiping at the alter of self-indulgence, things might not look so bleak.