It seems to me that we are too intently focused on credit as the great restorer of wealth and economic prowess in the world, and for that reason we're putting all this effort into jump starting the credit markets. Consumer confidence is quite literally measured by the ability of people to access money and use it to buy things, and of course, consumerism drives the American economy. But what good is it, I wonder, if the money that can be accessed isn't really there? That's what credit is, after all. The perception of money. And I wonder as well, how much would our economy have had to suffer in today's recession had people had real money in the bank with which to meet their obligations when the bottom fell out of the whole thing? How much real confidence would have been supported by real money. And furthermore, would we have even had a recession to speak of?
Borrowing isn't an entirely bad idea. But then, neither is saving. Obviously we can take both ideas to the extreme, citing the US American consumers' high debt numbers and Japan's excessive savings numbers. In both cases, economies have been harmed by too much of one thing. One word should apply here; balance. You have to have a balance between real wages, real money in the bank, and access to credit to leverage those wages and savings. And yes, somewhere in that scheme you need to be able to cover that leverage, and I'm not talking about covering that leverage with even more leverage.
If you've followed my blogs at all, you've of course noted that I strongly believe that credit has stifled wages for quite some time. The price of cars have gone up. The price of homes has gone up. Entertainment costs like movies and sporting events have gone up. There are probably more restaurants in this country than grocery stores and it certainly costs considerably more to eat out than it does to eat in. And most of this run up in prices has been driven by plastic. Plastic has made it possible to drag prices to the sky while having wages all but stand still. Plastic has also taken the idea of saving and tossed it right out the window. With mailboxes overflowing with offers of money, Americans felt pretty darn rich. Even the guy serving up the fries at the local McDonald's drove a Lexus.
In order to restore consumer confidence in America we have to restore the concept that saving for a rainy day is good, sound thinking. When you can wake up in the morning and see real money on a balance sheet in a bank account you can rest assured that if something bad happens tomorrow and the bottom drops out from under you, you can at the very least, get yourself up out of the hole. Especially in a case like now when the plastic money fairy is hiding behind a rock.
Of course, somewhere in all of this the money has to flow back to the consumer in the way of jobs. Good, solid wage paying jobs. And so the cycle goes.
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