I recall how difficult it once was to get a credit card; how tough banks were to get a loan from; how hard it was to qualify for a mortgage.
But soon, credit card offers were, without my request, appearing in my mail box; “creative financing” made home loans available for almost everyone; bankers seemed anxious to give great sums with minimal collateral.
Magically, “consumer spending” seemed to generate a brand new economy: housing tracts and shopping centers popped up everywhere; “flipping houses” came into our lexicon and was soon the basis for national T.V. shows; the nightly business reports charted “housing starts” and construction was booming. In spite of it all, saving rates dipped to nothing.
The government had the same trend going. “Deficit spending” was the norm; raising the “debt ceiling” came and went without much ado; “fiscal conservatives” voted for bloated budgets; “the Fed” kept the whole thing going with massive sales of various debt instruments, most bought by dollar-laden Chinese communists.
Sadly, those same Chinese finally helped pop the beautiful bubble. In July of this year $25.6 billion were pulled out of the U.S. stock and bond markets by these same foreigners, starting the slide we are still gloomily watching. Those same markets, climbing to record highs thanks to an estimated $3 billion a day in foreign investment, are now like a heroin addict screaming for a fix. The Chinese elixir, the credit opium, has been stopped. The market is now going cold turkey.
So, to help stop the pain, enter the U.S. government. Treasury Secretary Paulson and Fed Chair Bernanke promise the magic pill: credit, $700 billion bailouts, bank buyouts, help with mortgages. All the same drug, just a different dealer.
Question is, where are they getting all that good dope? Where are those big quantities of credit coming from? It’s a type of magic most would be surprised by. It works like this: The treasury prints up bonds and notes with certain dollar amounts on them. They then put them on the market – sort of. Actually, the Fed, using the magic printing press, prints up “money” and “buys” the bonds. The U.S. Treasury then has “money” to bail everyone out. Magic!
So, who are the good guys and who are the bad guys? Sadly, it all boils down to you and me: the sacrosanct “voters.” Our collective failure to demand fiscal discipline and our dangerous instinct to want something for nothing ultimately creates a vacuum that electioneering politicians gladly fill. Borrowing, or credit, traditionally had a series of checks and balances, hurdles created to ensure repayment. In the private sector, much of that was broken down through laws passed by the government. It was “discrimination” to deny “fair housing” to everyone, so the government passed laws like the Community Reinvestment Act, which forced lenders to give credit to risky borrowers that traditional bankers would have rejected.
In short, the government and quasi-government (The Federal Reserve) provided what we demanded — lots of government services, at little or no cost to us. Keep those taxes low, but provide everything from health care to senior insurance to free school lunches for everyone.
There is no free lunch. Someone pays somewhere, and the government, using the credit magic, borrowed instead of taxed, thus the always upward spiraling deficit.
We need to ask tough questions. Are we going to be a free-market republic or another socialist state? The free market, currently getting a drubbing, is in truth not the problem – just the opposite. Excess government involvement, with its roots in the 1930s, is the real problem.
Both our government and our populace face the same painful readjustment back to fiscal sanity. All us drunks savoring the seemingly free booze just had our bar tab handed rudely to us and are being ushered to the door. The sobering process is going to be ugly.
Ira Hansen is a lifelong resident of Sparks and owner of Ira Hansen and Sons Plumbing.