Archive for June, 2009

We must all now come into terms with one of the biggest inconvenient truth of this decade. The Obama Bailout plans might not work. Though the Obama bailouts do seem like the only sensible move the government at the moment, it may not be so effective. Another most inconvenient truth we have to face right now is this: the last few decades of American wealth was not real.

For those of you who want to understand this situation much more clearly, imagine that debt is a vacuum or a bubble of air in the economic system. This is the perfect metaphor for debt. Debt is actually imaginary income. It is money you spend that is not yet there. Now, imagine that the economy is full of these bubbles. Soon, these bubbles accumulated into one great big bad debt that was near bursting.

Last year, the bubble burst. Suddenly, the market realized that it was supporting all this bad debt out of thin air. It first manifested in real estate where the biggest loan bubbles where being created. Both the banks and the real estate industry colluded to convince people to invest in houses. They kept building houses to sell to these people, convincing them that they could have those houses rented out to pay the mortgage. But then the value of the homes started dropping and that’s when everything started to get messy. The domino effect of these bad debt bubble burst was a recession so bad that no one could have possibly predicted just how bad it would turn out.

The problem is too big now; no amount of money could possibly plug up that big hole that was exposed once the debt crisis blew open. The administration is allotting billions of dollars into the Obama bailout plans, but it is definitely not enough to plug a hole worth trillions of dollars.

Obama bailouts should help to slow down the process. But for how long? Right now, analysts are afraid of another market crash caused by the bubble of accumulated credit card debt that is approaching the trillion dollar mark.

There is however, a ray of sunshine in all these foreboding forecast. Tuesday last week, President Obama accepted the loan payments from banks who were recipients of the Obama bailout plans. All in all, the repayment amount was more than sixty seven billion dollars. This was considered by all as a good omen. If anything, it proves that the banks that were once in danger was able to amass enough profit to pay back that sum.

However the president himself cautions everyone who might think that this is a sign that the economic problem is solved. Although this news is positive, the government further cautions that the market problems are far from over which lead to a dangerous worry free can posture that could exacerbate the problem.

Hopefully, these painful times we are experiencing right now are merely labor pains for the birth of a new, better economic system and spending attitude. The new economy should no longer rely heavily on the illusory wealth created by loans. If these hard times can teach us the great lessons we need to have learned a long time ago, then a great thing would be gained from this big mess.