What Really Went Wrong With the Economy

On September 24th, 2008, President Bush began his explanation of what went wrong with the economy with the following…

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Well, Dubya cut right to the heart of the problem and no one even noticed. “For more than a decade, a massive amount of money flowed into the United States from investors abroad…”

Bush was absolutely right, but where did that money come from? Why is it that we’ve lost so many jobs to outsourcing in India? And why is it that we basically owe 1.7 trillion dollars to China and Japan for stuff like U.S. Treasury and agency bonds?

Throw out all the MBA mumbo jumbo, and face a very simple fact… People who live in places like India, Japan, and especially China (and that’s just the beginning of a very long list) obviously live (voluntarily or otherwise) by different cultural standards. And basically those standards involve a lower standard of living. They work longer hours for less money, and live much closer to the bone.

If this fact isn’t obvious, then you’ve been living in a cave. Their governments pay less for defense, education, health, etc., etc., etc. And to make matters even more ridiculous, when times are looking tight (or not) for other governments like Israel and North Korea, they just belly up to the ol’ U.S. bar and ask for a few on the house. No wonder foreign investors have “massive amount of money” to throw around.

When talking about this bailout, we need to reduce a needlessly long story to an appropriately short one. We don’t live like the rest in this global village.

Oh, this bailout may get us through the mess this time, but sooner or later, a very hard rain is going to fall…

For further reading, check out Financial Sense.

Alan Speakman

4 Responses to What Really Went Wrong With the Economy

  1. […] about how our new, high-tech, global village was going to slap Americans in the face concerning the relative value of life and labor in this […]

  2. […] We refuse to live within our means and what our work is really worth. […]

  3. Basil says:

    Thanks for the great analysis. I have always asked myself this question “What happened to U.S Economy” and it looks like my question has been answerd.

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