Chinese astronauts walked through space this week, the Russian and Venezuelan navies staged ominous joint war games, Myanmar freed 9,000 political prisoners, and a man flew across the English Channel with a jetpack and a parachute. But the only story in the news for the last few days has been the growing worldwide economic meltdown, and for once I’m not blaming CNN for reporting just one story at a time. This is bad, people.
The latest issue of Maclean’s, a Canadian magazine, has one of the best articles I’ve seen on the subject so far: “Why the Wall Street bailout — if it ever comes — won’t save America’s economy or ours.” The prognosis, it seems, is not good at all. Here’s an excerpt:
“Everybody keeps saying if we do nothing, there’s going to be a severe recession. Yes. There is. There’s no way around it,” says Peter Schiff, president of Euro Pacific Capital in Connecticut. “We have to take our lumps. We’ve got to pay the price for all our reckless borrowing and spending.”
How painful will that bruising be? Worse than anything we’ve faced in our lifetimes, he says. He describes a depression that would forge a new world economic order, with sharply higher interest rates, a weaker American dollar, surging prices and shortages of consumer basics. These are the strains that can pull a society apart, and while not everyone believes it needs to get that bad, such warnings are fast gaining currency all over the world. There is no easy way out of the economic vice tightening around America, and all the many countries, like Canada, which rely on it for their own prosperity. Last week, with major banks failing, home foreclosures running at a rate of 10,000 a day and unemployment climbing steadily higher, it was clear that something big was happening. Something that is going to change the way we live for decades to come.
The article goes on to say that because of falling property values, 10 million unfortunate Americans have mortgages that are worth more than their houses. Since January, 605,000 American jobs disappeared, with more layoffs expected soon. U.S. credit card debt has reached $900 billion — 80 per cent more than it was 10 years ago. That’s $3,000 for every man, woman and child in America. More than half of Americans carry balances on their credit cards, and Citibank is so desperate to get people to stop using plastic that it’s matching credit card payments up to a maximum of $550 per person, in an effort to get their debts off its books. In June, America’s external federal debt topped $13 trillion — a little over $43,000 per American — mainly because each year it buy $700 billion more from other countries than it’s selling them.
Even the happy-go-lucky president knows the economy is hitting the fan:
“If money isn’t loosened up,” said President Bush of the U.S. economy, “this sucker could go down.”
Back in April, I wrote that if you have a secure job and you’re looking to buy a home, this impending recession may actually be good for you — particularly if property values fall back into a range that doesn’t require buyers to sell their organs. That silver lining still seems to be there, but whether you’re employed or not, the best course of action now is the same as it always was: save as much as you can, don’t use credit for things that will end up in a landfill 10 years from now, and don’t spend money you don’t have — even if you think you’ll have it soon. If it weren’t for people defaulting on their mortgages, credit cards and other debts — and the short-sighted lenders who kept shovelling them loans — we wouldn’t be in this mess.
Incidentally, a Google search for “Bad credit? No problem!” turns up 224,000 hits.
For a somewhat coarse but surprisingly informative explanation of the sub-prime mortgage crisis that started this whole financial disaster, click here. For a more conventional explanation, the New York Times has an excellent multimedia explainer.
Image via The Race to the Bottom.
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