Thursday, September 25, 2008

Why has no one mentioned the dollar and oil?

We are in the midst of one of the biggest economic crises probably since the Great Depression, so they say. What caused the economy to weaken they say is the defaulting home ownership market, with people's finances overstretched too far to pay for their home mortgages. Home mortgages were handed out like free candy to anyone who applied. Then with the strength and crazy rise in home prices, companies like Bear Stearns and Lehman Brothers decided to package these mortgages like securities (seems absurd, right?). They took something that at the very least is backed by the real value of a property, and packaged it into something that has no value other than what is on paper, and if it loses value there is nothing to back it up. I'm not an economist, but that seems to be the gist of the problem.

However, I don't hear anyone on the news asking why did our economy really collapse? Why did our hard-working citizens stop being able to pay their home mortgage? What is the true root of the cause? Is the reason really lack of oversight? It seems that on one level you can blame the lack of oversight over the banking industry that allowed the loosening of mortgage lending rules so that people could qualify for amounts that normally they would never have been able to acquire. But for some time, they were able to pay these mortgages. Is it the rising unemployment rate? Is it unemployed people who are defaulting on their mortgages? I doubt this, given the number of foreclosures on the market right now (and foreseen to come in the next 16 months).

No one mentions the falling value of the U.S. dollar, along with the rise in oil prices? Oil has affected everything, and this rise preceded the current economic crisis spearheaded by the crashing housing industry. The rise in oil has obviously made gas more expensive, so that commuting costs are up. But then that also means that the cost of transporting goods has gone up. Companies do what is in their best interest -- increase the price of their goods. So the price of food and the price of electricity have gone up. Consequently, this affects the small business owner, so then they need to raise their rates to survive. Eventually, the market can't withstand the upward pressure, and we thus end up in the situation we are in. People can't afford their lives, so they're defaulting on their home mortgage loans. The falling U.S. dollar along with rising oil prices has been a "double-wammy" to main street America. One would have hit hard. Two his four times as hard.

Add to this a poorly regulated credit card industry, which can sneak up charges as high as a 30% APR on unpaid balances (which I think is ridiculous), and it is a setup for economic collapse. Is it really Wall Street that needs to be bailed out? Does that bail out really help middle America? And why do we really have to wait for a crisis to make the type of decisions our Dept. of the Treasury, the Federal Reserve and Congress are struggling to come up with to resolve this matter.

The best analogy I can think of is the patient who has waited until their disease is so advanced that only desperate measures can save them. We all know as doctors that this involves highly expensive care and taxes the healthcare system. Had this same patient been approached judiciously with ongoing preventive measures, this type of catastrophe would most likely have been avoided.

The U.S. government acts in the same way. Why can't they get their act together and legislate sound policies that support the ongoing health of the nation's economy? Why does Wall Street have so much say over how the government's economic policy is written? And why does the government make no mention of the fact the rising oil prices are the underlying root cause that has taxed main street America into default.

Wake up everybody. We need to free ourselves from oil dependence!

2 Comments:

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8:44 AM EST  
Anonymous Anonymous said...

Just checking to see how Solo Practice is going. I am thinking about it in the midwest.

11:46 PM EDT  

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