It isn’t the economy stupid

…it’s each and every one of us

 We hear that all the changes and problems are to be blamed on this universal omnipresent entity better known as the economy. 

 Individuals and small business owners live in denial, telling themselves none of that effects them.  Nothing could be farther from the truth.

 We, each and every individual in this country, compose what it is known as the aggregate market (the whole) in America.  Every thing we do or don’t do eventually has effect on what is going on in the ‘economy.’  We are the economy.  We buy, sell, market, produce, hire, fire employees, invest and plan for the future.  These are all the components of the private side of the economy.  There, of course, is the government that puts its messy fingers in the pie from time to time.  These actions are called fiscal and monetary policy.  Fiscal policy is controlled by elected officials and monetary policy by the Federal Reserve.

 Neither make decisions to get the economy to expand or contract on a whim.  Their choices are made to try and keep the economy on track  The government can increase budgets for aerospace and the military knowing that it will mean more hiring and expansion for the future if they see a slow down in potential jobs.  This is called fiscal policy.  (According a citation I read, it is an effort by the government to stimulate the economy by spending money.)  When they spend more money, they create a situation where more people go to work so the projects they launched have manpower.  This started in FDR’s time when he wanted the roads cleaned up and damns built and a way to give those out of work a job.  Projects were built and more people came home at night with a paycheck.

 All of the above along with the Fed’s actions, monetary policy, are the government’s ways of trying to keep the economy on track.  What’s happening now is both governmental arms reaching out to intervene in the mortgage mess, a fluke.  This only happens occasionally during times of pending crisis.

 Now, let’s get back to the individuals that make up this aggregate market.  In the late 70s and early 80s the credit card companies pushed customers to expand credit lines and sent out pre-approved cards by the bushel.  The idea behind the push was that inflation rates were eating up the power of the dollars in your pocket.  So, the theory went by putting off purchases, you are only going to end up paying more.  So, buy today or you will live to regret it.  To make it even more enticing, in those days, credit card interest was an income tax deduction. 

 America has never been able to pull themselves off credit card binging. When they couldn’t get rid of that debt, they turned to home equity loans for help, which just happened to pop up on the scene at the same time.  What it did was put homes in jeopardy in the long run to deal with the short term purchasing.  It wasn’t a good idea then and it is even worse now.

 Early in the millennium came the push to put a different market niche of folks into homes.  Encouraging home buying is a good thing on the surface; but not if, as a family you can’t afford to stay in the home. Also, all sense of down payments and a correctly proportioned income to mortgage payment went out the window.  The folks pushing the contracts were making big bucks and didn’t want to stop.  Well, the economy is now saying stop.

 The result is people are claiming the turmoil is fueled by the government and the media. No, it is fueled by individuals that make up the economy/aggregate market.  Take responsibility for your financial decisions.  Change anything that isn’t good planning.  Teach anyone who is willing to listen.  Look out for money making opportunities during this time.  Bargains are always going to pop up when demand threatens to decrease.  Change your economic life one step at a time and open up your life to better times down the road. 

-30-