People are extending their lifestyles more and more. Kids have more toys, teens have video games, and adults just have more high end things. How did people do it? Credit. People take out credit for houses, cars, and Christmas. Credit actually closes the gap on poverty. Much like building a home without a foundation and sometimes without support beams. When the collective economic and financial support of individuals and families fail so does that of the nation.
Lets take a very simple illustration to explain why credit has killed our economy. Understand, economics is much more complicated so this does simplify things a lot. Lets say we started with a population that hasn't borrowed any money and over the course of a few years they start borrowing money to buy all the things they wanted. Suddenly there is a burst of money thrust into the economy and all industries are affected. We would call this time a boom. During which companies expand spending themselves more and more some getting investment dollars. As things expand unemployment rates decrease and salaries increase as qualified employees become more in demand and harder to find. These higher salaries cause inflation and more and more people borrow more and more some beyond their means lulled into a false sense of security by the thriving economy this causes more growth with brief dips. Suddenly a few years into this people start cutting back to pay off their credit cards and spending dips. As spending dips a few companies go under because they forcasted a boom and expanded, suddenly they have to be cutting back. and they lose a lot of money because they have invested in store fronts, employees, and other physical things that would be earning money during a boom time but are now weight. These few companies cut back and many go under. This means the loss of many jobs. People who lost their jobs can't spend much at all even less than those that are just in debt and paying it back. So spending is not just down from those in debt and those who are unemployed but also those companies that cut back or went under are spending much less. These factors cause other companies to get hit hard and suddenly we are in economic crisis.
Though my example showed this happening very quickly over maybe 5-6 years, this has been happening in the US starting in the late 70's at a much slower rate than in the example. We hit the starting of the downturn in the late 90's even before Bush came to office. That has been building to put us in our current situation. The rich are getting richer and everybody else has gotten poorer. Though major companies are going under, those that run them are not. Even banks who allowed this to happen out of greed, there heads are still millionaires. Nonetheless we did this to ourselves.
Lessons to learn. Live within your means. Don't borrow anything except things that will put more money in your pocket or bring security to your life. Borrowing to buy a house is ok only if that house is within your means meaning the monthly payment is more than affordable and the interest rate is good. Save and invest money. I am not going to tell you how to invest in this article, but save about 3-12 months of money at least. This money is to live off of if you lose your job or have a medical problem that impairs employment or just puts a dent in your finances. From there take a portion of your salary to invest assuming you have time to search out good investments. This money should be something you are willing to lose in case you pick a bad investment. Final lesson to learn, don't be lazy. Go the extra mile at work. Pay attention to what is happening in the world and learn good financial sense. In general keep educated as the world changes.
We must start taking responsibility for the economic crisis we are in and change. Stop blaming the government and expecting them to solve our problems. They do not have the power to change things if we don't change. Unfortunately politicians can't elected if they rebuke the public openly and they won't tell us that they have little power to fix things. We have the power and we must have hope and courage to stand up and face our problems. If we take responsibility for these issues and not blame the government and corporations we can change our current situation.
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