Sunday, March 22, 2009

Please sir, may I have some more...

I used to follow the real estate market because I did some fixin' of houses and the rising market meant I'd make money just by holding on to a property. But I was always worried that the "bubble" would burst and I'd wipe out my "sweat equity" in a project (meaning my labor would not be paid) with falling home prices. So I always kept a nervous eye out for signs of a pin, and I got out of real estate a safe year before the markets started to crumble.

But I never really understood the mechanisms of real estate financing. Only that housing could not keep going up beyond the means to pay the mortgage. Where did the money come from that I borrowed to buy and fix up a house? What was the source? Was there a pool of money somewhere?

Most of us don't think so much about money that we try to understand where it comes from, or how we end up being able to borrow some, and how "it all works". I really didn't. Dollars were dollars. Everybody agreed to use them around here as a means of quantifying and exchanging goods and services.

"I'll give ya ten bucks for that."

"How about six thousand for that truck?"

"You got three fitty?"

I'd hoped I always had enough dollars, and have been frugal with them since approaching my forties. You never know, things may happen and you might need dollars to pay for things that just might happen... That's like insurance...

I never realized until recently that the money I saved could be rendered worthless by the people we elected to represent us in Washington. If they can't borrow the money they want to spend, they can either tax Americans or just print it.

The more they print, the more there are, and the more there are, the less they are worth.That's the bit you hear about called "inflation". If the government spends too much money, they make the money I've saved for a rainy day worth less than it is now.

So the government borrows the money whenever it can. They sell bonds which are backed by the US taxpayer. What they do is offer a guarantee that the US taxpayer will pay back the bond with interest and then the world puts any spare money it has into these bonds, because they percieve America as a safe place that will always be "good for" the loan.

Well... here is the rub...

The US is now like that uncle that keeps borrowing money, the one you were glad to loan to thirty years ago because he was stable, had a good productive job, and always made payments back to you on time with interest. But now he has accumulated a debt everyone knows he cannot pay back, and, hat in hand, he is here at your door looking for more.

I'm not kidding.

That's where the US is at as a country right now. It's so bad we sent Hillary over to China to beg them to continue loaning us money so that we can keep shopping at Harbor Freight and Walmart.

While the idea of Hillary groveling makes me smile, I am embarrassed for ourselves as a country. Truly.

3 comments:

Jeannie said...

It's a rather uncomfortable affair isn't it?

I think we all need to get used to the idea of living more frugally all the way around.

Blogless Troll said...

And you've got Russia and China calling for a new world reserve currency. If that ever happens we'll be burning dollars for heating.

Shrinky said...

It's worldwide, not just in America. Our plans for retirement are up in flames, the pensions we planned ahead and sacrificed for is now worth a third of what we had been given to expect. For all of that, guess we are lucky - we won't lose our house or go hungry, which is far more than many are finding today.