...and other Stock Market stuff I never wanted to know about.
I've been brooding for some time now about the miserable economic mess that we have got ourselves into. The stock market in free fall is only one piece of it, albeit a big piece for people watching their investments and retirement income shrivel. A lot of people are losing their homes, their jobs, their dreams. Even affluent retirees such as my husband are depressed and a little bit scared.
I've just ploughed through a long article in MacLeans about the 'economic crisis' and am planning on tackling the Economist, maybe tomorrow when I feel stronger and more intelligent. I read two daily papers, daily. I listen to pundits. I still don't understand it. But I'm not sure anyone does, no matter what their credentials. So, here is my two cents' worth. Which, tomorrow, will probably only be worth 1.3 cents.
Although I guess it is fair to say that the trigger for this mess has been the mortgage bubble in the United States, I think that Canada and Europe, the 'developed' world, is all at fault. The reason? The acceptance of a world based on easy credit. 'No money down.' 'Do not pay until 2010'. With this acceptance, also, the belief that it is okay, more, that it is safe, to live up to the eyeballs in debt.
I was raised by parents who had been young adults in the Depression years of 1929 to 1939. Their education, expectations and plans had been disrupted by the hit their families' incomes took when the wheels came off the bus. And they never forgot it. It shaped their world view. They did not buy on credit. Never. Ever. In their view, you saved until you could pay cash for whatever you needed and did without until the cash was available. Savings went into the bank, into land or, more dangerously, into very, very safe investments.
People who had been young adults in the war years, however, found, in the post war boom, a new level of prosperity and desire for things. They wanted houses of their own. They wanted cars, televisions, cottages. They were earning good salaries, the future of their employment seemed secure and so they took out a mortgage, a car loan, a second mortgage. And it all worked out, for most of them, and the children they were bringing up in this new affluence grew up in a world of new clothes, bigger TV's, transistor radios, bicycles, vacations to the beach, a fur coat for mother. Stuff advertised on TV. It was normal; these things were expected, not treats. I am talking, of course, about the 'Boomer' generation.
As the Boomers grew up in their turn, in spite of the occasional wobble in the economy, things stayed good. And along came credit cards. And car dealerships and electronics stores that offered long payment periods. And banks that allowed second mortgages. And advertising for all of this grew more and more strident. It was everywhere. An economy based on a need for growth to keep it stable, fuelled by 'You deserve it' advertising. When inflation got too high, when the credit card was maxed out, it was corrected, consolidation loaned, tamed down. Governments borrowed at high interest to keep the spiral spiralling.
Next came computers, and the Boomers discovered that they could be their own stockbrokers. Everyone and her aunt got into it with RRSP's and self directed retirement plans and mutual funds. Even the pop when the dot.com bubble burst did not deter people. The meltdown after 9/11 did not deter people either. Recovery had happened before; therefore, it would happen again. I think a whole lot of people with a little knowledge got into energy stocks. And a whole lot of people (I heard one expert describing the American blacks as especially vulnerable to the sub prime mortgage offer) overextended themselves for a big house and a new car and as many toys and treats as they could swing. Which they could not, if the economy dipped in the slightest, manage to hold onto.
Canada has not been quite as wild as the US and as some of the European Union countries. We have had solid, stodgy bank rules and a Finance Minister for many years who, in tandem with a sensible Prime Minister, held the reins tight and used surpluses to pay down debt. But even with that, the coming recession is going to hit here. When you sleep next to an elephant, if it turns over you are going to lose your blankets.
I've never studies economics at all. I don't know the terminology and the theories and the history, except from the viewpoint of a housewife. If I can see how we got into this mess, why aren't the experts, seemingly, seeing it. I was really discouraged listening to Obama and McCain dodge the very reasonable questions related to finance that they were asked in tonight's debate. Mr McCain, the economy is not basically sound. Mr. Obama, you say it is going to be tough -- can you put a little detail in there.
I am hanging on to my piece of the blanket, but the elephant is pretty restless tonight.
As for a 'dead cat bounce', it's a one day upward swing in the market following a lot of down days and followed, as it was today, by a return to going down. Something I never wanted to know.
Despite the difference in our ages, I often feel that we are of the same generation. My grandmother was a single mom in the depression. Her whole life she went through every grocery receipt ticking off the items to make sure she wasn't overcharged or short-changed. My mother was a single mom to 6 kids: 4 boomers and 2 gen Ys. She did live on some credit but she kept it within reason.
ReplyDeleteMy husband, well you know his father's story and his mother's was also one of poverty that led to hard-earned mid-century, middle-income.
My husband and I, as a result, never carry a credit card balance. We don't have a line of credit. We don't buy anything unless we can pay for it outright. We feel out of place living this way but it is so deeply ingrained in who we are.
Having said that, we've been very privileged. Our parents didn't leave us well-off but they also didn't leave us in debt. They even took care of a few of the big debts for us (ok, his parents did). We both have professional careers with their accompanying middle-income salaries. We have only one child.
So many people turned to credit b/c that was the only way they could give their kids what their peers had--the only way to see up the ladder. My sister is one of those people and my heart breaks to see the hole that her family has dug for itself. And yet, I don't think she acted unwisely or immodestly. She was just trying to have a decent family life.
Ah, I am blabbing.
One thing I worry about now is my pension. Pension funds have crashed right at the time that all the boomers are going to want "their due". I fear that the funds will be left bankrupt after the economy and the boomers are done with them and that my generation will have to start from square 1 in our 50s.
Blather, blather, blather...
I think things will eventually go back up and someone in their forties has time to see the pension funds recover. It will be a high priority just because the boomers are so powerful.
ReplyDeleteI'm not faulting people who took advantage of long credit; I am blaming the institutions that allowed and even fostered it. They made a lot of money on the backs of people like your sister.
And, yes, our parents helped us. A lot! As we have been able to help our kids and as you will try to give Miss M a hand. That's how it works when it does work.
You know, what breaks my heart the most is thinking about the kids coming out of university with a load of debt that they will have a horrible time discharging. Talk about Sisyphus!
I too am worried about pension and retirement, and I am only 41. I have been just behind the boomers my whole life - they punged up promotions for the first 15 years of my career; and they are going to consume the pension funds and force a return to retirement ages of 65 plus. I wan't freedom 55 - and I don't think I am going to get it.
ReplyDeleteDead cats bouncing indeed. Who thinks these thins up?
I, too, have been learning more about economics than ever before, and am still struggling to get it, but it seems that you and I keep coming back to the same basic principle - we all have too much stuff that we can't afford, and we need to get over the feeling of entitlement, that we should be able to have all this stuff.
ReplyDelete