Map of life expectancy at birth from Global Education Project.

Thursday, September 18, 2008

Ask Mr. Answer Person

Q: WTF is going on?

A: With all the talk of Collateralized Debt Obligations and Credit Default Swaps and LIBOR + and Shamalamadingdong the average American can be forgiven for thinking that all of this is some weird inexplicable shit that's happening in another dimension and somehow sending an energy beam through the hole into another world to make their retirement savings evaporate. But actually, it's not that hard to explain, not that anybody will, which is why you came here.

For the past 8 years, Americans -- both the people and the government -- have been living beyond their means. Actually we've been doing it for much longer than that, but it's gotten a lot worse recently. The government has been borrowing money from the Chinese and the Saudis to pay for the occupation of Iraq and Afghanistan, on top of $450 billion a year for the so-called "regular" military budget to garrison Germany, Japan and remote islands in the Indian Ocean and the Pacific, for some reason; buy anti-missile-missiles, anti-anti-missile-missile-missiles, gold plated toilet seats, and military bands. Then mortgage brokers started giving loans to people for more than their houses were worth, whether or not they could reasonably be expected to pay the money back, which the people used to buy all kinds of junk from China and oil from Saudi Arabia. The money to give people these loans ultimately came from, yup, China and Saudi Arabia. It had to, because Americans were spending more than they were saving.

The executives of big financial institutions booked these loans as assets, pretending that they would be paid back, and used the resulting accounting profits to pay themselves 8 and 9 figure salaries (which they get to keep, by the way). But like all Ponzi schemes, it eventually had to collapse, and now it has. All those trillions of dollars in phony wealth are evaporating, and now Americans are going to have to buy stuff with money they actually have, instead of money they borrowed from China. That means they will have to buy a lot less stuff, which means that restaurants and stores are going to close, airplanes will sit idle, hotel rooms will be empty, factories will shutter their doors, and lots of people will be out of work completely. Which of course means that even more restaurants and stores will close and so on until . . . who knows when?

And meanwhile, we still have to pay all that money back to the Chinese and the Saudis. The alternative, which is also pretty ugly but which has actually started to happen, is that the U.S. government just prints up a whole lot of $100 bills. That will mean your paycheck, if you're lucky enough to have one, will be worth even less, and your savings, what's left of them, will just keep evaporating. Good luck with the bean patch and the home canning.

Q: Will President Obama bring about change?

A: Things are going to change, alright.

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