With news reports mounting every day about the economy, job loss, the stimulus bills, the auto industry, wall street, US bank failures, the mortgage crisis etc, people are left disoriented and confused about the economic future of this nation.  Well right here and right now I  will begin to share with my readers some things you can know for sure about the economic future of this nation.  I will start with an analysis of how we got here next I will move to what strategies will and will not work, then I will end with some likely solutions. But rest assured, you can take these truths to the bank.   So here we go. 

First, the basic principle that most folks don’t fully realize. Credit and debt are the same thing. They are two sides of the same coin.  This means when one person issues credit then another person receives debt.   In accounting, its called double entry bookkeeping.   This is a key factor in the current economic problem. Remember that principle, you will see how it affected the crisis.

The second principle can be a bit tricky to follow. It is that an investment is in actually a loan that someone makes to another entity and as a loan it carries risk.  Meaning, the money invested is on loan to some one or some company that will use that (borrowed) money to make money, but at a risk that the money may not come back to the investor (lender) if the the entity invested in is unsuccessful at making money.  The investor gets paid (interest) for loaning the money at a risk. 

Now, with those two things in mind consider the setup of the problem.  Most businesses use credit (debt) to keep their business afloat and to expand.  Also, most people have their retirement money invested (loaned out) whether in mutual funds, cds, or other investment vehicles, or as savings in banks that loan it out to others.  Consider as well that most major purchases, including houses, cars, college education,  etc., are made by consumers thru borrowed money (loans). 

Lastly, keep in mind that State and Local government municipalities invest (loan) tax revenue out to banks and investment firms.  So credit (debt) is being loaned out everywhere and people are counting IOU’s or (debt) as income or “actual money”.  For example, people say things like “my retirement is X dollars” (IOU), “my house is worth y dollars” (debt), ”my mutual funds or stock are worth z dollars” (IOU). The State govermnment has W dollars in investment money (IOU).  All of which is actually true only when you cash out and have the cash in hand or another tangible asset.

Also keep in mind that all this activity runs through the banks and is a very substantial segment of the U.S. economy.  All of this is relatively fine until someone hits the first domino in a long chain of dominos.

Many mortgages (housing loans) were issued on a false pretense that housing values always go up steadily over time regardless of the cost of the house and that the price increase is always greater than the cost of the loan for the house.  Which is not true. Why?  Because salaries have to increase relative to the housing cost in order for the houses to sell.  

As a result people purchased loans (yes loans! not houses) that were way too expensive for them and also at a cost that would go up when their interest rates were reset.  Many soon discovered that they couldn’t afford to pay the loan and that they owned the debt not the house.  So the banks kicked them out the house and  the borrower still owed the loan (foreclosure).

Banks issue loans and sell investments all the time, this is how they make their money.  Remember one persons loan (debt) is another persons investment (credit). How many ways will a bank issue credit or sell investments?  As many ways as they can?  This became the setup for the current crisis because banks repackaged and sold risky loans as investments to other people.  Then sold what amounts to insurance on the risky loans, as another investment offering. This placed risk (the original risky loan) on top of risk (the investment offering) on top of risk (the insurance investments).                 

So in essence you have investments offered on top of investments.                               Or another way of looking at it, you have debt, piled on top of debt, piled on top of debt. This continued unregulated indefinitely until you had a mountain of debt piled up.                                                    

So once the people begain to default on their housing loans then it meant the creditor (bank) couldn’t collect so every investment built on that loan was now bad. Once that string of investments went bad then the banks couldn’t guarantee other investments because they didn’t have the money, so they also went bad, and so on and so on.  Down came the house of cards.

Worst of all, now that the banks had bad loans and debt piled up everywhere that no one could pay back, then the banks could not issue new loans because there was no money to give, only debt.  This paralyzed the economy by freezing major consumer spending which triggered job loss and slowed the housing market and increased foreclosures.  It also dried up the investment market as investments went bad and crippled businesses who could no longer get (credit) loans.  What a mess!

Who can solve it. Republicans? Democrats? President Obama? Doubtful.   

Here is the bitter truth folks that we will have to swallow.  The days of excessive free flowing money (credit & debt) are over.  People will have to really work.  People will have to create and innovate. P eople will have to become globally competitive. People will have to produce in order to have money.  There is no way around it.

Why?  Because the debt is piled everywhere and you can’t print US treasury notes (money) to solve it because those notes are also backed by credit (U.S. debt) extended by foreign investors to the Federal government.  Nor can the banks simply hit the reset button and all of the bad investments (debt) simply vanishes so that they can be back in business loaning money freely.  Neither is a viable solution.  Also with global markets and competition continuing to rise there is no entitlement to market share and business success.  Oh what a tangled web we weave …

So we can’t print (money) our way out of it. The ink toner solution won’t work.  Nor can we go back in time and erase all the debt and all the bad investments and loans.  And it is unlikely that just because the U.S. banks and investment firms ”crapped out at the investment casino table” that we can clean up their books by giving them money or by taking them over because the extent of their indebtedness is not known.  

It is like throwing good money into a black hole, not to mention that giving a private entitiy huge sums of taxpayer money is completely unethical.  Oh and easing taxes? My dear Republicans, will help out a few, a bit, but it also falls way short of bringing us back to where we were or setting the nation back on track.

So what can we do? 

Well you can start by sharing this blog with everyone you know because over the next few posts you will continue to get real answers.                                                   

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It was a bright Sunday morning in Northern Virginia. I had just purchased my daily Starbucks, The Obama Americano*™. (A grande Americano, with one pump of white mocha, a half pump of mocha, with whip cream and room for cream). Enjoy.

As I walked to my car I saw a little dog who sat primly in the front seat of a Mercedes Benz and in a few moments a poem came to my mind. 

 “ I once saw a dog that felt like a queen and acted like a queen and people treated it like a queen.  I once saw a queen who felt like a dog, acted like a dog and people treated her like a dog.”   

What is the lesson?  Most of our life is a mirror of who we are being, how we feel, and how we act.  Our feelings and our actions are reflected back to us by others and by our life itself.  We are the creators of our own experience.  We are the actors and directors in our own movie. We choose the part. We choose the experience.  Anything to the contrary is a choice that a person makes to live life as a victim. Many do choose victimhood. And what is victimhood?  Victimhood is blaming others, holding on to the mistakes of the past and not learning the lessons of life. 

The beauty is however in knowing that we choose.  We direct our attention at whatever we desire and whatever we place our attention on grows.  Program yourself with personally affirming experiences, and with emotions that are edifying, gratifying and rewarding and see how your life mirrors that back to you.  Infuse gratitude, happy moments, and strength and responsibility into your life and see how things change.                              

You are the shaper of all your experiences. Nothing is fixed.  Everything can be changed. If the dog can live like a queen then certainly a queen can be herself. This is the not so secret in life that many now realize, even dogs (smile).

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As I watch hundreds of thousands of people lose work in this most troubling economy my heart goes out to them and their families.  It is a crushing reality that is gripping the nation and it has no forseeable end.  So what are the options?  What should we do?  What should we think?  Well here is some initial understanding and advice.  But I will offer more extensive advice later.

1. Realize that in many cases America, its businesses, institutions, and citizens have been living on credit, which is another way of saying living on debt.  Whether that debt was mortgages, loans, or The Federal Government selling US Governement debt and printing US treasury notes against it, there is very little difference.  The fundamentals of economics were violated.  There was no production and no real exchange.  Just loads of Phony money. Now the party is over and people are left to clean up the mess.

2.  Ask yourself, “Whats the worst that can happen?”  Take a good hard look at it and get good with it.  Accept it.  Embrace that reality.

3.  Committ to making yourself productive again.  Not dependant, but productive.  It will take time. Maybe alot of time. Years.  So accept that.

4.  Figure out what is truly valuable to you and what your real values are.  And live those out. 

5. Learn to find happiness in things that aren’t material.  A smile. A sunset. A walk. An uplifting conversation.  Time with loved ones. A book. In learning.  In doing something.

I could go on and on. Hopefully I will prepare a seminar and book for people to use as a resource during these times.  But in the meantime maybe these words will help.  We have to learn to live again.  Learn to live an authentic life, a truthful life.  One in which our actual capabilities are mirrored in our lives and we are accepting of that reality.  It is time for all of us to get real.

I hope these words were helpful. Share with others and subcribe to the blog by placing your email address in the feedburner box to the left.