13 trillion dollars:economy content, don't read if you don't want to think about it.

[Guest Virginia Dawn]

This appears to be the latest estimate of the amount of personal wealth or "net worth" that has been lost by Americans since the downturn in the economy, and it doesn't appear to be over yet.

 

I don't want to debate the contents of the stimulus package. What I'm having trouble figuring out is how any ? billion dollar stimulus package can really make that much difference to our economy, considering the losses already incurred. It seems to me that only time can really make up the difference, if ever.

 

Goodness, we could have paid off the Chinese many times over with what was lost!

Edited March 16, 2009 by Virginia Dawn

[Sara R]

I think most of the problem is that the money wasn't really there in the first place.

 

Consider my house. I bought it for $150,000. Three years later, it was "worth" $240,000. But had incomes in my area gone up 60% to support that kind of increase long-term? No. Home prices were a bubble because of easy money. When banks came to their senses, mortgages weren't as easy to come by, and prices started falling back to earth. So far we have "lost" $40,000 of our home's value, but the money was never really ours in the first place. Good thing we never counted on it being ours. We could have taken that money by selling our house at the right time and moving to someplace like Iowa without a housing bubble, but if everyone had done that, Iowa would have gotten a housing bubble too.

 

That happened on a large scale. Home prices went up, but nothing backed up the increase. The price increase was unsustainable in the long-term. Lots of investment money overseas went into these mortgages that can't be paid back, because the income just isn't there.

 

The value of "assets" (not just homes; "derivatives" have something to do with this too) were artificially inflated because of easy money. Someone explained something to me about different measures of the money supply. M0 is gold-based wealth. M1 is money in the bank. Can't remember M2 (maybe stocks and bonds?). M3 is all of money in derivatives. M3 was way huger than M1. In other words, the M3 money was fantasy money, and that is what is evaporating.

 

So would that money have paid the Chinese back? I don't know. Probably not, since it is mostly their investment money that is being lost in this crash. It was their money in the mortgage backed securities.

 

I'm not saying that the loss of fantasy money doesn't cause suffering; clearly it does. I think the solution is to quit confusing fantasy money ("toxic assets") with real money. Mark down the assets a sustainable level supported by the current market, and quit throwing stimulus money at the problem. This would be painful, but it's the only way our economy can get back on a firm foundation. And all of the talk of "confidence" in the world isn't going to build any real confidence until we are back on a firm foundation.

[AuntieM]

regarding our debt and significant increases in spending.... DS asked me the other day, after a discussion on where that money is coming from:

 

"What happens if China suddenly calls in all the loans? How do we pay them? Can they occupy parts of our country to 'cover' the loan debt?"

 

I find myself wondering the same thing. I don't imagine they could physically take our land, but if the banking system and the health care system become government enterprises ("assets" so to speak), and the US defaults on loans, could we end up having China (or some foreign government) as administrators of U.S. systems (because they have taken over our assets to settle the debt?). Or would they demand military technology or even take some of our military bases and equipment?

 

I would love to have an accurate, legal description of just what our country's financial obligations involve. Can anyone here point me to an unbiased information source?

 

What I describe seems far-fetched, I know. But stranger things have happened, and it has me wondering, in "a pound of flesh" sort of way....

[Parrothead]

regarding our debt and significant increases in spending.... DS asked me the other day, after a discussion on where that money is coming from:

 

"What happens if China suddenly calls in all the loans? How do we pay them? Can they occupy parts of our country to 'cover' the loan debt?"

 

I find myself wondering the same thing. I don't imagine they could physically take our land, but if the banking system and the health care system become government enterprises ("assets" so to speak), and the US defaults on loans, could we end up having China (or some foreign government) as administrators of U.S. systems (because they have taken over our assets to settle the debt?). Or would they demand military technology or even take some of our military bases and equipment?

 

I would love to have an accurate, legal description of just what our country's financial obligations involve. Can anyone here point me to an unbiased information source?

 

What I describe seems far-fetched, I know. But stranger things have happened, and it has me wondering, in "a pound of flesh" sort of way....

I don't remember exactly what happens, but the threat of China and other countries dumping their dollars is what is one thing that acts as collateral. If the countries every simultaneously dump their dollars the value of the dollar plummets drastically. At that point we will probably have the Greatest Depression.