Beware the Brave New World Born in Egypt

One of the great lessons of what is going on in the Middle East is that the Internet can help bring dramatic and rapid change.Egypt is a cautionary tale - protesters

I doubt that the power of the Internet is now lost on the youth of America.  I believe that what happened in Egypt can now happen here. The economic crisis could cause people to become just as dissatisfied and yearn for change just as anxiously.

I think it could actually happen even more quickly.  I think it could happen even more violently because there is little gun control. 

People here would not have to steal guns from the army the way they’ve done in Libya.  Here in America, people own their own.  It’s scary really.

I wonder what kind of ad hoc army could be quickly assembled using the Internet to resolve dissatisfaction with a difficult time of hunger or poverty.

I would think that people in power would do anything in their power to keep people in this country from reaching such a point of dissatisfaction.  It is in their best interest to do so.  It is in the best interest of us all, but I dare say at what cost do we try to keep the people happy enough not to follow Egypt’s example?

It is a fearful scenario.  Large scale hunger, unemployment, anger and lots of powerful guns could initiate rapid changes using the Internet that have in the past required some seminal event.  Now, it seems, such change could be initiated by a Tweet.

I do not envy the politicians, the economists, or the bankers; these who need to strike a dreadfully careful balance in the new world that awoke for the first time in Egypt to the true power of connectivity.

Economic Spiral Down: Where is the Bottom?

I wrote a long time ago about “Trickle-Up Bankruptcy.” I wrote to Michael Savage about it and he is using “Trickle Up Poverty” as the title of his new book.  Coincidence? Probably, he’s a smart guy, but I didn’t fall off a turnip truck and neither did he.  The impending (yes, I don’t think the real crisis has actually happened yet) economic crisis was obvious to the thinking man.Economic Downward Spiral

I hear the news about California needing to cut another $25-28 billion from the state budget.  This is before the Federal government makes the cuts they need to make, which can only negatively impact our state’s budget and create the need for even deeper cuts.

So I am wondering what is the REAL SCOOP on the California budget? I mean what are the cuts that need to be made after the Federal Government “sacks up” and makes the cuts they need to make before the Global credit markets come calling and put a stop to the borrowing. (I hear most recently that the feds are proposing 32 billion in cuts…really?  When California alone needs to make up to 28 billion in cuts?  That’s either a measure of how bad California is or how in love with the printing press Congress is.)

If California has to cut more than 28 billion, what is the result?  I saw tonight on the news that the unemployment rates here in the Central Valley of California are nearly 20%.  This means that it could get a lot worse if huge cuts are made and the budgets of State, County, and City governments are cut.  These cuts would mean that more people are on unemployment, more people are in danger of losing their homes, more people go belly up on their credit of all kinds, fewer people have money to spend on eating out, buying stuff, applying for credit, etc.

The outlook is bleak no matter how you cut it.  The following facts are inescapable from everything I hear from people who ought to know:

  1. The Federal Government has to cut spending voluntarily or the global money markets will tighten up and force them to do it.
  2. Reductions in Federal spending impact every state negatively.
  3. California already has a huge budget deficit to take care of and increasing taxes to fix the deficit it is not an option.
  4. Fewer jobs and the eventual timing out of unemployment benefits is going to put additional stress on the state government for welfare benefits.

I saw some guy on the TV tonight who is in construction.  He said that home construction led us out of the last six economic downturns.  Well, that’s nice but this time we have a credit problem that I am not sure we’ve ever seen before.  The housing bubble was created by rich people lending money to employ poor people to build houses for other poor people who were lent money by rich people to buy houses they could not afford – yet, they were given the credit anyway.  The guy on the TV did not explain how the credit crisis, the resulting lack of confidence in people today to pay back their debts no matter what (instead of simply walking away from them) would be solved. 

In order for construction to bring us out of the current recession, there would have to be reconstruction of confidence in the moral integrity of the American people.  I don’t see that happening on mortgages.  I see that happening slowly – if at all – incrementally on small credit – if the American people even realize what the crisis is or how it impacts them long-term.  Do the American people realize how their own irresponsibility has damaged the credit markets?  Do they realize that each person who walks away from their home mortgage or credit cards or auto loans hurts everyone else?  Do they realize how it is damaging the long term ability of the economic system – based on credit and the honor system – to recover?  This isn’t the time of Dickens, there are no debtor prisons.

Since there are no consequences for fiscal irresponsibility and all fiscal ills can be resolved via bankruptcy, banks are going to be extremely cautious.  They are going to tighten the screws on borrowers until they can be assured that everyone gets the message that if you borrow, you WILL repay, no matter what.  Bankers might be greedy jerks but they’re not imbeciles.  They lend and expect a return on the money.  When people borrow and then are allowed to walk away without consequence, there are larger consequences for us all.  It’s harder to borrow or even impossible.

The fact that it’s harder to borrow tells me that the current recession is going to last longer than the other ones because construction can’t take us out of the crisis until the bankers have confidence in lending.  This means that there has to be a level of risk that is acceptable.  This level of risk requires that housing costs drop to the level of affordability for the average guy.  Housing costs have dropped, but they have not hit bottom – that is, the level at which the average schmoe can buy a house and the bank is assured that he can afford the payment.  Afford meaning a ratio of payments to income that leaves enough extra that the banks don’t have to worry about being repaid.

Housing prices aren’t there yet.  Houses are still way too high in price to be affordable in relation to lending confidence.  If there was a measure, I’m sure it would show that lending confidence is at an all time low. Until that confidence rebuilds, we’re in for more cuts to reduce a credit-induced deficit.  Everyone is going to suffer because rather than tighten our belts and make our payments, too many of us are choosing to walk away from debt and leave the bills for someone else to pay so we can have a bunch of presents under the Christmas tree or another meal out on the town.

We’re stuck in a downward spiral that will only be resolved through fiscal responsibility and moral uprightness.  Borrowers must make the commitment to repay their debts or we will never regain our economic health in this country.  Perhaps the lack of moral fiber that has become evident in other areas has now infected our society to such an extent that we’ll never recover.  I hope not, but I am not confident.

Education about Finnish Policies

I hosted my former foreign exchange student this past week for a couple of days.  He lived with me for a year ten years ago and he’s now 28 years old and has grown into a fine, successful young man.Education in Finland

We always talk about the differences between Finland and the USA when he’s here and this visit was no different.  What he told me about Finnish business investment by the central government there astounded me.

  • Did you know that the Finnish government will invest with entrepreneurs in start-ups? 
  • Did you know that the government will pay the salary of your first full time employee for the first year? 
  • Did you know that Finnish people work fewer hours than most of the developed world? 
  • Did you know that the unemployed in Finland receive a monthly salary with no time limit? 
  • Did you know that Finnish people have full medical coverage provided by the government?

Finnish businessSo why are the Finnish people avoiding the ills of the economic downturn in comparison to the USA at this point in time?  A couple of reasons come to mind, A) Finland is not spending much on its military in comparison the USA; B) Our banking system enables irresponsible levels of debt in ways that Finland’s banking system does not. My friend told me that my high limit credit cards would not even be possible in Finland where there is commonly a hard limit on personal cards of about 5,000 dollars.

Another interesting difference is the educational system.  My friend told me that Finnish schools rank among the best in the world.  He feels that it’s because most of the smartest people at the Universities go into teaching.  He said it’s not because the pay is so great, it’s because teachers are so highly respected.  Schools are highly independent and educational programs are largely determined by the staff at the schools.  There are no school boards and all teachers are required to earn a Master’s degree. 

Another interesting feature of the Finnish educational system is that kids are given a choice at the end of about grade 8 to either prepare for college or go into a vocational school.  I commented to him that “You probably don’t lose many kids that way.”  His response was, “We don’t lose anyone.”  While that may be a bit of patriotic overstatement on his part, I think it’s probably essentially correct, or a lot closer to being true there than it is here. We in California eschewed vocational education to our detriment decades ago to a flawed philosophy of “equal access” and “college-ready” educational smoke and mirrors.  All we have left for students that can’t or don’t choose to go to college are highly over-priced, private, vocational schools offering student loans that put their graduates what amounts to a modern form of indentured servitude.

Our popular media ignores other countries as if we have nothing to learn from them.  I think we could learn a lot by looking at how other countries do things successfully that we seem to fail at year-after-year.  New ideas might defeat some of the old tired arguments that stall our forward progress.

Photo Credits – Päivi Tiittanen (Flag); Stefan Schievelbein