"How did we get here," you might be asking yourself about right now. Well, it is a rather simple explanation. Here it goes.
"If you are financially illiterate, and you didn't understand the language of money, then in good times 'no problem;' the prosperity will paper over your problems. But in bad times, the pain and your lack of understanding (of the language of money) is simply amplified. These are the times we are living in." John Hope Bryant
Every modern society operates on a combination of leverage (a level of debt made rational by an accompanying level of equity), and confidence. In good times, we had too much leverage (fueled by cheap and easy money, and in some cases pure greed), too much confidence and not enough understanding of money and how a sustainable system of capitalism really worked (financial literacy). This set up a wave of unsustainable "increases" in asset valuations, and average everyday people using their homes as slot machines; convinced the values would continue to go up forever. I remember getting into arguments with a number of my friends who were convinced I was nuts, and that "real estate values would increase forever." Well, they probably will (over the long arc of say 20 years), but just not in a straight, unbroken line.
So, before the crash we had too much access to leverage (debt), too much confidence, and not enough knowledge (financial literacy). Today we seem to have too little access to credit, and too little consumer confidence, which is in part a result of having, guess what - no understanding of how money and the system really works (financial literacy). And so, fear sets in. Add to this job losses tied to an economy trying to de-leverage at the same time, across broad swatches of industry in America and around the world, and you have a perfect storm. If you thought the banking crisis was bad, think what happens if there is a fundamental breakdown of consumer confidence in America; a nation where 70% of the $14 trillion U.S. economy is on the back of the U.S. consumer, and you have your answer. Not good.
In many ways this is a wake up call for America, and Americans, or to quote a new friend of HOPE, John C. Mellott, the former long-time publisher of the Atlanta Journal-Constitution, "a crisis of virtues." If this crisis causes all of us to take a new look at our lives and how we are living them, and to reassess what is really important, and how we are all interdependent and interconnected, then in the end this crisis may be a good thing. That's good information, but that was not the question posed by me at the onset of this writing. The question was, "how did we get here?" Here is that answer: Cont...
