about America learning to live within its means once the economy recovers- but, won’t the economy only truly recover once people start investing again? And doesn’t investment inherently mean creating money where it wasn’t before- as in, getting things to grow- as in, getting your money to work beyond its means?
When I was first learning about the economics of capitalism I remember not quite getting a few things- people would say “You need money to make money” or something like that and I would be like- what?
Now I get it- interest rates, dividends, investments and revenue- if you have enough money to put into a fund or a project it will pay you back and more, if you have the time and effort to make it work. Then I learned about loans- banks and savings & loan establishments can lend out far more than the amount of money they have- as in, a bank can lend out $100,000 to some business and keep just $10,000 in cash on that loan. Then, that business can deposit the money elsewhere- that’s $90,000 new dollars that don’t really exist yet. But if they are in a bank, that new bank can loan out on it- they can loan out another $90,000- as long as they have 10% of the original amount on hand- meaning, $9,000 in the bank and another new $81,000 out there floating around- possibly to make another new deposit and loan, etc. You get the point.
But all those loans are predicated on the idea that they will be paid back, right? And if that can’t happen, well, the whole system falls apart. That’s kind of what happened with all the bad home loans. Sub-prime loans meant giving people money that they couldn’t pay back- I presume the lenders then tried to break them up into pieces and sell them as quickly as possible so that they could make a buck on loaning people with no money some money- but then, they weren’t really loaning them money, they were loaning out money they didn’t have to people who couldn’t pay it back, then selling that to other folks who didn’t know what was really in it and giving it a fancy name- credit default swap. It’s shady but it’s nothing new, really.
Capitalism is about making money. Businesses make some money through producing and then selling things- not a lot, but some. The real money is in investments- as in, getting your money to make money. Put it in the right place or loan it to the right people and it gives you back a nice profit. You make money out of thin air. While the American Dream abroad may be to come and get a job and live in relative freedom here, the Dream of Americans is usually to find a way to kick back and have the money coming in with as little work as possible.
Tim Geithner is in Reuters talking about Americans learning to live within their means…
That is more socialist than anything I’ve heard out of Obama’s mouth. Where’s Glenn Beck???