History Still Repeats when we don't pay attention

Alert:  Banks get competitive pressure to perform and improve stock value and begin to loan money for real estate to people who can only afford the mortgage if the property values continue to increase.  The real estate market takes a down turn and the banks are left with a crisis.  People can't pay their mortgages, foreclosures become rampant, bank stock values decline, public confidence goes down and people start pulling money out of the banks.  The stock market has huge declines in daily trading.  The banking system looks to go into complete failure and the economy will not be able to survive.  So, the government steps in.  They provide a cash infusion to the banking system with loans that will impact tax payers for many years to come.  The public has to bail out the poor decision making of risky real estate investors and bankers.

I know, you have all heard this and are tired of reading about it.  But, what you don't know is this is a factual account of Japan in 2002.  Yes, they did the SAME things we have just delivered to the U.S. and global economy.  Our impact might be larger, though the global banking system was at risk when Japan's economy was hit in the stomach with a baseball bat.  Our problem is escalated because of the increase in the volume mortgage backed securities.  This simply makes the problem a little further reaching.

15 months ago I spoke to a group of people about where our economy was heading.  My "guess" was exactly correct.  But, I told them at that time that England and Japan had done the same things in the past and it was going to take some time to repair.  My advice to the group I spoke to was to get out of the credit world (quit borrowing money for a period of time), and make sure you are living your life in a way that does not require increased credit.  I was correct.  

My being right is not because of a great prophecy, it was because of an awareness of history.  The banking systems in England and Japan did the same things we are doing now and credit became a hard thing to get.  Credit card usage went up because people couldn't pay bills or get credit anywhere else.  Then they were unable to pay the debt they had accumulated on the cards and large bank write offs continued to put pressure on the banking system.  This is still happening in our system today.

THE BAILOUT:  Japan's government stepped in and did exactly what our government is doing today, they are letting the tax payer bail out the banking system and real estate crooks for the bad decisions they made.  I don't like it but it is the only way we will get out of this problem.  The good news is it took Japan four years to become profitable and healthy again.  That means about 3o months before life seemed to be back to normal.  I believe we will be 24 to 30 months.  We may go faster because American's have shorter memories and will be  more creative in building the next over risky proposition.

So, if you want to understand economics better, just look at history.  Not too many new things will be created, just an embarrassing repeat of the past when we don't pay attention.