Before we can understand how the economy got this way, we need to understand the very nature of money. Money, of course, is a symbol - a placeholder for value, if you will. The pieces of paper and metal you trade for goods are no different than the Wampum used by the 13 original colonies because the Europeans did not want their money devalued by the "risky" venture taking place across the Atlantic.
Whether we are talking about Wampum, Dollars, Loonies, or Rubles, they are all placeholders representing wealth, while the real value stays locked away safely somewhere else.
Or does it?
My good friend Ford (the person, not the car company) sent me some links to some fantastic videos on YouTube that explain - in very easy to understand terms - the very nature of money and how governments (not just the US) are literally "conjuring" money from debt - which goes a long way to explain the current economic crisis. The video is almost 50 minutes long and is broken into 5 parts on YouTube. Here are the links:
WHere Does Money Come From? (Money as Debt)
OK, so let's see if we can turn this into an elevator story: The way our system is set up, governments (including ours) have created a monetary system where borrowing money "conjures" up more money out of nothing. When money becomes "tight" (in demand), more money is "conjured" by raising the debt to real money ratio until the system eventually implodes on itself. So, by putting over 1 TRILLION additional dollars in play (the $700 Billion bail out, plus the additional $330 billion Emperor Bush poured into the global economy), banks get more money so they can make more loans to create more debt so more money can be "conjured," thus, in all likelihood, creating an even bigger problem for the next president.
Still don't get it? This should make it easier to understand:
No, really. Watch that again. Not only is it entertaining, but it is one of the least painful ways for us to even start to fathom the world of hurt we are all in.
So whose fault is this?
It is really easy for Democrats to blame Republicans, Republicans to blame Democrats, and for Independents to blame both. In truth, there are a lot of different people to blame — on both sides of the aisle and in between, Not the least of which are the American people themselves. After all, it is one thing to make credit so easy to obtain, but no one forced us to take advantage of it, did they?
There is a great article on FactCheck.org called Who Caused the Economic Crisis? You can read the entire article yourself (and you should) but it does quote The Economist magazine, who reported the problem is one of "layered responsibility," and provided the following partial list of those alleged to be at fault:
- The Federal Reserve
- Home Buyers (More or less, us)
- Congress
- Real estate agents
- The Clinton Administration
- Mortgage Brokers
- Former Federal Reserve chairman Alan Greenspan
- Wall Street firms
- The Bush Administration
- An obscure accounting rule
- Collective delusion (Us again, with all of the above)
I can't promise that Barack Obama will at least put in motion the changes we need to make sure this can never happen again. Heck, I was actually disappointed when he said he would vote for the plan and encouraged others to do so. But he cannot be entirely blamed for that. If you were him, would you want to inherit the state of the economy had the bailout not passed?
What I do know is that McCain is not the answer. I know that the Clinton administration - for all its faults - handed Bush a surplus, and he squandered it on warmongering to fill the pockets of his cronies. I fear that McCain will just be more of the same.
All the bailout does is buy the next administration time to come up with a better plan, and whatever that plan will be, it will not be an overnight fix. If you lay part of the blame at the Clinton Administration and Greenspan, then it is fair to say it took us at least a decade to get the economy in the state it is in today. Let's hope it does not take us another decade to turn it around.
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