Saturday, November 15

Yes Virginia, There Is An Economy

Dear Virginia,

There is an economy. It may not be something you see, but like Santa Claus, if you can just believe, it is there. How do we know there is an economy? There are things called predictors; things like consumer buying behavior, and housing starts. When these things are up, the economy is likely to be good. When things like unemployment and interests rates are up, the economy is likely to be bad.

When these predictors are showing the economy is going to be bad, people are afraid to spend money or make investments, this makes the economy worse which leads to dire predictions and screaming from TV market analysts (they are "experts"). Then banks get scared and stop making loans and start buying other banks. This is good for the banks, but bad for the economy. Because you see, Virginia, people can't buy things if they can't borrow money.

The economy is so important that elections are often decided by the belief that one candidate will do a better job to "fix" the economy than the other. The truth is, that the economy only gets better if people are spending money. Virginia, the economy is not based on actual worth of anything (and hasn't for a long time), but it is based on people thinking it is going to be okay and not being afraid to spend money, even if they have to borrow it to spend it.

Sometimes all it takes is something called a "stimulus package". This is when some of our taxes are given back to us so we can buy things like holiday gifts or food. However sometimes "stimulus packages" are not enough, particularly when people are paying for things that they borrowed for in in the past with the money they get back. You see Virginia, since most loans are based on high interest rates, many people take longer and longer to pay them back and when they don't have a job, it makes it even tougher.

If the economy were to be fixed properly, the government might force creditors to lower the interest rates they charge to lenders so that they can pay back their debts more quickly. That way, there would be more money flowing and the economy would likely be on its way back to health. But that Virginia, would take an act of courage by Congress. And in politics, dear Virginia, courage is hard to come by.

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