Thursday, June 23, 2011

The Good, the Bad and the Ugly - Living the Unearned Life

2008 - the global economy took a dive that it is still recovering from. Among the straws (more like iron girders) the broke the camel's back was the real estate and housing finance. People borrowed on enhanced property values and / or enhanced share values and invested waiting for the next buyer or just plain spent it. The premise of a housing loan is the expected earnings over a significant part of a lifetime. 

Closer to daily life, there is something called a credit card. Roll-over credit enables you to spend beyond this month's income. Credit limits permitted are often based on a factor of income plus spending pattern during a month.

Great stuff. You don't have to sacrifice today's pleasures of life and wait till you are 60 to live the good life. Build and decorate your own house, buy the red-hot car, party on Friday nights after a week's hard work and watch the large screen LED on a lazy Sunday. Somewhere in between there is time to discuss global warming and conservation - so ultra-expensive temperature insulation for the home, fuel effiency for the oversized car, minimizing tissue paper use at the discotheque and energy efficient television will feature. Succeeding generations will remember the sacrifice. Why wait till the heart is on the blink, muscular atrophy sets it and reading glasses are the good life, NOW!

The folding in of future income also means that within a short span of time you've moved from Kanghaalpur, India (Brokesville) to FastLane, India. Wearing budget T-shirts from export reject sales, second hand garments from big brother / sister and the bus journey on the World's-worst-public-transport-system (its always in your town) gives way to designer sunglasses, Nike Air-tech and the pulsating mobike. Interim steps to the promised land that will happen in two years. Of course, the cellphone must be changed every 12 months so that one can SMS, play mindless video games and drool over sleazy sex-videos of errant teenagers. In summary, plenty of bad spending choices creep in with the new found affluence.

Coupled with the fold-in of future income is the great big dynamic of the free-market. Its called expectations of income. Expected individual income growth enhances loan lmits. Call centre selling money chase customers relentlessly. Miraculously, everyone become the stock market wizard offering tips and insights. The good times are here. The world's largest legal transnational casino discounts the expectations into today's stock prices, based on something called "fundamentals". The prime fundamental its based on is greed, and how one can sex the sale price to the next greedy moron who walks in with gold bars shining in his pupils.  This is the forward enegineered giant Ponzi scheme (read about Carlo Ponzi at You may well be taking money that isn't going to be earned to pay for today.

At some point, an honest, naive, or just plain lucky kid sees the Emperor's new clothes on the attractive looking economy. The naked trust emerges. Its the day the earth stood still. Crash, everything collapes. Game Over. No extensions. The imminent wealth just hiked to the next galaxy. Distress sales, job losses, unemployment, disturbed homes trying to make ends meet. The Ugly Truth.

Its going to be a long haul back, because we just didn't blow the income we are earning but what we thought we could be earning for the next decade or two.   Meanwhile, let's blame the immigrants (who did the jobs we didn't want to do), relocation of manufacturing (so dirty factories aren't in our neighbourhood), the off-shoring of jobs to places like India and cheap Chinese imports. All the things that worked towards making the good life, now represent the ugly face of shitty free-market economics. 

Its going to be a long haul back, because we just didn't blow the income we are earning but what we thought we could be earning for the next decade or two.  Gambling on human greed is not free market economics. So our young people will pay the price for our greed.  For living the unearned life.

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