Q: What, exactly, is going on with the economy, and should I worry about it? — Char (and, probably, you)
A: People have been asking me this question, or close variations thereof, for a couple of months now. I keep trying to write answers, but by the time I finish, something’s changed. So I am officially throwing up my hands, making some general statements, and pointing you to some places where people can explain things more frequently and thoroughly than I can.
Much of the American economy runs on credit, and I’m not just talking about our Visa bills. Companies need some cash, so they go to banks. Banks loan them huge amounts of money. Companies do whatever they needed to do with the dough, and pay it back with interest. As long as the companies can pay back that money as promised, everyone’s happy.
This worked for a while. And then the whole mortgage thing happened. Lenders enticed people to buy houses with no money down and manageable interest rates for the first couple-few years, and a lot of people who thought they weren’t in the financial position to buy houses were happy to believe that they suddenly, miraculously were. Higher rates in the future? Oh, don’t worry your pretty little heads, dearies. Just sign on the line. You can refinance in a few years when housing prices go up and your house is worth more.
House prices. Bubble. Pop. Oops.
Up until this point, mortgages were considered pretty safe debts to have scheduled to be paid back to you, so there was this whole market where lenders and investors were selling and buying the risk involved. So people start defaulting, and suddenly you have all these investors who’ve taken hits. That’s not good. (I’m having a hard time getting into more detail than that. If you want the down-and-dirty, check out this Wikipedia page.) Oh, and it doesn’t help that a lot of those financial companies seem less concerned about their shareholders than they do in paying almost unfathomable sums to their top levels of management.
Meanwhile, the price of oil kept getting ratcheted up and up, which impacted everything from global food production to the American auto industry, until that little commodities-specific bubble popped because people just plain couldn’t afford to keep playing.
So: Consumers with less money. Financial institutions taking hits and getting skittish, and having bizarre internal priorities — so, less money getting put back into the market. Take cover, kids. If you can afford cover, that is: Odds are higher and higher that you’re not working, or are underemployed.
Should you worry? Probably. But, honestly, I don’t think it’s worth it to work up any more than your usual low-lying dread about how you’re going to pay for everything. The market’s going to be careening around for a while. You’re probably just happy that gas prices are creeping down enough that you won’t have to charge your power bill to your overextended MasterCard this month. Lay low for a while. Don’t make any major purchases that you don’t need to make. Pay your rent, save anything you can, and hope you don’t get sick. ‘Cause that would really wipe you out.
So that, there, is my attempt to generalize. For actual information, I recommend:
If you have more resources for the masses, please send them along. And if you can explain this mishegas better than I can, or have clarifications or corrections, post those as well. For now, I’m going to check the job boards again, to be followed by curling up into a ball and trying to fit myself under my bed.