Why you should care about the economy
In case you didn’t read the “Bailout Math” entry yesterday, Hoboken411 reader Katie_Scarlett had made an interesting comment.
If you don’t feel sorry for anyone who has to go from a $500,000 a year job to a $250,000 a year job. Or if the phrase “It’s not the “Great Depression” because you have to sell one of your vacation homes or sports cars.” makes sense, here is what she has to say to you:
That is not what is happening
“I understand that most people don’t get finance or the economy. What I cannot understand is how anyone can be myopic enough to think that the above statement is even close to accurate.
Try thousands of people went from making 100K+ to zero. They can’t afford their current lifestyles, so they’re trying to economize. There’s no one to buy their houses (1st home or vacation home). Now they’re going into default on their mortgages.
(A) The banks can kick them out of their house, but no one wants to buy it from the bank because they don’t have the cash on hand for a $1 million pad. So the bank isn’t getting it’s cash flow in from mortgages, and doesn’t have money to lend out on new mortgages (even for the deserving). There’s just no money to lend.
Meanwhile, these people dump their leased $70k+ sports cars back on the dealerships. Well, there are less people out there in the market for $70K car right now, so the dealership is paying not only to store the overstocked vehicles, but isn’t getting its monthly cash flows. Now it’s having trouble paying salaries/bills, so a few salesmen are laid off. No biggie, right?”
Read the rest of her thoughts after the jump…
(Caring about the economy, continued…)
“So those salesman, who were making 50-60K/year are out of a job. They also can’t afford their mortgages (see part A above).
With everyone economizing, restaurants are seeing fewer diners on a daily basis. Money starts to be tight. At first they skimp on the food orders, but it soon becomes apparent that without laying a few people off, they’re not going to be able to meet their monthly bills. No worries, those out of work servers/bartenders won’t have an effect on the economy. Right?
All these people without jobs won’t be able to pay their property taxes, income taxes or sales taxes (they’re not buying anything anyway). Those stores will end up the way
of the restaurants. The government won’t have personal income taxes coming in, reduced sales tax income and reduced property tax income. Then what?
Oh, wait, I know, gov’t layoffs. . .
So now we have rampant unemployment. . . but hey, no worries, no one is really losing their job, they’re out getting jobs that paid half as much and economizing. Riiiiiight.“