The Mess Explained

     I work for a company, and sometimes I wear a suit and tie to work. In my extended family, this qualifies me as a business expert.

     So in times of economic crisis, like these, I often hear from distant family members wanting an explanation of what’s really happening.

     I’ve learned over the years that, in explaining economic matters, I must avoid jargon and assume no familiarity with any concepts. Further, I must be prepared on those rare occasions when my explanations result in a flicker of understanding for instinctive hostility to both the economic concepts and to me.

     So I tread carefully, using plain language and simplifying wherever possible.

     My extended family’s been calling a lot lately, wanting to know how we got into the current mess. It’s simple, I say. People wanted more than they could afford, so they borrowed more than they could afford to repay. Both borrowers and lenders assumed house prices would continue to rise, allowing borrowers not only to repay any shortfall out of their real estate profits, but to borrow even more than they could otherwise afford to repay. For ten years this act of faith worked. Last year, it didn’t. Now borrowers are buried under loans they can’t repay, and lenders are figuring out they’ll never get paid back, and those who lent to the lenders are wondering if they’ll ever get paid back, and those who invested in the lenders are wondering if anything will be left for them. So borrower are worried, lenders are worried, investors are worried, and the government’s going to make everything better by borrowing more money.

     Is that clear?

Comments

[R J Keefe]

Now I get it!

[grub]

That makes total sense!

[DarkoV]

I love economy-related questions! Not economic questions, mind you. I am not an economist nor any other kind of "mist". I am, as are most people in the world, involved in economy to some extent. The real economy.
Questions of the economy-related kind, however, have a miniscule relationship to the real economy. They pretend to be wholly dipped in the now and the what and the why, but they quickly bend into the when, as in "When will this be over?". That kind of when begs a theoretical answer.
Now, I don't know about you, but answering any Dismal Science question in the theoretical is pure joy. It's akin to asking a political question and answering with this?

The great thing about economy-related questions is that contradicting statements made by yourself are perfectly understandable....and expected. And in this Nero-fiddling-Rome-burning Maelstrom we're living through, the more irritating a contradiction you can come up with the more likely you will be considered for a Cabinet post.
Let the Economic Presdigitation Burpings begin!