Friday, December 05, 2008

How will this recession end?

As I listened to the radio on the way to work again this morning I was thankful that I still had a job. There were over 500,000 lost in October alone and that many more in September plus August.

Then I started thinking about the government bailout of all of these companies. The banks, and my guess is soon to be car companies. How will it all get paid for? We are being told that these are loans that will be paid back, however who is going to pay them back?

Take the car companies for example. They need money to keep paying their employees, but the first thing that they will be forced to do with government money is downsize and streamline, which they should do. But that also adds more people to that unemployment line. The more people who are standing in that unemployment line, the less that there are to buy new cars, which leads to a snowball effect of the car companies needing to declare bankruptcy anyway, even with the government money. At which point they lay off more people and make their own business worse.

The banks are the same. They are not giving out loans because they are worried about people paying it back. They are right to worry. People are losing their jobs. When that happens they can't pay their mortgage and the bank takes another loss, causing it to cut more jobs, which makes more people unable to get loans for houses or cars.

At this point, the entire market is realizing that they need to cut employees and streamline their business in order to stay competitive, so all at once everyone is laying off people. Families that aren't working stop going out to eat and restaurants have to cut staff or close. Etcetera, etcetera, etcetera.

When this is all said and done, there will be a lot of people unemployed. There will be a lot of empty building space from business contracting. And there will be a lot of people pushing their cars to have a longer life expectancy than they have in the past. Somewhere people need to cut spending in order to get their debt in order before they can start spending money on new things again. Until the huge amounts of debt in this country are brought under control by individuals there will be a smaller market of people who have money to spend more freely.

The worst thing that could happen in my opinion is the government stepping in to entice people to take more debt with lower interest mortgages and longer term car loans. These will only cause people to carry more debt, and cause the exact same kind of thing a few years from now when they are unable to pay what they weren't qualified for in the first place.