The Economic Depression: What To Do?

For the last two weeks I’ve heard countless arguments, news and opinions on what is going on with the whole economy of the United States.  Many of the points that I’ve heard, read and seen are good but I think that the number of erroneous, nonsensical and just plain stupid comments is by far larger and more frequent.  I’ve tried to avoid writing on my blog, which I try to focus on web dev, about politics or economics even though that’s what’s hot right now.  Anyhow today I a few days ago I heard a discussion that just pushed me over the edge and I’ve decided to just do it.

So are we on an economic depression/recession? The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.“  By looking at the current situation my best bet is that we are heading into one if we have not already started going down that path.  I can already hear some friends blasting me for my claim, however facts are facts, the whole economy has been slowing down.  However the trend does not surprise me, if we look at the history of  business cycles, we can see that every ten or so years this country experiences a recession.  The last recession was in 2001 so next one should be around the corner, however there are some recessions that are just felt harder than others and this time around I believe it is coming down hard.

Now the whole point of this post is not to analyze the situation to see if we are or not in a recession.  I’m also not interested in discussing why the current situation happened.  I see enough finger pointing and I just can’t bring myself to put the blame on a single entity or a group.  What I want to discuss is what we should do from now on.

The current theme of this electoral race is “CHANGE”.  Both candidates claim that they can bring change to this country and people claim to like/want change.  However deep down I feel that people don’t really understand what change really implies.  I don’t think people realize that this country needs more from them to start a change of direction than just voting for their favorite idol.  In my opinion President John F. Kennedy said it best “Ask not what your country can do for you, ask what you can do for your country”.

So what needs to change? for starters our attitude, we have to stop waiting for the government to take care of our problems.  People need to be accountable for their actions.  I firmly believe that if people where to think before acting a lot problems would be avoided.  However, some times things just seem too good to be true and instinct overpowers reason, which might result in a non desirable outcome down the road.  If the outcome is good we would usually give ourselves a pat in the back; if the outcome just bad, we will blame others and try to seek help from others to take us out of the hole.  I’m not against seeking help but we should not expect to be bailed out by others, we got ourselves in the problem we should get out by our own means.

At the same time we should also change our spending behaviors.  We are a country that lives far beyond their means and warning signs have been up for years (read Proof:Americans living beyond means).  I know some people will claim that this country is driven by spending and I will not disagree with that, however we should be smart buyers/spenders.  What I mean by smart buyer/spender is that we should buy accordingly to our means and our purchases should be comprised by the right balance of assets and liabilities.  The average person’s main or only “asset” is their home which in reality also carries a liability even if its paid off.  The smart buyer should acquire other assets that are more liquid than a home, such as stocks, bonds and/or shares at small/medium businesses.  By doing this you are distributing your eggs in many baskets with different levels of risk, return and liquidity.  All that can be done while at the same time spending the rest of your money on liabilities (cars, trips, etc), albeit at a smaller degree for some time.  One easy way to start moving in that direction is by setting up both short term and long term goals, as well as having a plan of where you would like to be by the time you retire.

Lastly a single person cannot change the 200 plus years of history of this country in 4 or 8 years.  In addition a single person cannot change the agendas of a party or parties, so it is false that the next president will be able to change as much as he pleases; it is just not possible to get everyone on board for these “changes”.  So if we want change in Washington, we the people have to bring the change.  The people of this country should be more involved in all political matters all the time, not just 90 days before election day.  We have to keep our representatives in Washington checked, we must make sure that they do what we the people want, not what the few want.

I’m just sick of the current situation, fortunately theres only a couple more weeks left on the election front and then comes the real deal… cleaning the US of A.

UPDATE:

Ramit Sethi from the I Will Teach You To Be Rich blog just wrote a post, The Truth: What Obama and McCain wont tell you about your money, talking about some things that neither presidential candidate will tell the American people about the economic situation and their money.  There are some points that he covers that I would like to share:

Not all homeowners deserve to stay in their houses.
Renting is a perfectly reasonable alternative, but the idea of Americans “losing their houses” is politically untenable. Why? Because America perpetuates a mistaken culture of homeownership. Our parents tell us to buy a house. Our friends are impressed if we own a house in our twenties. The government literally encourages us to own a house by offering tax deductions. Homeownership is the American Dream! The truth is, if you’re making the largest purchase of your life, you need more than a slogan — you need to take the responsibility to do some research. (And note that you can’t advocate for increased homeownership and also argue for Americans to keep their houses. By not reducing the prices, younger people cannot buy houses at these inflated prices.)

Taxes: Pandering to ordinary Americans instead of telling them to stop spending on stupid stuff
The reason Obama and McCain spent so much time talking about taxes is that most Americans are historically horrible at managing their spending. Since they make a fixed amount of money (revenue) and can control only one thing (costs), both politicans use tax breaks to pander to voters. Most people have never seriously thought about how to make more money. Fine. But what’s even more outrageous is Obama and McCain’s complete lack of honesty about what people really need to do to weather the economic crisis. Did you hear either one plainly say, “You’re going to need to buckle down and save more?” Of course not. You might as well walk into a Dave Ramsey seminar and argue that credit cards are a useful tool. It’s a suicidal suggestion. But it’s true.

Americans don’t know how to be frugal — yet
Things will get more expensive. Taxes will eventually go up. They have to. Costs of ordinary goods will go up. They always do. If you’re expecting it to get easier, you’re wrong. The key is to make more money and cut your costs. Sadly, Americans are poorly versed in being frugal. You think it makes sense to buy a new car every few years? You think it’s normal to eat out 5 times per week (lunch and dinner)? You feel good about yourself for ordering water when you go to a restaurant, but you blew $50,000 because you didn’t take the time to understand your mortgage? You’re not frugal. But a few more years of an economy like this and things just might change.

These points are an expansion of the things that I believe are wrong with Americans and that NEED to CHANGE before we can get out of our current economic situation.