A Decade under the Influence of Cheap Money, The Next Economic Downturn
I remember in 2001 when my dad lost his job in the tech heavy silicon valley and warned me that life around the house was going to change. I was taught to turn off lights when I left rooms, eat at home more often if not always, save my money and only spend it on things I really wanted.
At 11 years old this really didn’t register with me as I knew nothing of the world outside of school, sports and camping. Then all of a sudden life was normal again and my dad was working. It was as if the recession he warned us about never happened. It wasn't until January of 2009 when the recession hit home and then literally took my mom’s home, that a shock was sent through my system. Foreclosure and bankruptcy are some of the worst experiences a person can go through. I don’t wish that on my worst enemies.
At 19, I knew things were going to get tough when I came to the realization that everyone in my family was unemployed…at the same time. My dad had a severance package from his company but it wasn't going to last long and all the money he invested in his home ( which he just bought before the bubble) was all but lost.(or underwater if you will)
It wasn’t until I had to start paying my rent in college that I realized what was really ahead. Every penny I made from 2008 and beyond has gone towards all my bills and debts. I took on student debt to finish my education, mind you not that much but also took out several loans to pay for rent when I couldn’t find a job. Many people take out loans for books, I took them out to put food in my mouth and a roof over my head. I didn’t have a book for most of my classes, the internet was sufficient enough for a decent grade and not to mention cheaper. This concept seemed pretty foreign to my peers at the time but it shaped me into the person I am today.
in the beginning of 2010 I found a job on craigslist for an ecommerce company that took bankrupted department stores online(surprise surprise)and received federal aid from the government for my final 2 semesters in school. They gave me way too much money, I would have just been satisfied with my tuition being paid for let alone funds for a new laptop and long over due repair costs for my truck( thank you toyota, your sturdy vehicles got me through a major recession). Things were starting to look up a little bit.
I wasn’t paid very much at this job so I had to work at another one on the weekend on top of my school work but it didn’t matter, I was just trying to survive. I can say now after 5 years at that position, I’m happy to have received the opportunity but I was defiantly underpaid and overworked towards the end so I quit earlier this year and have dedicated my time to learning new skills to prepare me for what I think is coming( see the end of this article)
Years later, both my parents are employed but looking back from where we were then to where we are now is a huge difference. A Smaller, older, and overpriced home and a trailer in the middle of the desert are far from the million dollar home I grew up with in my younger years. Yes I know “boo! hoo! poor you, the worlds smallest violin plays for you” but looking back now I can see that we were never meant to be in that neighborhood in the first place. Sadly it takes a market place shake up to move “the pretenders” out of places that they can’t afford and we as a family are better for it. Yes there were some bumps and bruises but we don’t spend money on senseless things nor do we go on vacations every weekend. Granted the senseless things were from sharper image(R.I.P) and the vacations were in the same state but “hey, what the heck!” we could have been just a tad bit smarter with our spending in the 90's but that would have been unheard of and…. I was only 10 at the time, I guess that's not an excuse but I tried.
The 90's marked the birth of the “new era”. Lots of spending, endless lines of credit backed by the central bank and of coarse the internet boom. Living in the silicon valley was certainly a rush at the time. Apple, Google, eBay etc were all forming their identities but as we all “knew” at the time would soon become giants in their respective industries and then there were the fakers and the .dot schemers with the same idea as the guy down the street. Easy credit and investing in internet companies supplied the first bubble. However this Bubble didn’t properly pop.
Notice in my story how my dad lost his job in 2001 but then quickly found a new one and that was because the Federal Reserve under the TARP act supplied a bailout to several companies to ease the bust. The bubble was slightly deflated but then started to re inflate as housing loans become easier to acquire under the legislation passed by the Bush administration and were then subsequently repackaged and sold around the world as AAA rated equities by investment banks. The housing boom was in full swing.
When my mom defaulted on her loan and the house was foreclosed on, some guy or gal in France, china, or Germany lost all the money he/she had invested in that mortgage bought security. Oops? maybe? who knows, but had this person come to America and checked out my families financials he/she probably would not have invested but he/she didn’t so there's that.
It may seem that the bubble had finally popped in 2009, but again the government intervened and bailed the banks out by printing more money and buying up bad debt from companies on the verge of bankruptcy.
This moral hazard we have created I fear has inflated an even bigger bubble as asset prices have become the highest they have been in our nations history.
As you can see the sell off has already started with the initial dip starting in August.
The recent announcement of the federal reserve not raising interest rates has also worried many people as these rates have been at 0% for almost 6 years…this has never happened in the history of our nation. Why would you save when interest rates are so low….hence the birth of the 401k as wall street was producing better returns annually than any savings plan at the time.
World economies are also suffering as this world bull market comes to a close.
China’s recent woes have played into our own (Side note:I misplayed this market and lost some money)and the debt crisis in Europe has been an ongoing issue as well.
The best evidence I have of this asset bubble is the reckless amount of spending I see my peers engaging in. Over paying for activities and products and not using creativity and imagination to find a cheaper solutions. They consequently live beyond their means but with no consequences. An oxymoron if there ever was one. There is no personal growth, only buying more stuff to sooth a hole in their existence that could easily be filled with hard work, enthusiasm, empathy, passion, and a little creativity. Instead it’s dug deeper by apathy and utter misunderstanding of what it means to be an adult and responsible member of society.
The one thing I’m thankful for during the last two busts in this age of large increases in government debt, excessive spending and excessively low and constant interest rates is how these events have affected me and my family. We are ready to live below our means and do it happily. This next bust might as well be a boom for us as the age of spending ceases and the new age of saving and personal responsibility re blossoms or at least I hope that is the outcome.