The Builder's Economy
When I first moved to Atlanta in 1995 the city was undergoing a renaissance. The Olympic Games were coming to town and business was booming. The area was adding thousands of new residents each month and two metro counties, Cobb and Gwinnett vied for the title fastest growing county in the United States.
Growth such as this leads to a feeling of euphoria; my wife however was distraught that her job in television at home was being done by college interns in Atlanta. Her hard feelings quickly faded when she was offered a job in a photography studio making more money than she had ever earned before in her life. I too was making more money than I had ever earned before and it appeared to us neophytes as if the world was our oyster and our future was bright.
As soon as the Olympic Games were over our landlord told us that he was planning on selling the house which we were renting and he would give us a discounted price of $90,000. It seemed like a good deal to me, a four bedroom three bath home in a settled neighborhood directly across the street from a lake. All around us new subdivisions were being built and builders offered special financing and gimmicks. The county was building a new elementary school and doubling the size of the high school.
I was in a business meeting one day when the subject first came up, a national sales reprehensive asked, "How long can Atlanta's builder's economy continue?" This was a new term to me, but I could tell from what this sales rep was saying that I didn't like it much. I felt that he was being overly negative and directing his negativity towards my adopted hometown.
In a builder's economy growth is generated by the building itself. Ten thousand new homes being built each month meant new jobs. Jobs for carpenters and concrete truck drivers and roofers, new jobs for building suppliers and closing attorneys, Real Estate sales people and bankers. It is an economy based on real growth but the real growth supporting the artificial growth, then one day, one hour and one moment in the still of the night the locomotive rolls to the apogee of the hill and the steam runs out before it begins to roll irrevocably backwards towards a colossal train wreck.
There is a reason that I recite this tale of recent American history, I want you to think of it as a slide under a microscope and you are the scientist. Since the days of the fall back in 2007 we have seen the collapse of America's builder's economy nationwide. An economy predicated on low interest loans and easy money credit terms. The government fix has been to tighten credit standards to consumers but to make the lending terms even easier for banks and for big business.
The reason is simple, the banks are sitting on billions if not trillions of dollars in bad paper and the banking system can only digest so much of it at a time. The banks through the Federal Reserve are given free money, yes free money. Zero to .25 percent free, this is done so that the banks can generate huge profits to cover their huge losses. Now how can the banks generate huge profits with the consumer economy in the tank? What other Avenue is available to the banks but Wall Street?
Buyers outnumber sellers and everyone is looking for the next big wave. Wall Street soars from below 10,000 points in July to nearly 13,000 a thirty percent rise in the stock market in ten months! Home prices continue to fall, car sales are at record lows, actual unemployment has fallen just one percent in two years yet, Wall Street behaves as if we've cured cancer and just invented a car that run on water.
Ben Bernanke gets a hair cut or Warren Buffet buys new shoes and the markets soar! Consumer confidence falls and is explained as, "Well, it always falls in the fourth quarter." As long as free money pours into the market there will continue to be more buyers than sellers but on that sunny summer morn when the experts figure out that the little engine that could can't, then you will see the mother of all melt downs, yet strangely, this will be only the side show and not the main event.
This financial orgy through which Wall Street and the banks gratify themselves is only a masturbatory fantasy and not sex with a real partner. Across the Western world governments have been forced into austerity plans foisted upon them by international banking institutions. No austerity plan, no new loans is their motto as bank funded bonding agencies quiver and threaten to lower credit ratings. Financial extortion or better known on the street as loan sharking. "I want my money Vinny and since you didn't do what I said, next week it's three bills you owe me."
Why oh why? You might ask with a worldwide recession / depression would international banking be in such a fit to raise so much capital? Why would they force nations emerging from recession into draconian austerity budgets almost certain to push these countries back into recession. Budgets that all ring with the same tune and same figure of borrowing at three percent of GDP.
Traditionally banks like lending money, that's the business they're in. Lending to nations is a particularly safe practice since so few nations have ever defaulted on their loans. So why the strong arming, why the sudden push and why three percent?
Growth rates of the European Union countries are as follows Germany, 3.5 percent, France, 1.486 Austria, 1.98 Portugal, 1.398, Italy, 1.296, United Kingdom, 1.251, Norway, 0.447, Spain, -0.147 Ireland, -1.041, Iceland, -3.473 Greece, - 4.535 percent.
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