This is an interesting thread. My financial education is also limited. The key question that has always bothered me seems similar:
What is inflation?
I understand the value of dollars declines over time and can read a graph, but why must this happen? Isn’t purchasing power important? Inflation seems generally referred to as if it is a fundamental natural force or law like entropy. “The total amount of dollars in any closed financial system must always increase.” Is this really inevitable and if so why is it considered good and simple “economic grease”?
This seems related to the original question of the necessity for continued economic expansion. It also seems fundamentally related to the current housing fiasco as well. Shouldn’t housing basically be a zero sum game, taken as a whole? How can housing really ever outpace wage increases or inflation? How can GDP increase ever really outpace wage increase/actual production? Likewise, how can housing ever be a real source of “wealth building”? What other perceived market values are going to evaporate with the housing/credit bubble?
As far as our economy goes, what happens if wages do not keep pace with inflation? If they have not in the past, do not currently, or will not in the future what does that directly imply?
The whole issue of nearly unrestrained addition of money supply to a relatively static economic capacity seems fundamental. Also seemingly fundamental is the fact that debt presumes on the future. Isn’t debt interest a sort of tax on future productivity? Where is the expectation for future payoff of our current national debt load (personal, corporate, and private)? Won’t the introduction of such a concept require a total shift in values as a nation? What happens if we don’t shift our values in time?
Nationally speaking, what is the current national tax “budget”? What percent of all taxes is currently being spent on debt interest? How fast is that growing? When will our national debt servicing obligations exceed our ability to pay? What will happen then? Isn’t the fundamental faith in the whole system really a fundamental expectation of actual future debt repayment? I think the current housing market shows what happens when that expectation is forgotten. Isn’t our national debt similar to a toxic mortgage? Maybe negative amortization perhaps?
Can anyone explain to me how housing became so fundamental to our economy? I understand the consumer part of GDP. But how can our economy be considered healthy and strong if it is so dependent on spending and not production? Doesn’t money ultimately represent intrinsic value and production? Shouldn’t we be more concerned about actual production measurement and intrinsic value, rather than the total number of dollars being created and spent, when judging economic health?…especially given the nearly unlimited ability to create new dollars. Doesn’t this fact make GDP a poor indicator?
How do a slow down in housing starts, a deceleration in house price appreciation, and a rise in foreclosures pose such a serious threat to an otherwise healthy economy and world financial markets? Why should it pose a systemic banking crisis? How are we going to afford even the interest on the future debt the government will create to try to buy out the current problem?
The more I ask these sorts of questions, the more convinced I become that the future is darker than most bears have imagined. Maybe we shouldn’t assume that ours can will be the first successful fiat monetary system in history. I guess it’s only successful until it fails…
Should I be buying guns and gold? Warming up my bartering skills? My common man theory of finance kept me from buying a house in San Diego in 2004. It is telling me now that our whole monetary system itself looks like a giant pyramid scheme. What am I missing?
