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What is happening to our economy?

I'm going to throw a bunch of words out there, and I want you to explain to me what is going on with them in "stupid people terms": -Bankruptcy -Foreclosures -Freddie Mac -Fannie Mae -Lehman bros. -Wall Street -Bailout -Loans etc. etc. You know what I'm talking about. I'm not an idiot, and I do already know a lot about what is going on, but I feel like I'm missing key elements that I can't understand, and maybe if someone started from the beginning, then I'd understand. I really appreciate all of your answers thus far, and can definitely understand everything a little better. But I guess the thing that I'm most confused about is that I keep hearing that a lot of this has to do with the greed of the top 1% who holds 40% of our wealth. Can you guys explain further about why or how the richest people in America can be ultimately responsible? Or are they?

Public Comments

1. globalism, via trade policy and immigration undermined the ability of working/middle class people's standard of living easy credit was made available via the fed reserve to numb the transition but it is not an long term solution, and inevitably blows up and that's where we are we will not solve this without rethinking globalism or we're 3rd world from now on
2. Okay, so I was hoping someone else would be answering this question because I think we have all heard the cause but I need the pieces put together a little bit more. It appears to me that the banks did not have enough GOOD loans to be liquid. They had so many BAD loans that they essentially are running out of money. They are only required to keep a certain percentage of our deposits in their bank. When they fall below that percentage because of bad loans then no more money can be loaned out to create movement in our economy. When I say "movement" I mean loans that are used to purchase other items in our economy. A business will get a loan and increase their business that creates jobs. Jobs give more money to people to spend and this helps the economy. Therefore, 1 loan can have a ripple effect to our economy, creating buying situations many times over. I know there is a number that some economist has that examines exactly how many times that loan has created "movement" in the economy or how many times that loan money is cycled through our economy. I hope this is making sense. If our banks do not have loan money then that money is not cycled through our economy, therefore, creating a slow down to our economy that affects people's jobs, less business for companies ... do you see where I'm going with this? That is where I'm at in this whole thing .... the government/people are afraid that our economy will come to a screeching halt and the infusion of money is what is needed to continue with the flow of money through the economy. I think, personally, that the news has gone overboard and scared the hell out of everyone, thus making it worse because of everyone's perception of what is going on. I think we have to really be careful what we hear on the news. They have A LOT of power and that scares me at their ability to influence our economy, elections, etc. As far as the stock market goes: I'm still working this out myself. I think that if people think that there will be no business because our economy is slowing then the earnings of companies will bottom out and the stock price will tumble. I know that is real simple, but I'm still working it out too.
3. Bush's Economic Plan in action. The Bailout is so the Banksters can get as much money as possible and Bail Out of the US. - bastards!
4. We have been in a pro-growth economy for several decades. No politician wants us to go into a recession, they can't get elected when things go bad. The problem is, we are a supply and demand economy. Recessions are necessary to prevent over supply. When businesses over expand, they can over supply product or service's. When businesses compete, they either innovate or reduce price of the product or service. Deflation is over supply, which devalues the product or service. We were going through a deflationary period a few years back. The Federal Funds Rate, dropped to its lowest. Any lower and it would have been below inflation of 4%, which is giving money away. Money in savings would be less than 0% earnings in interest. So, if you had money in savings, the banks would reduce your interest rate to nothing, while the federal reserve was adding money to the economy, further weakening the buying strength of your money. It would become more and more devalued. Extra money on the economy also would be devaluing your earnings, which is inflation. Credit is inflation, passed on over time. The problem is, money supply is tight, because it is in the form of credit that has been loaned out. There is no more money to borrow. Especially when growth slows down due to an indebted consumer that spent like hell, creating an artificial growth, due to the availability of credit from foreign banks. The economy created jobs, but it was to do with spending borrowed money. Haven't you seen all of the highway projects, all of the new government buildings, all of the pork spending projects. Debt. Government Debt.. How about all of the big houses, the nice cars? Debt. Consumer Debt. So many gas guzzler cars. Debt. Trade Debt So much cheap goods from stores. Debt. Global Trade Debt. We have spent ourselves to debt. Now you wonder why things are slowing down? We would have been in a slow down in the 90's, but the dot.coms made bucks and passed it on to the businesses and the payment of taxes. Those businesses over expanded. The government made a surplus, because prices went up from the wealth effect. Lots of money circulating from the expansion of credit. People accumulated money and drove prices up from bidding wars. Home prices were taking off. It was a short term effect. It drove the housing market up, by over speculation. People were buying and selling, like stock. The money was from the reduced interest rates, because the Federal Reserve Reduced its overnight lending to banks. They were trying to keep the economy growing by lowering interest rates, after the dot.com growth broke down. Spending started slipping, and that causes deflation, until businesses shut their doors. Unfortunately, it was American Businesses that had to worry. They were trying to keep them going, but there was to much competition for foreign trade. The Chinese were allowed to float their currency with ours. So, if our dollar dropped, so did the Chinese yuan. It was great for the import trade, but not for export. American business could not compete with cheap labor, unless they exported the work or used illegal immigrants. American Businesses basically put together foreign imports with American names, such as Ford, GM. Fuel spiked curbing American spending power. I really think the fuel companies got together with the Big Banks and propped up the price of products. When the prices were starting to deflate in price, thats when the fuel started to go up in price. Products started going up in price because of fuel costs. Fuel inflated the price, by adding to the costs of production and shipment. People still spent like hell. Then the housing peeked and people that were living on their equity, by borrowing on their home, to prop up their lifestyle, began to struggle. I seen it coming years before it happened, and many of us talked about it happening, sure enough its happening. Their is nothing you can do to hide from this. When it happens, it will happen, and it will be big. When you and everybody else pulls their money out of the market. That money will be worthless in no time. Inflation will eat it very fast, over night. It will be Stagflation. No Growth, and Inflation eating away your savings. The 700 billion will be another extension on the loan that will be due again. You will loose out if you are not in the market, when congress is finally convinced, which they will have to be. The world isn't coming to an end, just the money supply and credit. Just think, China and the rest of the world holds our debt. Germany and Japan holds our dollars, to keep the dollar strong so we would buy. I don't know how many other banks hold our dollars, but I do know they are held, In Trust. The bright side is, maybe they will be doing the spending next, instead of us. Maybe we will create some innovative technologies in energy, thats what we really need. Oil will keep us afloat when we drill our shores, maybe thats what
5. When you can't use your credit card next week because there is no more money that the banks will lend you - you'll change your tune.