I recently returned from visiting Detroit, Michigan. Detroit always seems to be a bit of a signpost for me. It seems to portray a minor microcosm of what is happening across the USA.
Detroit Today
What used to be referred to as “Motor City”, is now in the process of demolishing homes in the hopes of stabilizing the city. The thought is that there are too many abandoned homes, which cause a blight on neighborhoods and these abandoned homes are forcing down the desirability of living in those neighborhoods, thereby forcing further downward the value of real estate.
The solution – Start demolishing abandoned homes. Write off the debt, in other words accept the fact that no-one will ever pay the debt owing on these abandoned homes, and simply ‘get the debt off of the books’. Take the pain of accepting the loss is irretrievable.
Changing Values
As we ponder this concept, think about Greece. We will return to this subject.
Think also about how our values are changing. It used to be that ‘our eyes were bigger than our pocketbooks’. When we wanted something, we simply bought it, regardless of whether we had the money. Borrowing was easy. Lenders, especially in this age of petro dollars, were awash with money and would loan it to almost anyone. Debt could always be repackaged, and resold to the next lender down the line who needed to put money to use.
A Taxi Driver Who Pleaded With me to Pay Whatever I Wished for a Ride, Because Otherwise She Would Run Out of Gas
I flagged down a cab, and when we got to my destination, I asked how much I owed. She had a strong accent, so it took me a moment to figure out what she was saying. She was quite pleasant, but was having financial difficulties. Turns out her meter was broken and she did not have money to fix it. She was ‘running on fumes’ and pleaded with me to pay ‘anything’ so that she could buy some gas. I was a bit taken aback, and probably overpaid. A bit shocking really.
The Detroit Situation and the debt Situation
There is a commonality between this microcosm and the rest of the world. There seemed to be enough of the wealthier class to pack the suburban malls, and high priced goods were commonly seen for sale. So it always is when economic times are tough.
But the middle class is suffering. People who commonly find work, are having difficulty. They are struggling and coming to grips with the new reality.
The New Reality
The new reality is that money is scarce, and borrowing money is even scarcer. For the average person or business, borrowing money (debt) is now difficult. There is worldwide fear of default and failure to repay loans. The result is a significant struggle to carry on.
The taxi driver was just one very graphic symbol of the malaise.
Everyone Needs to Realize, that there is a new reality. Debt is a good thing, but only in measured quantities, and only in amounts that can be paid back, and only to be incurred for a good purpose. The next cycle is starting. There will be an upswing in values, and those courageous enough to ‘stay in the game’ will profit.
But ensure that your debt levels are minimized and tightly measured.
Next – Compare this minor incident in Detroit to What is Happening in the “Super Committee” in the USA, and to the reluctance on the part of Germany to simply grant more loans.
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