December 7th 2008

The Lilith eZine Sunday Edition

Letter from the Editor

The economy is the biggest concern lately. Almost everyone is worried about it. In Canada the minority government was nearly overthrown this past week because opposition parties are so worried about the economy and the governing party's lack of action that they decided the best thing to do was to try to make a new coalition government which would actually do something about the economy.

In the USA the automotive industry is looking for $34 billion in government loans so that they can restructure and give more car loans. General Motors, Ford and Chrysler are also asking for another $6 billion in Canada. As if that is not enough the banking industry has its paws out for $700 billion for all the bad mortgages on their hands.

And then there's the credit card companies which are cutting back, which highlights what got us into this mess in the first place: Too much credit and too many people given mortgages for houses not worth the amount they spent. But here's the thing... what month of the year does Americans and Canadians spend the most on credit? December. The holiday shopping season. Typically, we go out and spend spend spend, get drunk for New Years and then get the bill sometime in January. According to a poll 40% of Canadians are cutting back 10% or more on their Christmas shopping this year and approx. 55% of Americans are doing the same thing.

It might actually be a good thing for people to learn some fiscal responsibility. Too much credit seems to be the source of our problems, not the solution to it. Should we really be giving money to the banks and automotive industry to solve their credit problems? The doom-and-gloom-sayers claim if the automotive industry's Big Three collapse that the economy will follow, but is that really the case? No, although they could certainly become leaner.

The issue at stake here is that these automakers have been RECKLESS spenders and spending billions and billions on cars that due to America's low emission standards can only be sold in the United States. Most American-built cars can't be sold in Asia or Europe because their emission and fuel mileage standards are so pathetically low, and Asian/European car manufacturers have trouble selling in North America because they not only meet the standards, they exceed them. The solution, arguably, is not a bailout, but higher fuel efficiency and emission standards in the USA.

The same concept could and should be applied to the banking industry. Higher standards, more regulation of housing prices and less reckless loans/mortgages.

Remember the 1997 Asian Financial Crisis? The country of Thailand went essentially bankrupt and all the neighbouring countries who had loaned them money were suddenly on the hook for a great deal of cash, taking substantial losses. That spilled over into the financial markets, effecting mortgages, credit cards, personal and business loans. The IMF (International Monetary Fund) stepped in with a series of prudent bailouts tied to changes that raised standards and it took two years for the markets to calm down and recover.

And roughly the same thing is happening now for North America's automotive and financial industries: Bailouts contingent on higher standards. Our economy should recover sometime in 2009 or 2010, but it will depend on those higher standards.

That doesn't mean we should all rush out and spend spend spend. Prudent spending is probably still the wisest course of action, such as buying things people need rather than just want.

Suzanne MacNevin
Editor of the Lilith eZine

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