Tuesday, November 2, 2010

The Election That Doesn’t Matter

Two years ago the Americans elected President Barrack Obama: his job was to save the economic world. And, so far, the economic world has not collapsed. Whatever they did, it worked!

But, there is a certain inevitability to America’s demise: and Canada’s demise too. Canada’s financial future is tightly tied to America. Pierre Elliott Trudeau once said: “When the America sneezes, Canada catches a cold.” When America needs to be rescued, Canada could use a hand too.

Why did America’s mortgage melt-down almost blow out the world’s banks a few years ago? What went wrong? And whom should we elect to fix it?

Humble Beginnings
America’s last melt down occurred from 1929 to 1945: sixteen years of depression and war. When it was over, her international competition lie in ruins: European and Asian infrastructure had to be rebuilt. And America was in business to help her former enemies rebuild. When the troops came home from WWII, America had a new beginning. Ordinary soldiers-turned-workers got to reap the rewards of their victory. All those young women who had kept the home fires burning, were looking for husbands and families. That generation’s humble dreams had been shaped by those years of depression and war. They borrowed some money to buy a house – and their dream was to own that house mortgage free. Their goal was to get a steady job and establish financial security. These are the ones who gave birth to the Baby Boom generation.

Bigger dreams
The Baby Boomers wanted more. Raised in times of prosperity, the Boomers expected more than 2.4 children and a small house in suburbia with a late model Chevy in the driveway. Actually, those 2.4 children seemed like a lot of work: if we’re going to work that hard, we deserve a bigger house… even if Mom has to get a part time job to help out with the mortgage payments. Maybe it would be smarter to have 1.8 babies so she can have that part time job. After all, a bigger house and a bigger car means a bigger mortgage and a higher family income. And what’s wrong with a full time job? Women are as good as men! Why shouldn’t women have full time jobs, the same as the men? So what if we have to cut back to 1.4 babies! Why shouldn’t we go on vacation to the same places rich people go to? Why shouldn’t we live in big houses like rich people? In fact, why shouldn’t we all retire rich like Warren Buffet? And whom should we elect to help us with this new expanded version of the American Dream?

Even Bigger Dreams
Young adults today understand leverage: they know how to borrow and buy. They live in a world of monthly payments and plastic money. Student loans? No problem! Max’d out is part of their vocabulary.

In November 2010, the average American owes 128% of his/her annual income. (Incidentally, the average Canadian owes 148% of his/her annual income.) How far can they push The American Dream? And whom will they elect to set the stage for the next generation’s financial ambitions?

I feel like a Yuk Yuk’s comedian telling a joke that’s far too long. America has come a long way since WWII. In order to explain the futility of the American save-me election, I will revert to the comedian’s line: “-but, seriously folks…”

How far can they push The American Dream? Over the years America’s bankers have degenerated just as seriously as America’s consumers. In the 1950’s, the financiers of that era worried about banking in depressing war-like times. That’s was their experience. They had learned to be conservative: to lend relatively small amounts of money to consumers. And only those with steady jobs. And good collateral. And a conservative life style. And they would consider only the husband’s income: what if the wife got pregnant and couldn’t work? (Actually, they were reluctant to lend money to single women with good jobs because they might get married and stay at home with the kids… and not be able to pay back the loan.) The March 15, 1958 edition of The Saturday Evening Post featured an article entitled “We Couldn’t Pay Our Bills” written by “An instalment plan slave.” It was a different era. Today’s readers should ponder this for a while. What would it have been like to lend money to consumers in the 1950s? Those consumers had modest dreams, shaped by their experience in the 1930s and 1940s. And the bankers had learned their trade at the same time.

In Canada, the bank act is refreshed every ten years. Parliament amends and re-approves it. Every ten years bank executives lobby for the banks to be allowed to be more aggressive. They are the surging horses, and the government holds the reigns. Ever since WWII, the bank act has become a little more liberal every ten years. Each generation of consumers has become a little more aggressive about borrowing to buy.

And now that game is over. The utter collapse of the American mortgage business and the near collapse of the world’s banking system have made that clear. The collapse of American house prices has changed The Dream. And it won’t be long before the bank act changes yet again.

Whom will Americans elect to change their bank act? What kind of changes will they make? Whom will they elect to re-establish financial prosperity?

Do you see that they have no choice? America is max’d out. It doesn’t matter whom they elect; they have blown it. Collectively, it’s payback time. Democrat or Republican: it’s still payback time.

Don’t worry about an American Dream based on borrowing and buying. Don’t search the horizon for a White Knight politician who will save us all. Dream the humble dream of those who experienced the depression and the war. And save yourself. Sell off your assets and pay off your debts. And vote your conscience.

Canadian Afterthought
Yes, you read that right: on average, Canadians are further in debt than Americans. It doesn’t matter whom we elect either: it’s payback time in Canada too.

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