A lesson in dominoes falling

This morning we learned that struggling retailer Circuit City has thrown in the towel, the latest in a series of chain stores to do so. In a few weeks, Americans will have another reminder of how economic times are as they drive by yet another shuttered storefront.

At the same time, President Bush leaves office with the catcalls of the liberals and the media (but I repeat myself) following him out the door and back to Texas. Frequent liberal critic “Final Frontier” delivered one scathing criticism of GWB on a previous post of mine, part of which I’ll reprise here:

I never said Bush acted like a”true conservative,” I said he simply went out and did whatever he wanted to do (or probably more correctly Dick Cheney), which turned out to be a disaster…


…GWB and his republican pals DID spend their political capital by spending like drunken sailors, abandoning any sort of value system … and focusing on Iraq when they should have been focusing on Afghanistan and New Orleans. GWB and his circle of pals paid no attention to the growing fiscal crisis (and the Dems are equally guilty on that one), did not seriously go after bin Laden, did nothing in Darfur, did nothing in New Orleans, did nothing as international opinion of the U.S sank…

The diatribe goes on from there, and I left out the parts of her response concerning gay marriage for the purpose of this post. I do want to rebut Final Frontier in part by noting that Bush’s legacy will be one of fighting the Long War, and success isn’t measured there in what we did but what we did not have to do – that is to say, we haven’t had a 9/11 part 2 thus far.

Fairly or unfairly, anything negative which happens during a President’s term generally serves as another reason to blame him – given the media prism in our society today, it’s especially true when a Republican is president, not so much when a Democrat holds office. However, the comment FF makes does distribute blame equally between the Bush Administration and the Democrats for the economic woes we are facing – a surprising concession on her part.

But I’m choosing to look at this on a larger level, and to bring Circuit City into the picture. First off, I’m sorry to see them close because I liked them much better than Best Buy.

However, what made Circuit City grow in the first place? They sold billions of dollars worth of electronic items, much of which was purchased on credit. In some cases, the consumer used a traditional MasterCard or Visa, while others used the financing provided by the store. In either case, it was another debt incurred by the consumer based on the assumption they would be able to pay it off later.

It was the housing bubble bursting which led us into the downturn we’re experiencing. The reason this was so devastating to average folks was their reliance on home equity to maintain the spendthrift lifestyle they enjoyed prior to that point. As layoffs in the financial and building sectors mounted, home values plummeted, and those people were the first to fall into trouble.

In turn, their difficulties and defaults led to others losing their livelihood and the cycle of debt swirled in a more and more vicious circle. Circuit City fell after a horrendous holiday shopping season, made so by the cutbacks many average shoppers needed to endure. In short, they couldn’t buy many of the profitable items Circuit City had to sell.

The answer to this as proposed by the federal government was to attempt to stimulate the economy in a number of ways.

They gave billions to banks (in return for an ownership stake) and lowered the prime rate to almost zero to encourage lending, yet credit is still difficult to come by.

They’ve lent billions to two of the Big Three automakers in order to buy them time to develop a new business plan, but without serious reform in their labor agreements with the United Auto Workers these dollars will only benefit a few thousand workers for a relatively short time.

The government is discussing how to spend billions on infrastructure, but what happens to the jobs created once the infrastructure is built?

Furthermore, many states are also attempting to get a chunk of the bailout money to shore up their budget deficits. Unlike the federal government, they’re supposed to live within their means and cannot print money to make themselves whole. Yet they continue to believe that every single program they have is of dire importance and can’t bear to spend a penny less.

We will never know just who it was, but somewhere one homeowner set the process in motion by not being able to pay the debt he or she incurred. Perhaps that’s a tad simplistic of an explanation, but there was one cause which created the effect we see now. Democrats blame Bush, Republicans blame the Democrats. Discussing the problem until we’re blue in the face and affixing blame won’t solve anything – it will be useful to know the cause for history’s sake, but as a species mankind isn’t always smart enough to learn from mistakes. That’s why history tends to repeat itself; it just does so under the guise of a new crisis.

Now multiply that one homeowner by 300 million and in essence you have the United States government, who’s going to place itself into debt on the credit card of the American taxpayer and whoever buys the Treasury notes needed to fulfill the obligations.

I was talking to a friend today and made a statement in the conversation which led me to think that perhaps I’ve hit on exactly what is happening in our country today.

The consumerism bubble appears to have burst.

Look at it this way. Why did we buy larger, more expensive houses and borrow every penny of equity we could? Simple, to buy more stuff to fill that house.

We bought fully loaded Escalades or Lexuses when a Liberty or a Camry would do fine.

The same goes for the federal and state governments, which placed their noses into areas that really didn’t need to be among their functions. For example, does the federal government really need to assist in paying for our children’s education? Certainly it’s a help to local school districts, but that’s not something outlined as a function in the Constitution. On a state level, does the state of Maryland need a Program Open Space, for example?

By encouraging the rampant consumerism we have in society and by not showing fiscal discipline in those times we were all fat and happy, Americans (led by their elected leaders) have put themselves into a grand mess, with the only way out being a rough patch for many millions among us.

Much as it pains politicians to say it, austerity needs to be the new watchword in both governmental and personal affairs. While it may not create the millions of retail jobs which came about in the runup to where we are now, somewhere the jobs which need to be will be created.

And they need not be at the behest of Barack Obama.

It may take awhile, but if the politicians stay out of it, eventually the 30,000 jobs lost by Circuit City’s closure will be regained. They may not be in the service sector but our capitalist system has almost always worked well in shifting the labor forces around to the markets where they need to be. And, despite the battering it’s taken over the last several months as naysayers declared it dead, I have more faith in capitalism than I do in government to lead us back to prosperity.

Author: Michael

It's me from my laptop computer.

2 thoughts on “A lesson in dominoes falling”

  1. To bad about Circuit City. In the past they stuck it to their commission people and then did the same to their long term people recently. That hurt them even more as they let all their experienced people go.

    Best Buy is not in much better shape. Wal-Mart picked up several special buys that Best Buy couldn’t pay for last year. Manufacturers had already produced them and Best Buy did not have the cash or credit to pay the bill. This also lost them the iPhone exclusivity to Wal-Mart.

    That from my source at the Wal-Mart home office.

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