Realignment

This tweet solidified a concept in my head that we are all going to have to face because we didn’t let the banks fail.

Yes, that appears to be the most random synaptic misfire, but I assure you, it is not. You see, we have allowed a change to the value of a dollar so dramatically because we were unwilling to let banks fail on bad investments on mortgages. They created a mess, and we the people cleaned it up and in doing so have shot the greenback down.

Attention USA Today readers — the price of the paper is going up. Starting September 30, USA Today will cost $2 at newsstands. That’s up from $1, which it had been since 2008. That year the paper raised its price from 75 cents to $1. – Media Bistro

Phoenix, AZ was a prime example of this madness. A friend was building his house, and during the time it took to build it, it’s value doubled, so he sold it for a huge pile of money. That house is now valued at about what it was going to be valued when it was originally proposed, actually, it’s a bit less, but the mortgage on it hasn’t moved. It’s underwater. The bank is fine, the property is actually fine, but the owner is in debt because of the madness that gave a bunch of money to my friend.

The realistic value of that home? Don’t know, but since many markets haven’t reset to values prior to the bust, we are left with homes that are going for huge dollar amounts higher than we had before, and that means that a dollar must cover less value than before because, regardless of what HGTV says, not everyone has done an upgrade to their home.

But that’s just in real estate, right? The value of a dollar hasn’t declined elsewhere, has it? Of course it has. If the value of a dollar is smaller when it comes to buying a home, you can bet it’s smaller when it comes to buying everything else. Which means it’s going to take more dollars to get the same amount of stuff and that means we’ve got a problem.

It means that because we didn’t let the banks fall into the spiked pits they’d created, to bleed out and be rebuilt we’ve screwed ourselves. Yes, it would have been painful yet quickly over, and many on Wall Street would have had to find new jobs, and perhaps be on assistance for a while, or at the very least have to sell a yacht or two, but that’s ok. They gambled with money, and lost, but never had to pay the bet. That’s the problem.

Instead, we pay, and the way we pay is by making the dollar worth less and less until all the various markets balance out. Real estate is pushing us down, and nothing can really change that now. We should have let them fall, but instead chose to reduce the value in the dollar. And it’s pretty easy to calculate. A house that was worth $X before the bubble, and was worth $2X during the bubble, means that our dollar is now worth half what it was before, because that house didn’t change. (Yes, this is simplified, but the concept is more important than the details right now.) Notice the timeline in the pricing at USA Today? It’s not coincidental, at least not completely.

Prices are rising. Not because something suddenly has more value, but because the dollar has less value in it. And it’s tied to the housing bubble and the mess we made when we tried to clean it up. The Law of Unintended Consequences has us caught like a snake in a forked stick, and we aren’t getting away from it.

This means that we’ve got a lot of work to do to fix this mess, starting with the minimum wage. Because, yes, the US Today now costs twice what it did before, but only because your dollar is really worth half what it was before.

2 comments

  1. Exactly the wrong direction, because no one will accept losing the numbers, so we’re stuck with the lost value of the dollar. Therefore we have to increase the minimum wage because what a dollar buys now is so much less. Duh.

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