Understanding Today’s Economy

Put simply, the American economy is premised on consumer consumption. After the United States abandoned the gold standard, the printing of fiat money – money not backed by gold – enabled the government and private sector to debt finance so-called economic growth. In order to keep the economy afloat, banks encouraged consumer spending as a way to maintain demand for housing, cars, electronics and other goods. As a result, in the late 1980s and 1990s, it was much easier to get a credit card, regardless of one’s credit history. Coupled with a growth in consumer spending, the “dot com” craze led to an inflation of stock prices of over-valued companies. At roughly the same time, the subprime mortgage craze hit the housing market which contributed to the housing bubble. In order to avoid a crash, the Federal Reserve under Alan Greenspan lowered interest rates and encouraged even more borrowing and consumer spending in the hopes of staving off a collapse.

The results are now clear to everyone: the US economy is in a period of recession, and possibly on the verge of a depression as the housing market collapses, companies lay off their workers, financial giants close their doors, and banks sit on money given to them by the government in its so-called “bailout” plan of October 2008.

What can the average homeowner/consumer do to protect themselves? At the law office of Chang & Diamond, we help clients file for bankruptcy, and adopt financial management principles that can help them survive today’s economy.