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Avoid
incurring debt in economic crisis
Once
upon a time, Long Beach was an afford able
place to live. One could buy a reasonably
priced house in a nice, quiet suburb and
raise a family on a modest income. Times
have changed and home prices across the
nation, especially in Southern California,
have skyrocketed.
In
the last year alone, home prices here have
risen by 14 percent, twice the national
average. This has dashed the hopes of many
potential homebuyers, many of whom are already
saddled with record levels of consumer debt.
The average debt for undergraduates has
risen by 66 percent, and is now up to a
whopping $18,900.
This
raises some serious questions about our
economic future. Is the recent growth in
home prices sustainable, or is it simply
a bubble waiting to burst? In order for
us to find an answer to this question, a
hard look at the current economic situation
is necessary. Current levels of consumption
(which keep the economy afloat) have been
maintained by more than $11 trillion in
consumer debt. This debt is maintained largely
by foreign investment in U.S. securities
and bonds.
The
Chinese alone purchase $190 million a day
of U.S. debt. This investment also supports
the massive U.S. trade deficit (a record
$55 billion). In essence, other countries
are paying us to purchase their wares. It
is highly unlikely that an imbalance like
this can be sustained. The world has never
seen such massive international subsidization
of a single nation. It is all predicated
upon our ability to pay off these loans
in the future, a prospect that is made more
unlikely by increased deficit spending.
Inevitably,
interest rates will rise, forcing scores
of people to default on their mortgages.
House prices will fall, and billions of
dollars in assets will disappear virtually
overnight. Remember that this wealth is
used as leverage to obtain loans. Americans
will not be able to spend as much when they
see their collective worth plummet.
This
will most likely cause widespread panic
in the international financial markets.
Those that hold U.S. debt will sell it off,
leading to a further downward spiral.
This
could very well lead to draconian cuts in
government spending and services. Programs
like Federal and State aid for students
may be put at risk. We can also anticipate
more spending cuts in the universities.
The
reckless financial policies pursued by the
Bush administration have deepened the impending
crisis. It seems as though their plan is
to bankrupt the government through increased
deficit spending. This could lead to the
privatization of vital public resources.
What
can the average student do to survive the
collapse of the debt bubble? One possible
solution is to avoid incurring debt at any
cost. When you see credit card booths on
campus attempting to lure students in with
the "buy now pay later" mantra,
continue walking. Another is to avoid incurring
debt by purchasing big-ticket items like
cars. Just be happy with what you already
have, and be happy you don’t have
a mortgage to pay. Weathering the storm
may not be easy, but these are some simple
measures you can take that will ensure you
are better prepared than most.
Sterling
Harris is a history major at CSULB.
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