All of the recent problems with the mortgage markets have me thinking, and the one question that keeps troubling my mind is this: what, if anything, is our economy based on? I have had extensive conversations about this question with people much smarter than me and we seem to have come to a couple of (at least theoretical) conclusions about from where value derives in our economy. Of course all of these "conclusions" just lead to a plethora of other questions until, at least in my estimation, the whole argument becomes cyclical and, ultimately, paradoxical. However, I think I have distilled at least the value of the dollar to two things: 1) America's ability not to pay its debts; and 2) Amercian's faith in the notion that tomorrow will be better than today.
So, what do I mean by America's ability not to pay its debts? Well its a sort of Machiavellian economics: might makes rich. In other words, we sell of our debt to other nations based on the assumption that we won't have to pay those debts off. Why? Well, who is going to knock on our national door and make us pay those debts? Therefore, we can sell off our debt to inferior countries who can never collect on it. Its really a beatiful thing for us, so long as we can maintain our military might. This conclusion seems to be bolstered by the great negative impacts of national security failures on our economy (see 9/11) as well as the relative strength injected into our economy from successful military endeavours (see WWII and the Cold War).
My second conclusion (which I really must attribute to a friend of mine), that our faith in the notion that tomorrow will be better than today, finds evidence in interest rates. I mean, what exactly are we doing when we take out a loan? I think we're wagering (either consciously or not) that the advantage gained today by the money we receive will be worth at least as much as that total plus the interest rate we're paying when the money is due. This makes sense in the context of a home loan: houses are appreciating assets that ought to be worth more than they were 30 years from when they are purchased by a margin at least as great as their interest rate and usually expectedly more.
I'm not sure why I felt compelled to post this, but I think it stems from a worry I have about waning resources (hence the picture of one of my favorite lakes that is drying up). What are we going to do when we run out of oil, water, top soil, and clean air?
