Grasshoppers, Ants, Politicians and Central Bankers

(This is my reflection on the Greek tragedy that is unfolding before us.)

30 years – that is the most common term for a mortgage.  30 years –  that is an approximation of the most productive years of an average human.  30s – that is about the age to start the activity known as household formation.

Housing, transportation and food, those are the three essential elements of life.  Of the three, housing is the highest expense for most households in the US.  However, once paid for, housing can maintain its utility value for a long time, unlike food that has be replenished and paid for every day anew.  Once the house is paid for, all kinds of good things happen.  If one manages the mid 30 years of one’s life wisely, then one can enjoy one’s golden years.

 

KrekelMierImage credit: McKenna

 

Unfortunately, evil forces have made this impossible for most.  About 2,700 years ago, a wise economist by the name of Aesop foresaw what would happen today in his story

 

The grasshopper, the ant, the politician and the central banker.  

In a field on summer’s day a grasshopper was hopping about, having a grand old time.  An ant passed by, bearing along with great toil an ear of corn he was taking to the nest.

“Why not come have coffee with me and shoot the breeze,” said the grasshopper, “instead of toiling and moiling in that way?”

A central banker over heard the conversation and chimed in.  “Yes, ant, not only should you go for coffee with the grasshopper, I would give you cheap loans so you can gorge yourselves on pastries and cookies also.”

“But I am laying up food for the winter,” said the ant, “and recommend you to do the same.”

A politician overheard the conversation and chimed in.  “No worries about the winter.  Vote for me and I will provide you with pensions, free healthcare, cheap shelter and anything you like.  It may be too complex for you grasshoppers and ants.  It is called Fiscal Policy.”

The ant is still not convinced, “Mr. Politician, I do not see you storing up anything.  How are you going to keep your promises?”

The central banker jumped in again.  “No worries.  When winter comes, I will just print and print this thing called money, and all will be fine.  It may be too complex for you grasshoppers and ants.  It is called Monetary Policy.”

The politician and the central banker were so convincing that the ant joined the grasshopper at the coffee shop, and happily chomped down cookies all summer long.  Then one day, winter arrived …

 

Ironically, Aesop was Greek and today’s Greeks know the grasshopper story all too well.

In the US, 10,000 baby boomers reach 65 everyday.  Looking back at each of their 30 years, there are far too many grasshoppers and ants that listened to Aesop’s politician and central banker.  With their most productive years behind them, many are still in the early years of a 30 yr mortgage and some are even under water (negative equity).

Moral of the story:  do not be confused by the daily housing data.  Housing is an important component of household finances and it takes a long time to plan it well.  If politicians and central bankers come to tempt you with cheap loans, equity withdrawals for more consumption, refinances, stimulus or other policies, squash them like the parasites they are and move on with your business.

 

strappedImage via inteleants.com

 


 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

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