Wednesday, October 5, 2011

Why the economy in America is bad.

Many manufacturing factories are leaving America because other places have cheaper labor. This leaves less jobs, which means less people are paying taxes. Fighting the war in Afghanistan and Iraq while trying to keep a large military presence didn't help with the money problems either.

A few years back, a lot of banks gave everyone home loans that they couldnt afford and now people can't pay the banks back. So the banks don't want to let people borrow money anymore. Now people can't borrow money to start their own business or expand to create more jobs.

Why the banks don't let people borrow money anymore:

Let's say your friend George wants to sell you a toy for $20. So you borrow $20 from your friend Mike and you pay George for the toy. So now you don't like your toy anymore and you want to sell it but you found out the toy isn't worth $20 and it's only worth $10. Mike wants his $20 but you don't have enough money even if you sell the toy. You find out that almost everyone has that same toy already so it is very hard to sell.

So now Mike doesn't have money, you have a worthless toy you can't sell, and George is happy he sold his toy. George is the investment banker. You're the owner of a house. Mike is a mortgage lender. And the toys are houses.

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