A failing Republic, part 1

I'm not sure whether I'm getting more retrospective in my middle-aged years, or if things really are just headed down the crapper in this country. Either way, it's my blog, and I'll whine about anything that I want to!
America is in a greater economic crisis than we were prior to the Great Depression. The problem is that no one wants to see it. While a positive outlook can keep things rosy for a while, there is a dark economic shadow looming over this country that can not be kept at bay forever. I truly believe that America is headed for an economic "reset" and I believe it for some very specific reasons. My next few blogs will hit some of these points.
1. Americans don't seem to learn from their mistakes. If I ask the average American what caused the Great Depression, they will generally blame the stock market crash of '29 and the subsequent bank failures. The real question is, what caused the stock market crash/bank failures? As much as I hate to believe this, I truly do think that most Americans...even educated people...don't understand anything about the economics of what caused the failure. Because this knowledge is not present, the option of trying to learn from our mistakes has been taken away (by our own willful ignorance).
The stock market and the banks have a lot in common. Both are 'worth' a real amount, but 'valued' at another amount. Betting on this gap makes people very rich and it makes people very poor. I apologize for the length of this example, but it takes time to get our heads around some ideas:
Let's say that there is a bank that has $100 (actual worth). The bank knows that it can lend money for a house, and by charging interest, can make $3 for every dollar loaned, over the course of the contract. Essentially, the bank has a future 'value' of $300, so people invest. Every time $1 of a loan is paid back, the bank can re-loan that money and make another $3. So, if the bank continues to loan out all of it's assets, like a revolving door, it's 'value' continues to climb, geometrically. The problem is, although the bank may show a 'value' of thousands of dollars, its 'actual' money on hand is really only $100. If it loses this $100 of 'real' money, its future 'value' is irrelevant because it is bankrupt...there is no more working capital to "loan out." It has to seize assets and hope to make a profit. This is exactly what happened to the banks (and similarly the stock market, since it works on the same principle) in the early 30's. This is also what happened to the banks in 2008, and to the stock market in 2007, and to Fannie and Freddie, et al. Their books showed them to be worth trillions of dollars, but without any operating capital, they were actually not worth anything except over-inflated assets. The problem that we have in this country is that we are over-extended...much the way the banks and the stock market are/were. We, as individuals, have borrowed more money than we are actually worth. We buy houses that exceed our yearly income by 10 times. We finance cars, boats, and vacations. We have credit card debt with interest so high that it will take decades to pay off, even if we stopped using them. THIS is what happened in the Great Depression. The American people were over-extended because the banks kept screaming "borrow more." Blindly we listened, until we became over-extended to the point that we couldn't make our payments. Just a few missed payments by the right number of people caused the banks to fail, as they didn't have enough 'real' money to cover the losses. Their only option is to foreclose on the properties in arrears. The problem is that the property's 'actual' worth is 1/4 of what the bank had planned on. Foreclosure only profits if the property has gained value over the course of the loan...and the housing recession had proven the opposite to be true. The house was worth less than was borrowed against it.
So, 2008 comes around. Instead of looking at our past and saying that it's time to curb our borrowing, the Government bails out the failing banking/housing industry, with taxpayer money and the directive to "loosen up credit and lend more." The solution that was presented is the cause of the original problem. Nothing has been fixed...just prolonged. In order to truly fix this, the Government should have taken the money ($800 Billion, for those who have forgotten) and re-written existing, failing loans for the lowered, re-assessed property value and no interest. This would have kept the American people in their homes, kept the banks from going under by paying them for their 'actual' losses, all-the-while surpressing the ability for all parties to continue to spend money that no one had.
This cycle is far from being over. At what point will we learn?