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A Slowwwww Recovery!
Where Have All The Consumers Gone, Long Time PassingIt is common knowledge that 66% of our economy, as measured by the Gross National Product (GNP), is driven by consumer spending. What do you think consumers will do, and should do in the future? Consumers will not be consuming the way they were prior to the collapse of the economy and below are just two reasons why this recession is not going away quickly. A major, respected, bank concludes that the housing crisis is far from over and consumer's net worth will continue to be hit hard. In addition, three well respected economist believe that a significant number of major banks are "zombies" and will need to be closed down and liquidated in an orderly fashion. This also will get the attention of consumers and cause them to think twice before spending; rather than saving for troubled times. Based upon the projections of Duetsche Bank's Global Market Research study dated August 05, 2009, the U.S. housing market is still in a steep decline. The entire study can be read by clicking on their logo below, however their conclusion is summarized by the quote after the logo.
"The continued decline of U.S. home price will contribute to rapidly rising rates of negative equity. We project that over the next two years, an additional 11 million households will be underwater, bringing the total to as many as 25 million households. The most obvious implication is for mortgage defaults; borrowers with negative equity may be forced to default after a life event (e.g. unemployment, underemployment, divorce, disability, etc.). Borrowers may also “ruthlessly” or strategically default even without such life events. Apart from default, this reversal of fortune for the middle class will surely suppress consumption. In the meantime, we don’t expect a quick turnaround of the housing market due to the weakness in labor markets, excess supply and continued un-affordability in some regions." In addition, three top economist believe that many of our major banks are insolvent and need to be taken If these events happen, the consumer is not going to be in any mood to ratchet up his spending and be the engine that quickly puts us back on the road to recovery. Based on these factors, it is not realistic to expect that the economic recovery, along with a drop in the unemployment rate, will be happening soon. It will take several years, and maybe decades, before the consumer will start consuming at his pre-recession pace. For the sake of the long-term future of this country; the consumer is making the right choice of saving rather than spending. We must become more than a consuming nation. |
Health Care Solution: Back to Our Core Beliefs!
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Two of the founding principles of this country, Christian beliefs and personal freedom, should guide us in our quest to improve our health care system. It is these beliefs that made us the greatest and most generous nation on this earth. As a nation that was founded by mostly Christians, one of our core principles is that it is a morale obligation of those that have been blessed with superior talents and gifts to help the needy. This includes providing basic health care to those who are in need but not in a position to afford it on their own. Christianity is not the only religion that preaches this belief. One of the basic Pillars of Islam as stated in the Koran is Giving Zakat which means ‘giving a specified percentage on certain properties to certain classes of needy people.’ Our core value of helping our neighbor is why we need to improve our health care system. Now we must decide what is the best way to do it. Another reason is that is presently inefficient. The government is not the answer. Lord Acton, the British historian. said in 1887; "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men." In our country, the entity having the most power is our federal government. Our founding fathers were wise enough to create three branches of government in an attempt to dilute this power. Abraham Lincoln said that we are a "Government of the people, by the people, for the people, .................." The federal government should not be overseeing our health care system; but rather it should be taking steps to assure that the private market is regulated in a way that we accomplish our goal by utilizing the system that has made this country the most wealthy and innovative in the world. Our government needs to see to it that our free markets work to the benefit of its citizens. We need more competition in the health The role of government is to encourage more competition in the marketplace and regulate and incentivize it to assure every American is afforded basic health care. It seems that a significant number of elected officials want to walk away from the engine that has propelled this nation to greatness and wealth........ Free Enterprise. Give it the room to solve our health care issues and let government govern. |
It is these same beliefs that will make the greatest health care system on the planet even better.
Recover From Economic Hangover
Recovery From Economic Hangover This is a watershed moment in our economic history. We are in a recession but the recovery will be different from the last 70-years. In the past, we worked our way out of a recession with the help of the federal government providing the stimulus. In one to three years, the economy was back on a growth track and there were no serious, long-term casualties. We continued to spend and consume as in the past. That was then and this is now. Our economy has too much debt. Our federal government is running record-breaking The federal government did the right thing spending money to revitalize the financial infrastructure of our economy and stimulating short-term demand. These actions were necessary to prevent a depression and the total collapse of our economy; not to prevent a recession. The recession is here and will linger for a while. Long term, we need to reduce the amount of debt that we use to support our life style; or change our way of life. This is true as a nation, as investors and as individuals. If we do not, we will lose the economic battle with the rest of the world and the United States will no longer be the super power that we perceive. Reducing our use of debt means that less money will be available to consume. Less consumption converts to less demand for the goods and services produced and excess capacity in the system to produce and deliver the products. Excess capacity will mean less demand for retail space and that in turn will mean lower rents for commercial properties and higher vacancies. Lower rents, higher CAP rates and conservative underwriting will mean lower values for commercial properties. Recovering from a hangover is painful. |
Housing Aftershock!
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Are you ready for the next housing crisis? This crisis will be like an aftershock from an earth quake. Sometimes the aftershock can be as damaging as the original catastrophe. The initial housing bubble was primarily caused by wall street lenders allowing buyers, who could not qualify to purchase a home in the traditional manner, to increase the demand for single family homes by providing sub-prime loans. Eventually these sub-prime borrowers began to default on their mortgages and this in turn dramatically increased the supply of homes on the market relative to the number of qualified buyers.
Prices appear to be falling at an accelerating rate. If someone purchased a home in January 2008 and put 20% down while obtaining an 80% to value loan, they lost all of their equity in the first 12-months of ownership. If the downward spiral continues, a large percentage of homeowners will not be able to refinance their homes, because all, or most of their equity will have disappeared. Nor will they be able to buy a new house because they will not be able to sell their present house. Frankly, if you want to get equity out of your house; do it now. It may not be there tomorrow. |
The result is that home prices began to fall and are still falling as shown by the chart to the left, which is derived from a study done by Standard & Poor's/Case-Shiller
Health Insurance - What Is Needed!
AIG was the insurer of such a large portion of the sub-prime mortgage market that if they failed we would have had a banking crisis that would have equaled what happened during the great depression. The cost of this calamity would have been far ...<< MORE >>
Banking Crisis - Here is The Solution
When Adam Smith talked about “rational self interest” and competitive markets he envisioned many consumers interested in buying goods and 
services from many producers. This “free market” system would best serve the private and public good. He was not talking about producers, companies, being too big to fail.
This is a major problem in today's economy. We lost our way in regards to allowing competitive markets becoming oligopolistic markets. The financial institutions that are here to serve our needs have gotten so big, and have such a huge impact on our markets, that the public sector is forced to step in and save them because of the irreparable harm that would be caused by having them no longer in the market.
Everyone is talking about reforming the "system". A major part of that reform is to break up the size of our financial institutions Make each of them small enough, relative to the size of our economy, that we yawn as one of them cease to exist. This will result in them no longer counting on the taxpayer to bail them out and will provide the added benefit of keeping the compensation of the scoundrels running these companies from being ludicrous. Small is Good!!
America Needs To Invest In New Industry!
This "car" will not be propelled by oil. It may fly instead of roll along on a road. Whatever shape it takes, it will be in demand.
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