THE FUTURE ECONOMY

[Colle]

So, how’s that housing market and inflation? With inflation on the rise and the housing market cooling, there is no doubt that we will be entering a recession. In turn, the unemployment rates will increase. To add to that mix, under the new bankruptcy provisions, you may not file a chapter 7 bankruptcy until credit counseling or “Prebankruptcy Credit Briefing” has been completed 180 days prior to filing. Who can hold on to an out of control variable rate mortgage for six months? It is amazing to see the difference in opinion depending on if the author of an article is in real estate or in some
other financial area. The reality is that the bubble is going to burst. There are just too many factors involved for it not to. The extent that it will burst is still up for speculation. As I go through the endless supply of articles regarding the housing market, several factors come into sight. Foreclosures are on the rise. Inland Valley Daily Bulletin stated, “Foreclosures in Southern California are up almost 30 percent since January.” Construction is slowing. Banks, mortgage companies, construction companies, and auto manufactures are all laying people off by the thousands. Dailynews.com stated, “Washington Mutual Inc.’s big Chatsworth campus took another hit Thursday, losing 140 more jobs as the bank continued its aggressive cost-cutting plan.” “In January, Washington Mutual cut 1,000 call center jobs at Chatsworth and moved most of them to San Antonio.” Oddly enough, houses still continue to appreciate. Of course, the rate at which they do has slowed drastically, but it still keeps the houses out of reach for many. Are they really worth the asking price? I have read that several homes have been “overvalued.” And what about gas prices? Those who commute from the Inland Empire not only have to deal with congested driving conditions, but higher fuel costs each month. I just wonder if there will be a snowball effect. (to see the remainder of this article and more, please go to http://www.parduncollections.com/pardunnewsletter2.htm )

[bubba99]

Although one would expect a recession if housing prices collapse, I do not think that it is an automatic. Yes consumer spending should be lower, and savings and disposable income also lower because of increased payments to ARMS, and HELOC because of higher interest rates, but will the FED allow a serious recession, just a minor one, or try to prevent it all together.

We saw back in 2001 that the FED could significantly impact the economy by lowering interest rates – this is not the only trick in their toolbox. It is likely that in the event of a recession beginning, the FED will begin to ease liquidity by increasing money supply. As long as the US can continue to buy low cost consumer goods from abroad, the economy will keep moving. But how do we pay for the net outflow of dollars to foreign governments. One possible answer is to print money.

As long as interest rates stay ahead of the deflation of the US dollar, the US will be able to finance its growing trade deficit. For a time, this will stave off a “real recession”. The US dollar will lose against foreign currencies, but they are so dependent on the US consumer to keep their own economies going they will fight to prevent a US consumer recession. Thus a serious recession may be avoided. The forecasts of Gloom and Doom for the US economy because of a housing led recession are overstated.

But just to be sure, I am out of the market.

The FED may pull some other rabbit out of their hat and create a new “real estate” like boom. Or maybe in 5 years or so we do real estate again. But the world economies will not allow a real US recession if they can help it.

[Bugs]

Printing money punishes everyone; price corrections only punish the dumb and/or greedy. I detest the idea of subsidizing and enabling someone else’s poor decisions. I say let the prices correct and leave the rest of us out of it.

[anxvariety]

Printing money punishes everyone; price corrections only punish the dumb and/or greedy. I detest the idea of subsidizing and enabling someone else’s poor decisions. I say let the prices correct and leave the rest of us out of it.

I see only one problem with that… majority rules 🙁 🙁

We know the gov will bail out the banks.. How would they be able to do that though without throwing some cookies to the people?

I think we’ll see the banks get a giant hand-out and people that are screwed over by their debt will get a mini-handout.. us Piggys by the sidelines will be paying into this fund with our tax money, to what benefit? Seems orta like an affirmative action for personal finance.

[socalarm]

http://www.prospect.org/deanbaker/2006/08/more_evidence_of_a_bursting_ho.html

[Diego Mamani]

It’s not “FED”, it’s Fed, short for Federal Reserve Board.

[powayseller]

In the other link I posted on the Roubini thread, he explains why not even a rate cut can prevent a recession; it’s a sure thing now. He also explains why the rest of the world cannot decouple from the US slowdown; they will all be affected; commodity prices and emerging markets will all go down as US demand wanes.

One comment I’d like to add: the US consumer is in so much debt, that not even 0% interest rates can save us. Look at Japan – not even 0% rates for over a decade prevented their recession and housing bubble collapse. The US consumer is spending 108% of disposable income, up from 40% in the 1950s when they first started tracking this data. How much more of income can people spend. Any Fed printing will really raise inflation, and that will be just as bad for consumers as higher interest rates.

The other very real problem that the Fed doesn’t directly address: how do they get foreign central banks to keep funding our deficit? If rates are cut to 1% again, watch the flight out of the dollar in earnest.

I am curious if the Fed has any rabbits in the hat. What can they possibly do to mitigate the recession. The recession is coming, I’m certain,but what will they do to try to shorten it once it hits? Anything they could do would be just an intermediate fix, I am afraid. The real answer is we must invest in our education, development, research, and start saving and not consuming stuff made by other countries at a higher rate than our own production!

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