Wednesday, October 08, 2008

Chaos Reigns

By now many, if not most of you have figured out that our economy is in crisis. I would gloat, because I have been predicting this for over a year. I won't, because being right this time isn't pleasant.At this point, we are teetering on the edge of a depression, not recession. While I'm not a trained economist (retired Mortgage Banker)I still think that Paul Volker did the right thing when he viewed stagflation back in 1980. He immediately raised interest rates to the highest seen ever. The economy ground to a halt, but only for three years.

Back then we still were a country with manufacturing as our financial base. You don't build anything, no jobs are created. Now we have free trade. This is a philosophy that I frankly don't understand. It appears to be a road map to one world, or worldwide socialism, yet right leaning Republicans bought into it. Some gobbledygook about turning our industrial might into off shore labor because it's cheaper. The mantra of a service economy that uses the "what goes around comes around" premise, I didn't think was going to fly.

Why? Because the only way our economy can compete with child labor and adults making less that $5 per day, is to become equal with them. This requires them to rise up to our standards, or for us to Fall to theirs. At this point you may have a hint of where I'm going with this. We aren't just in an equal race with the rest of the world, we are in free fall.

The congress blames Bush for the deregulation of the finance industry, but conveniently ignores the liberal mantra of we want everyone regardless of means to be able to own a house. One of the strongest voices there, was Senator Dodd. He is as adamant now about the fault resting with the current administration as he was back when he forced through new regulations requiring the mortgage industry to make it possible for those that couldn't afford to buy a house to be enabled. Rep. Barney Frank was right there with him at the time. Could it be that these and others are talking out of both sides of their mouths? Were going to turn the governance of this nation over to them?

The only way that can happen is through lowering standards for loan approval.That happened. Now we are in a train wreck, economy wise. Other causes of the housing market collapsing are the continuous low interest rates that stayed too low, too long. This used up the demand, while the supply, feeling the end wasn't near, kept on keeping on. As in all boom markets, when the downturn happens, as it always does, spec builders are in the middle of expansion, not retraction. Thus is created an oversupply of homes with no buyers in sight. If we are to lynch, (figuratively speaking) the so called mortgage Moguls, The we need to also take out the senators that forced these liberal know nothing, pay nothing legislation. It would seem that talking out of both sides of one's mouth is endemic in Wahington, D.C.

So, we have several, not just one or two causes of our current dilemma. I will extrapolate further in my next post.

No comments: