Is the United States going broke?

Many would roll their eyes at this notion; they would tell you that the country has never defaulted on its debt that its long-term interest rates are historically low; that the dollar is the world’s reserve currency; and that China, Japan, and other countries have an insatiable demand for U.S. Treasuries.

Others would argue that the official debt reflects taxonomy, not fiscal essentials; that the total of official and unofficial liabilities is enormous (The costs of hurricanes Katrina and Rita alone could easily total $200 billion over the next few years); that federal spending and medical expenditures are exploding, and that the United States has a history of defaulting on its official debt by means of inflation.

On the other side of the coin is China; China is saving and growing at such astonishingly high rates that it can potentially provide the United States, the European Union, and Japan with huge quantities of capital. Some would suggest that China could serve as America’s savior provided China is permitted to invest massive sums in our country (assuming they would want to).

The massive debt looming over the country has ominous implications for our children and grandchildren. Leaving our $65.9 trillion bill for today and tomorrow’s children to pay will roughly double their average lifetime net tax rates (defined as the present value of taxes paid net of transfer payments received divided by the present value of lifetime earnings). [Gokhale, Kotlikoff, and Sluchynsky 2003].

Times are bleak for the U.S. consumer. The average household owes 20 percent more than it makes each year. The personal savings rate is in negative territory. Record numbers of Americans are losing their homes to foreclosure, and millions more are struggling to keep up with their monthly bills and obligations.

The House and Senate have passed economic stimulus packages that include rebates to taxpayers, which the government is encouraging them to spend, which seems like an irresponsible message for taxpayers who have debt or no savings.

Bankruptcy, once regarded as a shameful and humiliating failure, has become an everyday fact of life: More Americans filed for bankruptcy last year in the United States than in the entire 1960’s.

Speaking just hours after the Federal Reserve helped to engineer a rescue loan for investment bank Bear Stearns, Bush said that, although times are tough, the economy is resilient. The country has endured tough times before, he said. “Every time, this economy has bounced back better and stronger than before,” Bush said, expressing his optimism in the future of the country.

Bush rejected several proposals being offered in Congress, including the purchase of boarded-up homes by cities and states, changes in the bankruptcy code to allow mortgages to be discharged in bankruptcy, and extending federal loan guarantees to more homes once lenders have accepted their losses. Markets need time to correct, he said. “Delaying that correction would only prolong the correction.”

So as a Realtor, Investor, and an American, I do hope the correction comes, and comes soon.

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Tags: America, bankruptcy, budget, deficit, Economy, foreclosure, katrina, national debt, president bush

This week has been an extremely volatile one in the world of real estate and the economy. We’ve seen Gold at $1,000 an ounce, a collapsing dollar, oil skyrocketing, an much more. Of everything that has happened, probably the most shocking is what came out of the Fed this week . . .

According to the The Daily Telegraph, “The US Federal Reserve has taken the boldest action since the 1930s, accepting $200bn of housing debt as collateral to prevent an implosion of the mortgage finance industry and head off a full-blown economic crisis.” Tim Bond, a strategist at Barclays Capital remarked, “The market was starting to question the solvency of bodies that stand at the top of the credit pile. These agencies together wrap or insure $6 trillion of mortgages. They cannot be allowed to fail because it would cause a financial disaster. The fact that this sector has blown up has caught everybody’s attention in Washington”

At Least President Bush is Confident in the Economy!

It seems like everybody but the President, who continued to dodge questions about the economy until a press conference today where he expressed his “confidence” in the US economy. I’m glad that he is confident, but he’s doing little to stem the collapse of the dollar and the looming current recession.

To make matters worse, suffering investment bank Bear Stearns today was given a bailout by J.P. Morgan Chase and the Federal Reserve Bank of New York. From the Wall Street Journal:

The intervention by J.P. Morgan and the New York Fed shows Bear “didn’t have enough money to turn the lights on this morning,” said Carl Lantz, strategist at Credit Suisse. “And in a big picture sense, this isn’t that comforting.”

This news turned a somewhat positive market (inflation report wasn’t as bad as expected) upside down once again, and at the time of publishing this post, the Dow is down 300 points and Bear Stearns is off 40%.

Talk about an economy we should be Confident in!

Tags: bear stearns, dollar, Economy, Euro, fed, federal reserve, George Bush, monetary policy, president bush

The subprime mortgage/housing/credit/crisis–or, SPMHCC–is fast becoming the subprime mortgage/housing/credit/consumer confidence crisis–or SPMHCCCC, for short. Okay, it’s not so short but it does get the job done.

Anyway, a full 70 percent of this nation’s economy comes from personal consumption-Americans buy TV’s they don’t really need, cameras they don’t really need, newer cars they don’t really need, designer clothes they REALLY don’t really need and the list goes on, but we don’t really need to go there, do we?

And how do many Americans pay for all this stuff they don’t really need? In recent years, they basically used their homes as giant ATM cards with storm windows. The house was not only a roof over their heads, it was also a credit card just a bit too bulky to carry around.

But, now, the SMPHCCCC (See first graph for full explanation) has all but shut down this stream of income and that appears to be, in large measure, what is turning off the spigot of America’s needless over consumption.

The evidence: The Pew Research Center (yes, an unfortunate name) says its polls indicate consumer confidence is now at a 15 year low.

The New York Times reports that even high end stores are reporting slowdowns in growth.

And, worse still, says the Times report: “The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth.”

The report says that would be the first time that has happened since 1991.

That would, without doubt, ram our economy into a recession if it isn’t already there? Some economists think it is.

Take a look at just one example: the merged Sears and Kmart. Sears Holding says today that its profits are expected to plunge 60 percent this quarter compared with last year.

Not good.

The subprime mortgage crisis has shattered the world’s economy in myriad ways. There isn’t a country in Western Europe that is not feeling the credit pinch from it. And, in this country, the situation promises to get a lot worse before it gets a lot better.

Doom and gloom? Fire and brimstone talk?

Wish it were, but it is not!

Is there a fix?

Congress is talking about some sort of relief for homeowners who are about to go belly up..but Congress talks about lots of things and often does too little way to late.

President Bush has finally realized that he actually is the captain as the Titanic rams the iceburg and he can’t blame his first mate, the VEEP, for this one.

Americans like to think that if they pulled themselves up by their own bootstraps, things will get better. But, there are things beyond the ability of any individual to correct. This economic crisis happens to be one of them.

subprime mortgage, subprime, consumption, consumer confidence, economy, recession, homeowners, economic crisis

Tags: foreclosure, Kmart, pew research center, president bush, sears, subprime mortage crisis

Will wonders never cease? First, Hillary Clinton proves the media wrong and wins the New Hampshire presidential primary with a comfortable number of votes just 24 hours after some polls said she would lose by as much as 15 percent.

And now, George W. Bush has finally come to recognize what most of the world already knew–the economy is sick and the primary cause is the subprime mortgage debacle.

Bush actually has said that he is watching the U.S. economy carefully now (wasn’t he doing that before?) to help him decide whether the federal government needs to do more before the ship of state takes on too much water.

Of course, Bush is not one to come out and just say, Hey, I was wrong! But, this comes close: “I’m optimistic, as I’ve seen this economy, you know, go through periods of uncertainty,”Bush said. “I like the fundamentals, they look strong, but there are new signals that should cause concern. And, one of the signals is the fact that the housing market is soft.”

Well, yeah! Guess you could say the housing market is soft: the value of homes all across the country has gone down;more and more homeowners find themselves in foreclosure or are about to be;and, the credit market is tighter than a clam shell.

So,yeah,guess you can say the housing market it soft.

And, the President admits this is no short term crisis : ” It’s going to take awhile to work through the downturn,” said Bush.

In another sign that the administration is starting to sweat it, Treasury Secretary Henry Paulson told CNBC the administration is thinking about new ways to help some borrowers who will take a beating from adjustable rate mortgages.

It is, of course, welcome news that the President now understands there is a real problem here. Too bad he didn’t come to that realization months ago.

Tags: Henry Paulson, hillary clinton, president bush, subprime mortgage