Even the most optimistic economist or politician would have trouble putting a happy face on the U.S. economy. As I write this, the stock market was down over 500 points earlier this week, its biggest drop in percentage terms in 2.5 years. Although this is obviously bad news for stock investors, it is a correction that is long overdue. After all, the structural economy has been a basket case for years, yet the market kept pumping up stocks by focusing only on the short-term.
The U.S. has (and had) debt issues that it has no chance of solving gracefully. The number of food stamp users is at record highs, unemployment is much higher than the official 9.2% rate, homeownership rates have fallen back to 1998 levels, and real estate prices are still dropping nationally.
Nearly all of the government bailouts and programs have done little but waste taxpayer money and add to the nation’s debt levels. Many government agencies need bailouts or soon will. Most of us know about the billions spend to rescue Fannie Mae and Freddie Mac. Recently, we learned that the Federal Housing Administration (FHA) is now losing money if one applies proper accounting rules. Gee, an agency that only requires a 3.5% down payment to guarantee mortgages for low-income Americans experiencing losses – who could have seen that coming!
The majority of the after-the-fact regulations put in place by the Feds are inadequate or just crazy stupid. An example of the latter is a part of the Dodd-Frank bill that would effectively eliminate owner financing and mortgage notes on all residential properties. As a mortgage note buyer for many years, this rule would have a huge adverse effect on my business. And yet, I cannot even imagine why this rule would be under consideration, as no privately held mortgage note contributed in any way to the real estate and financial crisis.
So, what can be done to fix this fiscal mess? Well, I would offer up that the only to get long-term stability is for there to first be significant short-term pain. It took us many years to get into this situation, so a quick fix is out of the question.
The solution is going to be major spending cuts across all programs including entitlements and defense. The U.S. can no longer give money to nearly everyone asking for it nor can we continue to be the world’s policeman. At the same time, there will need to be revisions to the tax code that would get rid of many deductions and close, at least a little bit, the economic disparity gap between rich and poor.
Of course, although I’m much more practical than political, I’m savvy enough to recognize that current lawmakers won’t solve the problem. So, our empire will slowly crumble, just like all of those empires before it.