Today’s local newspaper stated that the stock markets had their worst quarter since the financial crisis. The U.S. government is in worse financial shape than ever. Many banks have billions in shadow real property inventory. Numerous European governments and large banks are also in worse financial condition than the U.S. and many households are drowning in debt and barely any savings.
Yes, I get that the writer was referring back to the Lehman Brothers collapse. This was when many “experts” predicted that the U.S. financial sector would collapse if the government did not inject hundreds of millions of dollars into it. While the short-term outlook is slightly better for the economy, and the financial system, I believe that the long-term forecast has deteriorated significantly.
Here are a few thoughts for you, the reader. These solutions won’t happen in the next few decades, so don’t expect them to.
1. The government is solvent and capable of meeting its long-term obligations. The U.S. taxpayer has been hit with huge bills due to recent activities like TARP, Cash for Clunkers and foreign wars. Future entitlement obligations like Medicare and Social Security will be even more complex, with tens to trillions of dollars needed to be paid as the baby boomers age. Politicians and bureaucrats have not been able (or unwilling) to solve the U.S. financial crisis.
2. Banks will be once more stable institutions that are protected from Wall Street’s greed. Bank of America Megabanks and JP Morgan Chase are being reduced in size to ensure that the financial system is not threatened by any one bank or small number of banks.
Moody’s last week downgraded three major banks’ debt ratings – Citigroup, Bank of America and Wells Fargo. Representative Barney Frank and several analysts stated that this new political reality means that no bank is too large to fail. This is nonsense to me. Fortune stated that banks are larger and more interconnected than ever, making any failure even greater than the Lehman Brothers collapse of fall 2008. The assets of Bank of America, which total $2.5 trillion, are approximately equivalent to 18% of U.S. GDP. Their assets are also ten times greater than those of Citigroup twenty years ago, when they were the largest bank. It would be amazing if banks could follow the transparency of the promissory notes buyingmarket where all parties are accountable for their actions and cannot just pass the risk to another party.
3. On average, households will be net savers instead of being dependent on government handouts as half of them are now. Consumers must be financially more savvy and have income-generating jobs in order to reach this goal. While the government should tighten financial regulations, they must also back off from other laws like Obama’s health reform. Private enterprise is infinitely better than government. Government tends to produce little and focuses mainly on large bureaucracies.
Although the three topics mentioned above won’t fix all of the country’s problems, they will be a great start. The U.S. would have a higher level of consumer confidence, fewer people would be unemployed, the stock market could be more stable and reflect the true value and potential economic strength. The country’s economy is heading toward major collapse, and there are no leaders who can fix it.
RECENT ESTATE NEWS FROM
* Sales of new homes are down almost 80% since peaking in July 2005 (9/27/11 Wall St. Journal).
* Only Detroit and Washington D.C. saw year-over-year price increases in the 20-city Case Shiller Home Price Index (9/28/11 WJ).
* The number and percentage of mortgage lenders fell for the fourth consecutive year to 7923, as compared to 8886 in 2006. (9/23/11 HousingWire). This could help owners finance and those who want to issue a promissory notes.
Whould you Invest in a Home or Mortgage Note?