The optimism surrounding the European financial crisis has almost disappeared. Many European bureaucrats, central bankers, and politicians had been claiming for months that everything was fine and that the situation was being managed by “experts”. Of course, this was not true. Even in France and Germany, manufacturing output is falling. It seems certain that the Eurozone recession would be prolonged and severe. As Greece plays a game with Germany, it is in danger of defaulting. Several other PIIGS, Portugal, Italy, Ireland and Greece are also close behind.
Europe is currently mulling over whether to keep implementing austerity programs or move to pro-growth. Both politicians and the general public prefer the latter. The plan is to reduce deficits in the future. Similar discussions are underway in the U.S. It would seem that refusing to solve the debt problem right away is an inability to solve it. Is it possible to believe that the future politicians will be more concerned with solving the country’s problems then their own chances of re-election? It’s not possible. Most politicians are made from the same mold and are more interested in solving the country’s problems than their own re-election chances.
USA Today reported recently that the actual federal deficit was $5 trillion, rather than $1.3 trillion. Federal law requires companies and state and local governments, as well as the private boards that establish accounting rules, to include retirement benefits into their financial statements. Congress is exempt from this cost. The average American household would have paid nearly all its income in taxes if the Feds had to follow standard accounting principles and balance the budget last fiscal year without cutting expenses.
Over the next year, we will see headlines stating that the European recession is negatively affecting U.S. exports and causing losses at U.S. Treasury and banks who foolishly loaned them dollars. There will be more stories about Wall Street banks’ shenanigans, which will cause additional taxpayer losses. It is obvious that Dodd-Frank rules that required adult supervision of banks have been stripped of their teeth. Poor fiscal management, particularly of excessively generous pension plans will lead to more cities in the United States going bankrupt. In 2008, the largest city to file for bankruptcy was Vallejo in California. According to the Washington Post, California municipalities such as Stockton and Mammoth lakes, along with Montebello, are looking into bankruptcy protection. At least 100 municipalities will need to look into it before 2012.
If I had a dollar to pay for every headline claiming that the real estate crisis has ended, I would be on the tropical island lounging and writing this blog. The curve for real estate prices is more like an “L” curve than a U or V curve. Although they may be at or near the bottom in many cities, there is no reason to expect an upswing. Too many families struggle with unemployment and underemployment. One in three mortgages are underwater. This means that many families can’t move up to larger houses as they are stuck in their current homes. The robo-signing scandal is over. Banks will continue to increase foreclosure activity. Although the Fed is likely to roll out another quantitative-easing program to boost GDP, and the stock market in the near future, the benefits will be more temporary than the ones that were previously implemented.
It is true that things are looking very grim for the economy at the moment. If we were to remove lobbying money from the system, a more educated public might force politicians to do the right things. This money is what has led to so many of the problems we are currently facing. To force the issue to be addressed and to get us on the road to real recovery, we will need to reach a true crisis point. The American spirit and entrepreneurialism can bring the nation back to its former glory, but first we need to recognize the real issues and then have qualified, non-governmental individuals and groups look for solutions.
ADam Mcbrian, a San Diego real-estate note buyer, buys notes in all 50 US states. He is a San Diego real-estate note buyer and holds a California license as a real estate broker. His company also has an A+ rating from the Better Business Bureau.