Even mythical Greek gods wouldn’t have any trouble supporting Athens. At the time of writing, Greece is in danger of defaulting on its loans, causing immense damage to American and European banks and challenging the EU currency. Greece was the economic basket case in Europe for years thanks to its unrestrained spending habits and cheap loans. This, along with lax financial regulations as well as statistical fudging, has made it a country that is prone to reckless spending and high levels of lending. Their debt rating is at its lowest level. Similar problems are also being faced by Portugal, Spain and possibly Italy, which could lead to them falling behind the Greeks. Prime Minister Papandreou finds himself caught between the Greek debt problems and strikes by a Greek populace.
Willing to give up the entitlements it has.
Are the U.S. and Canada likely to cross the same cliffs? Experts say no. They have a variety of reasoning, ranging from the absurd to the factual. The U.S. is indeed a more diverse economy than the one that controls the currency that is widely considered the world’s reserve currency. Even though U.S. financial regulations are lacking and cronyism is rampant in U.S. government agencies, Greece is far worse. In addition, Greece has defaulted multiple times in its long history, while the U.S. is not.
Nevertheless, there are similarities between the problems facing Greece and the U.S.
1) Experts point out that the GDP in Greece has been declining while the U.S.’s has been rising. Although technically correct, I believe that the U.S. has seen its GDP rise because it has artificially sustained the economy by spending money it doesn’t have. The U.S. can’t continue spending like this forever.
2) Other people point out that the Greek debts (relatively to their GDP) is much higher than the U.S. This argument is much more difficult to make if you consider the future entitlement obligations of America (MediCare and Social Security), which would bring our debt level to between $50 trillion to $200 trillion.
The United States simply cannot pay its debts. Although a default is possible, bureaucrats will try to inflate our way out of this mess and implement a combination of tax increases or service cuts.
All of these government tricks have an impact on real estate. The unemployment rate is still high, and the median household income has been falling. People without jobs, or with low salaries, cannot purchase property.
This whole scenario can be seen in the U.S. in one of two ways. The first is when the financial system reforms, where the government stops dumping money it doesn’t own into inefficient programs, and politicians take a serious approach to addressing the nation’s debt. This would result in a lot more short-term unrest and civil unrest but long-term sustainability.
Banks would be more stringent about lending to real estate. Down payments for houses would have to be at least 10%. A more transparent system would also emerge. A mortgage note, also known as owner financing, is where the loan is made to an owner. Owner financing, also known as a mortgage note (a.k.a. real estate note), is where borrowers can finance their property. A willing note holder and a buyer of mortgage notes would form a secondary market for mortgage loans. This would allow them to make a financial transaction to buy the real estate note.
The second scenario is where the economic situation plays out. This involves the government doing more of the exact same with minimal financial reform and the creation of more ridiculous programs. And the politicians promising that everything will be fine. This prolongs the problem until a later date, when all hell breaks loose.
My optimistic side hopes for the best. My brain and my heart both tell me the second scenario is more likely.