If the U.S. economy were serious and real, the positive spin most politicians and self-interested people put on it would be laughable. I am amazed that any of their fantasies or falsifications can be kept straight.
The real estate market is not improving and the economy is not recovering. While the Fed has used the printing press to generate hundreds of billions of dollars from thin air, politicians have implemented fiascos such as “Cash for Clunkers”, and other home mortgage modification programs. These actions did nothing to delay the inevitable economic crash. They also created so much debt that there is no way for the country to pay its bills.
Some of the “lowlights”, however, are:
- The entitlement programs are in crisis. Social Security is in deficit, and the Medicare trust fund will run dry five years sooner than expected.
- At more than 20% of U.S. gross domestic product, the state and local government debts are huge. Some entities have sold buildings to pay the bills. This is a short-term solution to a long-term problem. Many have no plan to fulfill their pension obligations.
- The true unemployment rate is high teens. There are many opportunities for low-paying jobs in the service industry, and many college graduates have to take McJobs.
- The real estate market is still at its lowest point, falling 33% from peak prices. This will only get worse when interest rates rise and banks sell off a lot of their housing stock.
It is possible to pull the U.S. economy back from the brink. The politicians lack the courage to make tough decisions, such as raising taxes or reducing services, which are both necessary to save the country. The Fed will likely continue to push the problem down the road, injecting just a few hundred more dollars into the economy. People will be happy to hear that everything is going well and not have to worry about the real problems.
The real estate market will continue to slide. The banks will limit lending so that more properties can be sold with owner financing. Real estate notes will also be issued. The holder of a real estate note (also known by a mortgage note), will need to find a buyer to help him sell the note. This is not a bad thing but it will reduce the number of real estate transactions.
Like Europe, the U.S. must work immediately to solve its problems, rather than waiting for a miracle to happen. It won’t happen, and it is likely that the next decade will be very difficult.