Thursday, January 24, 2008

Cold Financial Roads

"If you lend someone $20.00, and you never see them again, it was probably worth it."


Well, congress and the White House, have reached an agreement regarding the proposed stimulus package. Will it help boost consumer confidence? Does it make you feel better about the future of the American economy? Will it help hold off a recession or is it too little too late? What about the world markets, will this attempt by the government bring about a long-range fix or a temporary stabilization which can't possibly be sustained? And while we are on the subject, just what exactly got us into this mess in the first place? Are we Americans dropping the ball and not doing our part?

I have been reading as much as I can since early January about the state of the economy. I want to understand what's going on, why are the mortgage companies dropping like flies? What part does the decline play in the overall economy? Well, if you read about the decline in the housing market, you will more then likely find yourself shaking your head in disbelief. You find housing loans being issued to folks who want nothing more then to provide for their families. Folks who want a roof over their heads, being taken in by the greed of the mortgage companies. But wait, didn't these people who purchased the loans know what they were doing? Didn't they know they would eventually have to face the pinch of the variable rate?

Of course they did. So why did they take the bait? There are a lot factors to be considered when seeking an answer to that question. I expect that there isn't a simple answer. For some it was the drive to take care of their families, while others took these loans as an investment in the short term. Either way, the bubble has burst, and the economy will be affected by it for years to come. So, what now? How do we turn things around? I personally don't think this rebate will even come close to fixing the problems, because we aren't addressing the other issues contributing to the overall economic downfall. Higher gas prices at the pump, drives the price up for everything. It is a simple fact. It's shocking to me that with America in as serious economic state as it finds itself in now, oil companies are still reporting record gains.

I don't think you can blame the housing market for the state of the economy, and yet when the fingers start pointing to the cause, this is the first thing you hear about. Yes, it is significant, but I don't think we can necessarily ignore the other things that contribute to why folks choose not to spend. Let's face it, other than making your mortgage payment, what do you put your money toward next? Getting to and from work. And to do that, we have to fill our tanks. After housing costs and the need for gas, what comes next? Well, we have to have some energy to keep us warm, then we need to put food on the table, next comes the clothes on our backs and then what comes next? Entertainment? Recreation?

I remember, back in the mid to late 80's there was a housing boom in the Bay Area. Housing costs and property taxes were high, in San Francisco, and in the closer urban areas, so developers started looking out toward western San Joaquin County. Suddenly there was housing popping up in small towns such as, Tracy, California, priced in the affordable low $100,00's, to the mid-$200.00's. Those houses were snatched up, and the great commute across the Altamont Pass began.

But there was also a stability in prices, and even with rumors of instability in growth and economics, a pattern of stability remained. Things seemed to be working and Bay Area economy maintained a level of stability. Folks were willing to pay the prices at the pump, to live in the newer communities where housing was affordable, and commute to the larger cities where the pay was greater. Trickle down economics didn't work, but what did work was the fact that America didn't just put a band-aid on it's problems and call it healed, no, we fixed the problems to the point that it sometimes hurt.

I fear that this stimulus package is simply putting a band-aide on the injured economy, rather then addressing the cancer plaguing it. The war is an economy issue, so is gas prices, which cause the inflation of everything we spend money on across the board. We should not be kindly asking that the price of gas and oil be lowered by the countries supplying it, we should be demanding it, and I am not sure why we aren't. We consumers have been very complacent about the price of things. Why is that? I am no economics wizard, but even I know to have growth you have to have more coming in then going out. Sigh. Ok, I admit it, having that little check coming from the government in a few months will be nice, but I don't have plans to take it back out and spend it in a shopping frenzy. Even folks like Alan and I, who have no children, or a mortgage to think about, have other financial concerns, like the future of our retirement, which is coming up in about 15 years.

The future will never be 100 percent certain, and as I grow older I do read more and more about the economy and what causes the occasional flux to occur. How about you? Have you found yourself reading about things more often lately? Do you believe this stimulus package will be the shot in the arm the economy needs to bounce back? Will you be spending the rebate or will you more then likely put it away for a rainy day? What is your overall opinion of the situation with the economy? Tell me what's on your mind. How would you pursue fixing the economy in the long run? Opinions, opinions.

"How Recessions Work" from the website, How Stuff Works.

"Cold Financial Roads"
Woodside, California
January 22, 2008

1 comment:

Suzanne R said...

Oh, wow -- Blogger is letting me comment today.

My feelings about the stimulus package are mixed. I fail to see where increasing the national debt so drastically will benefit our country in the long run, but on the other hand, if the government sends me money, I'll keep it. ;-)