Oct
3
Finally, at long last, President Bush has stepped forward and stated what most of us have known for quite some time. He said “our economy is in danger”, and “faces a great challenge.” How did this start, where are going from here?
The war with Iraq might well have been the starting point. Consider this, the war costs $10,000,000,000.00 per month, a phenomenal sum. Our Federal debt now stretches out over the next three or four generations.
As I mentioned in an earlier article, the Fed is technically bankrupt. As the Fed prints the additional money for such things as the war,and by placing more and more dollars in circulation, it deflates the value of each one which is currently in circulation. So we are paying the price for war and lowering our purchasing power on a continual basis.
Then there were all of the risks being taken by Wall Street, a lot of which were in the mortgage business. And as the investors continued to raise the stakes and take higher risk, they brought down the requirements for buying houses and refinancing existing mortgages. This took place about a year or more ago.
Interestingly enough, those most responsible for the largest losses, the C.E.O.’s, were let go or allowed to walk away, but certainly not empty handed. No, to the contrary, they received huge multimillion dollar “golden parachutes”. But the bleeding did not stop there.
We now have a set of economic circumstances like no other in this nation’s history. Real estate went down in value dramatically. When those people who were in two or three year adjustable rate mortgages needed to refinance, most couldn’t afford to. They hadn’t saved the money and the equity that they once had in their homes was gone. And on top of that, the standards had been raised and a lot of them no longer qualified.
People can no longer refinance their mortgage as readily as a few years back, and in essence use their equity like cash in an ATM, which removes tremendous sums of dollars from all sectors of the economy. This slow down of spending or the reduction of the velocity of spending has a ripple effect throughout the entire economy.
And I’m certain you know about the Federal Government bailing our Fannie Mae and Freddie Mac, the two largest buyers of mortgages. We’ve also had some well established Wall Street brokerages and some major banks go down. AIG was recently bailed out because of their size and importance, it was felt they could not be allowed to fail. And now we are facing a $700,000,000,000.00 bailout package.
I have two questions. The first is somewhat rhetorical, and that is; haven’t you seen this coming for a long time? The second is simple, given all of these conditions, what are you doing to secure your and your family’s financial future.
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