“Will there be a crash? Eventually.”
by James Buchanan
The Dow Jones dropped 367 points on Friday and 571 points for the week, but these recent drops may just be the tip of the iceberg. Much more alarming is the ever-increasing price of gold, which hit a twenty year high of $771 per ounce. Investors always buy gold (and run up the price) when they lose confidence in the economy. On top of all this, the home mortgage industry continues to be in bad shape.
A http://www.nbc11.com/news/14369382/detail.html reports “September homes sales in Northern California sunk to their lowest level in two decades as mortgages became harder to get, a real estate research firm said Thursday. A total of 5,014 new and resale homes and condos were sold last month in nine San Francisco Bay area counties — a 40 percent decrease from the same period a year ago, according to DataQuick Information Systems… Sales plunged 31.3 percent from August as lenders, stung by a nationwide credit crunch, put the brakes on many loans above the $417,000 mark, or so-called ‘jumbo’ loans. Some of those jumbo mortgages are being written, but credit requirements have tightened and interest rates have risen, DataQuick reported. The month before was not much better, NBC11 reported. New home sales in California fell nearly 45 percent in August compared to August 2006.”Unfortunately the cost of a perfectly ordinary house exceeds $417,000 in much of America today so these restrictions are going to influence many ordinary people trying to buy a home. The home loan crisis will be disastrous for a few people, but overall a huge plunge in home values won’t change things much –at least for home-owners. People will just stay living in their same old homes. People buying homes will just keep paying their mortgages. The crisis will be bad for real estate agents and bankers, but they’ve been so over-paid for so long, they aren’t going to starve if home sales drop to zero for a while. The people, who will be badly affected by a slump in sales, are folks in the construction industry. If young families can’t qualify to get the loans to buy an (overpriced) new home, then construction firms will quit building new homes. Why build a house if you can’t sell it for a decent profit?
There are much more serious problems facing us than the housing slump. The increasing burden of millions of Third World parasites on our social services, Bush’s empire wars, a nine trillion dollar national debt and Third World incompetence creeping its way into our high tech industries are all contributing factors that mean our economy will likely tend to deteriorate for coming decades.
Our dollar is now worth less than Canada’s dollar. The euro is going for $1.43. And oil recently topped $90 per barrel. All of these fall under the category of “inflation.” George W. Bush has run the national debt up to nine trillion and Congress just voted to raise the debt ceiling to 9.8 trillion. All this deficit spending is making our currency worthless. We need to end the war in Iraq and we need to deport 20 million illegal aliens and get a lid on spending before we start following in the footsteps of Weimar Germany and the ruinous inflation they suffered in the 1920s.
Will there be a crash? Eventually. If Bush does something incredibly stupid like bombing or nuking Iran, gas prices could hit ten bucks a gallon and that might cause a crash. It’s been a long, long time since the 1929 crash so we’re long overdue.
There was a pretty bad recession when Jimmy Carter was president and another bad recession when George H.W. Bush was fouling things up. These things happen from time to time and it’s good to keep an eye on alarming economic signs to prepare for the next disaster.
The best way to prepare yourself for financial hard times is to avoid debt. People can and should live without credit cards. Avoid over-priced unnecessary things like new cars or European vacations or expensive cruise ship tours. Even a well-paid professional worker can get into trouble. Most people assume their yuppie jobs will last for years and years and they won’t ever be unemployed for more than a few months. During the recession that began under George H.W. Bush, many professionals –including engineers– were out of work for YEARS. Many college graduates wound up working in the fast food industry for years as they waited for their first real job. Adding insult to injury, the first available jobs during a recession, almost always go to quota-hires –so if you’re White, you’ll have to wait a few extra months before you’re re-employed. Many out of work professionals could not keep up payments on their houses or condos during the “Bush Senior Recession” and went bankrupt.
It’s dangerous to buy a house or condo unless you can rent it out for enough money to make the monthly mortgage payments. The price of homes has shot up so high that this may not be possible in most cases. What people can do is PAY DOWN their principle as quickly as possible. Put off the expensive vacations and the new car until you’ve paid off enough of the home mortgage so that you could rent out the house for enough to make the monthly payments. Also, you had better be on good terms with your parents since moving back in with them after being laid off might be the only way to financially survive a recession.
A lot of people buy a massively overpriced house near their job with a 30 year mortgage. This is a bad idea –unless you’re lucky enough to stay employed at the same company a long, long time. Houses are so over-priced in the big cities and suburbs that most people would be better off renting as small an apartment as possible while they’re working, and buying a house in some rural area, where the prices are still reasonable. If a recession hits, simply leave the (over-priced) big city apartment and move into the rural house until the recession ends.
While we can’t stop irresponsible politicians from wrecking our economy, we can take steps to protect ourselves from any recessions, they might cause.