Showing posts from November, 2008

The Economy And What We Must Do In Next 1,800 days

It is going to take at least 5-years to repair the damage done to the economy because of our excesses over the past 8-years. Too many homes were added to our housing supply because of easy credit granted to consumers who could not afford the home they were buying. Now because foreclosures resulting from poor credit decisions, we have an excess supply of homes on the market that has, and will continue to, put downward pressure on home prices. This trend will last for at least 5-years. Further, it will take sometime before homes will be viewed as a good investment. Houses will be purchased more for the shelter that they provide as opposed to a means of increasing wealth. To compound the problem, the demand for housing is not going to get much help from the demographic trends over the next 20-years.

Economic Hangover

We are at a watershed moment in our economic history. We are in a recession but the way we do business after the recovery will be different from the post-recoveries over the last 70-years. In the past, we worked our way out of a recession with the help of the federal government providing some kind of stimulus package. In one to three years, the economy was back on a growth track and there were no serious, long-term casualties. We continued to spend and consume as in the past. That was then and this is now. Our economy has too much debt. Our federal government is running record-breaking federal deficits and the American consumer is dangerously overextended with mortgage and consumer debt. This has happened at the same time as the value of his principle asset, his home, has fallen in value by 20 to 30 percent. Further, we have been transferring our wealth to oil producing countries at a rate of $700-billion per year and other nations are getting stronger economically.

Something Conservatives & Liberals Agree!

Conservatives and liberals are close to agreeing on how the economy should work. Both sides need to define their views, compare their beliefs and they will find many similarities. Conservatives believe that the free market is the way to go. They quote Adam Smith when he discussed “rational self interest” and competitive markets in his book Wealth of Nations. He envisioned many consumers buying goods and services from many producers with everyone looking out for their self-interest. By keeping markets “free”, conservatives believe if producers pursue rational self-interest they will best meet the needs of the consumers and the citizens of our country. If they do not, they will not survive and consumers will go elsewhere. Liberals say corporate America has gotten out of control. Producers are looking out for their self-interest at the price of the average consumer/citizen and that “rational self-interest” is not working. Liberals conclude they should tighten control over the producer/c