21
Sep
07

The Sub-Prime Crash

It was inevitable. People are flipping out. They’re begging for a rate-cut, but truth be told, we’re in a damned-if-you-do, damned-if-you-don’t situation. Things are going to get worse before they get better, but take heart, they will get better.

1) The housing market crash is going to pull the rug out from under many lenders. The ARM has jumped and the number of foreclosures has increased. The recent half-point interest rate cut will save some people from going belly-up, but the trade-off is a weakening dollar. The current instability has foreign investors in the currency worried, and there’s fears of a sell-off of currency, which will drive down the value of the dollar.

2) We’re already seeing the result of the half-point cut in the fact the value of the dollar is tumbling. As it stands, Bernake is trying to minimize the damage of the poor business practices of the past 6 years. The good news is that the damage from those practices will seem severe in the short-term, but the economy will be able to recover after a recession. It’s my recommendation that the economy be allowed to slow down and suffer the negative effects of this downturn to rebound faster and stronger. Cutting the interest rates is only going to prolong the inevitable and hurt the dollar.

3) I’ve never been worried about a “strong dollar” or a “weak dollar” until now, simply because the dollar looks to be in a freefall. The Canadian dollar is now trading nearly equal to the American dollar, which just shows how far the dollar has gone. This will help American exports and hurt the import markets, and we should see a spike in inflation, but again, it’s short term. The markets need to restabilize after this housing problem, and once it does, we can begin rebuilding.

Don’t fight the future. Let it happen, but plan on how to come out of the recession stronger. And don’t blame Bush for this, whatever you do. The President has little to do with the economy, and the economy has been doing well under Bush. The fact that one market will depress the economy for the short-term is nothing that you can fault Bush for. Heck, we’ve been fighting a war overseas and in the meantime the deficit of 2003 has nearly been eliminated. That’s a remarkable achievement.

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1 Response to “The Sub-Prime Crash”


  1. June 12, 2008 at 12:52 pm

    The national debt as of May 7, 2007 was $9.35 trillion. Just the interest on the US debt is now $500 billion a year — which is equal to the cost of the Iraq war for five years. The cost of servicing this outlandish debt grows every year. Since September 2006, the debt has increased at an average of $1.46 billion per day!

    The national debt is now eating this nation alive. In order to keep the US financially afloat, foreign billions are needed daily. But even incoming foreign money is not enough. In order to service the debt, the Fed will have to create more and more fiat currency.

    This is one of the basic reasons for the long-term decline in the dollar. It is also one of the basic reasons for owning gold. Obviously, as more and more currency is created, the value of the currency declines and inflation (at various rates of speed) becomes ingrained in the economy. The Fed may fuss about the inflation rate, but they never, ever, talk about the dollar’s loss of purchasing power over the years. And here’s why. Over the last 36 years the dollar has lost 80% of its value. Since 1913, when the Federal Reserve was inaugurated, the dollar has lost 95% of its purchasing power.

    Americans are now attacked by two relentless enemies — taxes and inflation. And a third enemy, unemployment, has now entered the picture.

    The US is facing a strange and paradoxical situation. The current cry is for “less government, less spending, less debt.” But if the government cuts its spending, the nation will sink into a deep recession or even a depression. So ironically, it’s now up to the government to spend, to spend heavily, and to increase its spending. Massive spending is crucial since neither US corporations nor US consumers are in position or of a mind to spend (remember consumer spending represents 70% of the US Gross Domestic Product).

    The war in Iraq is now consuming a huge amount of money, money that could be used domestically to create jobs and to build much-needed infrastructure. This expensive and worthless war could not have come at a worse time. So,how can the deficit of 2003 be nearly been eliminated. That’s a remarkable achievement, considering; ;and if it’s even true, which I doubt.


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My name is Doc. Welcome to my blog. If you're visiting from another blog, add me to your blogroll (and I'll happily reciprocate). I have a Ph.D. in Chemistry and live in Wisconsin. If you have any questions, feel free to email me. My email is docattheautopsy at gmail. (No linking to deflate the incredible spam monsters).

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