Where Is Our Economy Headed?
Here is my comments to an article from SeekingAlpha.com. The original can be found at: http://seekingalpha.com/article/156363-end-of-recession-predictions-look-increasingly-flawed
I do not believe the economy will change if the people running it are the same guys that put us into this tailspin. Goldman Sachs had a great quarter with bailout money. The rest of us do not enjoy the access to set policy like the Wall Street gang. So, we do not get the bonuses that they enjoy. To them, the economy is pretty good right now. For those of us in the lower 99.9 percentile of income, things do not seem to be going quite so well.
I suggest the main problem is "how to restore confidence in financial institutions to attract investment capital?" No sane investor can make an informed investment decision with the lack of transparency, regulation and oversight of our financial markets.
For example, the Fed has a $1.25T commitment to buy residential mortgage backed securities (RMBS) through the fall, 2009. What is being done to attract investors to replace the Fed when that commitment is expires? Who will take up the slack? (By the way, the Mortgage Bankers Association is expecting about $1.8T in total mortgage production in 2009. So, the Fed is a VERY important market participant.) If the residential mortgage market goes bust for lack of demand for RMBS, housing will be confronted with an additional challenge; higher interest rates and/or limited availability of home loans. What is being done to stabilize this one market on a long term basis?
What changes are needed to reverse the downward trend of our "consumer economy"? Wages are going down. Household income for the bottom 95% is declining. Health Insurance, food, gas, electricity, and water costs households a greater portion of their remaining income. Less money remains to pay a mortgage or rent. There is an increase in the unemployed, underemployed (people who still have jobs, but at a lower wage) and non-employed (people who do not have jobs, but are no longer counted as unemployed because their out of unemployment insurance). Consumer credit defaults are increasing. Consumer credit is harder to get. Home prices continue to decline as the number of foreclosures is edging past the number of homes sold in a month. I suggest these indicators point to a prolonged recession because consumers lack the cash to buoy consumption of discretionary purchases.
What does out nation produce? That is where real wealth is created. Now, the Wall Street Masters of the Universe create unregulated futures contracts for commodities and derivatives that are traded with no real underlying assets, just like the dollar. When their paper tanks, taxpayers bail them out and investors are stuck with worthless expectations. There is no way to make an informed evaluation of those kinds of bets (not to be confused with "investments"). At least a race track handicapper can have some recent information about the horses and jockeys to pitch a good bet. Wall Street keeps us guessing. How long can that last?
It seems that our economic policies are set by the same Wall Street bosses that are working for larger bonuses next quarter, not by people intent on creating real assets, growth and wealth measure by real goods and services. I agree that the "End of Recession Predictions Look Increasingly Flawed."
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