In a time when foreclosure rates are steadily rising, unemployment tops 10% and the federal administration is drawn into the market of saving business designated 'too big to fail,' are we seeing a crisis in its death throes or the coming maturity of the bastard child of corporate interest and government intervention? Given the current state of affairs in this nation the outcome is hard to forecast, although to refuse the possibility of a savage storm is to deny nature.
The wave of foreclosures that has swept from the Pacific to the Atlantic might be primed to make a more devastating return trip across the country, rather than dissipate in the shallow waters of the East Coast. The same factors that eroded the foundation of the residential mortgage sector is fast at work in the commercial real estate industry as well.
High-risk commercial loans causing negative amortization, a period where the mortgage payment doesn't cover the interest produced and the principal of the loan actually increases, are coming to term now and over the next few years, resulting in the foreclosure of large industrial properties and strip malls alike. The damage done to the economy from this development can only be imagined at this point, but once the swell is formed you can only clear its path.
Despite the severity of the matter, this is not the only cloud on Americas economic horizon. After amassing a substantial budget surplus over the past decades, Social Security (SS) will operate at a deficit of $10 billion for 2009 and $9 billion for 2010, a situation not seen since the 80's. Although payments will not be interrupted for recipients, the looming disaster for SS is the coming of age of baby-boomers, a demographic that will cause the system to pay out more benefits to retirees than taxation from the workforce currently provides, eventually depleting its reserves and becoming a financial liability for the government, requiring whatever administrations lap it falls in to make sweeping policy changes: disbanding the SS system, increasing tax rates or some compromise of the two.
In addition to these tropical storms approaching hurricane status, rumblings in the international marketplace regarding currency reserves could be the catalyst that starts a chain reaction. On the heels of Iranian President Mahmoud Ahmadinejad's announcement that Iran would conduct the calculation of its oil reserves in euros instead of American dollars, World Bank President Robbert B. Zoellick commented on the development, saying:
"The greenback’s fortunes will depend heavily on U.S. choices,” Mr. Zoellick said. “Will the United States resolve its debt problems without a resort to inflation? Can America establish long-term discipline over spending and its budget deficit?” (1)
The change in currency could signal a general distrust in the future and stability of the American economy, an outlook that many would be advantaged to consider rather than the fair winds and following seas that are commonly spouted from your evening weatherman.
(1) Andrews, Edmund L., September 28, 2009
"World Bank Head Sees Dollar's Role Diminishing," New York Times
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Well done. It seems to me that what we're experiencing is a selling off of national assets to the highest bidder. Of course, that's a blanket statement and doesn't cover (for example) the run on social security. (Or does it--social security has been raided for over 3 decades now for federal IOUs to fund U.S. wars, among other things.)
ReplyDeleteMy opinion on the matter rests squarely with the adoption of Keynesian economics. Hate to quote wiki, but:
ReplyDelete"Keynesian economics is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle."
The adoption of this economic policy has done little to sate the ravenous appetite of an ever expanding Federal Government. It is in my view that the current economic turmoil is the result of overzealous intervention and will not be corrected by incursions furthermore. In response to the Social Security (SS) issue, SS stands as a glaring example of the faults of keynesian policy. SS was started with the intention of safeguarding the retirement of the elderly, guaranteeing them security/stability later in life as they would not be able to physically do so. The result, as is now apparent, is that the 'lockbox' was more of a grab bag, the government spending the funds before the constituents could reach qualifying age. So, as the government strives to protect us, we are usually crushed under ints encumberance.