My thoughts are simple on the latest Economy Crisis.
I mean, it’s a complex situation. I’m not an economist but, like every other average Joe, I know that this impacts me. There’s a few different truths about the economy that we all need to keep in mind that are universal (but still opinionated).
So let’s do some further digging on what is going on.
The economy crisis is really hitting home, no pun intended, on millions of people. The housing markets are troubled and homeowners are defaulting about as often as many of us change our underwear.
My Economy Crisis Truths:
- The World Economy Runs On Credit
- Money has no real value other than what we give it
- Spend More
- Save what you are not spending in a well-established institution
I’m not an economist so I’m not going to delve too deep into what we have all read online and seen on TV. Debt makes the world go round. The current crisis has developed because we LEND more than we can AFFORD.
Example: The Central Back (Federal Reserve) regulates the interest rate in which banks lend to each other. So Bank A lends Bank B a sum of money at 1.5% interest. You go for a loan or mortgage, which the government made easier back in the 1990′s, and get a decent rate of 5%. Bank B now makes 3.5% interest on your mortgage.
So now Bank B owes Bank A a debt. Sure, Bank B is making money but, like you, they owe a debt to someone else.
Now comes the tricky part. To get your mortgage rate you locked in at 5% for only three years to get on your feet. After three years it jumps to 9%. You were betting you’d get that job or promotion or married and someone would be there to help.
But it never happened.
Your mortgage just jumped up another four percent. Bank B is going to make some serious cash on your house over the next 10, 15, or 30 years. New problem, you can’t afford it so you default on it. The bank now has to foreclose your mortgage and try to sell it because they still owe Bank A.
Money is all numbers these days. No one has gold to back it. Banks have been lending at a 1:30 ratio. For every dollar they could back they lent 30. If gold backed the dollar like everyone thinks this wouldn’t have happened. Look up Fannie Mae and Freddie Mac. Those are the TWO largest institutions that back 90% of all mortgages. Why do you think the government bailed them out first? The US economy literally banks on housing. There’s a finite amount of real estate.
None of this money exists, that’s why markets rise and fall, interest rates change, etc. It’s all in ‘the system’ and is part of why your credit is important. Not everyone has the ability to save up huge sums of cash to purchase so we have to lend. Debt is backed by more debt. It’s a great pyramid scheme. If one or two people at the bottom can’t pay it evens out. If millions don’t pay that’s a different story.
What are MY personal concerns for my fellow Americans in this economy crisis? Simply put, unemployment. Unemployment rates have jumped over the last quarter. Some states are running out of money to continue to pay unemployment.
Oddly enough, oil is down to $83 a barrel and under $3.00/gal for gasoline for the first time in almost a year. I guess we need to count our blessings.
