It's one thing to talk abstractly about a house of cards; its another thing to be living with an economy built upon that very premise. Throughout the Bush administration we undergo been sold on the benefits of tax cuts for the wealthy; with the promise of insuring a healthy economy. All the while. I accept this cover tiger economy was actually built and sustained by the implementation of artificially low interest rates and shoddy mortgage lending practices.
This shortsighted effort was designed to limit the depth of an economic downturn and to spur equity spending on the move of lay income Americans in the absence of the fundamentals necessary to create real economic mojo. At the same measure the tax cut strategy served to bolster the GOP's alliance with wealthy benefactors. Unfortunately the winds of a weak financial environment have returned to sight an economy which is all the more vulnerable and far more guess.
At the moment we are witnessing a conflation of events that at beat signals a tumultuous period of tepid GDP growth. A candid reality check likely suggests we are on the leading edge of a recession that may persist come up into 2009. Let's be at the indicators.
domiciliate values retreated 4.5 percent in the three months through September from the same period a year before the most since records began in 1988 according to a report today by S&P/Case-Shiller. It followed a 3.3 percent drop in the back up quarter.
Prices ordain probably act sliding as foreclosures compel more properties on to the market and sales weaken as mortgages change state harder to get. The droop threatens to slow consumer spending as fewer homeowners will be able to afford vacations new autos or home improvement projects.
"We look for home prices to go come up into 2009 as excess list is slowly cleared and foreclosed homes return to the market at a discounted price," the affiliate said in commentary published Tuesday.
The property determine of U. S homes will go by $1.2 trillion and "at least" 1.4 million homeowners ordain lose their properties to foreclosure in 2008 according to a study released Tuesday by the U. S. Conference of Mayors and the Council for the New American City.
Global Insight predicted that the economy would grow at a 1.9% evaluate in 2008. "a full percentage inform displace than would have been the case without the mortgage crisis." It also said U. S gross domestic product growth would be $166 billion lower next year because of mortgage market problems and that consumer spending would fall to 2% growth.
If you've followed the reports on housing and the subprime lending crisis the news has gotten progressively worse each measure new data is released. Frankly. I see no reason to conclude we won't see more of the same. Given the fact that so much of our current economic growth has been the prove of consumers spending the equity they've accumulated from the recent housing bubble the force of displace housing prices foreclosures facilitated by adjustable rate mortgages generally higher interest rates and stricter owe terms has not yet been fully calculated or understood.
Add in the projections that housing prices will fall at least fifteen percent before the downturn has reached bottom and one begins to see the magnitude of the pending economic slide. While difficult to reason the be of spending which results from homeowner's borrowing against expanding domiciliate values it isn't difficult to create by mental act the significance of declining home values.. and that ignores the impact of existing inflationary pressures which will no doubt cut into any discretionary spending that remains feasible.
With Christmas only a month away. American consumers became more pessimistic about the economy in November sending a widely watched barometer of confidence to the lowest level in two years amid worries about rising fuel costs and a housing merchandise slump.
The New York-based Conference Board said Tuesday that its Consumer Confidence Index dropped to 87.3 marking a four-month slide and continuing down almost 8 points from the revised 95.2 in October.
It was the lowest reading since 85.2 in October 2005 when gas and oil prices soared after hurricanes flooded New Orleans and change state down a large chunk of the nation's oil refineries. It also marked the sharpest displace since September 2005 when the list plummeted 18 points from the previous month.
The big worry is that shoppers will act their time returning to the stores this holiday season amid worries that higher gas an escalating credit crisis and a slumping housing merchandise could push the economy into a recession.
With consumer spending accounting for two-thirds of U. S economic activity any further dropoff of consumer spending increases the risks of a recession.
Pretty simple cram.. if you have less money to pay and lack the equity to borrow it then the only say is to pay less money. Once that reality sets in consumer confidence is apt to fall change surface further in what becomes nothing short of a cause and cause downward spiral. Once this happens job losses can't be far behind as retailers and manufacturers are forced to lay off employees in the absence of shelter or expanding sales.
In the past two months. U. S unemployment rate stood at 4.7 percent a level comfort considered low by historical standards. Before September the jobless evaluate had remained in a be of 4.4 percent to 4.6 percent since the same month of 2006.
With economic growth slowing the unemployment rate would increase "modestly" next year alter in 2009 and then decline slightly in 2010 the Fed said.
Yes this anticipated change magnitude in unemployment is minimal.. if only that were the end of the story. Projecting unemployment is not only difficult; it is dependent on all of the factors mentioned above. Should the economy go a worse case scenario then one would expect unemployment rates to excel these preliminary projections. Again all of these measurements feed off of the others and once recessionary momentum is unleashed predicting the bottom becomes a egest injure. In an economic downturn bad news relating to each individual item exerts a downward ratchet effect upon all of the others.
Further the one item that must alter in request to back up stop the effects of a recession.. consumer confidence.. is often the most difficult to force and the slowest to respond to signs of improvement. As such the fix may well be in place long before one begins to see a shift in momentum.
I would equate the economic affect to what one might undergo if one were in a line of individuals holding hands and spinning in a go.. those anchored in place at the lie of the line start moving first and by the measure the person at the end of the line starts moving the momentum is in full displace and apt to displace that person flying at a pace they cannot control or maintain. The affect (momentum) continues until the links that act the line functional and turning mouth to end (holding hands in this example). The same is true of the economy.
Based on daily closing prices the Dow and the Standard & Poor's 500 index reached 10 percent declines from their Oct. 9 highs a act known on Wall Street as a "correction." It was the first such correction since the late winter of 2003.
Would-be have merchandise investors these days are desire populate prone to panic attacks said Jack Tilton technical analyst at bring turn. "When in the middle of the night with the go howling do you end to open that confine.
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