Do you eyes glass over when you hear the word economics? Well, economics is part of the reason that the housing market is slumping right now. I studied Economics in college and have continued to read on it since. Heck, it's hard not to continue to read on it when just about every article in the news is in some way tied to economics. The price of gas goes up because a refinery in Kansas gets flooded, that's economics. Milk prices go up because the government enacts a law to protect large milk producers from competition, that's economics.
Interest rates go up because the government is spending money like a drunken sailor on a Saturday night shore
leave, that's economics!
I read today that the Wars in Iraq and Afghanistan are costing the people of the United States $12,000,000,000.00 a month. That's $144,000,000,000.00 a year! The war in Iraq has gone on now for longer than WWII and adjusted for inflation the war in Iraq will soon surpass Vietnam in terms of dollars and cents costs.
I'm not taking a position on the moral or strategic implications of the wars in Iraq and Afghanistan here, that's a subject for a different post or a different venue (other than a real estate networking site). My concern here is the economic effect that the wars and that government spending are having on our industry. As of the writing of this post, the US National Debt is 
. In the time that it took me to cut and paste that figure from the National Debt Clock and to type this sentence the debt has risen to
. In those two minutes that it took me to cut and paste the figures we as a people went over three million dollars further into debt.
Now, some people, particularly proponents of the current administration (yes, there still are a few of them out there) would argue that we have a huge economy and that we can handle this debt. This might, to a certain extent, be true. It's like a person who makes a hundred grand a year having a $50,000 balance on their Visa card. The balance on the card might not kill them, but it is indicative of the fact that something is wrong with this person's financial management. Also, like the person who is carrying the large debt on their charge card, our government carrying this large debt is going to and is causing us to experience unintended consequences.
One of these unintended consequences is that interest rates are higher than they would be if the government wasn't borrowing so much. This happens because of the laws of supply and demand. If the government is competing with home buyer's for the limited amount of capital that is available, then the laws of supply and demand necessitate interest rates rising.
If it only effected the housing market that would be one thing, but it doesn't. The cost of capital is passed on to everyone in the forms of higher prices. Higher prices is another word for inflation. When inflation raises it's ugly head, then the Federal Reserve usually steps in to quell it by........raising interest rates! Anyone who lived through the "Stagflation" of the 70's knows where this cycle usually ends up if left unchecked.
Well, this is the point where most college students nod off or start text messaging one another, so I'll wrap it up here. I look forward to your comments.
Bob Mitchell
ValueList Real Estate Services, Inc.
P.S. In the time that it took me to finish this post the National Debt increased to 
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