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Top Reasons That The Fed Doesn't Help The Real Estate Market Out!

By
Mortgage and Lending with Bank of England (NMLS#418481) NMLS# 1046286

Why doesn't the fed just cut interest rates in order to jump start the housing market now that it's in a crises situation? 

That's the question that a lot of people here on AR and in the real estate markets (from the agent on the street to the hedge fund manager who's trying to figure out how to keep his fund out of bankruptcy) are asking. 

The unfortunate answer is that the Federal Reserve Bank pretty much has it's hands tied and really can't dorock and a hard place anything about it. They are between a rock and a hard place.  With the current level of deficit spending the Fed has to be realistic in setting it's fiscal policy in order to make our bonds attractive enough to foreign investors so that they keep buying the bonds and financing our deficits.  On the other hand, housing does make up somewhere near 30% of GNP and the current liquidity crises has the potential for throwing the entire country into a recession, if not a (drum roll please) DEPRESSSION!

That's right, I used it. The "D" word!  It might be a bit tad early to be breaking it out, but the fact remains that the US government has pretty much painted itself into a corner here.  While not a certainty by any means, the statistical probability of the US (and probably the world's) economy going into a major slump, for a protracted amount of time has been getting more and more likely as we have continued to spend money that we, as a country, don't have.

Paying with creditI've used the analogy before, it's like throwing a big party and paying for everything with a charge card.  "Pizza guy's here...whip out the plastic."  "How are you going to pay for the band?  Cash or Charge? Again, out with the plastic!"

For awhile you can have a hell of a time and depending on your cash flow, you can keep up the illusion that everything is hunky dory.  But eventually, those bills come due and instead of putting your cash flow into building a better life, you have to at least pay the interest.  As your balances go up it's only understandable that your charge card companies start to get concerned.  To put it in real estate and mortgage terms, our collective credit scores have dropped because our charge card balances are too high in relationship to their limits.

As our credit scores are dropping, it's getting more and more expensive to borrow.  Which means that more of our cash flow is going to have to go towards paying interest charges and not doing useful things.  Such as bailing out the housing industry!

Alright Bob, you're so smart.  What do you think it is that we should do to get ourselves out of this messStop spending!?

I'm glad that you asked!  What I think that our government should do is the same thing that I would advise an individual or family to do if they had gone buck axx wild with their charge cards.  I'd tell them to STOP SPENDING!

I don't care if you're Democrat, Republican, Independent or any other political persuasion, if you're for the war or against it.  The fact of the matter is that we can no longer afford to be spending 12 billion dollars a month on a foreign excursion.  Ditto for the War on Drugs and all of the other corporate welfare programs out there.  If it's not something that contributes to our fiscal bottom line, we need to cut it out!

The other Legalize marijuanaadvise I would give a consumer would be to increase their income.  I'm not talking about raising the income tax (though I do think that it sucks and is basically a scam that our tax code is so complicated that you have to have an advanced degree to understand it (think, if you can't dazzle them with brilliance, baffle them with Bullshxt!). 

I'm talking about giving an honest look at things like legalizing drugs or at least marijuana and taxing the hell out of it.  Why should the drug dealers and distributors be the ones making all of this money? It would cost next to nothing to grow marijuana commercially.  You could then tax it back to the point where the black market has it priced and generate billions of dollars in tax revenue.  That's not to mention the cost savings that we as a society would get by not spending money having Navy destroyers pulling over sail boats in efforts to interdict the importation or the money that we spend in keeping non-violent offenders locked away in prison.

Bob Mitchell

ValueList Real Estate Services, Inc. 

Comments (5)

David Mordue - NMLS 120640 Wells Fargo - Kennewick (509) 736-2618
Wells Fargo Home Mortgage - Kennewick, WA

 

 

You make very good points here. 

I always get my measure of how the economy is doing by following WalMart.  If WalMart is down, the economy is down.  Plain and simple.

It's important to point out that right now there are really 2 very big political interest groups that are vying for the government's help;  Wall Street Institutional Investors, and Mortgage Lenders.   Typically, we would just lump both of these into the "financial sector" classification. 

Unfortunately, it's the US homeowner that needs help the most, and they're in the back of the line right now.

Aug 17, 2007 04:36 AM
JudyAnn Lorenz
Bar JD Communications - Mansfield, MO
Virtual Marketing Consultant

Did you read the reports about the long term brain stem damage from marajuana.

There is some data that supports a flat sales tax, because at present drug dealers, pimps, other common gangsters have all sorts of income that they don't report.  However, they buy cars, clothes and even items that draw a luxury tax.  Sometimes they even sell a crack house and have capital gains.

Economy is a concept that thrives on some level of productivity.  I think retirement in terms of just playing on the beaches and collecting socialistic care needs to be on the mortal sin list.  Yet, as we become a service based nation without innovation or mental contribution, we continue to only trade money.  Unfortunately, real estate agents and virtual assistants are holding prime spots in the 'service' line.  No matter what the gurus say, we are something people could live without. 

Aug 17, 2007 07:17 AM
Armando Rodriguez
QUEST REALTY SERVICES - Orlando, FL
Orlando Homes 4 Sale, Real Estate Broker-GRI
I tend to agree with you...a consumption based tax system might work????
Aug 17, 2007 09:05 AM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Judy:  Thanks for the comment and yes, I did actually read that study and the fact of the matter is that correlation does not mean causation.  There have been HUNDREDS of studies that have shown no long term effects from marijuana use.  Tonight I happened to have dinner with my brother in law who is PHD Biochemist (and British to boot) and he agreed with me that the study did not justify the medias conclusions.  He hadn't actually read the study himself, but from some of the numbers that I relayed to him, he wouldn't put much credence into the media's claims.

 

Judy and Armando: I personally believe in a National Sales Tax.  The problem with it is that it hurts poor people (it's regressive), but you can fix that really easily by mailing every citizen a check for an amount equal to the first 30,000 of income or so every Christmas.  Instead of everybody hating the IRS, we'd all love them!

 

Thanks for the comments!

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Aug 17, 2007 05:04 PM
Rick Grand
nowhere - Eugene, OR
Great points Bob! I guess we can only wait and see what happens. But you know how the government is ;-) 
Aug 20, 2007 06:59 AM