Stagflation....does anybody remember this word?

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

Recently I wrote a post called, "Government Drives Interest Rates Higher" which was about how the government's current spending levels has put the US in a position where in order to finance the national debt that they have to keep interest rates high enough to attract foreign investors.  This post so far has a grand total of 1 comment!

Now, I realize that to most people reading about governmental economic policy is about as exciting as reading about moisture content in bee dung, so I'm going to try and spice this up. sexing economics up  There, is that better?

Anyway, while it might not be as exciting as reading about Lindsay Lohan's recent arrest, this is something that anybody in the real estate and/or mortgage banking world should be concerned with.  The reason is that economically we are in a very similar set of circumstances to what we were in back in the early 70's.

That is, government spending is out of control, we're fighting an expensive war and in order to finance these deficits we are relying upon foreign investors to buy our bonds.  The only thing that is missing from the recipe of stagflation is an oil shock.

cars lined up to buy gasBack in 1973 that oil shock came in the form of the Arab Oil Embargo.  How many of you remember back that far?  I was only 12, but I remember sitting in line at the gas station only to see the lights on the sign turned off when they ran out of gas.  A few years later I remember going to look at a stereo system and the salesman talking me into putting it into layaway in order to avoid having it go up in price on me while I saved my money to buy it.

Prices were going up while jobs were going away.  The term for this is "Stagflation".  First coined in 1965 by Lain MacLeod in a speech to the British Parliament, the term became widely known after the oil shock of the early 70's.  

The government tried numerous ways to stop this downward spiral.  Anybody remember the "WIN" (Whip Inflation Now) buttons that the Ford administration passed out?  None of thesewin button (whip inflation now) band aid fixes worked.

It took some very strong medicine to get us out of this situation.  What happened was that Paul Volcker, the chairman of the Federal Reserve under President Carter, tightened the money supply (i.e. he raised interest rates) in order to cool the economy enough to do away with the inflation. 

This all sounds good unless you're the one who gets laid off from your job in this "cooling" economy.  Can you imagine what it would be like to be a real estate agent with interest rates approaching and even surpassing 20%?  And you think THIS market is tough!

"But Bob....you're getting your panties in a bunch over something that hasn't happened yet!" 

This is true.  So far.  Also, a little bit of the pressure has been relieved by oil prices going up over a period of years (pretty much since Bush got elected?????Hmmmm???I wonder if there might be a connection there??) Anyway, oil prices aren't our only worries here.  One of the things that scare me is just who is buying our debt.  China for example holds a tremendous amount of US Treasury Bonds.  Enough to where if they "dumped" them, that is sold a large amount of them at one time, they could throw the US economy into recession or even depression!

Do you feel comfortable with China having us by the short hairs?  I don't.

What can we do?  Vote!  Vote for candidates who will be responsible stewards of our economy.  Who will not spend more than we make for extended periods of time.  Vote for candidates who will pursue real change in regards to embracing "alternative" sources of energy.  You can't tell me that we could put a hydrogen powered vehicle on the moon in 1969, but we can't have at least a large percentage of our vehicles powered by hydrogen now.

If you've read this far, I thank you.  Here's your rewards: sexy real estate woman

 

for the ladies:life guards

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

 

P.S.  Since I wrote my post last week on government debt, we now owe China and other foreign investors US debt as of July 25, 2007 at 11:34AMcst

that's an increase since last week of 26 Billion, 936 Million, 283 Thousand, 398 Dollars and 99 Cents!

 

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Rainmaker
595,386
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate
You're a sick man. lol
Jul 25, 2007 04:45 AM #1
Rainer
434,914
Scott Daniels Florida Real Estate 2.0. Agents Earn 100% Commission.
Florida List For Less Realty, Inc. Broker/Owner. - Cooper City, FL

BM,

Now please don`t Knock china... i`m begging you!

Jul 25, 2007 04:53 AM #2
Rainer
155,621
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

BB wasn't a big enough target for me....now, it's China...next it will be the world!

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Jul 25, 2007 05:05 AM #3
Rainmaker
1,142,325
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Bob, I for one am glad China has taken the heat off of me:) OK are you ready for this.................I completely agree with this post!!! There I said it. Our National debt is outrageous. How can the richest country on the planet owe this much money? It just doesn't make much sense. Debt is on the increase, property values are going down, personal savings is a negative percentage, consumer spending is going down, the gap between the haves and have nots is widening, 50% of kids don't finish school, we're fat, our food is crap and I agree with Bob Mitchell. Woe is us!!!!

BUT I love the booby pictures:)

Jul 25, 2007 09:33 AM #4
Ambassador
557,118
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Step away from the boobies Blog Boy :)

TLW...ROAR!

Jul 25, 2007 11:01 AM #5
Ambassador
533,690
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life
HEY NOW!  I'm not a huge fan of us oweing this amount to anybody.  I'm in total agreeance with you here Bob.  Thanks for writing this, many wouldn't have the guts too. Now go take on the world!
Jul 26, 2007 09:17 AM #6
Rainer
11,701
Ryan Trask
3plains - Shakopee, MN

Good post Bob. Too bad we can't vote for candidates who will be responsible for our economy. Ron Paul is out. We are screwed in 2008. Continue rediculous spending and increase that national debt.

Jul 18, 2008 08:17 PM #7
Rainer
155,621
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

Ryan:  Actually, I don't think that it matters who gets elected this next election, they are going to have to deal with this or the invisible hand of the economy is going to deal with it for us....if that happens, it's going to get ugly!

 

Bob Mitchell

ValueList Real Estate Services, Inc.

Jul 20, 2008 05:03 AM #8
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Rainer
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R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham

Bob Mitchell (NMLS#1046286)
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