Why I think this is not the bottom and why the economy might not improve in the next 2 yrs:
Approximately 600,000 people are losing their jobs every month. This directly affects the newly unemployed person's ability to pay mortgages and other bills. In addition to the sub prime loans that ended up being bad, these new default mortgages will be a huge burden that will creep into the lower middle class and upper middle class of this country. Revised mortgage rates plan announced by Obama might help someone who has a job and can still make monthly payments once the rates are adjusted, but not the people who lost their jobs and cannot afford any payments, unless they have saved enough money in BANKS to see them through the recession. BANKS (in the form of cash) only because the hardship loan someone can get from their 401K would have already been dwindled to 60-65% of its worth approximately. After considering the by-products like high inflation that will occur during these recession times, one should wonder what a dollar will be worth !
Obama's new budget was targeted as a huge spending bill, but even dumbest of the lot can say that this is pretty conservative, considering the fact that his budget estimates some 8.1% unemployment by the end of the year, while the unemployment rate at the end of February is already up there ! Calculating increase in the unemployment at the rate of 600K/month will be a good exercise for some. His spending plan is based on the estimated 8.1% unemployment and hopefully creating 3.5 million jobs. 3.5 million if created could be too little of a relief to make a huge impact.
I enjoy watching the analysts drawing lines and predicting curves based on assumption / expectations / experience ...?? None of it makes sense, since all the data you can get as a financial analyst is based on historic data and formulae, that use historic data to "predict" future trends. Good luck using those reports. I for one, am frustrated reading through my finance course work and listening through the lectures. Those blaming what the goverment is doing now, should have been proactive when capitalism in the form of banks was failing. Instead they were cherishing the fruits of proxy wealth created by it.
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4 comments:
I agree with you - there were many people that could have seen this coming but were too busy getting rich and fattening their pockets to give out the sub-prime mortgages, etc.
To your point, we may not be at the bottom, and we may not see recovery for two years....But we WILL hit bottom and we WILL recover; the only question is when.
I concur!
good one sanjay.
The analysts are simply not on the mark and to be fair, I dont think can be. The ground reality has changed completely.
Like you, going through the accounting chapters is quite frustratinG. Things could easily have been better but I guess every accountable stakeholder possible in the financial pipeline decided to play a risky game, assuming things will get corrected somewhere down the lin. Well that never happened. And you back up and look at the overall picture, its nothing but chaos and a tragic story of grave concern.
And every ticked minute costs someone something. Some lose livelihood, some their dreams or some the means to survive. Ask them about the bottom, they are already buried.
So, have we reached the bottom of this? I will answer only I know what the bottom looks like. We may be well on our to redefining the bottom.
On the optimistic side - I am sure we wil turn the corner but gear for a slow and rough ride.
Well written Sanjay...Also, the government is trying to keep rates low so that poeple will be encouraged to borrow in order to keep GDP up. But conversly, if we look behind what the government is doing to keep rates abnormally down, we realize that they are buying all the non-performing assets from these banks and trying to dump it on the Chinese. But of late the Chinese have slowed down buying US debt due to the huge deficit its created primarily due to some of its programs that would supposedly get the economy rolling again. As the debt on US's balance sheet grows, it might just lose its AAA credit rating which might increase interest rates for US to borrow additional debt. Now if the US has to incur additional costs to borrow additional money, they will have to pass on the grunt of the deal to us, the taxpayers, by driving up borrowing rates for consumers and businesses. The result of all this is, the "end of the circle", where we reach the same point we started off at.
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