Friday, July 06, 2007

How is our economy doing?


Warren Brussee wrote a book called The Next Great Depression 2007, and I reviewed it a while back in this BLOG.

I thought it was an interesting analysis of what was going on, and I wasn't sure whether it was correctly viewing the future.

You see, I think the world and US economies are very complex things. They are hardly the simple supply and demand curves we all learned about in our Macro-Economics classes. They have all sorts of active influences that are not always logical....but often emotional and irrational too.

But the two things that have struck me personally in the last few years are the lack of savings (we have become a credit culture) and the various bubbles that seem to have grown and at times burst.

The savings rate is documented in the graph in this post. It has now been negative for a couple of years.....and I don't think this can be sustained forever.

The latest bubble that is slowly deflating is the housing bubble. Over prices houses....but this is a huge problem......people rely on those increasing values to fund all kinds of things. They take out second mortgages to spend the money. The other problem is that when people get "upside-down" on a house, they can't sell it for they have no savings anywhere else to pay the loss they have.

ARM loans adjustments have been going up with the interest rates these days, and people often find their monthly payments going way past what they planned.....making them cut back in other areas.

A full 70-785 of our economic activity is based on spending.....with depressed spending levels comes dramastic decreases in economic health. So we are encouraged to spend.....new financing techniques are invented when the old one's become impossible to use.

But we are only delaying the inevidable slide....would it not be better to slide than to "fall"?

Oh well....I suggest people save. Save for a rainy day, and do so with great diversification, because if things begin to slide...or God help us FALL, we will want to make sure at least a part of our money is in a place that is not affected. (lest we lose everything...as some did in the '29 Depression)

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1 Comments:

Anonymous Paul said...

I also worry about the large amount of dollar reserves being accumulated in foreign countries.

What happens if those countries decides that it needs to diverisfy out of dollars in a bad way?

That's not going to be good for the economy either.

10:19 PM EDT  

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