Thursday, June 30, 2011

Strategic Flaws in the 2011 US Economy

In a sign of increasing pessimism about the direction of the U.S. economy, roughly 4 in10 Americans now believes it is in permanent decline, according to a new CBS News/New York Times poll. (Hover and click on the image below for more details)

(Reuters) - If banks loaned out their $2 trillion cash hoard, if worker training programs were stepped up and if 3 million job openings were filled, the economic recovery would be far stronger, a panel assembled by former President Bill Clinton said on Wednesday. [Read Bill Clinton's remarks HERE]

So what the heck is going on with the economy? Gasoline is a big factor. American drivers are to big oil companies what puppets are to puppetmasters. Like a game, the masters rise the prices up to $4 a gallon and beyond, and just as our backs are beginning to crack under the weight, they ease off agin. Cat and mouse game-like. Torture. Push us to the edge of the cliffs, and pull us back a little bit just as we lose our footing. What else is eating away at our money?

Leading the way: HOUSING ::: AdAge reports "Data being released ... from Experian will show that in the first half of 2010, an estimated 275,000 people just walked away from mortgages they could afford to keep paying because they had become such awful investments. That adds up to roughly 17% of defaulters. While that figure is down 35% from the first half of 2009, as evidence of a double-dip housing crash mounts, "we expect the incidence of strategic defaulting to go up," said Ms. Bremmer.

Estimates of the number of mortgages under water in the U.S. hover just over 1 in 4 but that could jump to half in the coming years. Recent data from Corelogic suggests that almost 10% of mortgages originated just last year are already in the negative equity range. The Federal Reserve shows average homeowner equity at just 38% down from 61% a decade ago ...

...strategic defaulters... are no deadbeats in a traditional sense. The Experian data show that they are more likely to have had a jumbo-sized mortgage, have had excellent credit scores, have had more than one house or investment property, and have a higher than average household income. They also stay current on all their other bills. If you look at the incidence in these charts, the proportion of strategic defaulters keeps going up.

They should be owning and spending like home owners. But they're not, and for up to the next seven years they might have a hard time finding a mortgage while their credit recovers. "As many strategic defaulters as there are," said Ms. Bremmer, "there are many more people who are short-selling. Those people are renting, too."" (In other words, they are driving up rents and eventually will end up defaulting on their landlords).

As I have suggested before, if Barack Obama wants to create a REAL stimulus that will "save his presidency" he must give families a 20% cash down payment on a new or existing home that they can afford that is + or - $150 within the amount they are currently spending on rent.

John Sealander ::: Sound Familiar? "I paid all my June bills today. It's weird. Money comes in the door. Money goes out the door. And nothing really changes. There always seems to be enough to pay the bills on time, but I never really get ahead of the game. Maybe in this dismal economy, that's as good as it's going to get. I really need to invent something that I can sell for $19.95 on the cable TV channels and tell people that if they order right now, I'll send them not one, but two useless gizmos for the same price... with separate shipping and handling, of course."

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