Somehow, when I read articles about what’s going in the economy, with real estate, jobs, I compare that with the headline news. I often see two different pictures.
On the one hand, I see the specific effects of economic hardships and financial mismanagement in individual cases outlined in local newspapers. Typically, the author (usually an english major in college) gets the results correct (e.g. someone experiences foreclosure due to inability to pay mortgage) but often is far off on the cause (it was a predatory lender, and not the 1% down payment, lack of ability to pay, and savings that caused the problem).
On the other hand, I see macro issues discussed such as interest rate policy and economic stimulus packages discussed in national papers. Typically here, the english major will try to find a reason why one policy or the other is bad or good for the average person.
No matter what I read, I see reactionary news. Folks to those who pay attention, this is all VERY OLD news. If you just noticed the weakness in the real estate market in the Fall of 2007, and if you had no idea that much of our economic cycle was powered by spending home equity, then you have really missed one of the biggest financial stories of your life. do you realize that you will read about all of this 30 years from now, and it will be discussed as we discuss gas lines and 15% interest rates in the late 1970’s?
Do me a favor please – first, before I ask for this favor, let me make sure that you know what could happen in 2008 and 2009: house prices could drop 25-40% further depending on what city you live in. In Somerville, MA, where I grew up, house prices as measured by median prices available from The Warren Group, dropped 34.6% from 1989-1992. This was in a “normal recession.” In our current state, with recession PLUS credit bubbles and high debt ratios, we could see greater drops in house prices.
You might lose your job – by the way, I do hope you have an emergency fund, and please, pay off debt before you buy that new car. Also, your 401(k) might drop 15-35% in the next 2 years. So please don’t say you weren’t told.
Now please do me a favor, do not go blaming one political party or another when everything hits the fan – take some personal responsibility and consider doing the following: pay off debt, don’t make silly purchases, keep debt cost low, diversify investments and start a part time business to protect your income.
Politicians could make everything worse, and with the Fed lowering rates, people are earning less money on their CD’s, money market accounts, and other interest earning vehicles. So believe that some government entity could make all this worse. Also, don’t think your job is guaranteed. I will end this thought with this advice – don’t assume anything and don’t say “I hope…” about anything – just get it done.
By the way, speaking of lowering rates, consider this: there is $2 trillion in money market funds in the USA. Last spring, some money market accounts were paying 4% or better – this is $80 billion per year in interest. Now with rates approaching 2%, Americans are taking a $40B cut in income. So that $150B stimulus package has even less effect doesn’t it?
Find current rates on loans and savings accounts at www.bankrate.com