New Year - New Posts

The current issues we are experiencing - economic turmoil, gasoline prices in flux, and the housing crisis were all foreseeable:

The Housing crisis started when interest rates were at all-time lows and people were opting for adjustable rate mortgages. It may have even started wit the No Doc Loan programs of the 1990's. The invention of the 80% first and 20% second mortgage was great for home purchasers - terrible in principle - no money down loans have higher default rates. The invention of 100% refinance loans, or even 125% and 140% refinance loans was even worse. It allowed people to get out from under credit card debt, and other debts, without fixing the problems that got people in over their heads in the first place.

This was foreseeable because it is logical - everyone will be fine as long as the rates stay low - and as we know from the gasoline prices, things change quickly. Now we have record levels of defaults instead of record levels of homeownership. I saw this as a matter of when, not if, it was going to happen during the late 90's and early 2000, while I was A Realtor in Milwaukee.

Gasoline prices are a different story. I had the opportunity to purchase a Ford Taurus or an Explorer during the late 90's - fuel mileage dictated I purchase the Taurus - 25 mpg versus 12 mpg. I drove approximately a thousand miles a month, so I could cut my expenses in half by increase my mpg. I only considered the possibility of buying an SUV because I wanted to see where I was going in a sea of SUVs.

CAFE standards were exempted for SUVs and we burned gasoline as if it was going out of style. Fast forward to the first fuel crisis: Katrina - we had never seen gasoline at $3 a gallon - we might have seen gas around $2 a gallon prior to 2005, but it was a rarity. Looking at the CPI for 2005 and comparing it with 2008 - depending upon what price you use as your starting point, when should be right around 1.699 a gallon - even if you track back to the late 80's, the correlation is about the same.

The economic turmoil we are experiencing is due to a multitude of factors - increases in petroleum demand worldwide - the approaching phenomenon of Peak Oil - more people driving longer distances to get to work - People who are retiring are removing money from their retirement funds causing funds to 'devalue' - "The Giant Sucking Sound" of NAFTA that Ross Perot said would happen - and the National Det and the National Deficit.

Get ready for more "Ike-Spikes." Katrina was our snooze alarm. Ike was are final wake-up call.