Slowly falling off an economic cliff

The positive spin that most politicians and self-interested others put on the U.S. economic situation would be laughable if it were not so serious and real.  Their fantasies and falsifications are so outlandish that I’m amazed any of them can keep a straight face.

The economy is NOT recovering nor is the real estate market improving.  The Fed has run the printing press to create hundreds of billions of dollars out of thin air, while the politicians have implemented fiascos like ”Cash for Clunkers” and various home mortgage modification programs.  These actions have done nothing but delay the inevitable economic crash and created so much debt that the country has no reasonable way to pay its bills.

Some of the “lowlights” are:

  • Entitlement programs are out of control.  Social Security is running a deficit and the Medicare trust fund will run out of money five years earlier than planned.
  • State and local government debt is huge at more than 20% of U.S. GDP, so some entities are selling buildings to help pay the bills (a short-term answer to a long-term problem).  Many of them have no plan in place to meet their pension obligations.
  • The true unemployment rate is in the high teens.  Many opportunities are low-paying service jobs, with a lot of college graduates having to take McJobs.
  • Real estate prices are down 33% from their peak and still falling.  When interest rates start climbing and banks offload much of their housing inventory, this will only get worse.

The U.S. economy can still be pulled back from the brink.  However, the politicians don’t seem to have the backbone to make the tough choices, as raising taxes and reducing services (both of which need to be done) are not recipes for getting reelected.  Most likely, the Fed will continue to kick the problem down the road by injecting a few hundred billion dollars more into the economy.  When they do that, the people will receive happy reassurances and think everything is fine, with no inkling of the problems that lie beneath.

The real estate market is likely to continue its swoon.  Banks will still limit lending, so more properties will be sold using owner financing, and real estate notes will be created.  To raise cash, the holder of the real estate note (also known as a mortgage note) will need to find a mortgage note buyer to help sell the note.  This is not a bad thing, but will definitely reduce the volume of real estate transactions that occur.

The U.S., like Europe, needs to work on solving its problems immediately rather than waiting to see if a miracle appears.  It won’t, and the next decade is likely to be very rough.


Written by Alan Noblitt

Alan Noblitt is the President of Seascape Capital, LLC, and works as both a real estate note buyer and a business note broker. Alan has an MBA from Arizona State University, a B.S. from the University of Wyoming, and is licensed as a California Real Estate Note Buyer.

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