Are you better off today financially than you were three years ago? Five years ago? Twelve years ago? For a large portion of Americans, the answers are no, no, and no.
The listless stock market, crashing real estate, rising household debt, and increased unemployment have sent combined sucker punches into the gut of the U.S. economy. The country is staggering around trying to find its way, while the politicians ineptly put the finishing touches on a collapse. Of course, a full economic collapse is not a certainty and perhaps is not even probable, but better leadership at the top will be needed and soon.
The stock market rose mightily in the late 1990’s, then crashed, and has since risen and fallen several times. A person who bought stock ten years ago would, on average, be in about the same place with that stock today. Experts have varying opinions on whether stocks are currently overvalued, but my opinion is that picking stocks now feels a lot more like speculation than true investing.
The tech bubble of the 90’s soon gave way to the real estate bubble of the following decade. Similar types of gurus exclaimed that this rise in real estate was no bubble and gave all of their self-serving and crazy ideas on why values would continue to climb.
Almost all real estate markets have gone backward over the last 5-6 years. In Las Vegas, current prices are at the same level that they first reached in 1999. Phoenix is at the same level as in 2000, while the figure for San Diego was 2003 and for Detroit 1993. These statistics are from the Case-Shiller 20-city composite index report.
My strong belief is that none of this would have happened if the banks had used reasonable loan criteria and if there had been more owner-financing. With the latter, a mortgage note (a.k.a. real estate note) is created between a willing buyer and seller, without any bank interference. The transaction is transparent and there are few chances for fraud to occur. The holder of the mortgage note can even choose to sell the note to a mortgage buyer to get some money out of the note more quickly.
The federal government, which can be blamed for much of the real estate market fiasco, has thrown all sorts of ill-conceived programs against the wall to see if anything will stick. Unfortunately for all of us, these programs have wasted hundreds of billions of tax dollars with little to show for them.
Piling on to all of the bad news is that unemployment remains stubbornly high and many Americans are carrying debt loads way above where they should be. People without adequate incomes cannot bring down their debt levels, so a near-term solution is not at hand.
So, where do we go from here? The expense cuts currently being thrown around by the politicians don’t nearly far enough to address the nation’s debt problems. Deeper cuts, closing of tax loopholes, tighter regulation of Wall Street, and reform of entitlement programs and pensions are the only ways that I see for the country to make a comeback. That will mean some serious pain for the citizens of this country and some hard decisions by the politicians. On the latter point, I remain skeptical that the bureaucrats are up to the task.