The Everyman Economist

If the Everyman is wondering whether the Federal Reserve is about to raise interest rates, we believe strongly that it won’t happen any time soon. In fact, there is a greater likelihood that rates will have to go down again before they go up. We are in the midst of a severe credit crisis in the United States and that is not the time to be worrying about inflation and higher rates. Congress and the Fed will be facing tough issues and the printing presses will be running overtime. The deficit will continue in its complete runaway mode and we are likely to see $500 billion dollar red ink this year and closer to $700 billion dollar red ink in 2009. The US dollar is in a temporary recovery mode, oil is shedding some of its molten luster and Gold and Silver are looking ugly, but BEWARE! Although we would never predict oil prices with any degree of comfort, we continue to expect global surprises and that could mean jumps in prices when you least expect it. The dollar is recovering right now because the rest of the world is catching up to us and experiencing their own severe economic conditions. But don’t mistake that for a strong dollar. Once this temporary phase plays out, the US dollar will be back to its nasty ways. After all, we have a government in limbo and neither candidate is sounding very encouraging with their lack of expertise in dealing with these problems. And that brings us to Gold and Silver. With the latest steep declines, Gold is now below $800 and Silver is below $13. This is one heck of a buying opportunity and we urge the Everyman to consider buying soon. Markets have a funny way of lulling us all into complacency, but this isn’t the time for it. Put on your buying shoes and don’t worry too much about price. When the dust clears, these prices will be long gone.    

Although the Everyman has been experiencing problems in the housing market for more than a year now, the situation isn’t getting any better and is destined to get worse. Foreclosures have been rising steadily and will likely continue to rise for at least another year. The subprime mortgage problems have spilled over into the plain vanilla market for common mortgages and homeowners are feeling far too much pain. The days of small down payments are gone for new home buyers, as it takes at least 20% down to buy a house in today’s extraordinarily tight credit market. The government is finally trying to ease an unbearable burden on the Everyman, but it is yet another example of management by crisis that is far too little and far too late. If not for the upcoming election, Congress would probably be doing nothing at all.

So where do we go from here? If you’re a homeowner and capable of staying put, by all means do so. If times are too tough to handle, the government is offering some welcome relief, so contact your lender and get started on a path to financial repair. And if you’re looking to buy a home, you may not be close to the bottom of the market cycle, but with prices already down dramatically in most parts of the US, it doesn’t hurt to start looking. Some of the most aggressive sellers are the banks who have foreclosed on customers and that is where you may find your best opportunities.

This is not a pretty picture, but time heals all wounds and we will come through this period. In the meantime, it is important to be be proactive with your personal situation.