I'm certainly not an economist, and I keep hearing the argument that high interest rates and hyperinflation must come after all the needed money enters the system. I hear that all sorts of indicators, M1, M2, M3 whatever are going up, yet almost all I know are concerned with the economy, their own economy.
What's not taken into consideration, at least not nearly enough, is the losses we're finding in our stock accounts, in the value of our real estate, in the sales of our businesses, if we're in business. In short, I would challenge the conventional way of considering money supply.
Nationwide I suspect Real Estate value's down perhaps 20% to 30% of its peak value, likewise stock. I believe if all this is considered there has been a major contraction in money and in fact interest rates should stay very low until at minimum unemployment is under 5% again including the cronically unemployed, foreclosures are back to rates that were seen prior to 2005, real estate prices are growing, and the stock market's regained much of its losses.
Of course some people have essentially lost everything, people with major holdings in the likes of Lehman, WaMu, AIG, Madoff, etc may have gone from being wealthy by almost any standard to being paupers depending on what they have left. I doubt that many of these people can ever recover to the standard of life they had previously.
As a real estate investor, not flipper, I can only hope that eventually better financing will be available to me. If not, I may be forced to sell property at a time I don't want to because the banks don't want to talk to me in spite of not being late on a single mortgage payment. I know the bank would talk to me if I did miss a couple payment, that alone is enough to make you sick, but my former Executive Banker at BofA assured me it was true.
I know it's an over simplified solution, but if it were up to me, without anything more than new appraisals, people would be given the options by their mortgage holder of doing one of the following: 1. Drop the interest on the mortgage to 4.5% and recalculate the payment over the time currently on the loan. 2. Drop the interest to 4.5% and reestablish as a 30 year mortgage. 3. Drop the interest to 4.5% and lend additional cash up to either the current payment, or 80% of current appraised value.
All the above actions, or variations of them, would put tremendous amounts of money into the hands of many of the people who own property. To benefit those who rent, make some % of the mortgage savings a pass on to the renter, be it residential or commercial property. In short, about the only ones who wouldn't benefit from these actions would be the homeless, but the benefits to the economy should result in benefits to them as well.
I would also reduce all credit card interest to not more than 7% if you come current with payment, and not over 10% regardless. Credit card companies have done all sorts of things to entice people to borrow money, then based on the rules they write change the game. Obama's right, it's time to control them and I think the action should be a major one.
In the future perhaps higher rates will come, perhaps regulations should be eased, but it's the lack of regulation that brought us to where we are, imposing some limits and rules could turn this economy around rather quickly, but the banks and credit card companies that put us here would hate it.
Gary |
