Is the American economy self-correcting?
- Anonymous1 decade agoFavorite Answer
I believe the economy is self-correcting. As long as we give it the space to. I'll even take it a step further... I think it's foolhardy to assume a government can recover a failed market. Terribly foolhardy.
Here's why I feel this way: I've been in real estate for a long time. That's my micro-economy and all I can really speak for. Now real estate is a testy monster. The longer I've been in it the more I realize you don't mess with the monster, it's a force of nature that does not like to be disturbed. Good practices = stable markets. Greed = volatile markets. The collapse we experience didn't happen on accident, it happened because of greed. Greed is always punished, good practices are always rewarded. Greed that occurs on a small scale is "punished" on a small scale. (ie. If I disservice a client, and a client doesn't close on a home, I don't get paid and I lose referral business.) Greed that occurs on a grand scale is punished on a grand scale. It's a natural balance. Like we just saw, and I'll explain:
Five years ago I'd say 90% of our loans were adjustable, 0 down, subprime and/or inflated to cover misc. expenses (like a pool or paying off a vehicle), 2nd liens were common. If we stopped long enough to think about it, we would've realized it wasn't the best idea - but we were making a killing so "we" didn't care. Stupid us. The monster reared its ugly head and we got our a*ses handed to us. Most of the people who made serious money through those practices are now bankrupt, unemployed or have left the industry...karma. The only financial institutions that didn't get their as*es handed to them were the ones who who stayed away from all that stuff to begin with (ie. Wells Fargo, Cornerstone, etc.) OR the ones that were bailed out by the government- they're still alive and well. All the rest of us felt the wrath of the monster. But, hey, we learned our lesson. Now in order to get a mortgage our clients have to have a decent credit score, about 5% down, a steady income and they're good to go. We're back to doing buisness the way we had before, no more funny stuff. NOBODY does an adjustable rate mortgage. NOBODY gets anywhere near subprime. And NOBODY in their right mind will do a loan 0 down. And NOBODY will loan a penny over the proven value of a piece of property. This is good.
Interestingly enough - it seems like the only exception to the "nobody" is the federal government. FHA loans only require a 600 fico... but you can still squeeze through the loopholes with a 580. That's subprime. There are an array of zero down options (USDA, tax credit 2nd liens, etc.) through the government. They don't loan a penny over the proven value of a piece of property anymore (which is good) but they did bail out their friends - and because of it their friends (BOA, Citigroup, etc.) are still sitting on a lot of property that is overvalued. It's that last point that's the real kicker.
IF the government didn't interfere at all. I believe we would've felt the wrath of the monster more intensely the last three quarters, but it would've been over faster. Because they did interfere on behalf of Citigroup, BOA, etc., I think it'll be years before we are able to correct completely. ... no matter how hard we try to cover those wounds, they will bleed out eventually. No matter how long we try to delay it. It's going to happen, those overvalued properties will resurface at an undervalued price and will impact the markets again, it's just a fact of life. A rotten tomato hidden in your pantry is still a rotten tomato.
I am not an economist, just an observer. These are just my observations.
- Cat-astropheLv 71 decade ago
No thanks to the fiascos Obama has perpetrated upon it! It would have corrected itself by last January had Bush not bailed out Wall Street/Banks, and since then, Obama has piled debt upon debt. The American economy would have been just fine if government would have stayed the hell out of it. Now we are saddled with an unsustainable debt, and the jury is still out as to whether this current upswing is a true recovery.
The dollar is in deep trouble overseas, the commercial real estate market is about to crash, and all Obama wants is to push through more government spending and controls before he is run out of town on a rail. Any disruption, like a flu outbreak or attack, will send the Dow into the basement, and the economy will collapse completely. Obama's globalist buddies will come to the rescue, and we will no longer be a sovereign nation.
- Anonymous1 decade ago
The only problem is that the jobs are still being eliminated. This will eventually start the economy back down the toilet. Don't mistake the stock market rebound as the economy is well again. Most economists are predicting an "L" or "W" shaped economic outlook. (as charted on a graph)
- mcmahenLv 43 years ago
No. Obama does not administration economic coverage. He listens to the Fed and the Treasury Secretary (who can't do his very own taxes devoid of cheating). we are printing money b/c we would desire to boost the money furnish. it is the only thank you to deal with an economic equipment this is teetering on deflation. The valid argument against Obama and the Congress is they have prolonged the money furnish too plenty, and that they spent the money in very unwise procedures. as quickly as a stimulus is spent, it is it. it extremely is accrued by using foreigners or the better classification arise with it, and that they do no longer spend b/c they be attentive to the stimulus won't final. reducing taxes has form of an analogous short term result on the economic equipment, in spite of the undeniable fact that it helps rich human beings to place the pedal to the metallic so as that they are in a position to earn as much as conceivable jointly as costs are low. This will boost the rate of money and the money furnish. it extremely is taken under consideration needed to be careful with this tactic, b/c like costs of interest, a tax can't be slashed under 0%, and apart from, the decrease taxes are, the fewer they are in a position to be cut back and the fewer of an effect it has.
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- KnowallLv 51 decade ago
If loosing jobs, properties , coming on the street and starving for medical care etc. are ways of self correcting, then all economies are self correcting.
- Anonymous1 decade ago
Parts of it are...people are saving rather than spending and this is natural and part of the process. But there are also unnatural pressures being put on the economy that are detrimental to a recovery such as bank and auto bailouts and increased government spending.Source(s): Austrian economics.
- marc2oniLv 51 decade ago
well, yes and no. the fed always controls the amount of money in circulation. during economic prosperity it pulls it back a bit to stop inflation. during decline just the opposite to prevent a depression. this time after such a high were feeling the low. going up and down is natural. so we had to take action to prevent our low from just crashing down, an extremely likely scenario.
- Anonymous1 decade ago
To some degree, yes.........it has its up & down cycles.........
but there are times when the economy gets too far down, that action needs to be taken to prevent a depression.
- Mon-chu'Lv 71 decade ago
Only in a free market
- Anonymous1 decade ago
Absolutely! That is the greatest strength of capitalism
Unfortunately, Obama is just doing things which will make the natural recovery take far longer than necessary because it will have to overcome all of his debt, taxes, and regulations.