Founding Principles
The United States was founded on a simple principle: the pursuit of happiness. This is not the only principle; however, it is one that we misinterpret a lot - believing that we should be allowed to live how and where we may. However, what the founding fathers actually meant was the ability for people (men originally) to own land and therefore move away from the feudal system that existed (exists???) in England.
As a result, ownership of land has been (at times) one of the basis's for voting. You had to have "x" amount of land (often at least 50 acres) to be allowed to vote in common and general elections; otherwise, you were not afforded that liberty.
During and after the American Revolution, this qualification (for voting) changed so that people who served in the military had the right to vote, and then people who met certain age (and gender) requirements were allowed to vote. Eventually, we get to where we are today where land ownership, though still a desired quality, is not one of the qualifications for voting.
Over the past several years, though, more and more people have bought into the idea that they need to own a piece of real estate. Buy a house. You can afford a house, a condo, something. And I agree that, as a result of the "American Dream" home ownership does lend itself to fulfilling what the founding fathers intended: land ownership. Though, at the same time, quantity of land is no longer as applicable as owning something to plant roots on and leave for children and grandchildren.
Which means that millions of people have purchased smaller and smaller parcels and placed homes on them. Other's don't even own any of the land their home sits on; rather, the home is a part of a large structure they have purchased a portion of... a series of rooms and etc.
The outcome, though, is not htat ownership isn't a quality that we look forward to, desire, need, or want (as a nation), but that we have allowed the rampant inclusion of inflation in the prices of homes. As a capitalist nation, a free-market economy is one where demand directly influences price; however, the United States is not a free-market economy. We mirror one, in many aspects, but taxes, price restrictions, import and export rules all dictate the way in which we are allowed to do business.
That rule, the rule of law, seems to be negated when considering the housing market in this country. Rather than control inflation or dictate what is reasonable in the pricing structures of new and existing houses, people have been allowed to force the price of houses up several hundred percent over (slightly more than) ten years.
This is inflation. It has been rampant.
As a result of the inflation and the desire for people to own houses, the mortgage market has adjusted to allow people to afford the houses (at prices) they cannot afford. Instead of a max-term 30 year mortgage (mortgages traditionally run in 5, 15, and 30 year mortgages) the term limits have been extended to 40-plus years.
Moreover, in order to work through a regular Prime mortgage that tops out, for most people, at 100,000$, the financial industry has created the sub-prime market which, in effect, creates a second mortgage on the property.
On top of that financial institutions have also created things like equity lines of credit, equity loans, equity credit cards, all of which borrow money against what you have paid for in the house. Again, this is another mortgage on property that is designed to fulfill one of the core beliefs of this nation, pursuit of happiness.
What the outcome has become is a rush on property similar to rushes on gold, rushes on railroad investments, and rushes on internet stocks.
Why is this all important?
Well, we elect officials into the different bodies of assembly and we elect presidents - the only people we don't elect are the Supreme Court Justices... as a result of which, for the Congress (combined House and Senate) to keep their jobs it is imperative that they appear to be doing as much for the common man as is possible. If the common man is going to lose his house, our elected officials have to try and stop this from happening. Effectively, if the common man is going to lose his job, these same individuals find it necessary to try and help common man.
And yet, the measures that are being put forward to help people retain houses they could not afford when they bought them; and really cannot afford now that interest rates are shifting (up), is forcing our elected officials, who want to keep their jobs, to step in and try to stop the forclosures that are taking place.
At present, they are passing bills (that turn into laws) that will put a stop-gap of one month on foreclosure proceedings giving people more of a chance to try and catch up on their payments.
The unfortunate thing, though, is that people are not going to catch up payments. They are not going to magically start making more money in an economy where wages have not kept up with inflation. Rather, this stop gap, for the vast majority of people will only delay the resultant end and the house will be foreclosed upon. The outcome will be that someone (a lot of someone's) will lose the American Dream because they were sold a bill of goods that they could afford to buy in a sellers market at inflated prices rather than waiting for a time when they were better off financially or had secured a better loan (fixed interest rates, people).
The unfortunate thing is that the Congress has not stopped the collapse that is taking place, nor have they done anything to significantly delay the bottom from falling out of the housing market. Yes, it is true that historically housing (and land) is a very stable investment, but even stable investments cannot withstand the unbiased scrutiny the market will place on the rate of inflation.
Essentially, an economic depression is a means of resetting (to more reasonable levels) the economy so that it can begin to grow again. What is necessary (for this country - and possibly the world) is a recession to reset the housing market and the U.S. economy so that we are better prepared to move forward.
Yes, people (a lot of people) will lose their shirts. The mortgage market will have to adjust. And yes, people will buy houses that, today, sell for millions at a significantly smaller value. New houses being built will diminish and relatively new houses will go on the market at significant losses to homeowners and the mortgage companies that own them.
What has led to where we are, right now, has been avarice and greed. What is necessary is for the market to be allowed to reset.
So, when Alan Greenspan suggests that the economy is going into a depression, I think that this is a good thing. It is bad, in the sense that people will be out of work; it is bad because the government will pay people more money in tax refunds rather than use it for what it is intended; it is bad because unemployment benefits will be extended for longer; and it is bad because getting loans and new business's will be stunted for a period of time. However, it is good because the result will be a stronger economy, a stronger dollar, and a stronger housing market on the other side.
It is better because we will know (for a period of years) what not to do as a nation. And it is better because we need to have the rampant inflation put into check.
John Hattaway | smokingpen | Alicia Grey | Clockwork Princess | Cassandra West
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