You would probably have to have been living on a remote desert island for the better part of two years to not see any signs of the slowdown in the economy of the United States. Since August of 2007, the real estate market has been reeling from plummeting house prices, due primarily to increasing defaults on sub-prime mortgages. While these mortgages were issued to millions of borrowers with patchy or relatively poor credit ratings over the past several years, interest rates remained unusually low before the Federal Reserve began to increase rates over 2005-2006.

Up until late 2006, this process was self-reinforcing, mainly due to the delayed impacts of interest rate changes, not to mention encouraging profits for lenders, who would often repackage the loans into securities which could be sold to investors globally. Many analysts called it a new era in risk management, justifying the arcane nature of many of these new investment entities with ever-larger profits.

But just as higher interest rates began to take their deflationary effects on the larger economy, millions of sub-prime mortgages began to reset, their rates immediately dependent on available credit. Moreover, many borrowers were not made aware of the insidious nature of their home loans.

Often, their interest rates are artificially low for some period of time, usually one to two years, and then change to reflect market rates afterward. These "teaser" rates were designed to lure more potential homeowners, and they worked: all estimates of the amount of sub-prime mortgages number in the millions, and many consumer advocacy groups have decried the skyrocketing incidence of "predatory loaning" leading up to the credit crunch. Defaults have continued to increase, which has forced the financial institutions which invested in mortgage-backed securities to write down billions, eventually leading to the spectacular collapse earlier this year of Bear Stearns, formerly Wall Street's fifth-largest investment bank.

Since the securities made from these increasingly worthless mortgages have been so widespread, any effort towards recovery must first be focused on stabilizing borrowers, who are increasingly behind on payments. In this respect, the government has taken several different courses of action. In an effort to stop unnecessary foreclosures, the US Treasury has begun an initiative to freeze mortgage payments at current levels for qualified recipients. However, its restrictions make less than 5% of homeowners eligible for the program.

In addition, the Treasury has introduced a plan to reorganize and regulate the lending industry over the next several years, which should help streamline the financial system in the future. However, its greatest effect so far has been to distract from more immediate economic problems.

By far, the greatest player in the recovery effort has been the Federal Reserve, which reversed its previously hawkish view to drop mortgage interest rates multiple times, from 5.25% last summer to 2.25% now, with a further cut of 25 basis points highly likely at the next meeting. They have also taken the unprecedented move of making its "discount window" rate loans available to investment banks. This access has historically only been available for commercial banks up until this point as a matter of last resort, but by bailing out Bear Stearns, the Fed made a commitment to help troubled investment banks weather the credit crisis. A recovery will require a combination of liberal monetary policy, further government intervention on behalf of mortgage holders, and enforceable regulation in order to prevent another bubble.

Ki is a real estate agent in Austin Texas. He runs a site filled with information about Austin real estate. His site provides information on mortgage interest rates along with a search of the Austin MLS.

On April 30th, the Federal Reserve announced a cut in their main interest rate by 25 basis points, to 2% from 2.25%. This is the seventh such cut by the US central bank since the beginning of the credit crunch some eight months ago, totaling 3.25% in cuts to the key rate that banks charge each other for overnight loans. These cuts have been made in an attempt to lower mortgage rates to help bolster the real estate market. As the fragile US economy staggers towards recovery, two major agents are working against American consumers: record inflation in food and energy. What can we expect in the future for these troubled yet lucrative markets?

In the short term, volatility will probably continue to dominate, but in the middle term inflation may take precedent over combating the slowdown, both for the central bank and regular consumers. Just as the Fed began to cut interest rates, the dollar's 5-year slide accelerated, pushing commodities that are priced in dollars like oil down relative to other currencies. This self-reinforcing process means that their futures markets are cheaper to buy in other currencies, which has led to a massive increase in speculation by flustered investors looking for a safe haven for their assets.

If the Fed were to continue to cut interest rates further, this process could keep consumer spending, which accounts for two thirds of the US economy, tamped down for some time. In March, spending only increased more than projected (0.4%) because of highly inflated energy and food costs. In addition, businesses have continued to feel the pinch of higher secondary costs that affect many other prices, even as output continues to fall. Nevertheless, the strong March activity index from the Institute for Supply Management was still stronger (48.6, with 50 meaning zero growth) than many economists had expected, implying some underlying resilience.

The lingering question remains: what is the Federal Reserve doing by cutting an inter-bank interest rate? It appears now that they are stoking inflation through price distortion, if the positive effects thereof (some stabilization of the troubled financial sector) is ignored. By making dollars cheaper, the value of oil and food is cheapened and necessarily must rise accordingly. Now exchange rates between the dollar and the euro have statistically matched fluctuations in oil prices for 52% of the last six months, compared to less than 1% for the years between 1999 and 2004. Investors and speculation have turned commodities into a superb place to dump cash, but such simplistic reasoning should be setting off alarms in the wake of the credit crunch.

In Washington and abroad, few have challenged the Fed's decisions, which have not been as noticeably correlated to price increases until recently. That may change as eurozone inflation remains stubbornly above target levels, mostly because the European Central Bank takes energy and food into its purview. While the Fed are still supposed to fight inflation first, their smaller focus means that their culpability is limited. As the election looms over Ben Bernanke's head, he is likely receiving pressure to stabilize first and ask questions later. However, a housing bubble and top-teir mismanagement led to the credit crunch now dragging down global growth. No one is looking to repeat this experience, especially because a commodity bubble is surely the worst kind.

Ki has a site dedicated to covering Austin Texas real estate. His site provides a graphical search of the Austin MLS for visitors along with providing up to date commentary on his blog about Austin real estate.

When thinking about the economic slowdown now gripping the United States, one might think of the naked emperor of yore, who could not realize his condition until told by a child. By the time analysts and the White House recognize the extent of the credit crisis, its effects will probably not be noticeable. So where are we now? Several times since last August's signs of an imminent drop in growth, markets have rallied due to speculation that problems in the area of sub-prime mortgages have "bottomed out." Alas, thus far it appears to have been in vain.

On April 25th, Reuters and the University of Michigan reported in their Survey of Consumers that consumer sentiment fell ever deeper in April to settle at 62.6 from 69.5 in the preceding month. Not only is this the third straight month that consumer's outlooks have remained downbeat, but this month's ratings are the lowest in 26 years. The last time consumers' finances were as stressed was in 1982, which was due to the "stagflationary" economy of the time. Stagflation refers to a stagnating economy with low or limited growth prospects coupled to high inflation. The recent recession came from a different set of circumstances, but consumers are feeling the pinch all the same. While inflation remains a key factor for monetary policy makers and politicians, estimates of core inflation (which excludes volatile food and energy prices) remain low for now.

This is a good thing, because it has allowed the Federal Reserve a lot of leeway regarding monetary policy. They have cut the interest rate they charge for lending to commercial banks by nearly three full percentage points since the onset of the credit crunch last summer, and are poised to cut rates 25 further basis points at their next rate-setting meeting April 30th. However, interest-rate futures contracts also predict a 20% chance that they may not cut the rate at all, signaling a possible end to further monetary stimulus. It is unclear whether inflationary concerns or macro-economic stability is guiding the Fed's decisions because, since rate cuts began, food and energy prices have also skyrocketed.

While this doesn't normally affect core inflation to a significant degree, over a protracted period of time prices will continue to increase for everyone. In addition, the Treasury's stimulus package is set to begin arriving to millions of American consumers at the end of April, four days ahead of schedule. The Bush administration and other prominent authorities have touted the $152 billion influx as a means to increase spending, which accounts for two-thirds of the US economy. While consumer spending should begin to pick up somewhat, surveys have shown that many people plan to spend their check one of two ways: relieving personal debt (which reached epic proportions in 2007), or adding to savings. This reflects both how necessary a lump sum of cash is to many poor Americans, and how much spending has been curbed. Until spending picks back up, the service sector will continue to ache. Promising numbers in manufacturing orders for April also reflect strong fundamentals, even as the housing and construction industries continue to slump It may be presumptuous to assume that the US is out of the proverbial woods, but there may yet be light at the end of the tunnel.

Ki lives in Austin and works as a real estate broker in the Austin real estate market. He provides a free search of the Austin MLS on his website along with information on mortgage interest rates.

This week, a storm of bad news gave markets cold feet, resulting in Friday's 250-point loss. While this pattern of volatility has been the status quo for stock exchanges worldwide for the better part of the year-to-date, another factor has caused at least as many difficulties for a much larger percentage of the global population: the recent skyrocketing prices in energy and food. Wheat and other cereal prices have more than doubled this year, causing widespread effects ranging from speculative overbuying, which exacerbates the problem, to food riots in many poor countries. Millions of children around the world are likely to suffer from malnutrition in coming years if prices stay at or near current levels, according to International Monetary Fund (IMF) estimates.

Part of this unfavorable price increase has been due to shifting ideas about energy consumption and the press towards the use of alternative sources of fuel other than gasoline: namely, the subsidies issued by many governments of developed countries to change over to ethanol and other plant-based hydrocarbons, such as that made from palm oil (a particularly environmentally destructive process for ecosystems). Since these subsidies and programs have been introduced, farmers are often able to make better returns by selling their crops to biodiesel companies than to food companies. Until economic incentives change, the supply end is unlikely to provide solutions. For many of these farmers, these developments mean they are able to make a decent living for the first time in years, and they desperately want to (even if it results in local food shortages sometimes).

While this widespread problem affects consumers all over the world, these micro effects are only half of the story for gas-sensitive American consumers. Energy prices have taken headlines this year due to speculation and supply concerns from OPEC and South American countries after hitting the psychologically important $100 a barrel mark for the first time in the third quarter of 2007. Crude prices remain stubbornly above historical trends, even as suppliers contend that output need not increase. Analysts have also projected US gasoline prices to climb above $4 a gallon during the summer, another equally unprecedented number that may be tough pill for consumers to swallow, after the one-two punch of a national housing slump and the global credit crunch.

Should oil suppliers continue to maintain current output levels, demand is eventually likely to contract. But they aren't the only links in this chain. If oil becomes a less attractive option to Americans, oil companies may eventually be priced out of the market. Many have been keeping an exceptionally low profile in recent months. Auto companies play a huge part in the process, but shrinking sales and looming layoffs will likely increase the pressure towards manufacturing lower-emission vehicles. But the single biggest mover and shaker will be the government, which has the ability to regulate both inflation (through the FEDs influence on mortgage interest rates) and the move towards more sustainable technologies. The next US president will have the ability to help determine how long the lone superpower continues to expose its Achilles heel, but at some point all eyes will be on the Federal Reserve if inflation once again rears its ugly head.

Ki works as a real estate agent in the Austin real estate market. His site provides a free Austin MLS search along with updates on the Austin market on his Austin real estate blog

Mortgage interest rates remained relatively unchanged for the second week in a row.

Mortgage Interest Rates Historical Mortgage Rates

(to post the above widget on your site go to
www.escapesomewhere.com/rates.html)

April 10th, 2008
30-yr 5.88 15-yr 5.42% 5-yr ARM 5.56 1-yr ARM 5.19

April 3rd, 2008
30-yr 5.88 15-yr 5.42% 5-yr ARM 5.59 1-yr ARM 5.18

March 27th, 2008
30-yr 5.85 15-yr 5.34% 5-yr ARM 5.67 1-yr ARM 5.24

So what is going on? The FED has been attempting to stimulate the economy by cutting the FED Funds rate. But the first few times the fed cut rates in 2008 banks did not respond by lowering mortgage interest rates. Since this is one of the main tools the FED uses to influence the economy and mortgage rates this was a cause for concern. If the FED losing its influence over mortgage rates would be another negative factor weighing on an already weakened economy. In the beginning of March their were some pronouncements from analysts that we should expect more FED rate cuts but we should not expect to see lower mortgage rates.

But then after the latest fed cut on March 18th mortgage rates fell from 6.13 to 5.87. So what has happened since then? Basically, in the absence of further rate cuts by the FED, mortgage rates have remained relatively constant. In the midst of lots of bad news for the national real estate market this is actually a good sign that banks are apparently happy with the spread between the fed rate and mortgage rates. Hopefully future fed cuts (and it seems apparent at this point the fed will continue to cut rates) will result in lower mortgage rates.

Ki works as a realtor in Austin. He runs a site about Austin real estate which provides a free search of the Austin MLS and a free mortgage calculator.

Though the housing bubble deflated about two years ago, its true effects are only now beginning to emerge. In late 2006, when the economy first began to show signs of weakness in the housing market, most economists predicted that a recession was very unlikely, and that any downturn in real estate prices would be localized and mild. In reality, a global downturn is now a real threat, with the final price of the credit crunch projected to exceed $1 trillion dollars.

Not only have falling house prices in the US spread to other markets abroad, they have contributed to massive losses in other areas of lending such as credit cards, and the financial industry, which is now reeling from the US government bailout of Bear Stearns. What does this mean for emerging economies like China and India? In the short term, volatility seems to be the order of the day, with India's fledgling exchanges rocked by jittery investors. Until financial centers and investors can regain confidence, market conditions will be exaggerated. Early trading also plays a psychological role for investors, as news developments impact Asia before Wall Street opens.

The US and the UK both face difficult home pricing corrections which will continue to hamper growth. Most homeowners expect, if not to make a profit, not to sell their houses at a loss, which is a difficult pill to swallow. And if they can't sell their homes for what they think they're worth, then waiting it out contributes to prices falling, thus exacerbating the problem.

While government intervention has been exceptionally forthcoming in efforts to preserve confidence in financial markets, less attention has been given to homeowners who are being foreclosed on %72 more than last year. Hedge funds which invested in these home loans and were mostly falling into the sub-prime category, collapsed as borrowers were increasingly unable to make payments, leading to unprecedented defaults. Many of these sub-prime loans were predatorily given to borrowers with low or little credit history, often without explaining the terms.

This crisis was instigated by a combination of lax internal regulation of the real estate industry and easy credit based on speculation, a potent combination that the global marketplace will do well to remember. In the meantime, global growth will probably slow at least .5% over the next year, which is only so low because of robust growth in Asia.

Another prospect which looms over every government is the specter of inflation, which threatens to overtake the slumping economy as the number one priority for the Federal Reserve and other central banks, who have had to take extreme action to prevent further liquidity losses. The Fed has sold off over $100 billion in auctions and lowered interest rates five times in an attempt to lower mortgage interest rates, but confidence will remain shaky until the full extent of investment bank's sub-prime exposure is realized. Stuck between a rock and a hard place, central banks are taking decisive action in hopes that the economy will level out without pushing inflation to dangerous levels.

Ki operates in Austin Texas as a realtor helping clients looking for Austin real estate. His site provides a search of the Austin MLS along with a free mortgage calculator.

It started off simply enough. I had been updating site by hand to keep mortgage rates up to date. So I wanted to create a widget that would automatically update my website with current mortgage rates. Sounds easy enough right? But once I got started I just kept going. As long as I was putting in 30 year mortgages why not put in 15 year and 5 year and 1 year arms. I mean as long as I was doing it.

Then I discovered I could graph rates. How cool was that!



Not very cool according to my wife. And every new instance of "oh look at this" was meeted with "I thought you were finished with that last weekend". Anyway once I discovered I could graph rates why not create a tool so I could look at historical mortgage rates then I could look at rates back until the 1970's. Sweet. I mean it wouldn't take that much longer? Right? Ok well maybe it did take that much longer. But it was kind of cool. And then as long as I had a tool why not put in toggles so you could look at mortgage rates over the last few years but you could also switch the graph to see what the mortgage would be on a 200k loan for the last few years. I mean thats kind of interesting?

About this time I had realized this was all getting kind of ridiculous. And my wife was kind of doing ok considering I was ignoring her for a mortgage rate graph but I wash kind of pushing my luck.

So anyway now I have a little widget on my homepage that automatically updates each week with current mortgage rates. So to justify my time if any Active Rain members want a widget on their page with updated mortgage rates I wrote a page here Mortgage interest rates that gives details on how to install it on your site.

Ki is an Austin realtor. He helps buyers interested in Austin real estate and provides a free search of the Austin MLS along with information on his Austin real estate blog

On March 14th, Bear Stearns, the fifth-largest investment bank in the United States, entered a period of insolvency. As growing lack of confidence in the firm's subprime exposure grew, other banks eventually refused to lend to the stricken company, which has existed for over 85 years. Were Bear Stearns a commercial bank, (i.e. institutions that loan money to people or businesses) it would be able to, as a last resort, take advantage of the Federal Reserve's so-called "discount window," thus receiving a government loan at the lowest available interest rate. The reasoning behind making loans to private businesses is sound, because overall confidence in banks is much stronger. But for equally obvious reasons, the discount window cannot by definition extend to institutions that take on risk as their business because they have less or no accountability to taxpayers.

However, after Bear Stearns seemed on the brink of collapse, everything changed. Bear Stearns shares began to falter as investors took flight. The Federal Reserve took decisive action to save the beleaguered bank by guaranteeing a $30 billion loan to their biggest competitor, JPMorgan Chase, so they could buy BS without fear of acquiring more dangerous subprime mortgage-related debt. In effect the government has now bought a troubled investment bank for pennies on the dollar, (their first offer was $2 a share, when BS traded at a high of $170 a year ago) knowing that taxpayers might have to foot the entire bill themselves. At the same time, the Bush administration has maintained that no government bailouts would extend to the financial sector. Moreover, wealthy BS shareholders balked so much at the firesale of their investments that the Fed, under pressure from potential litigation, increased the bid for BS by five times, to $10 a share. This means that, while the potential losses will be felt by millions of taxpayers (many of whom are in danger of losing their homes to foreclosure), while profits will most certainly be reaped by the corporate executives at JPMorgan.

Even with its exceptional exposure to subprime securities, BS is still worth well over a billion dollars. Profit-taking was the name of the game on the heels of the announcement, as day traders bought up huge amounts of BS stock at $2 or $3 a share and sold after the bid increased. By taking responsibility for the BS takeover, the Fed has changed the course of America's financial future. By guaranteeing the discount rate to BS, they implicitly must be able to do so for other investment banks in trouble in the future, which implies continued taxpayer absorption of Wall Street failures without any corresponding kickback from banks. Unless the Fed intend to rein in on banks more as the economy struggles through the recession, this policy clearly demonstrates a dramatically different view of finance than the Federal Reserve of 1913, when there was a real discount window you could use to keep your bank alive. Now, it seems, the most secure economically secure institutions are those most separated from average American lives. Politicians who recognize the increasing resonance of populist messages in the present climate are sure to turn this takeover into a major issue.

Ki works and lives in Austin Texas. As a realtor he helps investors interested in Austin real estate. His site provides a search of the Austin MLS for visitors along with a Austin real estate blog to keep people up to date on the market.

The recent government-sponsored bailout of Bear Stearns, one of the top five lenders in the United States, has shocked traders and left investors cold. Despite the chilly reaction on Wall Street, secretly many are breathing a sigh of relief. While Bear Stearns was mismanaged from its upper echelons, its subprime exposure grew until their recent $30 billion-plus losses had to be reported.

Once that happened, their course took a turn for the worse. As their ability to shore up capital faltered, JPMorgan Chase stepped in with a buyout worth a bargain $2 a share, valuing a company worth $3.5 billion down to $236 million. Quite a savvy deal, if obviously designed to ensure continued security in the market more than pure profit (after last year's hedge funds collapses, Bear Stearn's lawyers have been busy with sub-prime exposure-related litigation). With the impact of derivative investments and more sophisticated financial instruments, the notational impact of a Bear Stearns collapse comes at a staggering $10 trillion. Moreover, even at a share price that attractive, the Bear Stearns rival wouldn't have bought them unless a fundamental shift in monetary and fiscal policy hadn't occurred: The Federal Reserve's liquidity offers to commercial banks, which have been numerous in recent months in the wake of the credit crunch, have been offered to Bear Stearns for the purpose of covering billions in frothy investments.

This sets a dangerous precedent against the continued function of American markets by using taxpayer dollars to bail out what is an entirely market-related mistake. By covering bad investments with taxpayer money, the Federal Reserve reverses sixty years of capitalist policy in favor of blatantly socialist takeovers. This could be the worst way to introduce Americans to this form of quasi-socialist government ever conceived.

No one put a gun to Bear Stearn's collective head and made them spread risk ineffectively and invest in sketchy sub-prime mortgage securities. They did it all by themselves. Yet here we see a government-backed takeover to shore up confidence in a financial system that seems unable to take care of itself. Laissez-faire? Quite the opposite, it appears. What kind of message does this send to other financial institutions? Can they now expect similar access to the "discount window" that had been reserved for institutions that work with taxpayers, not investors?

We now have the dubious half-promise that the Fed will rein in on Wall Street during boom times, but isn't it a lack of regulation in loaning standards and a subsequent rise in "predatory loaning" what got them into this mess in the first place? And how many more Bear Stearns get the Fed rescue while millions of Americans face foreclosure? The Fed haven't received much criticism thus far, as their responses have taken a course they have helped the economy weather in past recessions. However, their break from past precedent will likely draw some flags. Even if no one else will tell the emperor that his clothes are slipping off one piece at a time, hopefully the Presidential candidates will pounce on this new opportunity to compare traditional economic goals with the present shift in policy.

Ki lives in Austin and writes a Austin real estate blog. His site is filled with information about Austin real estate and includes a free search of the Austin MLS.

What a difference a year makes. Last year at this time Bear Stearns had a high flying stock price of $150 a share and a market valuation of 20 Billion. Having been founded in 1923 they were considered one of Wall Streets most venerable investment houses.

Going back to 2005 Bear Stearns was selected as "Most Admired" securities company in Fortunes annual survey a distinction they retained until 2007. During this time period many of the decisions that would lead to their eventual downfall were being made. In the middle of 2007 the armor of Bear Stearns started to crack. The subprime problems were beginning to explode. Basically it was becoming clear to the financial industry that many of the subprime loans that had been given out over the last few years were not going to be repaid.

One of Bear Stearns funds, the "High-Grade Structured Credit Fund", started to falter. In a sign of things to come when Merrill Lynch acquired 850 million of the collateral for the fund they were only able to auction it off for 100 million.

A problem started to develop with two of Bear Stearns funds that operated as hedge funds. The interesting word here is hedge fund. Hedge funds basically operate under the philosophy that by investing in a large number of loans that are somewhat risky you minimize the risk. While a few individuals might go into foreclosure the investor is protected because they have invested in a high number of loans. The problem the financial industry started to realize in mid 2007 was that a large number of these were going into foreclosure. In July these two hedge funds had lost nearly all of their value.

By August lawsuits had started flying as angry investors started to sue over their losses alleging that Bear Stearns had not property disclosed their exposure to hedge funds. A few months later Bear Stearns declared write down of 1.2 billion on their securities.

2008 brought more problems for Bear Stearns. Rumors started to circulate that Bear Stearns was having cash problems. JP Morgan started to provide emergency funding to Bear Stearns but it did not seem to stop Bear Stearns slide into financial chaos. This led to the final offer of 240 million for Bear Stearns. Not only was this substantially less than the 20 billion Bear Stearns was worth a year ago, but it was less than the value of Bear Stearns headquarters in New York which is valued at 1.2 billion. The fact that the purchase price is lower than the value of the real estate owned by Bear Stearns is seen as a sign that many of the financial assets Bear Stearns owns have a negative value.

Another interesting point is comparing Bear Stearns to Countrywide. Both were large institutions with exposure to the subprime real estate market. But Countrywide was seen as a free wheeling company that almost ignored risk and rose fast and feel fast. In contrast Bear Stearns was seen as an older company that had weathered through multiple recessions. But in the end the same market brought both these companies to their knees. Basically spreading out risk among many subprime borrowers does not help if the real estate market weakens resulting in a large percentage of borrowers going into default. Hopefully the collapse of Bear Stearns will serve as a warning lesson for future companies. And the warning lesson hopefully will not only be remembered only in bad times, when it is frequently too late, but in good times when the seeds are sown for future financial turmoil.

Ki is a real estate agent in Austin Texas. He works with buyers interested in investing in the Austin real estate market. His site provides a free search of the Austin MLS as well as a graph of recent mortgage interest rates.

The US appears to poised on the very brink of recession. Investors are reacting as news of a contraction within the service sector for the first time in five years, an FBI investigation into predatory lending, and increasing unemployment statistics, has sent shock waves of panic through stock markets worldwide. Who wins out in a crisis of this magnitude? And how can an individual take advantage of such a difficult scenario? While volatility in recent months is hardly a comforting phenomenon, recognizing its continued presence (within relatively unstable areas of the economy such as the stock markets) is key to weathering such a crisis. Even though most areas of the US economy are contracting in some fashion, the saying that the US's sneeze makes the world catch cold is less true than ever before. As China and other Asian economies become increasingly decoupled from America, the tendancy of compensating mechanisms to come into play should increase. Someone will be able to profit from the US shoring up spending, even if it is only oil companies for some period of time. Most of these companies are reinvesting the money they make in stable companies like American financial institutions, thus tying their fate to that of the US without risk of takeover bids or boardroom posturing. While the transmission of wealth from the American middle class to wealthy overseas oil giants is gradually becoming a less attractive proposition to the average American (with increasing energy prices helping this along), the climate crisis may be able to facilitate a reduction in dependence on foreign oil that balances this feedback loop in the future. Americans are right to begin saving on a more realistic scale, if a bit slow to react. Most of America's weaknesses in this regard are only sustainable if nothing goes wrong, and the sub-prime crisis is destined to affect many other industries such as credit card companies. If a significant amount of consumer spending turns into savings, Americans will be hurting. But like an unpleasant vaccination, they will be safer in the long run. Perhaps a lesson or two in solubility and risk management has been learned. As far as an individual's best chances for taking advantage of these weakened sectors, buying a house couldn't be smarter now as the glut of unsold houses in many areas continues to drive down prices. Emerging economies will continue to grow even if America stagnates for some period of time, so investment in these regions is a safer bet than ever before. Global GDP will still grow, even if the rest of the world no longer wants to hold the West's hand while they cross the street. In fact, the complex financial instruments that have fueled the credit crunch were created in order to minimize risk. As we can see, they have only made it less obvious and harder to bring ontol a balance sheet, which costs much more. If layoffs begin to increase, government action on a larger scale is practically inevitable. The Federal Reserve is obviously prepared to drop interest rates considerably further, which means there is still some breathing room (even if it is shrinking). Ki works as a realtor helping people interested in Austin real estate mostly central. His site is filled with information such as profiles of the downtown Austin condos. He also has a blog devoted to Austin Texas real estate.

In the last week, many encouraging signs have been on the economic radar: The Bush administration has stated that a consensus has been reached about the impending $145 billion economic stimulus package, the Federal Reserve has cut their most important interest rate by the largest margin in a quarter century, and bond insurers are to receive government help in order to guarantee that banks will be able to avoid further damaging losses. But are these steps enough to curb a recession in the global economy, or even the US? It would appear that investors are optimistic. The 22nd and 23rd of January both saw rallies, first in emerging economy markets and later in the US, with the Dow finishing up a stunning %2.5 in a single day. Encouraging, yes. Guaranteed to succeed. hardly. Let's go over the effectiveness of each of these strategies individually, and then assess them together. First, the Bush tax break: $300 per household, allowing up to $1,200 if you have four children. Due to Democratic pressuring, the rebates even go to poor people who can't pay taxes (re: sub-prime mortgage holders). And because Republicans need something for their constituency as well, the rebates are good for couples with income up to $150,000 a year (so that their spending will trickle down into the greater economy, thus providing enormous benefit to all related industries). This represents a meager sum when compared to the average mortgage payment, which on sub-prime loans tends to roughly double once the adjustable rate kicks in. Moreover, the deficit is sure to be off the charts next year as a result of what amounts to pulling money out of thin air. Now for the Federal Reserve cut. While it took most everyone by surprise, it didn't keep the Dow from ending down %1 the day it was announced (Jan. 22nd). While the stock market made substantial gains over the next couple of days, volatility is the name of the game these days, and cutting the interest rate cut so suddenly on the heels of MLK Day's depressing Asian market performance looked to many like a panic move. The Fed have the unenviable task of attempting to appear composed when they may not always be, and minimizing the impression that they aren't responsive to falling consumer confidence. As no other central bank saw fit to act in concert with the Fed, (save Canada, whose meeting was scheduled and whose cut was a mere quarter-point) many analysts speculate that their motives are driven by short-term need for stability in financial markets, and less by the still-ominous sub-prime threat. Finally, the bond insurance bailout. If it weren't for this action, few would doubt that the US is headed for imminent recession of a particularly painful variety. But if the mechanics of the financial system, much of which depends on companies being able to confidently lend money (insured with solid capital) to one another, is allowed to grind to a halt? The sub-prime crisis would pale in comparison to the amount of profits that would instantly be lost, which some speculate would be in the hundreds of billions. This is clearly unacceptable, but an inherent danger still exists: Without the course correction on housing prices (and the debt which was transferred to major banks, and then to their, we may be doomed to something similar to the Japanese housing bubble of the 1990's wherein bank managers actively colluded with policy makers to obscure their collateralized debts in a similar fashion to the structured investment vehicles of today's credit crunch. Taken together, these factors would probably lessen a recession if it were impending. But unless people are able to get more credit, exacerbating existing problems, the downturn the US is now experiencing will likely be long and harsh. The kinks have to be worked out, and the unfortunate aspect of this reality is that those who have the least must pay the most. Escapeso is an Austin realty company. Their site is filled with information about Austin real estate along with a free search of the Austin MLS.

After weeks of increasingly dismal reports from the financial sector, many regular Americans are beginning to worry that the US may be close to or already in recession. While government intervention in the economy is relatively uncommon in US history, since its establishment in the 1930's, the Federal Reserve has been able to manipulate interest rates, giving them the power to make all real estate loans more or less expensive by some degree, which comes with a hefty responsibility: controlling inflation. While the Fed has cut their rate three times in as many months last quarter, the economy also began to tailspin simultaneously. This puts them up between a rock and a hard place, because if interest rates are too low, inflation can begin to threaten, especially as the dollar continues to depress against other currencies. Fortunately, there is one part of the economy that the government is able to adjust in order to make ordinary American's pockets a bit less bare: taxes. President Bush has recently begun talks concerning some kind of economic stimulus package, which can be understood to mean some kind of tax break. But with over two million foreclosures predicted to happen over 2008, it seems unlikely that any single factor can stem the tide of sub-prime woe besides some kind of magic undo button or two million real estate mortgage refinances. This is because most of the economic slowdown is related to the riskiness of these mortgages that were issued in the first place. By virtue of a collective attempt at clever financial trickery, most of the major banks are now forced to write off their sub-prime mortgage debt as bad before it even becomes worthless. A tax break would have to be nearly immediate in terms of how quickly it is implemented, and have to cover an exceptional cross-section of poorer Americans, in order to have much of an effect. This is because, according to recent surveys, that demographic is most likely to fall into financial trouble over the coming months. As simultaneous pressure on both lower-income Americans and the well-to-do financial sector increases, the middle class will be stuck like a trapped child in the middle seat on a long car trip. Everyone will be getting a bit uncomfortable unless some action is taken. The only difference between America and the car trip is that no one will have to ask if we're there yet, because whichever course the economy takes, it will take it quickly. Another possibility is that, even if a tax cut is unable to completely shore up faltering consumer confidence on its own, a concerted strategy of extreme interest rate cuts combined with tax relief and a massive short-term freeze on prime and sub-prime mortgages could have the kind of effects necessary for the American powerhouse to avoid grinding to a halt. Either way, if the spring quarter sees losses on the scale of late 2007, we will be in a classical recession with fewer options than we have right now. Ki works as a real estate consulant helping buyers interested in Austin real estate. You can research the market on his Austin real estate blog or start your Austin home search online using the Austin MLS.

The recent sub-prime crisis is unlike any faced by the financial system before in one dubious distinction: Its effects are exacerbated by globalization to an unprecedented degree. Recent developments help illustrate exactly how this credit crunch can be differentiated from others, such as the savings and loan scandals of the 1980's, by its fundamentally larger scale and complexity. To explain the sub-prime crisis adequately, first the causes must be clearly identified. Like the savings and loan problems, predatory lending on the part of real estate brokers and agents, combined with a fair amount of financial fan-dangling, many banks loaned out more money than they normally were allowed to. By keeping these loans off their balance sheets, they were able to loan out much more than the rule-of-thumb ten times their deposits. If you consider that the sub-prime fallout is considered by most to be over $250 billion dollars, then the loans made could be in the trillions. The vehicles in which the debt was stored were basically invented for the purpose of deceiving potential investors into believing that they were sound investments, not risky sub-prime mortgages. The savings and loan crisis took a similar tact, and ended in similar levels of indignation, consumer despair, and regulation. As the years have gone by, those who cried for deregulation in order to help the already unprecedented economic growth skyrocket higher still have gotten their wish, but at a price: now that the Fed has instituted more clear standards for informed consent for borrowers, a crisis like this will likely not emerge again for some time. However, this is a lone consolation for the amazing amount of debt that has yet to be declared throughout the financial system. The reason this crisis is so much larger is because the repackaged sub-prime debt was sold not just to other Americans, or even Canadians and Europeans. It was sold all over the world, to China and India and many other countries. This means that the problem increases in complexity, as differing international regulations for the timetable on debt declaration and a financial system that has turned a boom into a spider's web of uncertainty contribute to higher risk to any institution that lends money. This, in turn, places a de facto cap on the amount of economic growth that can happen. But the problem is also much, much larger because the entire world has some degree of stake in it. Now European central banks are cutting their interest rates as well, in order to combat a problem that won't even really exist in a measurable form until two million Americans default on their mortgages in the new year. When the fallout was limited to the US, as was the case with the savings and loan banks, the turnaround time was a matter of two years, give or take. Now, the sub-prime crisis has been high on the international public radar for well over a year, but less than a tenth of the lowest estimates on the total debt have been acknowledged by lending companies. This means that recession is a much more likely outcome of this global problem than it seemed even three months ago. Living in Austin Ki works for a small realty company focused on Austin real estate. They provide information about the market on their blog about Austin real estate news along with a allowing users to start searching for Austin homes online through the Austin MLS.

The greenback has been slipping against the euro, the Chinese Yuan, and the pound for the past nine months or so, reaching record lows amidst a global credit crunch and plummeting real estate prices. What does this mean for US growth? According to the Federal Reserve, projected economic growth will slow from more than 2.5% to around 1.8%, and inflation remains a concern. But one figure does not an explanation give. The slipping dollar is an indicator of how strong and robust the US economy is, relative to other countries and currencies. As news of record mortgage defaults, volatile markets, and skyrocketing oil prices continue to trickle in from throughout the US, consumer confidence has tumbled and with it their spending has tightened. This signals an impending shift that Americans will have to weather, but which actually provides a useful impetus for making some fundamental changes in the economy. If Americans are forced to actually save, (rather than going into negative savings, as the average American has within the past two years) a falling currency can actually be absorbed without causing economic devastation. Simply put, most Americans don't plan for their economic future very well, and are in fact in debt more often than not. No matter how much growth the US economy may generally experience, it is unsustainable for our present levels of spending to result in a beneficial outcome indefinitely. Therefore, a falling currency forces a necessary economic reality to be faced, which may have a much better end result, even if the transition is somewhat unpleasant. A depressing currency also makes US exports cheaper for other countries, hence ensuring that demand for American labor will be attractive to foreign interests. While this may guarantee some growth, if US manufacturers aren't hiring Americans, (because we aren't willing to do the work and illegal immigrants are) the US cannot reap these benefits. Hence another attitude shift is in order: That there are no jobs in America that Americans should be unwilling to perform. This has been a huge strength in US history, as American manufacturing and industrialization fueled its development into an economic powerhouse throughout the twentieth century. The falling dollar is also beneficial in that OPEC prices oil in dollars. This means that even though oil almost reached 100$ a barrel within recent weeks, it was still less expensive than it could be if they decided to price oil in euros. Therefore OPEC absorbs the weakness of the dollar in tandem with consumers, thus placing no special burden on Americans. If they were to price oil in another currency, Americans would be hard-hit, but perhaps the US would be able to cut back its dependence on foreign oil. It's possible that rising oil prices, coupled with the other factors mentioned, could trigger the growth of alternative energy production on a wider scale. Above all, the US benefits from a less powerful currency because the current model for economic growth is unsustainable, if not downright foolhardy. In order for America to remain a world leader, it must be able to lead more than amount of products consumed. The US also has to be able to produce more sophisticated solutions for its weaknesses at a lower cost, which it now has the opportunity and incentive to do. Escapesomewhere Realty is a company focused on the Austin real estate market. Their site provides a powerful search of the Austin MLS along with current information on the Austin market on their Austin Real Estate Blog.