The U.S Believed To Be In A Depression: Debt Begets Debt?!

by Legal Author on July 9, 2012

The following is a guest blog post regarding debt and the U.S. economy.

It would appear that recently, the U.S Economy has slowly begun to turn around. There are many people who would believe in that statement, however, there are also many more who would not.premiertradesolution-debt_begets_debt

Analysts have been arguing over whether the U.S economy is actually improving, or if these supposed improvements are merely a means to provide false hope for investors. Worse yet, with the upcoming presidential elections, it’s a bit difficult to discern actual truths from skewed boasting and deceit.

Unemployment Rate

The national unemployment rate in May was 8.2%, which means that 12.7 million Americans were without work. However, analysts believe the “real” unemployment rate, including those that are underemployed, is 14.8%. The country as a whole is still down over 5 million jobs from its peak in 2007.

Housing Market

Five years after the housing bust, the housing market has recently begun to show signs of stabilizing. More new homes were purchased from April-May, with a 7.6% increase, than they had been in 2 years prior. This is the fastest pace seen in new home sales since April of 2010.

However, when you look deeper into it, it becomes clear that all is still not as well as reporters would lead you to believe. Nearly 30% of all mortgage holders are still under water. Which is of great concern to those who were hoping to retire soon, using their home as a means for income. Not to mention, April was the last month that people could qualify for the federal home-buying tax credit.

So with all the focus on how well the housing market has begun to improve, it may have been looked over that the only reason for the recent surge is due to federal charity. Which, I may be wrong when I say this, is not only what put us in the wretched predicament to begin, but what continues to make it worse. It is the same problem banks ran into, providing incentives and false hopes for those that cannot afford it.

Declining of Wealth

The Fed has reported that from 2007-2010, there has been a 40% drop in median household wealth. This means that in three years, the average net worth of American families fell from around $126,000 to $77,000.

Most of these losses are due to falling home prices; where the average homeowner witnessed their net worth fall around $70,000. The average home price in 2007 of $250,000 was reduced to $175,000 in 2010. That is a 28% loss in 3 years for people who invested in a home.

Beyond the unemployment statistics, the average income for people fortunate enough to be employed, fell from around $50,000 in 2007 to $46,000 in 2010. So when the stock market dropped in early 2009, not only did many people lose nearly a third of their investments there, but they also lost a third of the net income on their homes, then they began to lose their jobs too.

The end result; an economy that is seeing high unemployment rates, mortgages that are under water, slow job growth rates, and a huge loss in the net worth of countless Americans. So much so, that people who should be retired, no longer have that option, as they simply cannot afford it.

There is even talk about the strain on Social Security and Medicare due to Americans living longer, and the baby boomers coming to age. The discussions all lean towards one common theme; the retirement age is going to have to be raised from the current norm of 67 years.

Consensus

The problem is that we are not only fighting against our own economic woes, but we are also beholden to how the world economy is doing as a whole. Europe alone accounts for 21% of all U.S exports and nearly 7.1 million jobs. With the concerns arising from Europe, and the ever-increasing financial troubles that are befalling them, American investors are even more hesitant to gamble with their money.

Many people fear the thought of what the economy would look like without federal support, while others wish for less interference on behalf of the government. When policy makers attempt to arbitrarily put a floor underneath any section of the American Economy that is failing, whether that is the housing or job market, or stock market as a whole, all they are doing is prolonging the inevitable. When there are recessions, this means something is simply out of whack, a free market will dictate that for us. But when this market is not allowed to naturally, and organically correct itself, all you are doing is making a bad situation worse.

Debt shouldn’t beget debt, when our government takes out loans to pay other loans; they are merely making the situation worse in the future when those later debts have to be repaid. If the market was allowed to correct itself, there would no doubt be worse problems in the meantime, but the agony of it would not have been drawn out as long as it has. It’s like a Band-Aid… just tear it off quickly and get it over with.

The author of this article was Damien S. Wilhelmi, a proponent of small government, an SEO grandmaster and Internet marketing mastermind. I am writing on behalf of Premier Trade Solutions, who offer Purchase Order Financing solutions. 

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