Derailing the economy - state and local problems, housing slump and slowing Asia- By: Julie Thompson
The economy in America is having a tough time to recover. Among others three factors – the problems of the states and local administration, the housing slump and the slowing down of Asia.
The condition of the states and cities are far from good. Revenues have dropped, pension plans continue to grow under-funded while the residents are angry about plans to hike taxes. The shortfall on the promises of the state to its retirees is $1.26 trillion – double the debt load of Greece! The stimulus tap from Washington has nearly run dry. The budget shortfalls could greatly hamper the recovery because it entails cuts in local investment and slicing of government jobs; this in turn cuts spending by consumers causing the economy to drag.
The housing segment is already undergoing a double-dip. Will it worsen? Prices have dropped by 33% since 2006 when the crisis kicked off. It is 31% more than what happened during the Great Depression. The downward trend is continuing despite the affordability going up to record heights. Americans are preferring tenancy to house ownership. This is leading to rental rates to go up. In the past year rents have gone up by 5%. Economists opine that this trend will continue for over a decade. Falling value of houses and increase in rent could lead to less consumer spending because half the wealth of Americans is tied up with their properties.
Apart from internal problems the impending slowdown of the economy in China is not good – China is the engine of the world’s growth. The frothy real estate market is leading to inflation in China. Interest rates are being hiked, credit is being clamped own and this has put brakes on the growth. The prediction is that the growth of China’s economy will go down from 10.1% in 2010 to 8.7% in 2012.
This means pain for the country’s exporting goods to China. If demand from China falls then commodity prices in USA will also fall and create surplus of materials hurting many industries – farming, mining etc. Till now these have helped to pull up the economy.
The calamity in Japan has already disrupted supply of car parts to USA. Japan ranks second among holders of USA treasuries coming after China. It could start selling these to finance its reconstruction. That would affect Treasury interest rates just when the latter is resorting to QE2. If Japan slows down and the Federal Reserve moves away who will buy these? Somebody will – but at what price?
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Julie Thompson, has been working on ForeclosureDataOnline.com studying the foreclosures market, helping buyers on the finer points of Palm Springs. Try to visit ForeclosureDataOnline.com and find all related information about foreclosed homes.