How Better Off Are We Now Really?

US economyI apologize for my lack of consistency in posts as I have been very busy in multiple different projects. I love discussing with the community and will be doing updates much more frequently from now on.

We are now closing in almost two and a half years since the major downturn in our economy began to take place. It feels like a distant memory as of now. I still remember waking up on mornings wondering, "who will be the big bank to fall today?" Businesses were dropping into bankruptcy left and right and not just small businesses, business that have been around for decades (Circuit City, Mervyns, Levitz and more).

Today, you would never even assume that existed only two years ago. Malls are full again, consumers are happily paying over $4.00 a gallon for gas and companies like Apple are having record breaking sales numbers. I have seen a lot of magicians in my day, but this is by far the most impressive illusion I have ever seen.

I have endured multiple recessions and I believe our most recent had the quickest change of sentiment out of all of them. What makes this remarkable is what fundamental changes were made during that time. National big banks entered bankruptcy, home foreclosure levels at record numbers, unemployment reaching mid teens in some states, and the stock market dipping the lowest we've seen in years. It is all a distant memory, at least that's what it feels like.

So what has caused such a miraculous turn around? I can't complain, my business is seeing huge turn arounds. What makes me nervous, is the artificial nature it has been built on. Why is it artificial? Here are a couple reasons:

The government has essentially partnered with big banks and is allowing them to rake in record profits off essentially government printed money. The US has issued profit/loss share agreements that are extremely favorable to banks and institutional investors that make doing business a no brainer, while delegating the downside to the government. Now you and I as taxpayers will carry the burden of loose underwriting and bad business practices that brought down many of the banks in the first place.

People are hailing that the housing market has reached bottom. Really? The FDIC reports that 1/6 homes are in foreclosure. Do you see these homes on the market? That is because the government is rewarding banks for holding on to these homes. Shadow inventory (homes that are not foreclosed but are in default) is even worse. Most of these agreements have 5 year lifespans, which makes me wonder what happens in 2o13 when a lot of these agreements are up? Slap another band aide on it I suppose.

Unemployment is still devastating. By far the most influential fundamental tracker still shows a depressing result. Am I suppose to be excited about a 9% national unemployment rate? And this number is not going down anytime soon, even the government admits that.

What we have learned the past two years is that we are not accountable for foul play and bad business practices. People have been bailed out left and right for, in some cases, very criminal decisions. This is why millions of consumers have found that they can stop paying their mortgage and spend their extra income on big screen tvs and new cars with no consequence. Sure, the US Treasury printing press can pick up the bill for now, but that result will come full circle eventually. In my mind, it is a time bomb waiting to explode, and when it does, not even our government will have the time or resources to defuse it. I am staying on my toes.

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