Northern Utah Homes & Real Estate Blog

Ok, so the government may have saved us from global financial crisis.  They even instilled hope to investors on Wall St.  And as I stated yesterday, they’ve marked the first REAL step in the housing recovery.  But why does this all seem too good to be true?  You know what they say…

That’s right, it is too good to be true.  The experts tell us that doing nothing would have been much worse.  I don’t doubt that, but what they are not saying is how bad this all really is.

I’m no financial expert, actually far from it.  But I’ve been coming up with some very simple and real concerns.

First, according to the government, we’re already over $9.5 trillion in debt.  That’s over $30,000 for every American in the United States.  My first question is, obviously we don’t have any money so where does the money come from to bail everybody out?  Here’s what I discovered.

The government creates bonds and sells them to investors (mostly other countries like Japan, China & Saudi Arabia).  In essence, these are loans.  Loans that must be paid back over time with interest.  But let’s go back.  If the government is creating bonds, basically stock in our country, doesn’t that really mean we are creating money that didn’t earlier exist?  Doesn’t that ultimately decrease the value of our money?  Yes, and yes.  So what does that mean?

It’s called inflation.  The weaker the dollar becomes, the less buying power it has.  For example, if a Sony CD player costs $150 at RCWilley’s today and the dollar’s value goes down by 30% next month, that same CD player will cost $214.  But it won’t just be the CD player, it will be everything, absolutely everything.

Unfortunately, wages will not increase accordingly.  In fact, the cost of doing business will dramatically rise, demand will plummet and soon we find ourselves in a depresssion.

Or, everytime we feel the squeeze, we’ll just create and borrow more new money.  Oh wait, we’ve already been doing that for years.

Ok, so what happens when the rest of the world wakes up one day and thinks…”the US is kind of a risky investment, maybe I shouldn’t put my money there anymore”, similar to how many of us felt about Fannie & Freddy one morning.

If the US had a FICO score, it would be in the low 600′s.  And here is why:

1. Number of loans or lines of credit with balances
2. Loans or lines of credit balances too high
3. Too many credit lines open
4. Time since most recent account opening is too short
5. Number of inquiries in the last 12 months
6. We make payments on time, but only the minimum amount due

Not so bad right, I mean you can still get a loan with a FICO in the low 600′s.  Just expect to pay higher interest rates, and statistically you are a much higher risk to default.

“The government is in the same predicament as the average homeowner who took out an adjustable mortgage,” said Stanley Collender, a former congressional budget analyst and now managing director at Qorvis Communications, a business consulting firm. (a quote noted in a USA Today Publishing “US debt: $30,000 per American“, read it if you have some extra time)

Soap Box:

The fate of our country is in the hands of it’s leadership.  If you are an American and haven’t done so already, register yourself to vote.  Do some homework, and cast your choice on election day.