Economic Insanity

The jury is still out and several more shoes need to drop regarding the U.S. Government Bailout of Wall Street. Congress may or may not pass Treasury Secretary Paulson's plan. The markets may or may not like it. We will have to wait and see.

Regardless of the outcome, our economy is experiencing and will continue to experience convulsions as it goes through withdrawal symptoms. In this case, the opiate was mortgage backed securities that were founded on nothing more than sham loans.

As far as housing goes, the fundamentals tell us that if this bailout passes, interest rates in the future (not immediate future but maybe a year or so out) will go up. Inflation will increase. House prices will go up but fewer people will be able to buy with a bank mortgage because interest rates will be too high. Think 1978-1982. Seller financing will abound.

If this bailout doesn't pass (and I hope that it doesn't), you will see a large number of firms disappear due to poor decision making. The economy will slow as it always does when it is clearing the excesses out of the system. House prices in Utah will stay intact mostly. Home prices abroad will continue to decline for a few more years. This fact is almost unthinkable to folks in charge of our government (particularly in an election year) and therefore they feel compelled to do something about it. Unfortunately, doing so only moves the losses from those responsible (the banks) to those who are not (you and I- the taxpayers).