Despite all the best efforts (or maybe because of the best efforts) of the government to prop up the housing market, the price of a home has fallen to its lowest point in nearly eight years. And, yes, that includes points during the “Great Recession”–or the pending “Great Double-Dip Recession.”
That means the housing market is officially in a double-dip recession pattern.
Prices fell 3.6 percent in March. And prices have dropped in all 20 major metropolitan markets, except one.
You’re dying to know which one, aren’t you. Well, if you’re wondering if the stimulus program worked, it sure did. If you’re a homeowner in Washington D.C. Prices rose 4.3 percent.
The market pretty much shrugged off this news. What about you? Should you be worried about a double-dip housing recession?
We have been talking about how most people are not confident about investing and rely on the “advice” of financial planners. Nearly all of these people end up buying mutual funds and bond funds. And, I noticed the huge numbers of people who invest in index funds. I started thinking, why are these investments so popular when they are so bad?
First, let me point out why I think these are terrible investments. These advisors are not advisors at all. They are salespeople. And they get paid about 5% to sell you a mutual fund or a bond fund. They get paid even when you lose money.
Secondly, nearly all would-be investors cannot handle watching their portfolio go down 50% or more. When they reach their pain threshold, they sell. The “advisors” always say, “It’s gonna come back. Just hold on.” It’s easy for them to say that because it’s not their money.
Dow Jones Industrial Average 1929 - 1932
Finally, the stock market is going down right now. And, I believe it is going to continue going down. Millions of retirees are going to be pulling their money out of the market. Besides that, there is a chance that we are going to have another 1929 style stock market crash. At that time, the market went down 90%.
Why do we continue to make the same financial mistakes?
The common thinking about the recent economic collapse is that financial instruments, like derivatives and quantification formulas, were the reason for the collapse. This might be like blaming the fuel tank for running out of gas.
To solve our economic malaise, we need more financial innovation, not less.
It’s obvious that all the maneuvering and stimulating have done little to stave off rapidly deteriorating global economic conditions. Like injecting a heart with adrenaline, the programs designed to re-start the economy gave it a boost, but only treated a symptom temporarily and never addressed the disease.
Why? Government money is too diluted. It probably takes almost as much money administering stimulus funds than the actual amount that will seep into the economy.
Austerity programs will only stunt or retract an economy. It’s a great gesture, but growth is the key.
To promote growth, governments should drastically cut, if not totally suspend capital gains tax.
The move would:
Instantly boost the market.
You could reasonably expect a 10 to 20 percent rise in the stock market. You could also expect new companies striving for initial public offerings to come out in full force.
That means, freaking scary. As in, falling off a steep ledge freaking scary. Europe is in shambles. Oil is threatening major industries in the southeast United States (like they needed the challenge).
We’ve talked about the problems here and here, too.
Other bloggers are talking about the uncertain financial future. Most are doubtful that the world’s governments are going to have any success with either their stimulus or austerity programs. In fact, they’ll lead to more instability.
We’ve been through a lot the last few years. It’s been called economic hard times, a depression, the Great Recession. And on and on.
When we see the devastation caused by the earthquake in Haiti, we see a real personal and economic tragedy. This is a true calamity. Haiti and the Haitian people have seen more than their share of misery, from revolutions to extreme poverty.
Depression is more than just a name for sliding GDP numbers. True, it may be an economic condition; but, it can also be a mass psychological effect that turns into an dire economic feedback loop.
People are depressed and the economy suffers; the economy suffers and people get more depressed. And so on. Think of Japan in the 1980s.
Forget profits and jobs. We know they have been damaged. What is more frightening–and far more devastating–is that the psyche has been damaged because of the recent financial turmoil. Factories can be rebuilt and jobs can be created, but when people stop believing, the chances for recovery are slim.
There’s one more sign that our collective conscious is slipping into a deeper funk.
We’ve talked about the current economic problems and possible future ills… here and here.
But that doesn’t mean that the bad times are here to stay. There are some fundamental reasons to be positive about the future.
As we covered recently, recessions teach. Once we’ve cleared this dip–or double dip–we have it in our power to have an even stronger economy. This isn’t guaranteed. We can flub things up for a long, long time, but eventually markets self-repair. If you let them.