Yahoo has two articles today that tell how employers added jobs last month, but consumer confidence remains at a two year low.

Analysts said continued gains in hiring showed the economy was not at immediate risk of crumbling onto recession despite strains from a weak housing sector and credit tightness. But a later report showed consumers’ moods grew darker in December.

Come on, America! This is December, the shopping season! Why do you have to be so negative? Have you no faith in our strong economy. Wall Street and Washington are working together to ensure that there is enough credit to go around for everyone.

“There’s a great deal of angst out there,” said economist Ken Mayland, president of ClearView Economics. “There is a great deal of fear and foreboding.”

Economists said a host of factors were to blame for the still gloomy mind-set of consumers. The collapse of the housing market, which has dragged down home values, has made people feel less wealthy. Home foreclosures have shot up to record highs. Harder-to-get credit has made it difficult for some to make big-ticket purchases. High energy prices are squeezing wallets and pocketbooks. And, Wall Street’s gyrations have made some worry about the value of their nest eggs.

Those gloomy consumers need to get out to a mall, that will make them feel better. Just like the rise of the housing bubble made consumers feel and spend as if they were wealthy (even though they really weren’t), the collapse of the bubble (which is still collapsing) is causing people to feel less wealthy. Are consumers starting to see that wealth is more closely tied to their savings or investment account than some imaginary number given by a home appraiser?

The high energy prices that we’re currently paying are insignificant compared to the value of all the home equity extractions that have taken place over the past few years. Despite that, there seems to be some psychological effect that high oil prices have on consumers.

Economy | 1 Comment »

Bloomberg.com is reporting that the Federal Reserve may couple a rate cut with additional measures to increase credit.

Federal Reserve officials, who are forecast to lower their main interest rate next week, are signaling that they are looking for additional ways to increase credit to companies and consumers.

“The Fed has to re-liquefy the markets to reduce the risk of a financial accident,” said Lou Crandall, who used to work at the New York Fed and is now chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that focuses on government debt.

Banks are panicking. Credit isn’t available like it used to be because banks, lenders, investors, and everyone involved are trying to cover their positions and price the risk accordingly. The subprime mess is only the tip of the iceberg. There’s been a lot of talk about bad debt related to subprime mortgages dragging the markets down and causing CDOs to collapse, however we still haven’t heard too much about problems with regular mortgages made to borrowers with good credit.

Stay tuned for more! Until then, keep drinking and believing!

Financial Market, Economy | No Comments »

CNN is reporting that there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing interest rates.

Paulson told a national housing conference that this effort involved a “pragmatic response” to current realities as the economy goes through the worst housing slump in more than two decades. The number of homeowners struggling to meet higher payments because their initial introductory rates are resetting is currently soaring.

Why didn’t anyone see this coming? The biggest housing boom in history is now being followed by the ‘worst housing slump in more than two decades.‘

“We are working aggressively and quickly, utilizing available tools and creating new ones, to help financially responsible but struggling homeowners,” Paulson said in a speech to a national housing conference sponsored by the Office of Thrift Supervision.

A financially responsible person shouldn’t be a “struggling homeowner”. There are exceptions, however in most cases a financially responsible individual knows better than to take a mortgage that he can’t pay off. Don’t buy what you can’t afford, and don’t pay ridiculous asking prices just to ‘get in the market before it’s too late.’

• Q: “But what about the financially responsible individual with an interest only loan, who is now stuck with rising rates?”
• A: That’s the risk you take when you get an adjustable rate loan. A financially responsible individual should have enough sense to consider that risk when making a decision.

Will a Fed interest rate freeze cut really save the housing market? The short answer is no, with the reason being that banks are worried with under-performing mortgage backed securities, and they need to charge a premium on the rates they’re offering to mitigate their risk.

Interest Rates, Kool-Aid, Economy, Real Estate | No Comments »

CNN reports that The White House lowered its forecast for economic growth next year with rising unemployment, the housing market slump, and a credit crunch weighing on economic activity.

Inflation, however, should improve. The White House expects consumer prices to increase by 2.1 percent next year, a moderation from a previous forecast of a 2.5 percent rise.

Just yesterday, the federal reserve hinted that interest rates may be lowered again in the near future due to the economic slowdown. How would a rate cut affect inflation, which is supposedly under control?

The big worry for economists is that consumers and businesses will cut back on spending and investing, sending the economic growth into a tailspin. Spending by consumers and businesses is the lifeblood of the country’s economic activity.

Consumer spending certainly gets a boost from available credit, so let’s hope that someone can figure out a way to extend more credit to consumers and businesses and save our economy from recession. If you have any ideas as to what this next innovative scheme technique will be, please let us know what that will be so we can get in on the action and make a little money.

Kool-Aid, Economy | No Comments »