While short term floating rates, teaser rates and subprime mortgages had contributed to the fictitious housing affordability with Wall Street’s promotions and the politicians’ blessings, historians in the future will realize the illusionary nature of the currently touted fictitious economic recovery when they examine the legacies of the policies of the current Administration and the Fed. A strong stock market and bubble-like bond markets built by near zero interested rate Fed policy have created the mirage necessary for politicians to temporarily hang on to their jobs.
As the near zero interest rates have made the Wall Street bank fat cat even fatter day by day, leading US corporations have made billions due to low borrowing cost in the US and cheap labor cost overseas, small businessmen and local property owners in America could not even borrow to survive and local residents could not hang on to their old homes or to borrow to buy new homes, the fundamental economic structure of the US has been going through a fundamental paradigm shifting polarization. The wealth has become more unevenly distributed at a historically unprecedented proportion.
A big portion of our GDP and consumer consumptions were indeed created by those elite segments of our economy that circle around fortune 500 corporations, big banks, Wall Street firms. It is quite amazing and ironic to realize that this phenomenon has been partly created and further exacerbated by the Democrat Party controlled Administration.
It seems to be a case of a lack of intellectual capability, constructive attitude rather than political ideologies. Many of these old school economic policy makers and advisors may need to be re-tooled and recharged and have an open mind to learn and adopt new innovative solutions to keep up with the time. Fighting an evolutionary trend of new ideas by playing ostrich will not be the solution for long. New ideas will catch on with or without them.
From the macro-policy standard point, keeping extremely lower interest rate levels may only help the big banks and Wall Street firms make more monopolistic money through many no-risk spread trading strategies that include investment strategy as simple as borrowing money from the Fed at near zero cost and invest in US treasury securities and other low risk assets. It is almost equivalent to the license to steal granted by many governments to the well-connected crony oligarchs in many third world countries.
These obsolete monetary policies (by simply moving interest rates up and down) do not trickle down to home owners and small businessmen through more mortgages or business loans offered by credit unions and local community banks. There is an obvious problematic disconnect between the existing monetary policies and our country’s banking credit systems, hence an opportunity for innovative solutions.
For a viable new economic policy management solution through the SwapRent contracts please visit the recent blog by Larry Doyle. http://www.senseoncents.com/2010/08/alternative-housing-finance-how-does-swaprent-work/
There are no better entities and infrastructure than the existing local community banks, credit unions and their industries to implement these new innovative solutions at the grassroots levels so that we could finally take the helm of deciding our country’s economic destiny from those big banks and Wall Street firms back to the risk-taking entrepreneurs and small businessmen at the various community levels and let the American entrepreneurial and hard-working spirits flourish once again to form a more solid economic foundation for our country and to build a more stable and long term prosperity.
Any budding aspiring elected officials with political ambitions willing to stick your neck out? It does not matter whether you are a Democrat, Republican or Tea Party member, our country urgently needs new effective economic policies implemented by whoever can make it happen, irrespective of your political stripes.