Ask anyone you see how the economy is doing and there is a good chance he or she will tell you it’s terrible! At this point in time, it is a fair assessment the economic conditions have softened, but the truth is we are a long way away from a lousy economy.
A lousy economy is usually marked by high unemployment, negative Gross Domestic Product (GDP) and inflation. Inflation means high interest rates. None of these things are occurring in our economy today!
The economy has slowed down
While it is true there is a slowdown and many economists believe we are heading toward a recession, there is no recession now. There hasn’t been a recession since the mild one that started in the final year of the Bill Clinton administration and remained in place until shortly after the George W. Bush tax cut of 2001.
A recession is defined as two consecutive or more quarters of negative growth as reported in the GDP. As of yet we have not had one! So, why is there a common misconception the economy is doing poorly? Well, if you constantly beat people over the head with false statements and half-truths, they will believe you after a while. Why are we getting these false statements and half-truths? Look no further than politics!
Misleading news reporting
Elections are often won on the strength, or should I say the weakness of the economy, because the party who is out of power usually wins the presidency when the economy goes sour. Therefore, the Democrat party with the assistance of their parrots in the media have been berating the economy for the last 7 years. An excellent GDP of 5% or a record low unemployment rate of 4.5% did not stop them.
The fact they weren’t reporting factually didn’t faze them in the least! Their hatred for George W. Bush inspired them enough to abandon all ethics and tell untrue horror stories about the economy every day.
Interest rates, a key indicator
When making a true valuation of economic conditions, how high or low interest rates, especially mortgage interest rates are, play a key roll. The fact is interest rates are excellent right now and though some may argue it may not be all good, it looks as though they are headed still lower, at least in the short term.
In order to see just where we are within the realm of mortgage interest rates, it would behoove us to take a look at where they have been historically and see if we can gain some perspective by doing so.
In 1971, the rates were just about where they are today, namely in the area of 5.5%. From that point, they increased through the 70’s. While it is true they, or any stock or commodity’s price in its rising stage, never goes straight up, interest rates remained in an upward trend until 1983.
Controlling the price of gas
There were many things that contributed to high interest rates at that time. One of them was the fact price controls were instituted on oil. When price controls are instituted in a supply and demand driven economy, the commodity whose price is being controlled becomes unavailable. Unavailability of oil caused a true hardship for the economy of the U.S. and its citizens for many years while these controls were in place. Until they were lifted the economy suffered.
Anyone who is saying the economy of the last 7 years was bad was either not alive during the late 70’s and early 80’s, they have amnesia or they are running for office in 2008. A case in point is the fact in 1983 interest rates on fixed rate mortgages peaked at around 15%! This was the rate given to people possessing A-1 credit. Others had to pay more. As much as 23%!
Interest rates came down, in large part due to the policies of Ronald Reagan. His free market capitalism based agenda was sorely needed by the economy and it worked well during that period. The interest rates reversed in 1984 and went into a downward trend that has yet to come to an end.
Bill Clinton the free trader, Bill Clinton the protectionist
During the last 3 administrations, Bush-Clinton-Bush many free trade policies were put into place. These policies made the cost of consumer goods and capitol goods cheap and spurred on strong consistent growth during those years.
Bill Clinton was particularly good at drawing up free trade agreements. Now he, Mrs. Clinton and Barak Obama are running against these same agreements. I guess the lust for power transcends all logic.
So, where are the interest rates headed now? Lower, of course! Until we see a real bottom to the market they are still on a downward trend. Certainly, we will see this bottom if the White House changes parties this fall.
Looking for a change?
We have candidates talking about ending Bill Clinton’s NAFTA and GHATT trade agreements. This would be inflationary because, in part computers would probably cost about $ 15,000 each if they were made in the U.S.A. Wouldn’t that be good for business?
Also, these presidential candidates can’t wait to put price controls on oil! So, look out 15% mortgage rates, here we come again! On top of that they have announced their proposed spending programs and these programs add over $ 1,000,000,000,000, that’s one trillion dollars to our deficit! All this is really bad, but at least it will be an educational experience because finally a lot of people will find out what a terrible economy truly is!
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