Wednesday, May 13, 2009

Main driver in this recession?

I don't know why, but for some reason people seem to think that the main driver in this recession is housing (http://finance.yahoo.com/news/Stocks-fall-on-weak-retail-apf-15237010.html):

Meanwhile, the main driver of the recession -- the collapsing housing market -- has yet to turn around. RealtyTrac data said April's foreclosures were up 32 percent from a year ago, and up slightly from March. It was the second straight month that more than 340,000 U.S. households received a foreclosure filing.


The collapse of the housing market is really only one of the symptoms of the driver of this recession. What is the real main driver of this recession? DEBT.

How do we know that DEBT is the main driver? Because as credit tightens, one of the main factors is the debt-to-income ratio. If your income is not high enough in proportion to your debt (i.e. you have a high debt to low income), then the loan is denied. If, on the other hand, you have a low debt to high income then you are a safe bet for a loan, and they'll do whatever it takes to get you a loan. (There's a few other factors to, but that's a primary one.)

What can we do to stop the main driver? Start paying down the debt.

Seriously.

South Carolina's Governor Sanford has it right - pay down debt.

And Obama's continuing plan to try to spend our way out of this is only going to make it worse - far worse - as we'll have to take on yet more debt (as a nation) to pay back the interest on the existing debt. Instead of trying to push money out every where else, Obama, the Fed, the Treasury, and Congress should be looking at what they can do to pay down the Federal debt. Until they do, we're in for an eventual collapse - we might (and I stress might) get away this time, but you can't run from it forever, as many are now finding out in their personal and work lives.

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