Shipping the housing market overseas. Long-term housing prospects hinge on an economic recovery for working Americans first – No housing bottom until middle class recovers a foothold in the U.S.
The housing market can have no sustainable recovery without the employment market improving. It is incredible that over three years into this crisis that there has been little focus on coupling employment with housing. Banks argue that many are simply not paying their mortgage yet they want the Federal government to ease lending restrictions. Who are they going to lend to? Over 95 percent of all mortgages now being originated are government backed. It is disturbing that all bank bailouts including the Fed forcing the interest rate lower merely focus on one aspect of the financial equation. The reality is, without a burgeoning middle class housing will never recover. Even the rising default rates in government backed loans, many “plain vanilla†loans are defaulting in record numbers because people are not able to service their debt.
Debt U – 4,800 colleges and universities in the U.S. and many are putting students into massive amounts of debt. The higher education bubble is getting to a point of bursting.
A few months ago a troubling milestone was passed. In the United States college loan debt outstanding has surpassed credit card debt. As of June 2010 $829 billion in student loan debt was outstanding compared to $826 billion in credit card debt.  Higher education by looking at a handful of metrics is clearly in a bubble. The only question that remains is when will it burst? Bubbles tend to go on longer than many people expect (i.e., the housing bubble) but when they burst they carry long-term ramifications for the economy. Bubbles have unique sociological phases that they go through. For example, at the height of the housing bubble people started questioning whether home prices were really worth it. When people woke up from their sleepwalking and questioned ancient mantras like real estate never goes down, then the bubble implodes either by the sheer size of debt or by people shunning the market completely. In education, the mantra has always been “going to college is worth it no matter what the costs†but the costs are now so high that we do have to question whether college is worth it. Let us take a look at a few reasons why higher education is in a bubble and why it will certainly pop.
How the mortgage interest deduction subsidizes the spending of wealthy families at the expense of middle class families. Average California mortgage deduction for filers is over $18,000 versus $9,900 in Texas.
One of the sacred cows of our economy revolves around the mortgage interest tax deduction. Home buying is heavily subsidized in the United States. The Federal Reserve has injected trillions of dollars in purchasing mortgage backed securities and other questionable assets all for the purpose of keeping interest rates low. Yet this is one area of misunderstanding by the public because when the data is sorted out it becomes clear that the mortgage interest tax deduction heavily subsidizes the home buying of wealthier Americans and those who live in more expensive states. The golden goose is expensive to maintain. The median household income of $50,000 garners very little benefit from this deduction because the standard deduction is already high for half of U.S. households. Let us carefully examine the details of this expensive subsidy and visualize how costly this subsidy is but first let us look at the failed home buyer tax credit.
Some American families are $133 a month away from Great Depression like problems – 1 out of 7 Americans receiving food assistance at an average of $133 per person.
The U.S. government is now spending roughly $5.6 billion per month on food assistance helping out 41,836,000 Americans. How bad is it for the lower economic strata of families in our economy? In January of 2007 we had 26,000,000 Americans on food assistance. The economic crisis has added 15,800,000 Americans onto the food assistance program now known as SNAP. These numbers are incredible and demonstrate how deep the recession has gotten. Even though on paper the recession ended in the summer of 2009 these numbers show a very different economic climate. Where did these 15 million people come from? Many have fallen off the middle class treadmill and have been sucked into the ever growing invisible class of people in the U.S.