Well, that’s not a word anyone wants to hear or further read in a newspaper or online, but it’s a word that we’re all starting to read and hear all around us recently.
We’ve all been through a lot over the past “2” years.
Covid Lockdowns, Supply Chains failing and Inflation causing prices for everything around us to go up.
Inflation has turned out to be “Not-So-Transitory”.
It’s really hard to find any positive economic “News” anywhere these days.
Property values have been going higher and higher, looking back to prior Recessions provides a warning sign………….the higher “Things” go the harder they fall.
In April 2022, we were presented by the “Powers That Be” in the Government that in the 1st Quarter of 2022, which was January-March, that the “Gross Domestic Product Index” indicated a NEGATIVE Growth Rate of 1.40%……………that’s Not growth………it’s Economic Contraction!!!
The Agreed Upon definition of a Recession is “2” consecutive quarters of NEGATIVE GDP growth…………well we’re halfway to a Recession NOW.
But we’re all now “Hearing & Being Told” that something has to be done…….and further that the only solution is for the Federal Reserve to raise interest rates to “Slow Things Down” so we’ll have a “Soft Landing”…….slow what down????
Oh, that’s right…………………slowing down the incredibly Rising Prices that we’re all currently experiencing…………………raising Interest Rates will only make prices rise even more!!!!
The “2” main Monetary Policy Actions that the Federal Reserve Bank can take to deal with economic matters are:
- Raising or reducing Interest Rates based on whether the Economy is expanding or contracting
- Reducing or expanding the Money Supply to adjust Supply & Demand imbalances, by either Buying or Selling Government Bonds
Very simply, inflation is the Expansion of the Money Supply, more specifically, M1, M2 & M3.
Rising Prices is the direct result of Inflation.
The current Administration determined that it was be a good idea during the so called “Covid19 Pandemic” to shut just about everything and anybody down, but themselves, and to “Print & Borrower” money, and then just give it out like candy to the masses, to people who were not required to produce any products or services into the economy to offset the Monies they received.
Many people that had No “Buying Power”, suddenly had “Money in Their Pockets” to go out and spend, and further compete with other buyers for a limited number of products and services available in the economy.
The current administration also determined it was a good idea to put their foot on the back of the neck of the oil industry, by restricting exploration, cancelling oil transportation pipelines and adding additional restrictive government regulations.
Oil and petroleum products are used in the manufacture of many consumer items that we all need in our daily life, and when the price of oil rises it causes the cost of manufacturing to rise, in addition to adding to transportation costs to deliver the products to our local markets and stores………….all these costs are passed on to the Consumer in the way of higher prices.
The current administration is just about 100% directly responsible for the Rising Prices due to their “Idiotic Policies”, but now the only Action they say can be done is to raise interest rates……….to slow things down……again slow what down????………..we’re currently halfway to a Recession now.
The damage has already been done………the horses are already out of the corral, and there’s really no need to shut the gate now!!!!!
We can’t go and get the money back from the people who got all the free money, because they’ve already spent it all, and now all that money is flowing and circulating through the economy.
Raising Interest Rates will only cause more economic damage, and make prices go even higher.
There’s a solution available, since demand currently exceeds supply, what needs to be done is to increase supply.
The way this could be accomplished is for Government to get their foot off the necks of businesses and let the capitalist free market thrive…………..but the Government never even mentions such a possibility, and unfortunately it looks like Government won’t do the right thing again.
The Government is NEVER the solution to anything!!!!
Again, to remind you, a Recession is a period of economic decline where consumer sales drop off, trade & industrial activity are reduced, which leads to a Recession which is generally identified by a fall in the GDP in “2” consecutive quarters.
There’s a real possibility that we might also be headed for a global recession or we’re already in one.
Here are the signs of a Recession:
- Increase in Unemployment
- Inverted Yield Curve
- Rise in Credit Card Debt and Late Payments
- Poor Stock Performance
- Consumers Losing Confidence
- Drop in Leading Economic Index (LEI)
One important thing to remember is recessions are a normal part of the economic cycle. Once a recession occurs, the economy typically bounces back again, unfortunately the possible recession that we might be heading toward will be self-imposed.
Recessions can lead to tumultuous times filled with uncertainty and fear, but fear is a funny thing…………….It can make you fold or cause you to focus. We think focusing and making financial plans for you and your family is the best course of action to get through any possible Recession.
We so much hope there’s no Recession coming over the horizon, but just in case there is, our company has made the decision to be very “Cautious & Conservative” moving forward when reviewing every loan request submitted to our company, paying special attention to the current property values.
While Property Values haven’t dropped yet, or even indicated that they may in the near future, it remains a real possibility and it’s happened before…………..What the Lord giveth the Lord can taketh away!
We always have a “Fiduciary Responsibility” to both our company’s Borrowers and Investors to look out for their best interests.
We encourage our Borrowers to be “Cautious & Conservative” when looking to purchase properties now, since they just might be buying at or near the top of the market.
Trust Deed Investors also need to be “Cautious & Conservative” when determining the “Stability” of the current value of any Subject Property when considering funding a real estate loan.
The above simply represents our concerns and a cautionary warning.