When it comes to the world of business and high finance, I am a first class schmuck. I admit it and could never even begin to hide it.Yet, this out-of-the-closet, financial ignoramus seems to be making an observation about things lately; things that usually mainly concern the economists, politicians and bankers of our world.
I actually subscribe to a rather mainstream, conservative, small player financial site on FACEBOOK which discusses the day to day challenges of investing - very much used by the little guy - hence my interest. I guess that part of me that still maintains, someday my ship will come in, wants to know what to do with the excess when it does, so I have been loosely keeping my ear to the ground so I won't miss any distant, important rumblings.
Here is what I have observed. And for those of you who know this stuff inside and out, up and down, I apologize and beg your indulgence while I set the stage, cause I really do have a point to make here.
See, what I have noticed is that since I was a young woman, some thirty years ago or so, interest rates have slowly gone down and therefore, so have mortgage rates. I remember mortgage rates being as high as 17 per cent. Working class people in my home city were organizing meetings to see what they could do about it. It was the late 70s and early 80s and North Americans, indeed, most of the world, were experiencing ballooning inflation for the first time since the Great Depression. Times were desperate. Even buying a five pound package of sugar took some forethought.
So, rates are now as low as a bit over two per cent for floating mortgages - those which are dependent on base rates set by the banks of our nations - and that makes our economy look REALLY good. If we were aliens who had just landed, we would assume, upon our discovery of how inexpensive it is to borrow money to purchase or build a home right now, that the prices of all commodities are equally deflated. But that is just not the case. Indeed, from what I can observe, prices for just about everything else are so high our world has just survived a rather major, frightening global recession of sorts. Only the presence of long term credit has kept a good deal of us from losing our cars, homes and perhaps our lives, for those who are sadly worse off. Not a pleasant picture.
And that's a darned shame. Not that effort hasn't been made to rectify it.
In the U.S. in particular, the federal government designed guaranteed mortgages for people who had never owned a home before because of financial limitations. But we all know where that has taken them. Properties in Florida, in particular, are selling at all time lows as banks, now stuck with defaulted mortgaged homes that those same self buyers who took advantage of that special program, have vacated, mostly because, frankly, they were oversold. What a joke.
Elsewhere, the housing market has boomed over the last ten years or so, in response to low mortgage rates. Housing has inflated, somewhat artificially, in larger cities, almost double. I mean, WOW! When everyone started to purchase again and housing starts went up dramatically, housing prices and building supplies skyrocketed. Supply and demand, plain and simple. Governments' attempts to artificially lower interest rates and thereby mortgage rates, in order to stimulate buying, in the long run, backfired. I imagine being a homeowner in one of these cities is not unlike being on a rather desperate treadmill, that keeps getting faster and faster.
What I don't understand is why nobody had the foresight to see this coming. I mean, I'm no genius when it comes to this subject - I think we've established that much already - and I didn't miss it at all.
This is how it really went down:
People can't afford stuff so government cuts rates of borrowing money so they can - Once they can, they do and, everyone who has been hurt by the previous lull, jumps in with both barrels, takes advantage of the lower rates by raising prices of whatever the market demands and, voila, we have inflation, all over again.
I guess this is what Jesus meant when He said the poor will always be with us...
Smart man. But then, Judas was his treasurer and he dipped into the communal purse all the time when nobody was looking.
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