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It’s No Great Depression Again

Mortgage rates improved and US stocks fell for a fourth straight week as concerns grew about the possible default of smaller European nations, Greece and Spain, will stall the economic recovery. These countries are limited in their ability to adjust domestic economic policy as members of the European Union, increasing the risk of defaulting on government debt. The National Association of Realtors reported that Pending Home Sales increased 1% following a record 16% decline in November. According to the Bureau of Labor Statistics, the unemployment rate fell from 10% to 9.7% in January, while job losses were essentially unchanged compared to the month prior. Employment fell in construction and in transportation and warehousing, while retail and temporary employment gained jobs. Additionally, the under-employment rate, the broadest measure of unemployment (U6), fell from 17.3% to 16.5%. Currently, the 30-Year Fixed sits at 4.625% (4.804% APR) and the 15-Year Fixed is at 4.125% (4.432% APR). Retail Sales, which account for approximately 70% of economic activity, will headline a light week for economic data.

Thanks to an article written by First Trust Portfolios’ Chief Economist, I was able to put our financial turmoil in perspective. Many economists have suggested our current downturn is a repeat of the Great Depression, worrying that when government stimulus winds down, the economy will tumble again. Between 1929 and 1933, real GDP fell for four consecutive years, and by a total of more than 25%. The Federal Reserve also made a huge mistake, allowing the money supply to decline by a third. At the same time, President Herbert Hoover increased the top income tax rate from 25% to 63% in 1932, reducing the incentive to work and invest. By comparison, today’s economic growth is on the rise for a second straight quarter after less than 12 months of decline, the Feds are making money readily available with a fed funds rate between zero and 0.250%, and current tax rates top out at 35% and are scheduled to increase modestly in 2011.

Central Coast Lending, Inc.
(805) 439-2300

Written by Keith Byrd - Go to Keith's Website/Profile