Tuesday, June 7, 2011

The 2nd Biggest Government Help ever?

No Government and politician intent to do bad for their country. In our "Modern Society" we expect help from Governments in anything and everything... and hence they do their best to please us and of course to remain popular. They talk very positive, take initiatives to help people. Here is the case study of one such "Big Initiative" from government that's not the biggest but perhaps 2nd biggest help ever.

Back in 2002, redefining American Dream, Then President George Bush declared an initiative that will help Americans become Homeowner. He bought Real Estate Industry, Mortgage Lender, Insurance Companies together and very openly encouraged home ownership.

1) He removed down payment "barrier" by "American dream down payment fund". 
2) Provided Tax Credit for single family home for 1st time buyer.
3) Simplified process that had complex "rules and regulations".
4) Made it feasible for people with poor credit rating to buy home.

He called it America's Home ownership challenge and Funded this help by hefty 440 Billion USD. In 2002 Goal was to make 5.5 Million People Homeowner. Here it is in his own words.

It was a great initiative it became key catalyst for Major economic boom form 2002 - 2007. Most importantly it helped driving home ownership as well. If you see in graph below, Home ownership grew by almost 1.5 % ~ 4.6 Million which was in direction to Target President had set i.e. 5.5 Million that too in matter of 2 years.

US Housing Graph Home ownership back at 1998 Level and continues...

Now, everyone know it didn't last long......... and how it became the "root cause" of 2008 Economic collapse, Lehman Brother, AIG episode, etc..etc....etc..........

Irony of the story however is despite creating "new 5.5 Million" Homeowners, this "help" resulted in "total 8.6 Million" people to lose homes..to make it worse 4 Million people had homes in 2002 before this speech and initiative. . 

On a different thought.. probably Government had a chance to increase home ownership by considerable percentage if they would have allowed real estate balloon to freely burst. It would have been an economic catastrophe however once it would have reached bottom, home prices would have reached so dirt cheap level that probably everyone would have been homeowner without much  debt at all. 

Anyways.. before closing I think let's speak about biggest help ever. While Bush's help started with 450 Billion USD in 2002. this started with 1 Trillion in 2008 and has already reached 2 Trillion (officially). Some argue that it's actually 9 Trillion. For common man like me both figures are beyond comprehension.  But it's definitely much higher than 2002 help. So let's see what results we get down the road of this "help". Let's hope it goes right this time; as that's what we will like to hope in 2011.

Monday, June 6, 2011

Significant economic events 2011

It was a simply crazy time since 2011 started. Huge workload at workplace and can clearly "feel" increase in business activity. Not sure if we all are getting same feel but at least I felt so. Lots of things were happening in parallel that could have been written about..... anyways just trying to write about key news and happenings that have "significance" long term impact..

Product of Past
In Jan 2011 visit Hu Jintao called current dollar based system as “Product of the Past”. This was a very significant statement. He even did not bothered to say it's today's system while fact is it is. USD is a very crucial factor to macroeconomic stability.

The Revolution.
In a very very significant series of events in Middle east, "Common Man" shown his strength in unthinkable series of events. We have been discussing about civil unrest, revolutions for a while in this blog. Although I anticipated this as aftermath of inflationary era in which we are now in; for some countries probably it was already enough to revolt against powers.

Towards Country net?
One of the key catalyst to middle east revolution was Internet, Social networking tools and Blogging. It was so crucial that at one stage in Egypt they actually closed Internet. As aftermath of all this I suspect more and more monitoring of internet and restrictions that may not keep internet as Open Society any more.

Japan in Distress
Japan's earthquake and followed nuclear disaster was another shock to world. We saw in front of our eyes how fragile life is..

Dr. Ben Bernanke thinking good Name for QE3 ?
Dr. Ben Bernanke Chairman of Fed is in bit trouble. So far Fed was able to pass QE1 QE2. In simple terms Money supply increase by 1.8 Trillion as can be seen on Graph Here Before Housing crisis Money Supply was ~800 Billion USD i.e. from (1913 - 2008) and it became ~ 2 Trillion post QE I and 2.6 post QE 3.

In 2002 Dr Bernanke Said.

"The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost." "Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation."

Following his Philosophy he increased Money supply like this (Printing money and buying Houses, Student Loans, and what not). Now despite expanding money supply by this much %, Data is talking about Double Dip and QE2 is about to be completed in June 2011. So Dr. Bernanke (Who I think represent our generation )  must be thinking of finding good terminology for QE3.He will face more criticism for QE3 than QE 2, but when I read above statement I have no doubt he will do it. However it may be interesting to see what name he gives to this additional Money Printing.

In General I think year started well with very high economic activity. On Negative side there were revolutions, natural disasters, Now economy is cooling a bit (Although Revolutions are still on in Middle East)