Wednesday, November 18, 2009

Double Dip Recession Possible Says President Obama


A double dip recession is "possible"
according to President Obama if government spending is too excessive.

Given that the current Federal deficit represents 12.9% of all U.S. GDP, I would like to ask Mr. Obama exactly how much debt and spending is "excessive."

Our President has no credibility as a deficit hawk. Today, his Senate is working on a new TRILLION dollar health care bill and his House wants a new stimulus package to create jobs in the $500 billion dollar range.

Again, how much spending and how much debt equals a double dip recession?

I say the threshold was past a long time ago. I also would say that if the problem is too much debt and spending like Mr. Obama predicts then isn't the answer to just stop borrowing and stop spending? Like the old axiom, if you are in hole the first step to getting out is to stop digging.

These levels of reckless borrowing and needless spending are almost certainly making the current 10.2% unemployment rate a floor, not a ceiling.

So why should real estate investors care about all this? If you want to buy real estate at the current "cheap" prices, like a condo down the street or a building near the mall, why care about U.S. GDP, the price of gold, the value of the dollar, or any of this other stuff I rant about in this blog.

Simple.

Real estate values in any given area are based on that area's net personal and corporate income. Period. End of story.

When an area, a country, a town, a city, a county, a village back in the hills, whatever, gets richer, real estate values rise in that area. People spend more, they have more jobs that pay a higher wage, and therefore can borrow more money on mortgages and are not just likely to buy properties but can afford more expensive ones. This is why real estate values fall in a town when a factory closes, or why a new development project with lots of jobs makes surrounding properties more valuable.

The problem for real estate investors is obvious and even Harry Reid could see it if he tried.

There currently is no emphasis anywhere on job creation, the key to ending the real estate and national recession and actually making the nation richer.

More regulation of small business, the key job growth engine, more taxation on everyone rich and poor, more public spending which deprives the private markets dollar-for-dollar of capital, and all the rest currently happening in Washington destroys jobs.

You see my frustration? We need to put people back to work, not give them new extensions of unemployment benefits.

So why buy real estate now? I can't see any good reason, especially when prices are still falling and likely will be falling for some time. Plus net returns for real estate investors in rental properties will be flat for years and lag all other reasonable comparable indexes (like the Dow Jones Equity All REIT Index, ticker REI) for even longer.

I'm so glad Mr. Obama agrees with me that excessive government debt and spending can cause a new recession. Unfortunately what he will proscribe in the State of the Union address is more taxes to cure all this.

Sir, I'm sorry but that won't work.

Robert J. Abalos, Esq.