Oh, It's Coming: This Recession is Going to Bite!

http://news.yahoo.com/s/ap/20080316/ap_on_bi_ge/jpmorgan_bear_stearns_7

"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

Do regular people understand what is happening? The gimmicks are over. The prosperity over the last 20 years is coming to an end. The computer/software has reached its peak. Let me explain how I it think this happened.

The housing market overextended itself by giving people with poor credit history money to finance their homes. The people with poor credit history took the money they did have in hand and paid cash for all the computer gadgets. The cash purchases of computer gadgets allowed the economy to flourish. What that means is that there’s a lot of cash flow in society.

The problem is this: The computer gadgets that are used for common purposes have been intergraded into society across the board.

Lets follow the history of how that works.

1. In the 1980’s the P.C. was the thing to have. This thing hit the market and hit it big. Everybody wanted one. It was the thing to have. And it was a practical investment.

2. The software to go with the P.C. hit the market. Namely: The Microsoft Operating Systems. ’95, 97, 2000-Me-XP.

3. The Microsoft Office software. Namely Microsoft Word.

Everyone rushed to the stores to get the latest updates to these programs. And the money spent just flowed into society. That was a good thing because the Operating System’s and the business applications were practical for everyday use from large business corporations to the personal use at home. The biggest money stimulator, in my opinion, was from the individual buyer who took the computer home.

A side economy stimulator was the Apple Corporation. The Mac had its own niche by marketing to the creative industry. Software like Photoshop, Illustrator, Dreamweaver, and Flash got a late start but came on from the late 90’s to the mid-00’s.

That software evolved from being almost exclusive to the Mac Operating System to being able to be used with the P.C. Now there is no difference between how the software is used in either operating system.

But the money that flowed while all these software programs were being developed was huge. And that’s not to mention the Internet and high-speed access to it. That was a lot of money that was going into huge corporations and then hitting the streets. Then the telephone and all its gadgets kicked in. That’s the economy, baby!

All these things, combined, boosted the economy because most of these things were short-term investments and very practical for everyday use. In other words: You didn't need to make huge financial sacrifices to obtain these gadgets. The American dream still revolved around the idea of having a family, house, and car.

Family, house and car are the things that require a serious finacial commitment. Those things require a lifetime commitment. But the underbelly to those dreams, during the 80's to the mid-00's, was the obtaining of the technology to provide your family with every opportunity to succeed. At first the technology gadgets were very expensive but people made the investments because they weren't as expensive as a house and car. And if you mastered the technology, that could get you to the point of obtaining the American dream. Again, that technology created a lot of cash flow. But now, all of these programs have reached their peaks and they’re almost common.

In other words: People aren’t going to spend a lot of money on things that don’t make a great improvement on the gadgets they already have. Maybe the elitist, of society, can go get the latest version of all the programs I mentioned but not the common-man. The common-man isn’t going to spend huge amounts of money for what meets his needs for everyday practical use. That’s a huge slowdown of actual money hitting the streets.

With that part of the economy slowing down big time, that leaves the housing market.

From the news article link above:

“In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money. The funds were heavily invested in securities backed by subprime mortgages — loans given to customers with poor credit history. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.”

Wow! Where did the “subprime” people come from? Or how did they get their foot in the financial door of banking institutes like Bear Stearns? Creidt, of course! Credit has become the American way of survival for the common-man. It has provided beautiful homes and nice cars for a lot of people with “poor” credit history. Now combine that with the slowdown of the actual money that was being spent from the early 80’s to this present day and what do you get?

In other words: What goes up must come down. The American Standard of Living has gone way up from the 70’s to this present day and it went up on the back of banks like Bear Stearns who were handing out credit like it was candy.

All of this is common knowledge. But the silent killer in all of this, in my opinion, is the credit that was being handed out not for just home mortgages but for automobiles. Have you seen the amount of cars on our streets? Have you ever thought about just how many of those cars are being driven on credit? Almost all of them! How ridiculously absurd is this situation? Just look at the gas prices. That’s how much cars we have on our streets. The demand is too high from a bunch of people who are living on credit. This is the silent killer.

Most people don’t buy their gas on credit. They pay cash. That cash at the pump is taking away from having loose money to spend on gadgets. That’s not to mention the price of food.

Here’s the question: How many people with poor credit history can really afford both a house and a car? And how wide spread is this situation?

“In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money…”

Yikes! That’s how wide spread it is.

The crunch is on!

I don’t think the recession is going to bite this year. The prosperity from the 80’s to this present day was too great. We’re living with an excess of material gain. Once that gain is depleted, then the recession’s teeth will be felt.

The next President of the United States of America has that to deal with. That should be the main concern of the American people.

mike