the inevitable fulmination of 2008

Setting: a panoramic birds-eye-view of suburbia with then sun shining and birds singing; moving from left to right, the even cut grass, identical roofs, and perfect little picket fenced-in yards. It’s the perfect scenery for the beauty of life to be created and raised, little families blossoming in their all-too-close together homes. It’s 2008 and the inevitable is upon every single one of these homeowners. Thrust into an economic downward spiral initiated in the 1990s, the massive bubble of perfection was about to fulminate. The housing market crash of 2008 was an inescapable consequence due to the faulty economic choices made by both the nation and world in the years leading up. 

            In the 1990s, China began to be a world leader economically. It set into motion an economy based on exports, which set it up to become the second-largest economy in the world (Jenkins). The savings rate of the developing world soared and went far beyond its investment rate. This, in turn, created an inevitable fall in the long-term interest rates; additionally, it would cause increasing asset prices, especially house prices: the housing market bubble.

            A housing bubble is a run-up on housing prices that are fueled by a dramatic increase in demand, speculation, and the belief that recent history is an infallible forecast of the future (Housing Bubble). Such housing bubbles are predictably started by a shift right on the demand curve as a result of a limited supply, which takes a relatively long period of time to replenish and increase. The biggest issue with this is that individuals whom enter the market believe that profit can be made from short-term buying and selling; however, this drives demand. When the demand drops, a shift left in the demand curve, and increases simultaneously, resulting in a sharp drop in prices and thusly the bubble bursts. This traditionally happens in other markets; in fact the housing market is not as prone due to the large transaction and carrying costs that are associated with house ownership (Housing Bubble). So what really caused the “inevitable” crash? One has to backtrack from the 1990s to 2008 in order to understand what happened.

            Following the events of September 11, 2001 and the dot-com crash, the United States was left in economic pain. The solution came from dipping into the Federal Reserve in order to cut interest rates to record lows (Jenkins). Real estate markets reaped the benefits and drove the financial vehicle of the country, eventually right off a cliff.

            There was too much homeownership. From 1994 to 2004 there was a homeownership increase of 5.2%; this meant that a record 69.2% of people owned a home (Merriam). This caused people to buy for speculation instead of for shelter. It was identified that 23% of homebuyers had identified their purchases as investments: house flippers. Real estate flippers are battling a whole minefield of problems in order to make some big cash. Problems with borrowing, insurance, renovations, inspections, market conditions and more can make a huge dent in the tens of thousands of dollars they could make on one flip (Flippers).

             Low interest rates made money cheap and cheap money had caused rates to drop to 1% from the 6.5% in order to overcome recession from 2000-2001. Consequently, the dot.com bubble burst brought in an influx of money for residential real estate (Merriam). People invested with the assumption that it was safe.

Bank-pressure resulted in simply bad lending practices from reduced jobs and income led to countless defaulted loans. The situation became that people jumped at the idea of achieving the “American Dream” when it seemed plausible. Legislation and changes to the Community Reinvestment Act of 1977 encouraged commercial banks to lend to low-income households (Jenkins). This pushed for greater homeownership; it was not directly meant to create such loans for securitized investments. However, it did encourage under-writing standards to decrease.

Economically, the perfect storm was created: the combination of September 11, 2001, the burst of the dot-com bubble, Federal Reserve spelunking and plummeting insurance rates. Loans were pooled together to keep such momentum going and caused alternative mortgage products or AMPs (Jenkins). AMPs were bad and toxic assets; they created a circumstance in which the borrower maintained very little in property equity. In addition, borrowers were able to defer on repayment for several years and caused increases to be faced that resulted in payment shock. In the end, the system broke and the bubble burst.

In the 2009 Congressional testimony by Federal Reserve Chairman Alan Greenspan, it was the “global proliferation of securitized US subprime mortgages” that triggered the crisis (Jenkins). However Randal O'Toole (an Oregon native, educated in forestry at Oregon State University and in economics at the University of Oregon) has a different opinion. He believes that local factors, not national policies, were a necessary condition for the housing bubbles where they took place (O'Toole). O’Toole backed his beliefs by referencing how the burst effected certain areas much more drastically than others. In 2006, research was done to model what would happen if a real-estate crash were to happen. They concluded that one cannot be sure of the scale of shock simulated could be sufficient to put the United States into any sort of recession. However, it was acknowledged that the burst could have serious and adverse consequences despite unknown exact size and speed (McKibbin).

Yet if one walks around their suburban fence-lined neighborhoods, it is very easy to run into a stopped project. The burst caused a “cease-fire” in many real estate building plans, with some neighborhoods adjoining a cluster of five houses where twenty-five had been planned. From the research gathered above it is clear that the relevant truth is that a trickle-down effect of poor economic choices caused our nation to be faced with a harsh reality, with no one to blame but ourselves.

the inevitable works cited

Works Cited

"Flipper." Definition. Value Click Inc., 2012. Web. 19 Dec. 2012.

"Housing Bubble." Definition. Value Click Inc., 2012. Web. 28 Nov. 2012.

Jenkins, Jason. "Understanding the Housing Market Crisis." Investment U RSS. N.p., 2012. Web. 30 Nov. 2012.

McKibbin, Warwick, Prof, and Andrew Stoecke, Dr. "Bursting of the US Housing Bubble." Economic Senarios.com. Economic Senerios.com Pty Ltd., 2006. Web. 28 Nov. 2012.

Merriam, Dwight. "Cause of the Housing Bubble, Burst and Recession Revealed: It's Growth Management." Planetizen. Urban Insight Inc., 2012. Web. 30 Nov. 2012.

O'Toole, Randal. "How Urban Planners Caused the Housing Bubble." Cato Institute. Cato Institute, 1 Oct. 2009. Web. 19 Dec. 2012.

fiscal cliff

According to the New York Times, the fiscal cliff is a metaphor for the possible $500 billion in tax increases and across-board spending cuts that are scheduled to take place January 1, 2013. This is unless the Obama administration and Republicans can reach an alternative deficit-reduction deal. If the deadline is reached before a new deal is decided on, then taxes would raise dramatically for nearly every taxpayer and business. In addition, the financing for most military and domestic programs would be cut.  

The problem is, that the emergency unemployment plan placed to save $26 billion (but end payments to the millions of Americans that remain jobless and have exhausted 
state benefits) is expiring. Medicare payments to doctors and physicians would be reduced by $11 billion. This is because Congress this year hasn't passed the expected fix which blocks the cuts; that have otherwise been required by a 1990's cost-control law. Yet, the largest amount of cuts would come from $65 billion from federal programs that would be concluded throughout the final nine months of the 2013 fiscal year. This cut was a mandated deal made between Obama and Congress in August of 2011, in order to end a standoff in raising the nation's debt limit. 

Simultaneously, the Bush-Era tax cuts are about to expire. In 2001 and 2003, President Bush and the Republican leaders of Congress thought that they were rewriting the tax code permanently; however, the laws passed actually gave the cuts an expiration date at the end of 2010. Yet in 2010, President Obama and Republican leaders made a deal to extend the expiration dates back two more years. This was done as part of a broader package meant to support the still-fragile economy. Basically, what this all means is that Americans are looking right in the eyes of the beast and Congress is too scared to shoot it down in it's path in order to prevent dramatic tax increases across the board. 

manifesto

consider personal beliefs are regarding to what degree the federal government should influence the nation's economy

church and state There is a very distinct connection between church and state presently. I believe that the connection should be much more divided than it presently is. Individuals in the media have made religious beliefs a major role in campaigning and profiling of candidates running for offices. This is because religion shapes ones beliefs and creates a bias toward specific rules and regulations imposed. For example, the presence and acceptance of gay marriage had become a major factor in the campaigning race; and was particularly present with this past 2012 election. I believe that the government has no right to have any say in whom people can or cannot marry. Personally, I identify myself as a religious individual and my religion does not support gay rights. Yet I feel that this issue is a personal choice every person has to make and their decision should not be regulated by the government. Economically, the government has bigger problems on its plate than individuals rights and the restriction of such rights. 

education As a cornerstone of our current economic situation  education should be at the top of the governments issues list. I feel that our government should be most focused on internal affairs rather than external ones. Education is the single most prominent internal affair which affects our economy directly. The higher education individuals are able to receive  the more of an educated country we may have. This in turn could mean more people in the work force, more people able to perform more advanced jobs, and the ability for our economy to grow under an intelligent working class. People need higher education in order to achieve most "american dreams". So why are costs skyrocketing and admission rates plummeting  Because the government refuses to put a price moderation on the cost of tuition for higher education. 

In addition, education begins at a young age; Public education grants are being cut and teachers are being let go. This means larger class sizes and less individualized attention that children need. It has been proven that the more children are able to absorb and comprehend at a young age, the more they will retain as they get older. Increase funding for the education system would only benefit the economy since it creates more jobs and pumps money into the market, since as well all know, with more jobs comes more money to go around. 

military funding This last topic, is by far the most controversial. Military funding, has forever, been something that bothers me greatly. I believe that the governments pumps way to much money into a military that then pumps money into other countries to be doing the United States any good. With such an immensely large debt, it is fascinating that the United States chooses to maintain the largest military in the world an yet cuts things like healthcare and education from budgets. Of course I do think that it is important to help other nations and countries in need, yet not at the extent which it happens. I think it would be economically mindful to reduce the size of the military. Not cut it completely, but reduce the man-power and the production of fire-power. 

minimum wage

I believe that minimum wage is key to keeping the American economy in balance. Especially with such a high cost of living and cost of goods.  If people were not given the opportunity to obtain the ability to live comfortably then the economy would crumble. I believe that the federal minimum wage should be raised to $8.00-$10.00 per hour. This would make the most sense since then anyone in America could both work and live a conformable lifestyle. By pumping more money into the economy, more people would be able to spend more. This would only continue to benefit the economy positively. Personally, I am a high-schooler that makes over $10.00. I am unable to work full time and can only work average 12hrs a week. By buying more and more groceries and having to help out around the house, I physically see the price and cost of living by just picking up eggs, milk, and bread once a week. Thankfully I don't have to buy my own yet, but i still see these prices first hand almost weekly. I believe this is an important perspective for all young adults to have in these economic times. 

price floor

Price floors seem to be a somewhat ineffective regulator when considered for general products. However, they appear to be effective when applied to minimum wage or gasoline. By setting a price floor for gasoline, the demand and supply are able to remain above the demand equilibrium. This is important because if there was not enough gasoline to go around, people (in mass quantities) would get very upset very fast. If there wasn't a price floor for a products such as gasoline, there would be lines and lines of people by the thousands to stock up on gasoline if it dropped dramatically in price. By initiating a price floor for minimum wage or gasoline, supply and demand are able to stay high enough that there is not a shortage of an important product which fuels the economy so directly, and in some cases, literally. 

price celing

When price ceilings are non-binding and appropriately regulated, then they can be effectively implemented economic tools. When established as non-binding price ceilings, demand and supply are able to stay up. Customers are willing to pay slightly more for a product as long as there is plenty to buy. If price ceilings were binding, then suppliers would drop out and cause a shortage in the product. Especially because if costs are lowered too dramatically, then quality is often reduced as well. By providing a product that is attainable by many and supplied in plenty (with good quality) then the product will be able to be economically stable. I would personally put price ceiling son things like tobacco, alcohol, and other addictive products. This would discourage young people to attempt to purchase such products while still allowing the legal buyers to purchase such products. 

supply

inelastic supply: salt












 elastic supply: coke brand soda

gasoline

Gasoline is a predominately an inelastic resource because most people, especially in the United States, are willing to pay whatever it takes for gas in order to maintain the comfortable lifestyle and commute which they are used to. I know that for my family, this applies to us. 

My dad drives over 30 minutes to work every day, my mom only drives 10 minutes, and I drive 25 minutes to school every day. The interesting part of this is the kind of "fuel efficient" cars we all drive. My mom drives a 2007 Chrysler Sebring which gets an average 32 mpg on the highway. However she doesn't drive very far so she doesn't have to refill the tank often.  

My dad drives a new Kia Optima which gets an average 36 mpg on the highway; this is a good thing since is drive to work is mostly on the highway. The great thing about this car, is that it also has an eco button which provides for better usage of gasoline; this make the best use of gasoline for my dads commute. 

However, I drive a 2001 Dodge Durango. This car gets an average 12 mpg on the highway. I probably drive the farthest overall on an average weekday in comparison to both my parents and yet I drive the least fuel efficient car with the largest gas tank. With today's gasoline prices, it takes about $80.00 to fill up the tank approximately every 12 days. Yet, the price and frequency wont alter which car I drive nor the need for it as means of transportation.

demand wrap up

elastic and inelastic

demand headlines

1. Complementary goods/services: Nike Makes New Shoes, Stocks Skyrocket
2. Substitute goods/services: Timbers Funding Ended, REAL Football Team to Come for Oregon
3. Elastic demand: Pepsi Shuts Down, Coke Sales Triple
4. Inelastic demand: Milk Reaches Ledge and Dairy Prices, Customers Grumble and Businesses Hurt

Milk Reaches Ledge and Dairy Prices, Customers Grumble and Businesses Hurt

With dramatic droughts in the midwest resulting in unfed cows, dairy and milk prices skyrocket. While customers claim they can go without most dairy products, milk is an
essential most cannot get by without. Albertsons store manager in East Foothills, CA, Larry,offered comment on the scene, “It’s difficult to have such shortages combined with such high prices. The store hardly ever has enough milk in the fridges to last a week of sales anymore, and customers are cranky.” It was evident that throughout the country, the increased prices are not only hurting large businesses and customers.
Small businesses and local stores are really feeling the pressures of price. Marge and Bob owners of Homegrown and Locally Owned, are only two miles from Larry’s business, but feel the pain much more than Larry does. “Our produce and dairy stand is our main source of income since we’ve both retired,” commented Marge. “ “Since the increase in prices, we can’t afford to stock up any dairy prices in our store,” admitted Bob.
But the big hit in the wallet goes to the primary consumers of dairy products. These are the local bakeries which were once booming here in East Foothills. Already, one hispanic pasteleria has gone out of business with the Cupcake Shoppe and Bundt-Cake Bakery struggling as well. Mary, the head baker of the Bundt-Cake Barey had little to say positively on the matter, “It has been difficult to complete our custom orders, especially larger cakes requiring more butter and milk than our mini-bundts.” However, the Cupcake Shoppe appears to be finding some stride. “With the high prices and consistent demand for our cupcakes, we have had to look at alternatives. We have recently discovered some alternative recipes that are primarily vegan that taste delicious. We are excited to start selling them to the public later this week!”
With adversity, comes success. Even though the prices have hindered so many and hit the wallets hard; some are still able to rise above it and find new ways to make products available to their customers. Yet, hopefully the drought subsides and the rains return to the midwest soon.

demand

http://www.dsw.com/shoe/mix+no.+6+allure+pump?prodId=224366&cm_mmc=CSE_GPS_MixNo.6_224366&mr:trackingCode=9FA12125-94BD-E011-AC9E-001B2163195C&mr:referralID=NA&mr:keyword={keyword}&mr:ad=22396556624&mr:adType=pla&adtype=pla&mr:match={matchtype}&mr:filter=45065145584

market economy

In a market economy, the advantages seem to greatly outweigh the disadvantages. With six advantages versus four disadvantages, the comparison is blatantly obvious. Clearly, a market economy is the most stable and economically solid economic system. 

I think the key advantage of a market economy is that there is an incredible variety of goods and services which better the economic system. With such a diverse product market available to the consumers, almost anything desired can be obtained. This is especially true with the ability to customize needs and wants. 

Recently, I was able to custom design a t-shirt for the yearbook staff and even further customize the design by making three separate shirts that indicate "editors" on the sleeve. With the availability of custom made things like screen-printing, any consumer can get exactly what they want and how they want it to look. With the digital advantages and technological advances, anyone can even create their own unique designs and transfer them into a screen print and into a shirt by simply scanning it and digitizing the image. 

I greatly appreciate the advances which are readily available to consumers. Businesses, such as custom screen-printing have only become big within the past few years.... I wonder what the next opportunity in business will be, taking into consideration the conditioning advances in technology?

the true cost of opportunity

Every time I look in the mirror, I see the reflection and the repercussions of each choice I have had to make in my life. From sports, to school, to my own health, each of my choices have led me down a different path in the road forks of life. Sometimes, I wonder what would happen if I hadn't made some of these decisions.

The biggest decision I have made in my life is the way I live it and my health. For the past few years I have sacrificed my heath for the sports I love. In eighth grade I first began to experience the repercussions of the strain I have put on my body. Playing volleyball year-round and running track killed my back. So when it came time for high school, my parents made me choose: volleyball or track. I chose volleyball and my opportunity cost turned out to be my ability and love of the track. As an avid runner, I love the competition and the concise victory that comes with every win of track. I lost this individual champion experience when I chose volleyball. 

Lately, two concussions and three rolled ankles, paired with months of physical therapy to continue to excel, I risk injuring myself every day I step out on the court. In fact, last night I got a hairline fracture in my index finger from blocking. (This typing this is a slight struggle). Yet, I take this risk because I love what I do. And my opportunity cost is my prolonged health. My doctors have told me that my brain will never been as intelligent as it once was, and that getting another serious concussion could cause some serious damage and probably require surgery. They have also warned me that if i roll my right ankle one more time, I will have to get a pin in it. Yet, I am 17 and the only thing I do not fear, is injury. Sometimes it hits me, and I worry, but so far, it has been worth the risk. Five colleges have offered me playing spots for next year. 

If I do play volleyball next year in college, I may have to leave my family in order to do so. I have traveled a lot and that has never been a problem for me. But this summer, I first experienced true homesickness and I'm not sure if I can handle that going forward. 

So now I am faced with a choice, will I be able to make a decision that could forever change my life? Can I leave everything I know and love to follow the thing I love the most in this world? My dad did it, so maybe, I can too. 

scarcity of time

Time is such a precious resource. We fail, as a people, to realize the fact that there is truly not enough time in our lives do to everything we possibly can. Individually, I fail to be able to complete all my necessary daily work, from schoolwork to athletics,with the time there is in the day. Compound this with an obvious lack of sleep, and time becomes my most needed commodity. 






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