I was scrolling through the depressing news on CNN about our economic future and as I was reading an artcile about 7,000 more people losing their jobs and executives taking pay cuts and wage freezes something occurred to me. What if this is that wall that everyone was talking about?
For decades people have been saying that everything is out of control and that every economic indicator would all hit the same wall at the same time. Companies were charging too much for services, people were making too much income, and inflation was soaring out of control. Baseball players and basketball players were getting contracts worth $20 million a year and more. CEOs were taking in salaries that were more than twice that every year. Housing prices were higher than they had ever been and there was talk of putting the minimum wage up and over $8 per hour. People making $35,000 a year were living in $180,000 homes and driving $30,000 cars. It couldn’t go on forever and it was a financial powderkeg waiting to explode.
It looks like subprime mortgages were the wick leading to the powderkeg and $5 per gallon gas was the match that blew the whole thing up. You had to feel it. After a month or so of $5 a gallon gas, companies laying workers off like crazy, and people losing their homes it was like a balloon waiting to be popped. Then in January it popped and now we are dealing with the fallout from it.
What do I think will happen? I think people will continue to lose their jobs by the tens of thousands for at least another month or two. As long as gas prices stay below $2 a gallon you will start to see consumer prices for everything fall. Smart real estate investors are already gobbling up devalued property like crazy because they know the value will go back up. The property may not go back to the levels it was before the balloon popped but it will be enough to make a profit. By summer the jobs situation will have hit the floor and that will start to level out and even improve slightly. People will start buying things again and the economy will swing back up by Christmas time this year. But in the meantime you may want to hold on because the ride is going to be rougher than anything you have ever felt before.
If you survive until June at your job then chances are you should be safe. By then the economy would have bounced off that wall it hit and it should be turning back the other way. However this mess has been brewing for at least 3 years and it will take at least that long to clean it up. When it is over, prices will be at an all time low and you will find yourself able to afford things again.
Of course everything will start to creep back up again and we will be headed for that wall so you may want to brace for another impact in about 10 years or so and probably just as bad as this one. You would think that we would learn how to avoid hitting that wall again after what we just went through but I would not bet on any lessons being learned from this financial meltdown.
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