My Boat question turned into advanced economics #101 class. :USA:
My apologies to somewhat hijacking your thread. You have some excellent answers here and your boat looks to be priced right and is in great shape.....good luck with your sale.
Laughing Cat.......believe me I am on your side and wish that everything will turn around and get much better.......but I have a few questions that bother me.
Recently, the government implemented a "Stress test" for banks. Basically they are making sure that the banks have enough capital to be sound while suffering the losses they have incurred. For the banks that don't pass the test, they are being asked to put in more capital or raise more capital.
Bank of America was found to be the weakest of the banks and it was determined that they needed another $34 billion, approx to be safe. They sold assests, like their shares in the Bank of China and sold stock and will raise more by converting some preffered stock to common stock.
Whew, everything will be fine now right?
Well maybe, except for Mr Joe Smith who lives around the block from each one of us. Mr Smith has been a wonderful citizen to date, had a steady job, paid his bills on time, raised a family and contributed back to his community. Mr Smith, through no fault of his own got laid off last fall. Pick any scenario, his company no longer exists. He really truly believes in his heart, that he will get another job soon and continues to look, but nothing yet.
Yesterday the Federal Reserve said unemployment could get much worse like 9.6 % rather than 8.8%
Now the corner strip mall that Mr Jones and his family have been going to for years has a number of small businesses in it. Since Mr Jones lost the job, he and his family don't go as often anymore and have begun to notice that some of the stores have gone out of business and ....For Lease.... signs, are in the windows.
Even though Mr Jones doesn't have that income anymore, he really believes that he is just a day or so away from his next job, so he continues to put some necessities on his credit cards, so he can make his mortgage payment from his available cash.
When the commercial real estate market..Strip malls...and other types, begin to fail, the banks are looking at another round of foreclosures in much bigger amounts than the housing market was. Here comes that nice government man again to ask for more capital to absorb these losses.....more sale of assets and more stock and ...Whew, we did it again.
Nice job, but here comes that pesky old credit card market. Many Mr Jones' have now realized that the new job isn't coming and they have no way to pay the credit cards off, so they have to default....sorry. Yes we know, here comes the government man again and maybe some banks can even do the capital infusion a third time, but many won't make it.
Meanwhile back at the ranch....normal businesses have been trying to borrow money to keep their business alive and their banks are telling them....Yes, you have been a great customer but the government is making us keep higher levels of core capital to pass this stress test, so sorry, no money for you.
The great stock market crash happened in 1929. In 1928, the country was in a recession and the housing market was struggling. The government...yep them again, chose to raise the discount rate to the banks from 3.5% to 6%. They effectively cut the available money supply.....sound familiar..no money to borrow. The legislators at the same time were passing a protectionist tariff. No money, no chance of import export trade to help. The market reacted and in three days in October 1929, the market collapsed.
In 1932 Roosevelt replaced Hoover as President and began a massive Goverment Stimulus plans...sound familiar? The National Industrial Recovery Act in 1933, forced 2 million businesses under government control, with a huge federal bureauracy that set everything from production to pricing. Sound a little like the GM and Chrysler scenario to you?
Experts agreed later that if the government stayed out of the problem, the depression would have been over 7 years earleir. Roosevelt never saw less than 14% unemployment during his 8 years, despite all the stimulus money and programs he threw at it.
So here we are at 2009.....this is either going your way and get better or the other way and get worse.....what is worse? Only time will tell.....we both can't be right....and believe me I am really rooting for your side to win.
Now, I'll shut up and we will just have to wait and see what happens.
PS Please send me your web article, I'd love to read it.
