Okay, this Catagory 5 Financial Hurricane is upon us, and the government wanted to put $700B worth of sandbags along the short to try to keep us from facing the brunt of it. But, the people reacted, and the bail-out bill failed; at least for now.
Well, what does that mean, to you and I? And what does that mean for being able to take out a mortgage?
First, to understand the meaning, we need to look at the purpose of the bill. And that main purpose was to bail out extremely over-leveraged banks, free up liquidity, and help keep them lending to each other; and in turn to you and I when we need to borrow money to buy a car, on a credit card to buy the big screen TV, go to college, or to buy a home. When credit markets freeze at the top, that does filter down to you and I, eventually.
The good thing about the bailout would be that the markets would keep on ticking, and this financial brick wall would seem more like a speed bump – in the short run. You see, the US Government does not HAVE $700B in reserves to pump into the markets, so the next best option is to create it, to borrow it. Essentially, to put it on one big credit card. Which is what the bill proposed.
And, that is without getting into the political ramifications of the goverment entering further into the capital markets. Let’s stay out of politics here.
So, what does that mean for the economy going forward? If when Congress re-convenes they do not succeed in passing the bail-out bill, then it means that things will get tighter before they get better. That’s the bad news. In the long-run, however, the economy will grow more quickly and bigger once this crisis shakes out. Because, we will not have added that much more debt.
What does it mean for you?
Be ready for some tough times. Cut expenses where you can, and bring in extra income where you can as well.
And, freeing up cash flow may mean refinancing – since rates are so low right now. I just saved one couple just over $500/mo with a refinance that we will close next week.
If you are in the market for a home – especially if you are a first time home buyer – then you are in the right place at the right time, and are ready to ride the wave this storm brings, because:
- Rates are low, and trending lower
- First Time Home buyers get a $7500 tax credit
- Sellers all around Atlanta are going to be more nervous with all of this going on, and will likely take lower offers than they would have last week.
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