Hope everyone’s Labor Day was fun, enjoyable and relaxing

Our national debt is approximately 35.28 trillion as of July 2024.  It is 120.2% of our GDP.  However, as bad as that might be,  according to The World Bank, Japan’s National Debt to GDP is 220.5% and France’s National Debt to GDP is 116.5%.

It is very apparent that major world economies are in debt up to their eyeballs and there appears to be no end in sight or an immediate solution.

The countries of Japan, China, The United Kingdom, Belgium, and Luxembourg are our largest creditors with amounts owed to them.  However, according to the U.S. Treasury, federal debts of 24.6 trillion are held by the public and comprise the largest amounts owed.

The national debt has increased during wars and recessions, and then substantially decreased over time.

However, with all the wars that we are currently financially and physically involved in, and with I firmly believe the current recession we are now experiencing (that some say we are not yet in), how can our debt decrease?

We must take proactive steps in the right direction and decrease government spending, while still keeping a strong and modern military force to protect us against our foreign adversaries.  Families have to sacrifice and cut back their spending so too should our government!

Creating more money out of thin air has always been the supposed failsafe solution or temporary bandaid fix; but was it?  This only spurs and exacerbates greater inflation and dilutes the value of our currency.

Our reserve currency in the world is being threatened by the Brics nations (Brazil, Russia, India, China, and South Africa, (also including Egypt, Iran, Ethiopia, and the United Arab Emirates).

Approximately 90% of all currency trading globally is still conducted with U.S. dollars. However, in 2023 1/5 of oil trades were completed with non-U.S. dollars.  What is disheartening and discouraging is over the next 5-10 years other currencies or possibly one major currency will threaten our reserve currency status and become the dominant one for world transactions.

That being said, with all our debt, the effect on our real estate will be monumental. When Baby Boomers pass on, how will GenZ, Gen X, and all other future buyers have the money to purchase the existing homes?  The student debt of our children will be a continuing detriment to becoming homeowners.  Will they become the new lifelong renters? Will their long-term future wealth be stifled and decreased?

Paul Volcker was the Fed Chair under President Jimmy Carter from 1979-1983 and under President Ronald Regan from 1984-1987.  His very tight monetary policy during that period increased the Fed Funds rate to historic highs therby increasing mortgage rates to as high as 18.5%.  Inflation went as high as 14.8%.

Housing inventory increased and as this occurred, home prices decreased.  Also, this assisted new home buyers as many mortgages (FHA, VA, and USDA loans) were assumable.  Interested in moving to states with assumable mortgages?

Then check out Realtor.com on February 29, 2024; an article by Hannah Jones about these assumable mortgages and what metro areas have the largest concentration.  Today 1 in 4 government back mortgages provided over the last 5 years are assumable.

My professional opinion, we need Jerome Powell to be as tough as Paul Volcker.  For housing prices to decrease we need rates to stay higher, decreasing demand.  This in turn unfortunately will cause more layoffs, as more will need to sell potentially increasing inventory.

This may seem to be counterintuitive and not common sense, but we need to go through some increased Paul Volcker-like “tough love” for our markets to stabilize and prices to decrease and allow more to afford to purchase.

Lowering rates will only cause greater demand and more inflation causing housing prices to continue increasing. Today we have 2 bubbles, housing prices and credit card debt.

As I have said several times before we are losing our population to other less costly states, decreasing our tax base, and raising everyone else’s costs, real estate taxes especially.

This will be a huge negative for our local economy and a never-ending cycle if fresh ideas and solutions don’t materialize.

Some will agree and some will not, but look back when Paul Volcker was Fed Chair and you will see that his methods of cooling the economy and reducing inflation worked quite successfully.

Unfortunately,  the figures provided by the U.S. Labor Dept and other agencies seemed to be skewed to keep a positive spin on the economy.  Consumer spending is 70% of our economy.  On the one hand, they want us to slow spending and on the other hand, they want us to continue; which we are successfully doing.

Just look at the rate of credit card debt going up every month, because consumers have run out of money and cannot pay their bills. As I said, we are in a recession, and as the expression goes “between a rock and a hard place.”

We surely do not want to go into a depression, but, if we keep going in this fashion, with no light at the end of the tunnel, this might happen.

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. For a free 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com or via https://WWW.Li-RealEstate.Com