The Very Few Positive Signs in the Economy

Amidst all of the talk of economic Armageddon, falling home prices, a declining stock market, rising foreclosures, a weak dollar, and food and energy inflation, it is difficult to find many bits of good news for the average homeowner. Since the subprime crash and credit crunch, seriously negative conditions have been prevailing in the market for over a year now. But it is also important for all people to look forward to something potentially positive in the days ahead.

The Very Few Positive Signs in the Economy
By [http://ezinearticles.com/?expert=Nick_Adama]Nick Adama

Amidst all of the talk of economic Armageddon, falling home prices, a declining stock market, rising foreclosures, a weak dollar, and food and energy inflation, it is difficult to find many bits of good news for the average homeowner. Since the subprime crash and credit crunch, seriously negative conditions have been prevailing in the market for over a year now. But it is also important for all people to look forward to something potentially positive in the days ahead.

Housing prices are going to continue falling for quite a while, which is a negative for many homeowners, but will bring values down to the level of real affordability. The real estate bubble was pumped full of artificially low interest rates and cheap money; along with declining lending standards among large banks and small lenders alike, the crash was inevitable after a historic run-up in home prices. In fact, prices are falling to levels not seen since the early 1980's, which may soon open up the markets again as consumers are finally able to afford to purchase properties without resorting to unnecessarily complex mortgages.

The low interest rates that prevailed years ago is having a direct impact on rising prices in the economy right now. Interest rates can affect the cost of short term borrowing as soon as they are changed, but the long term effects are not seen until years later. So rising commodity, food, and energy prices may simply be a result of the extremely low interest rates the Fed used to combat a perceived (but entirely incorrect) threat of deflation after the 2001 slowdown.

Because of these too-low interest rates, the dollar has been getting steadily weaker, and the Fed's policies of exchanging subprime mortgages for Treasury securities has not helped. But now the rest of the world is following the American example and devaluing their own currencies just as the Federal Reserve has been either rising or holding steady interest rates. This is having the effect of strengthening the dollar and actually reducing prices slightly in the commodity and energy markets.

Oil also bears mentioning as a potential positive; namely, a stronger dollar will decrease the price of energy. As well, at around $140 per barrel, oil sells for about twice what it costs to produce it, which should be a clear sign of either its relative scarcity or that there is a bubble in the market. Foreign countries, which had historically subsidized oil and gasoline prices for consumers, are ending these subsidies, which will instantly drive up prices at the pump. For many people, this will necessitate a decrease in demand, driving prices in America down further.

Although these are just a few, relatively small, positive signs for the economy, they may provide some relief to homeowners and open up the housing market again, or at least take off some of the financial burden. And the best part of each of the examples listed here is that they involve either no government interference or less government interference in the markets, which may lead to prices actually declining for once. Granted, there are still serious threats to consumers that will need to be overcome, but the bottom of the market may finally be on the horizon.

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