Wall Street had a bad day yesterday, down 416 points. This wasn't surprising since other markets were down the night before predicting a tough day in NYC. Economic indicators have been bad for a while, mostly centered on the housing market. President Bush has be hailing his economy as healthy but it hasn't really been since he took office. Job creation under his tax policy has been stagnant. Each month we must create 120,000 new jobs just to keep pace. This is the result of population gain. If you see job growth numbers under that figure we're actually losing ground. Under Bush we lose ground more than we gain.
Bush supporters applauded when the Dow Jones finally broke a record last year. Actually this didn't used to be all that unusual. In good economic times the Dow Jones Industruals frequently set new highs. It stagnated under Bush in spite of record corporate profits which was quite unusual. Stocks usually thrive on profit reports. There were many, many, very healthy profit reports the past six years. Remember Enron's?
The underlying problem with our economy is the housing market. What growth we had this decade has been the result of homeowners tapping their equity. With wages down people used this financing to pay off credit cards they were using for monthly expenses and to make large purchases. It fueled what we had for an economy along with the
war defense industry. With interest rates creeping higher and all the sub prime mortgages hitting homeowners with huge mortgage payment increases the real estate bubble is bursting. This is going to have a serious negative effect on the economy. Foreclosures are up, new home construction i sdown and real estate sales are also down.
There's no other sector available to rescue the economy this time. This recession will hit hard and anyone without a fixed mortgage rate is in for a bumpy ride. As their home payments rise there will be less money in the family budgets for the big screen televisions, new computers, Play Stations, etc. Dining our is usually one of the first items cut back on as harder times hit.
The question is was yesterday's downturn the harbinger that we're entering this recession or was it profit taking on a huge level? Only time will tell.