The State of Our Economy

"Consumer confidence plunged in early November to the lowest level since Hurricane Katrina battered the Gulf Coast and sent oil prices soaring in 2005," wrote Martin Crutsinger, an AP Economics Writer, earlier today.

Arguably, we are in much worse financial shape now as a nation than when Katrina hit. After all, subprime lending was still the rage, stock prices on Wall Street continued to climb to new record numbers for the Dow, and we hadn't yet felt the effects of $3-plus gasoline. We were all blissfully ignorant of the perfect storm coming -- and still making its way to shore -- financially-speaking.
Often times, we hear national financial trends and macro-economic news that better serves as fodder for water cooler talk rather than as actual news that impacts us here in Greene County, Indiana. People in this area have mostly stuck with traditional practices, such as not getting involved in exotic residential financing arrangements like those have in, say, California. Out West, in fact, it seems to be very common to have an interest-only home loan. Even worse than interest-only loans, banks have doled out negatively-amortizing loans like candy. (This is when you will never pay off your loan, nor even pay all the interest you have accrued, but your loan actually gets bigger with each month gone by.) That's scary, to say the least. Imagery of a ticking time bomb also comes to mind.

What have hit rural communities of Southern Indiana are loan brokers writing subprime loans. These are loans that are written, which really never had a chance in the first place. In talking with one such broker in the Indianapolis market several months ago, he stated their loan policy was to allow up to 50% debt-to-income. That, my friends, is ridiculous -- at least in the mind of a traditional banker. Put another way: financial suicide. No wonder Indiana is in some of the top foreclosure states in the nation.

This subprime phenomenon has hit Wall Street in a big way too. Even the most proud and prestigious brand-names in finance, such as Merrill Lynch, JP Morgan Chase, and Citigroup, have recently announced things are going awry. Citigroup said recently that they have charged off over SIX BILLION dollars with analysts estimating they will ultimately write off many, many more. These financial cornerstones now have signs of strain, and hopefully they have learned their lesson, as the real moral of the story is: it doesn't matter what interest rate you are getting if you don't get your principal back. They should have read the book, The Richest Man in Babylon, which by the way, I highly recommend reading. (It's around $6 for the paperback, and the best $6 you'll ever spend.)

But how does this affect me, right?

No doubt these financial titans are a part of your investments, such as your 401(k) account. Take a look at your most-recent statement to see how it has affected you.

Even if you are not foreclosed on and you don't think this affects you, the amount of these homes on the market affects the value of your home and property. It's simple supply-and-demand economics.

Surprisingly, charities are also affected. Today, The Indianapolis Business Journal reported that, "Indianapolis-based Indiana Children's Wish Fund has been caught in the national subprime mortgage lending crisis. The small not-for-profit, which grants wishes to terminally ill children, has filed an arbitration claim after an investment it had in an intermediate-bond fund lost $50,000 between late June and late September on an initial investment of $222,812. The bond fund had more than half its assets in mortgage-related investments as of mid-year, according to the filing."

It will be interesting to see how everything finally shakes out nationally and locally.

In the midst of this, our dollar has become weaker and weaker against other world currencies. But how does this affect us in Greene County? Well, for one, some now say that oil has become the new world currency. With it hovering near $100 a barrel, the laws of supply-and-demand dictate that they are probably right. After all, someone has to be buying a lot of oil somewhere. Certainly, most all of the world's currencies have gotten stronger, such as the Euro, the Yen, and even the Canadian Dollar.

(Interesting side note: Take some coins into a bank to be counted. Odds are if you have a lot of change, you'll have some Canadian money in there. See if they give it back to you. Ironically, these coins are worth more than our own currency even though they'll be given back to you as "worthless" here in the US.)

Thankfully, this argument of oil becoming a new currency could be expanded to "energy" in general, and Southern Indiana is sitting on vast reserves of coal. Sadly, mostly that's all they are: reserves still in the ground. Some new mines are developing or are rumored to be starting, although rumors are always plentiful.

One other benefit to rising oil to Greene County is that ethanol and bio-diesel become more attractive. Higher demand for grain, such as corn and soy beans, mean higher prices per bushel. It also means higher prices for farm ground since the products produced from them have become more valuable.

On the downside, sitting down at the dinner table just got more expensive. Of course, filling up the tractor just took more money out of a farmer's pocket too.

Greene County has a lot of agricultural activity. With alternative fuel demand rising, it may have more. Agri-tourism will no doubt become more popular in the County, as corn mazes, pumpkin patches, rural retreat centers, birding, farmers markets, and other activities are embraced. It only makes sense to add these and make more money with the same resources. In some areas, these "side projects" have become more profitable than the original use or business.

It will be interesting to see how all of these ingredients come together and what they ultimately make. In the meantime, it's probably most prudent to not be going out on a limb with debt right now, while saving some extra cash for a rainy day.