Hunker with your Clunker

For those of you that own a home, you may understand the stress of keeping up with the dozens of bills, repairs, and upkeep of your house. Fortunately few of us have experienced the most stressful part of owning a home, failing to make our mortgage payment. This week First American Corelogic, a research firm that aggregates data, published a report on our current mortgage situation in America. The report revealed that more than 15 million (well actually 15.2 million, but what's another 0.2 million amongst friends?) American mortgages were upside-down as of June 30th. That is just over 32% of all the mortgaged properties in the US. That means 1 in every 3 mortgage holders! The report broke it down further into states, with the worst cases in California at 42%, Florida at 49%, Arizona at 51%, and Nevada at.... wait for it....a staggering 66%. If you read my previous post on July 29th, you will know how I feel about the government telling us we are out of the recession. We may in fact be out of the recession, who knows, but history has showed us time and time again that bank lending problems rise and fall with unemployment and are a key indicator of the economy. With that in mind, I am still cautious about the current market and still hesitant to make any big purchases... which brings me to my next topic, "Cash for Clunkers."

On the topic of stimulating our economy via consumer spending, I find it to be somewhat effective given the appropriate medium. However, given the amount of money each American received, $4,500, to put towards their new car, with an average purchase price of $15,000, well let's do the math. That means the average American
either spent $11,500 of their own money, or took out a loan for that amount. The latter is probably more likely which in my mind would create a bigger problem for the consumer, even if it helped the automobile dealers a little. The Commerce Department said today that consumer spending rose 0.2 percent in July, matching economists' expectations. Personal incomes, however, were unchanged. My concern is that consumer spending, which accounts for 70 percent of economic activity, may not be strong enough to propel a sustained recovery from this recession, the longest in history since World War II. In fact, some analysts worry that the country could be headed for a double-dip recession in which the economy resumes growing for a brief period only to fall back into a downturn.

I peronally plan to err on the side of conservation and try to "hunker down", if you will, on my spending. I fear the worst is yet to come and the unknown is just too scary for me.