March 25, 2008

The Economy and the Future of our Country

The larger economic picture shows a troubling future. Housing is in a slump and there are questions concerning the future solvency of Medicare and Social Security. What's going on here? Dr. Mark Hendrickson, a faculty member, economist and contributing scholar with the Center for Vision and Values at Grove City College joined Ingrid Schlueter to sort through the variables in an attempt to answer this question.

While Mark doesn't want to minimize the challenges that lie ahead, he noted that the American economy has traditionally been resilient and the American people are resourceful, however, he also noted that we must remember to give credit to God for keeping America from going off the precipice.

Mark gave a brief history describing how America has come to be in its current economic situation. In the 90's the Federal Reserve repeatedly lowered interest rates, artificially making it cheaper to borrow and get more money into the financial system. They did this for a variety of reasons; Mark pointed to a Mexican crisis, a Russian crisis, a near melt-down in long term capital management that involved derivatives in 1998, and then there was the Y2K scare. The result was a stock market boom. Eventually the trend ended, the stock market bubble burst, and the market dropped. The Fed came right back, lowering interest rates, and the readily available credit resulted in a housing boom.

Remember the "flippers?" During the housing boom, these were the people who took advantage of the low interest rates, buying homes with no intention of living in them. They slapped on a new coat of paint and increased the price of the home in order to turn a profit.. Eventually the ever increasing prices burst this bubble as well.

This bit of history sets the scene for a very interesting look at America's economic footing, while listener questions round out this highly informational edition of Crosstalk.

More Information

http://www.visandvals.org
http://www.fee.org