Navigating the New Year

By Brad Risen

Save for a Rainy DayHappy New Year! It’s 2009, the year that America will go head to head with the U.S. economy like no other since the Great Depression. So enjoy your New Year’s punch now. You’ll need it!

I have never been a pessimist. I grew up thinking and being the serial optimist. But the World has changed and things are going to be rough in 2009. Millions of Americans will lose their jobs. Millions more will lose their homes. It’s a sad thing sure enough. So don’t get too down about it. If you are losing your home or losing a job, remember those things can be replaced.

I lost my home nearly twenty years ago in foreclosure. It was painful, especially for the son of a laborer who was the first to get his own home in our family.

You’ll get over it! Things do have a way of working out. Sure it sounds trite now, but things always work out. I own and live in a really nice house now. Keep a good thought and forge ahead. Don’t make too much of it. You can always improve your credit and eventually buy another home or should I say mortgage?

My friends ask me how they should prepare for the future – everyone nearly. After more than 40 years as an economist and over 25 years specializing in real estate I simply say, “Hold on to all the cash you can. And if you invest, do it slowly and wisely. But most of all be tight with your money.”

Hopes for this New Year rest on a lot of things. We look for a new president to bring us hope of change, a new and improved Democracy after Congress, the Fed, the White House and the mortgage companies and Wall Street blew our entire economic system up!

We look for regulations to re-write the wrongs done to millions. We look for justice to win out! We look for the perpetrators of this financial disaster to be jailed. We hope. We prey that the very foundation of our system works. Sure it’s dark out there. Hundreds of thousands have gone bankrupt and millions foreclosed. We’ve watched it develop. At first it was from the sidelines almost in disbelief, forecasting the foreclosure epidemic and being called Doomsayers’! Then people caught on and realized we were for real. We had a handle on the financial crisis before almost anybody else.

I don’t write here today to scare you! I write to let you know a few things about 2009. Here are a few tips you may want to listen to. Save! That’s right! Hold on to some cash. You’ll need it. If you have a job, I’d suggest you hold on to it, if you can. More than 74,000 retail stores are forecast to close in 2009. Some 600,000 retail employees alone will be let go.

That isn’t to say it’s all bad. There are too many stores and too many banks. Some will go bust! It’s the way the economy works. This time the cycle will be more exaggerated with more of a bust than in years. Huge booms eventually develop into huge busts. It will take much longer than 2009 to get through this mess. If you work for yourself, hold on to as much cash as you can!

Pay your mortgage if you can afford it and stay in your home. Many more will be lost in foreclosure. Do all you can to save the house. If your mortgage is becoming unaffordable try to work with your bank on getting a mortgage modification. They may adjust the terms of the mortgage or cut the principal to make it affordable. But if it becomes over bearing throw the louses the keys. After all we need to eat first and a house is just a house.

Unless you’re rich and don’t have to worry about the bills, hold on to some cash! Remember cash is king! Remember when your Mom used to say, “Save for a rainy day?” Well, it’s raining.

Try to work harder to get along with people. In the sort of World we’re going to be living in you can use all the friends you can get. People got closer in the Great Depression and people should get closer now. No! I’m not saying we’re going to have an economic depression. The chances are pretty good we will. Don’t be afraid of an economic depression. They happen every so often. Don’t ask me to put odds on it! This is not Las Vegas. There are too many variables to be considered. Economic depressions are part of the very nature of an open and working capitalistic system. Six economic depressions have hit the U.S. since the early 1800’s. The Obama Administration is planning the biggest bailout with Congress in history. It could work. I’m optimistic!

But in order for it to really work it’s going to need to get to the real root of the problem, and I think that’s fairly unlikely. We need to bailout homeowners who are being foreclosed. The government is the only one that can do that with their endless check book. The mortgage companies that took part in the scam that caused this crisis should be forced to be part of the solution and take part of the loss. Take it out of their CEO’s bank accounts!

Sure it’s against our belief system. So are banks and mortgage companies that sold mortgages they knew could not be paid back by people and counted on the government bailing them out when it got too bad for the country to handle essentially stealing people’s money on mortgage payments. It’s probably too big of a bailout for the government to take on—in the trillions of dollars. I hope whatever Congress comes up with works.

So for now enjoy the New Year! Take it easy on yourself. Throw one back for me! Remember, things do have a way of working out. CHEERS to 2009!

Brad Risen is an Economist who works and writes for Housing Predictor.