The Bursting of a Bubble: America’s Housing and Its Economy

America's Struggles

Image Source
One thing that most Americans can all seemingly agree upon is that they are unsatisfied with the current economic status that our nation faces. For a hundred years now, our nation has faced a number of economic peaks and crashes, and many can be traced back to decisions that were made by government officials, whether involved in the treasury or the office of the president. A number of issues have stemmed from issues with the central bank and the artificial lowering of interest rates to as low as one percent, others have come from a excess in printed money, meaning money was printed with nothing to back its value, and others have come from decisions such as the passing of the Gold Reserve Act of 1934, though America has now moved away from the gold standard entirely. All of these decisions have in some way contributed to the current state of America's economy, its bubbles, and its debt. For an example, the American housing market has previously seen huge booms thanks to low interest rates, loan companies such as Fannie Mae, which has lead to huge surges of people buying homes without the means to fully pay for it.

Cost of Living

Image Source
An issue that affects and actively deals with the satisfaction and well-being of each American is the cost it takes to survive. Cost of living directly impacts the financial decisions of each American and has continuously played major roles in the direction the American economy is heading. Traits such as the cost of living have impacted the pressure people feel to save money. In times when cost of living allow, we see people willing to save their money in ways that are going to allow them to buy more of a desired or pursue a more expensive endeavor later on in life. When the cost of living is low, people are able to spend less on life's necessities, therefore meaning they can put more aside into savings. However, we have seen in the America as of late that inflation as a result of printing excess bills and other inflationary factors. These actions decrease the value of a dollar, a value that is already seemingly tanking, which means that individuals pay more for goods that previously were much more affordable.
Increases in costs of living hurt the pursuit of entrepreneurship as much as any other factor in our country. When the cost of living climbs so high that people cannot afford to set money aside, it eliminates the ability for them to create a product or a service to address a need. Entrepreneurship requires funding, it cannot be done with the means to execute an idea. Through the government continually putting more money in circulation without the ability to support its supposed value, the pursuit of entrepreneurship has become an increasingly difficult journey as more and more people are forced to pinch pennies to survive.
Increased cost of living also push people into financial deals that they cannot afford in the long-term. As stated in the video, more and more Americans take adjustable-rate mortgages, a decision that has allowed many to buy into homes at lower, attractive rates that eventually increase to a level the buyer can no longer afford. The inflation and cost of living increase we see have resulted in a number of struggles and problems that are highlighted by the American housing market.

The Central Bank's Role

Image Source
The Federal Reserve serves a key role in balancing the American economy and ensuring that the nation is able to remain financially stable, ensuring a promising future for its people. However, many of the actions taken by the Fed have been looked upon with distaste and severe scrutiny for the negative impact it has had on the people of the country. Often the federal reserve has to assess the current trend of the economy and decide where to set the current interest rates, however, we see these changes being made in fashions or times that have resulted in further problems being created. In reference to my earlier comment of the interest rate reaching as low as one percent, such an extreme drop in interest rate over a not long period of time gives an extreme false sense of wealth to people. More importantly, the central bank pushing the rate that low in a time where the economy would struggle to support that rate further created a problem. People were spending money they didn't have or hadn't saved because of the low rate that was giving them a false sense of richness, causing a boom that we saw drastically impact the number of individuals and families buying homes.
Making poor decisions with the interest rates ties into another problem the central bank has created, printing of money in excess that increases inflation. I have discussed this before, but the continued flow of new paper bills into circulation severely boosts rates of inflation higher. The value of the bill drops, which has seemingly been a regular occurrence since the abandonment of the gold standard for more government centered factors, which pushes the price of all goods and services up, further increasing the cost of living. Printing too much paper money has created a problem that ties into almost every negative financial situation because of the direct impact it has on the price of items or offers people want to put their money into. Increasing how much money it takes to survive leaves little room for financial improvement for individuals and leaves even less room for any forms of luxury shopping.

Conclusion

America has faced financial tragedies, experienced economic struggles during times of war, and has even in certain cases made decisions that have hurt itself severely. However, America has also seen times of financial prosperity and balance, proving that our nation is possible of finding the necessary balance for a healthy economy. However, poor decisions from elected leadership, government entities, lenders, and consumers have resulted in a growing monetary struggle in recent years. As issues with inflation, overcompensating changes in the interest rate or changing the interest rate at improper times continue to plague our economic setting, we will continue to face more financial problems. As these grow, we will undoubtedly be met with more bubbles, such as the recent housing market, that will bring down the economic status of our nation.