Mohamed Ibrahim’s Blog

There is light at the end of the tunnel. Things are bouncing back, and I can tell! More showing requests than the last quarter. Still less than last year, but much better than last quarter. I previously argued the possibility of the market bouncing back, and it seemed possible through the market cycles. However, we also argued the strength of the market bounce and whether the fix the feds did is a temporary or permanent one. Lowering the interest rate is of course a temporary solution that increases the money with the people through the people borrowing more credit, and in the same time cause inflation due to the increase of the money supply.

So we should be happy that the market is bouncing back, yet be careful because at the end of that short peak there might be another trough - unless serious measures are taken by the government to seek permanent economic fix through bringing manufacturing jobs back in the US.

News have been everywhere today that mortgage defaults are even higher than before. Foreclosure rates are increasing, because home owners give up even before their adjustable mortgage resets. Worse, two days ago a very known investor (Warren Buffet) became the most wealthy person, said that as far as he’s concerned we are already in a recession.

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“Too little too late” This is the phrase that I’ve been hearing continuously in the news both for reaction of the government to stimulate the economy with tax rebates, and today with the federal reserve decision to cut the interest rate by 0.75%.

Why does the federal reserve need to cut the rate? Our economy is based on ever increasing credit. If people don’t borrow, there will be no money i.e. DEBT=MONEY CREATED IN THE SYSTEM. The reverse is true, repayment of a debt destroys the money created, which is the same thing that happens when a mortgage goes to foreclosure - the money gets destroyed.

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