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Issues Americans Cannot Understand: The Federal Reserve And The Economy

1663 words - 7 pages

Over the last 3 years the United States has seen an incredible flux in the economy from an all time high, to the lowest position since the Great Depression. Many Americans have no idea why or how these cycles affect their everyday lives, most importantly, they do not understand how the government intervenes to control these issues. Most people cannot comprehend the complexity of the United States banking system, how the Federal Reserve (FED) controls interest rates, the way our currency works, inflation, credit, etc… This is just a small list from a plethora of topics, that American’s are under-educated, and these are issues that we all need to face at some point in our lives. Rather than explaining each of these issues in detail, it is important to recognize that the US economy has a serious problem at hand, and the backbone of this problem is the Real Estate market. Correct the Real Estate industry, and the economy will prosper.
If we look back at the United States history, we can conclude that there have been several economic revolutions, starting with the agricultural revolution, then the industrial, and now the technological revolution. But, hidden under this urge for a greener, more eco-friendly technology, we lost touch with the driving force behind the American economy, Real Estate. For the past decade, the average home price in Florida has gone from an average of $181,000 in 1997 to $464,000 in 2007 according to the American Census Bureau. In fact, dating back to the Clinton era, it was decided by his administration, that everyone in America should be able to live the American Dream. That being, the ownership of their own home, the safest long-term asset in any investor’s portfolio. President Clinton’s administration, along with others like Congresswoman Nancy Pelosi, were able to arrange for low income mortgages. However, these mortgages required no income verification, or resources to pay for the mortgage, as long as they signed the mortgage papers. Fanny Mae and Freddie Mac were the lending arms that provided the money. Both are now government run, but formerly were privately held companies, unlike Ginnie Mae, which is fully backed by the government. When the homeowners could no longer pay their mortgages, the house of cards collapsed. With the lack of education in this country, the middle and lower class were greatly affected by the government’s intervention in Mortgage rates. The subprime mortgage crisis can be blamed for much of this country’s economic problems, but we don’t need to point fingers at what went wrong, we need to address the problems and find solutions.
There are several issues that need to be addressed, to help solve this foreclosure crisis. The first issue is how the banks were clearly misled by the government, in a sense, that they approved clients for home loans they could not afford. They then took advantage of the late payments, and increased interest rates. We have seen firsthand what...

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