Crisis of Confidence — Economic Commentary

It is a Crisis of Confidence

On the same day last week, President Obama and Federal Reserve Board Chairman Bernanke both expressed concern regarding the “soft patch” in the economy. On the bright side, both expressed confidence that this slowdown would be temporary and it would not lead to a “double-dip” recession. After all, if our leaders can’t be confident, how can we be expected to be confident? And this is certainly a crisis of confidence. Two years ago, we explained that we would not return to prosperity without confidence returning. We need the consumer to be confident because consumers that are fearful of losing their jobs don’t purchase cars or houses. We need the banks to be confident enough to take risks to back consumers who want to purchase. Confidence in the whole system disappeared a few years ago and it is slowly coming back, but every time there is a pause in the recovery we can see that confidence has not arrived to where it needs to be.

To be more exact, this is the third pause in the economic recovery. Each pause brings a dip in confidence. This is the time in which we need the leaders to step up. Not only our elected leaders, but the private sector must lead the way as well. That means companies must continue to hire as they have been planning and not be worried that the economy will stall in the long run. Those hires will keep the economy from stalling. Investors are leading the way in the housing sector. They recognize what a bargain houses are today–the most affordable they have been in a generation. Investors are confident housing will rebound and as it does, rents are going up. That makes an investment property a great bet. Purchases by investors have soared and many are using cash instead of financing to effect the transactions. If investors see the light–should not banks step forward and see the opportunity to loan consumers the money they need to purchase these bargains? Confidence is the only missing ingredient today and when we get it back–watch out!

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