Monday, September 3, 2007

Crystal Ball Gazing: Finances

It appears the financial system will be experiencing significant changes. One is that we have been enjoying easy credit, and it looks like that party is over. There is no longer as much money available as there was before. Indeed, the current is running in the other direction: Americans are needing to come up with cash to pay mortgages and to buy things that they previously were able to cover by borrowing in one way or another.

People will raise cash by selling things. The classic adage is, "In a recession, cash is king." If you have cash (from e.g., selling your house a year or two ago), you may soon find that you can buy things, very cheaply, from others who are unloading them to raise money.

This applies, in part, to consumer goods. They have been cheap enough, thanks to China, but soon people may be resorting to yard sales and eBay to get whatever they can get from some items. It also applies to cars. Demand for cars will drop when people can't afford them. Automakers have to do their best. Six months to a year from now, you may be able to get quite a deal on a new or used car.

Of course, it also applies to real estate, though that is a somewhat different matter. You may really need a new cell phone or a new car to keep on making a living, but you can most likely survive and keep your job if you are renting rather than buying. So you could afford to wait a while for real estate prices to hit bottom, and waiting is what I would recommend.