Bernanke Still Sweating On The Economy

Bernanke's Feb. 14th speech before congress was no Valentines Day gift. The video reposted for you below is full of big words and economic principles that average people may not understand. The purpose of this post is to give you the basic simple facts in a manner that is more easily understood.

To get to the point, there is no real good news other than Uncle Sam is going to mail you a check. Do not run to your mailbox though, because you may not get one unless you contact H.R. Block or some retail tax service and fill out your paperwork.

The reason you are getting this money is because all the big names in Washington are very upset over how many people cannot afford to pay for their home, their electric, gas, and yes their food. If you have been to the gas station, or the supermarket, than you know how much more expensive things have gotten lately.

The big bummer is that our schools, city buildings, bosses, and customers are just as strapped and squeezed by expensive food and energy as we are and because of that we pay more in taxes and work harder for less pay. In some really rare cases entire company’s close or lay people off. When this happens people worry about how long they can keep paying bills out of unemployment benefits or severance pay. They also have a harder time finding good paying jobs to replace the ones they lost.

The bottom line on all this Bernanke talk is that because of all these financial difficulties that people are having, many are not able to keep up with their bills. When this happens the bank, forecloses, or takes its house back and then sells it to the highest bidder to reclaim the money they are owed. Many people also made their problems worse by not reading or understanding their loans. They soon found out their payments kept going higher and higher each month while their incomes stayed the same.

During this time, the bank still has to pay the high city taxes and back taxes and late fees and interest, the lawyer’s charges, the insurance, and their employees handling the paperwork. This all cost the bank a lot of money. This has happened so often in the last five years that banks do not want to lend anyone any more money. They are afraid they may go out of business or worse end up sued by their owners because of poor lending decisions. Many of them have gone out of business and this has scared the owners of these lending companies.

Unfortunately we need banks. This is because houses are very expensive, people do not have hundreds of thousands of dollars to buy a home, and many already strapped for money, and left with bad credit, cannot buy a home. Some just have to accept they will be renting for a long time. This is very bad for the bank because now they have a harder time selling those houses making them worth less and less. In some cases the people who purchased these houses owe more money than their homes are worth, often by a lot! Since the bank took their house back as collateral they are stuck paying the amount that is short and due the bank owners who lent the buyers the money in the first place.

The real kicker is, and this is just an example, if a buyer purchased their home for $270,000.00 put $20,000.00 down and owed $250,000.00 at the time of foreclosure. The amount the bank is short according to the IRS is now taxable income to you. What do I mean? If that house was sold for only $100,000.00 because the previous owner did damage to it, than as far as the IRS is concerned the $150,000.00 difference is taxable income the forclosee owes putting previous owners in a deeper financial hole.

The biggest kicker in Bernanke speech is that he intends, if necessary, on cutting interest rates to banks to increase the banks profit. Very seldom does it lower your payment any. What Bernanke has done in the past, and will probably do again, is print money out of thin air to keep these banks from going completely out of business. The bad news is that the amount of "phony money" needed, if not done correctly, could hurt the entire world economy and create more inflation driving up the cost of milk eggs and gas even more.

Enjoy the video.