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The Financial Butterfly Effect
by Annie Christian
Jun 08, 2012 | 2735 views | 0 0 comments | 25 25 recommendations | email to a friend | print
Annie Christian
Annie Christian
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Does what happens in Europe have a financial trickle-down effect on the United States?  We have all seen the TV commercials where someone lines up dozens of dominos, knocks down one on the end and eventually all the dominos fall down one by one to the other end. That is what we are going to explore today:  How will low interest rates benefit our local economy in northern Nevada? Where is the trickle-down effect coming from?

Europe

Let’s take a look at the most urgent threat that will take place in mid-June, when Greek voters will reject the terms of a $170 billion bailout — which called for painful budget cuts (something we have come to find familiar in United States) — and abandon the euro.  This move could ignite economic and financial chaos as Greek debts from denominations in euros to Greek drachmas become uncertain in value.

Last week, I had a frank discussion with the branch manager of Heritage Bank, the only bank in Nevada that did not ask for any government handouts since the real estate crash in 2007. Marcos Ramirez, branch manager in Spanish Springs, observed that the European countries have been struggling with their debt crisis for three years. Three nations — Greece, Ireland and Portugal — have already required bailouts because of their unsustainable levels of debt. Sounds like a similar story here in the United States, where spending cuts and tax hikes are causing economies to shrink across the board, government and consumer alike. 

The question turned to the low interest rates — will low interest stimulate our local economy? No. Historically, when interest rates were low from 2004 to 2007 — such as the adjustable interest rate loans, home prices shot up sky high — consumers were still buying and buying high-priced homes. Is that a false sign of recovery? Certainly. Picture this: If/when the European banks move their money to Germany and the U.S. Treasury, our interest rates may fall even lower. If consumers can borrow money at about 2 percent, how will that stimulate economy? It might not, is the real answer. During the real estate peak, home prices were high and interest rates were low, consumers outbid each other to buy any homes in any locations at any prices. In reality, if home prices go up because of lower interest rates in the near future, it will only create a false sense of recovery.  

United States

On June 1, after the government issued the May jobs report, the Dow Jones Industrial Average sank 275 points. It was the Dow’s biggest loss since November 2011, and it’s now down 0.8 percent for the year.

Hewlett Packard announced that it will cut 27,000 jobs in the next 24 months. Consumers are buying iPads and iPods – mobile technology versus stationary desktop technology. Consumers now utilize their cell phones as their own phone, land lines are a thing of the past for individuals. Rental stores are being replaced by Netflix and the online video rentals. BlueRay video players allow you to stream video rentals 24/7 on an unlimited basis.  Many U.S. companies are finding it more efficient to invest in machinery, not people. 

Most employers are reluctant to hire until they feel more confident that their customer demand will continue to grow. 

Employers are neither hiring nor replacing workers. Businesses that can afford to advertise stay open but are struggling financially. Smaller businesses that cannot afford to advertise meet their eventual fate — which is to close their doors for good.  

Our local financial market is a direct product of what is happening to our global market. What is happening in Europe affect all of us; it is a micro-economic trickle-down effect. It trickles down to you, your house and your own personal financial decisions.

Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.
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