To continue stimulation or not to continue stimulation, that is the question

Well, Fed meeting week is upon us yet again. It seems like only yesterday that these people got together for two days to accomplish absolutely nothing. And it will take another two days for them to accomplish even MORE nothing. Our tax dollars hard at work.

We are rapidly approaching time for some action, though. As the global economy catches tread and things start to financially heat up again, the onus will be on the Fed to implement an exit strategy that will soak up all the excess capital in the markets without triggering a panic-hoarding effect amongst the investment community.

It’s kind of like pulling unemployment benefits from someone who was hurt but has since recovered. The original reason for the benefits was justified, but now they’re just happily sitting in the La-Z-Boy scarfing down Cheetos and watching Jerry Springer. Time to pull the plug and have Chester Cheetah go get a job.

Same goes for our economy. Stimulus, ridiculously low benchmark rates, bailouts and quantitative easing (printing money like crazy) was all necessary and justified at the time. But that time may soon be over, and pulling all that fun stuff out of the economy can be an unpleasant and politically suicidal thing to do.

But it must be done. Baby cannot have his bottle indefinitely.

Enter the conflict: what if we pull out the support structure before the economic recovery has fully cemented? A lack of stimulus is what turned the 1929 crash into the Great Depression, so we certainly don’t want to do that. But if we leave all that cash sloshing around in the global markets, we can darn sure expect some pretty stiff inflation just around the corner. And, I don’t know about you, but the thought of spending ten bucks for a loaf of bread doesn’t exactly Rodger my Hammerstein.

I went to great lengths for that reference, so I hope someone out there appreciated it.

So, between a see-sawing housing market, massive sums of debt with more on the horizon, healthcare debates causing people to act like they are possessed at town hall meetings, more troops needed in Afghanistan, the proposition for an uber-financial regulator to oversee everything involving money and lots more, I am exceedingly curious as to how many balls this government is capable of juggling before things start dropping. Let’s hope the answer is “a lot”. Because if not… yikes.

Back to basics

It appears that El Capitan of the Federal Reserve Ben Bernanke has done a fine enough job to maintain his post as the Chairman for another 4 years. From my perspective, this was a fine choice by our President. Switching monetary horses mid-stream would be fairly catastrophic for the already fragile investor sentiment towards our shaky economy.

So, bravo Mr. Bernanke. Why on Earth this man would want a job where he gets screamed at for days on end twice a year and has the weight of the financial world on his shoulders I will never know. But, he seems pleased with it, so I’m happy for him.

Beyond that bit of news, I wanted to take a week to discuss with you the basics of mortgage lending. I know, I know, you people hunger, nay, you THIRST for my rampant sarcasm and my piercing commentary on the most relevant issues in our economic lives.

But one of the most golden opportunities in real estate to date is about to expire, and I would be doing you all a disservice if I didn’t provide at least one frying-pan-upside-the-skull type of message just laying out there what it takes to join the proud ranks of American homeowners.

Listen: lending has tightened from it’s hay-day of “If you have a pulse, you’re approved!” but it isn’t ridiculously hard either. Here’s what we’re after:
1) Pay your bills on time for 12 months.
2) Have a score of 620 or better.
3) Be somewhat consistent in your employment.
4) Don’t spend more than half of what you make on anything that’ll show up on your credit report.
5) Bring a 3.5% down payment of the price of your dream home. Or your starter home. Or your “I just simultaneously found out that I got a promotion and that my mother-in-law is moving in and I need more space” home. Either way. 3.5% is the moral of that story.
6) Be patient and find a seller desperate enough to take care of your closing costs.

Are there exceptions to these rules? Yeah. Is there any other stuff. Yeah. But those are the biggies. It’s not 20% down and a 700+ credit score and the soul of your 1st-born child like some people think. If you make sense to the bank as someone who will pay your mortgage, they will line up to fund you.

With Uncle Sam paying through the nose to keep rates low and an $8000.00 check waiting for you in 2010’s tax season (only 89 shopping days left, kids), it might be a dandy idea to at least give homeownership a shot.