Posted by Leonard Steinberg on August 6, 2011
The S & P downgraded the USA to AA+ credit rating from its previous top-notch rating of AAA, an embarrassment to the entire country for sure, but certainly nothing too un-expected considering the disgraceful political maneuverings in Washington….. the U.S. debt wasn’t downgraded because it didn’t have the ability to pay its debt obligations today; the U.S. does. The U.S. debt was downgraded because it nearly didn’t have the go-ahead from U.S. leaders to agree to pay the debt obligations today. So again, our beloved politicians are at fault. How will this affect real estate?
The first concern would be rising interest rates, which is a possibility. Chances are the most important result of this will be the erosion of confidence, the key ingredient to a healthy real estate market. And with an election 16 months away, chances are our beloved politicians will focus on being elected or re-elected rather than the critical issues our country faces to-day. The level of stupidity and self-serving arrogance is astounding. If the US was a company, the entire Congress would be fired……so maybe its time for us the shareholders of the USA to stand up to this crazy power hunger. Commercial real estate will probably suffer more, as companies will hold back on expansion and spending. It seems the only solution large corporations can think of to solve our troubles is to cut back expenses…..usually at the expense of the big picture.
The key to this economic recovery is all about driving demand: without it, there can be no growth and certainly no buisness confidence. If the government cuts benefits dramatically, eroding the little cash the tens of millions of Americans rely on to survive, will that drive spending? Hardly. It could only work if the government simultaneously drives growth and investment. Now that we are certain we are in trouble, we should ALL contribute to our recovery. Yes, that means intellligent spending cuts, tax incentives for hiring, increased revenues…..sorry guys, but cutting your income from $ 10million to $ 9million per year to boost tax revenues won’t hurt! And yes, some of the tax breaks provided to companies that really don’t need them to be super-profitable should be removed. It’s time for some Bloomberg-style intelligent accounting AND business common sense. Has your accountant or lawyer ever made you money? No, they are good at preserving wealth, not growing it…..our economy needs growth. And we should start making + buying more quality stuff in the USA.
Will the New York luxury residential real estate market suffer? Doubtful. There are always people making lots of money in any market, and the de-valued dollar, limited inventory and still-low interest rates will keep the market relatively healthy. But the best will be the first to sell, and an even greater demand on quality is inevitable. The role of the broker will be even more challenging, and the buyers, sellers and bankers will be tougher. Good luck to us all….now lets find some good leadership for Washington: no freak-show extremists please: It’s time to try practical intelligence.