After studying the regional economic collapse of the last several previous recent decades, I see unfortunate turbulence that will disturb our in flight movie this evening. Why you ask? Well, because the Federal Government has over spent, some was due to irresponsible fiscal policy and much was due to the outrageous cost of the Iraq War.
When money flows from the Federal Government, those areas that are in the flow of those expenditures see a huge economic benefit and this scenario has been repeated many many times over the last century. Within the last three decades I have had the pleasure of watching the rise and falls of such areas. I watched Southern California tank after all the aerospace workers got laid off (88,000). I have I watched military towns collapse when the government stopped spending on National Defense and BRAC closed bases.
Yes, this also happens when private sector money stops flowing. For instance, The Dot Com bubble burst in Silicon Valley or the many large cities hit by the Telecom Crash, the S&L debacle and those are just a few. Right, now our Online Think Tank is reviewing the proposed Budget coming up for the Federal Government, and we see some economic fall-out that is actually long overdue, from a fake economy propped up by wasteful spending.
Indeed the biggest issue I see is that the areas in and around Washington DC will be hit hardest and that will affect real people, folks who live there and work there. Does that mean Washington should keep spending? Heck no, spending must come under control. Nevertheless, this will cause the housing markets there to go through a much longer bottom that is projected. Something to contemplate in 2008.