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3/17/10

Phoenix Economic Crisis in Six Paragraphs





Low Tide, Waiting for Second and Third Wave...


Residential Mortgage/Lender Crisis: In the Phoenix Metro area housing prices have dropped at least 50% leaving most homeowners underwater. There are quite a few indicators they will drop further. Personal debt stress, exacerbated by overextension of HELOC, credit card and other unsecured debt, has created social problems and identity crises on a large scale. Lender's are not in a position to  forgive debt in an economic scenario with a cornucopia of perpetrators. 

Unemployment/Underemployment: Although statistically the Phoenix unemployment rate is not as high as some areas (it technically hovers around 9%) realistically it is probably in the high teens and possibly low twenties percentile. This does not include the underemployed and those who have been employed for the duration of the economic crisis but never earned high wages and/or had their earnings decreased by cut backs in hours, bonuses/incentives slashed or stopped, 401K contributions ceased and wage step backs.

State Government Indebtedness: The State of Arizona's budget problems are legion, of all states it has the second highest shortfall and considered the worst deficit in the nation. The gap is $2 billion with no real pending revenue in the foreseeable future. Federal stimulus money has all been spent basically due to the Governor and Legislature failing to realistically deal with budget cuts at state agencies and in programs. The Unemployment Insurance fund is insolvent. The Legislature is once again called this week into Special Session by the Governor. Additionally the tax structure of Arizona is largely based on sales taxes, money is collected by the State Treasurer and then distributed to counties, cities and towns. Proposals to increase sales taxes is strongly resisted. Raising taxes on a population and business community that is having difficulty paying current bills could only curtail spending and hiring, resulting in actually reducing revenue.    

Commercial Real Estate: The elephant in the room. The Valley is spread with high rises and strip malls that have never been occupied or even completed. There are many more that have already been vacated or are emptying out and prices on all commercial real estate this year have descended by 50%. The implosion of Mortgages Ltd. sparked devastation in the commercial market by reaching far beyond properties Scott Coles and company ever supposedly financed in a Ponzi-like scheme of tremulous magnitude. Essentially commercial property is in abeyance and has yet to fall completely although on it's way. It is a ticking time bomb.

Immigration and Population: Phoenix has a large illegal immigration population that is not being resolved. Regardless of political, ethical or moral considerations, this is economically unsustainable. People living in the shadows with little or no income and the associated social problems is factually a fiscally risky business. There are also reliable indicators, although the statistics are not complete, that Phoenix is de facto losing other population. It is accepted that a lot of talented, educated and high earners have already left, a loss of leadership and skills when most needed.

Denial: There is a sizable segment of the business community, political class and general population that has blinders on. No one likes to fail, concede or relinquish the life they've been living. The Day of Reckoning is coming and many people will be forced to skip anger/resentment, bargaining, depression and crash directly into hard pavement acceptance. Many people are going through these stages now but putting on a brave face (I refer to this as The Scottsdale Syndrome), which is masking as denial.


For some background, visit my post with a video blog done on Labor Day 2009, "The Economy and Me: My Hometown" http://bit.ly/3jjus3






PART TWO:
There is a future