The current economic downturn is different from others in the past. That difference is based on the civilian employment base increasing by 9% during the past eight years, while the national debt increased 89% during the same period.

Consequently, fixing this economy means not only making credit available and reconciling the toxic loans, it means increasing the employment base by a least 7.5 million persons. That type of increase only happens through a socioeconomic change, and that has happened only four times since 1776.

NetGain has continually analyzed, stated and cautioned that ours is a cyclical economy, and that recessions are a fact of life, and should be a part of every income property investor’s strategy.

Following are quotes from recent commentaries:

February 4, 2007: Market Cycles and Income Producing Real Estate: We are 78 months into the current business cycle. Looking at the past 100 years, we know that the shortest business cycle from peak-to-peak was 17 months, the longest was 128 months, and the average length was 58 months. This means we could be at the peak of the current cycle or very close to it.

Our economy has always had recessions and has always gotten out of them. Our economy is made up of actions and reactions. We live in free markets that buy, manufacture, invest, liquidate, hire, fire, etc. Because it is impossible to achieve economic balance between all of these activities, our economy will always be out of balance and therefore always cyclical. We are either going up, down, or sideways.

February 7, 2008: Income Property and Buying Right in a Downturn: America is founded on and operates as a capitalistic society. Capitalism is an economic system where property is owned by private persons and operated for profit. In a capitalist economy, the market economy decides supply and demand and pricing. As of this date, economic equilibrium remains an unachievable goal. The result: We remain a cyclical economy. Try as it might, government interference will only moderate or exacerbate the cycles. It can’t eliminate them.

Given the current economy and the media’s propensity to focus on the negative, one could get the feeling we’re heading toward a precipice and about to fall off. Many industries and companies have come to a precipice and fallen off. Our economy hasn’t. It has maintained a 1000 batting average for recovery, and there’s no indication that it is about to change.

To Summarize:

• The American economic system is not designed to achieve economic equilibrium.
• Without economic equilibrium, the American economy has a built-in cyclical design.
• Leverage and credit are the base reasons for downward cycles becoming recessions or depressions.

Where Are We Now:

The result of the current economic downturn (cycle) are the toxic loans (subprime) that inundate the balance sheets of most of the world’s lenders. The extent of balance sheet deterioration because of these toxic loans has been difficult to impossible to assess. The complicated packaging of these loans has left the best of accountants unable to define a value. The result is these loans are arguably worthless with a minimal to non existent secondary market. The consequences are extraordinary write-downs resulting in significant reductions in earnings which have led to a credit freeze.

The race is on. World leaders have to loosen credit, encourage lenders to lend, and create jobs before we have a tsunami of unemployment.

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