‘Fed Moves Housing Bubble Back To Center Stage’
Readers suggested a topic around Fed policy and the housing bubble. “Will the Fed lower interest rates to bail out FBs and lenders?”
A reply, “It won’t help. Home prices are falling already and I believe that incomes must catch up.”
Another, “I believe that incomes cannot catch up. Too much outsourcing is happening to places where the pay is 1/2 the American wage. The only way to get home price/income ratio back to normal is for home prices to fall (50%+ in my neck’o’the’woods).”
Another looks at the wider picture, “They will say for as long as economically possible that inflation is a risk. They’ll do this to keep foreigners funding our debt with the possibility of higher rates. When it becomes apparent to everyone that the debt in housing can’t be serviced at these low rates, then they’ll cut them.”
“Deflation (happening now) followed by inflation. It is what has gone on for generally the last 35 years. The difference now is the time lapse between the two (almost occuring together if that is possible…or at least deflation happening with the FED TRYING to encourage inflation).”
“The FED cutting rates and people taking out more debt to purchase homes is a different story. However, it will make speculators in other areas (equities) more apt to start the inflation of other assets more probable.”
The Chicago Tribune. “Concerns about the housing sector moved back to center stage Wednesday after the Federal Reserve drew attention to the sector in its latest policy statement. In deciding to keep short-term interest rates unchanged, the Fed stated, ‘The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.’”
“The Fed’s previous statement, in August, expressed a less focused concern: ‘Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.’”
“Deletion of the word ‘gradual,’ regarding the housing slump and removal of ‘interest rates’ and ‘energy prices’ as additional factors in the economic slowdown put the spotlight on housing.”
“Unless you simply want to recoil emotionally from headlines about a bursting housing bubble, the Fed’s statement Wednesday represents the beginning, not the end, of your thinking.”
“The downturn in housing has not been gradual, as the Fed acknowledged, but is it nearly over? The bulge in inventories of unsold homes ‘would suggest an even larger decline over a longer period of time,’ says an analysis by Ray Stone.”
“The contagion of a housing slump on the rest of the economy is unclear. Paul McCully at bond investment giant Pimco, called the housing trend ‘a recession,’ but adds, ‘The housing recession is not the stuff of an economy-wide recession, unless it tips the consumer animal spirits into a recessionary funk.’”
“Jobs related to the housing industry are in danger, creating a multiplier effect as laid-off construction and mortgage finance workers curtail their spending. ‘Based on the decline in [housing] units under construction, it appears as if between 50,000 and 100,000 construction workers will be laid off in the quarters immediately ahead,’ wrote economist Stone.”
The LA Times. “The weakening housing market continued to take its toll on the industry Thursday as mortgage lender Countrywide Financial Corp. disclosed the possibility of thousands of layoffs and builder KB Home reported slowing revenue growth.”
“Calabasas-based Countrywide said it would reduce its general and administrative staff by 5% to 10%. Countrywide has about 13,000 employees in Southern California, including salespeople at call centers. Its other major employment centers are in the Dallas area, with 10,400 employees, and the Tempe-Chandler area of Arizona, with more than 5,000 workers, spokesman Rick Simon said.”
“KB Home also said home orders in its U.S. and French markets plunged 43% from last year’s third quarter. On the West Coast, orders plummeted 58%. CEO Bruce Karatz said the results ‘reflect the challenging operating environment for the home building industry.’”
“‘We do not expect conditions to improve significantly in the foreseeable future,’ Karatz said in a statement.”
Dallas area, with 10,400 employees, and the Tempe-Chandler area of Arizona, with more than 5,000 workers,
_____________________________________________
This should help the Dallas real estate market!!?!?! Forget what I said a few months back about the prices look reasonable compared to Ca. I am an idiot!
I really think we have built too many homes. Look at ratio of population/homes in 2000 and compare to 2005. We have about 2 to 2.5 million more housing units than we need. Builders stop building. Future population increases will absorb the supply and we will be OK…until then prices drop. THIS IS NOT ROCKET SCIENCE. If you don’t own and don’t have to buy and you can live a nice life without owning (I agree owning a home has a lot of benefits) wait till prices make sense versus rent.
I hope someone brings up why we have a FED at all. Imagine a world with the FED, the IRS, FNMA.
Yes imagine Freedom!
Why do we have a Fed? Do some reading about US history and the Great Depression. That should give you some answers.
Uhhhhmmmm… Speaking of reading:
Too bad I have read extensively about the Great Depression and the financial history of the US and the World. And too bad most people who aren’t applying for government jobs as official Econonomists, agree the FED is a POS.
Uh, Melissa, you should do some more reading. The Fed predates the Great Depression by about 20 years. I believe it was started in 1913 ostensibly to promote stability in the banking system. The Fed did nothing to prevent the Great Depression and you can make a strong argument that it did nothing to help things after the GD started.
The Fed is really good at what they do, delaying the inevitable. The problem is that by delaying it they make the needed correction much sharper because the speculation has had time to reach ridiculous levels.
I agree with those who say the Fed is irrelevant. I think the Fed acts as a sort of God for those without religion. It’s comforting knowing someone is there watching over our financial future, regarless of whether or not they’re making things worse. They can always just say, “Sure the economy tanked even though we said housing wasn’t a problem, but it would have been much worse if we weren’t here. Trust us, we have PhDs.”
I think we need to find a different religion.
“I think the Fed acts as a sort of God for those without religion.”
You are not the first to notice that parallel.
http://www.namebase.org/sources/PN.html
You got it, Kirk. It is a part of a belief system.
The Bankrupters and Fradsters of New York City (BFNYC) DO NEED the Fed to help them in a myriad ways. Always at the expense of the working folk.
It is not a coincuidence that BFNYC have done so well under Greenspan and Bernanke.
Jas Jain
Uh, would you prefer to trade cigarettes or pebbles instead of green paper? Or would you prefer barter, with its omnipresent double coincidence of wants? Nope — let me guess — you prefer trading shiny yellow metal, with its highly unstable value (thx to govt control of supply), its finite supply relative to an ever-burgeoning world population, and the toxic externalities which come with its extraction…
So, how did US of A function and become an unrivlaed global economic power BEFORE the Fed? And before many of the Crooked financial organizations came into existence.
Jas Jain
People who make money off of the system we have don’t want a change. People who lose money off the system want it done away with. Those who don’t understand what is going on (yet) have no opinion. Unfortunately, those who make the money hold the power. They are in the minority, but so far the majority, who have been losing money, haven’t noticed they’ve been literally robbed. When the majority realize they’ve been robbed, hopefully it will be a peaceful move to disband the FED and everything that goes with it.
My thoughts exactly. So… Mr. Bernanke, what would you say ya do here?
One of the best movies ever made - IMHO
The Federal Reserve is not a Federal agency. The original 10 independent banks, “private” banks added the name Federal to their name to fool the America public.These banks, Federal reserve, make their money by setting interest rates on loans to the U.S. government and any others who need their printed money. They determine how much and when the printed money is released to the market place. Probably, not 1 person in a 100 know this which is fine with the Federal Reserve. Only the politicans and banks know the system which enables them to spend; thus the rich get richer and the poor will never get out of debt. Do you not think they “knew” what the results would be by lowering loan standards? Easy money comes with a price. They are all happy to do loans and will work it out, roll over, to keep the monthly payments coming in. The crack dealers have hooked many on their cheep drugs and now there is no easy way to get cured.
All you need is one decent computer with an accounting program and some sort of internet reporting system to ensure the banks aren’t creating money out of nothing. No gold necessary. In this mythical world there would be a fixed amount of money, since deflation is inevitable in this system with accelerating technological progress (see productivity growth, PC prices), prices for just about everything will drop. If it’s digital currency then paying $0.003 for a hamburger won’t be an issue anymore because we won’t need change.
From my perspective it looks like the whole system is rigged with the assumption of inflation and were that to change to the natural system of non-fiat good deflation there would be a major financial event which would allow the change. I think it’s inevitable personally.
The Fed says deflation is bad because people won’t invest when cash is king. If you look at productivity in the deflationary PC industry it’s huge. So with good deflation cash would be increasing in value but investing in hugely productive industry would be the better choice. That’s my utopia anyway.
Uh, would you prefer to trade cigarettes or pebbles instead of green paper?
If the free market decided that pebbles were appropriate to trade, then so be it. No government intervention necessary.
Or would you prefer barter, with its omnipresent double coincidence of wants?
If, as a free individual, decide to perform a transaction as a barter, then so be it. If I decide to trade for a money-ish commodity, then so be it. Eventually (and quickly), something will emerge as the most common money commodity.
Nope — let me guess — you prefer trading shiny yellow metal, with its highly unstable value (thx to govt control of supply),
Government controls the supply of gold? Maybe now, but without a fed, it would be on its own. Government can influence the price of gold in dollars because it can print dollars at will and it costs them nothing. You think gold is more or less stable than the US dollar? From 1913 to present, a dollar has lost 96% of its value. From 1913 to present, an ounce of gold will still get you approximately the same amount of stuff.
its finite supply
Having more money does not make one wealthy. Having more things that money buys does. The economy can function well when a cup of coffee costs $1.50, and just as well when it costs 5 cents.
” Nope — let me guess — you prefer trading shiny yellow metal, with its highly unstable value (thx to govt control of supply), its finite supply relative to an ever-burgeoning world population, and the toxic externalities which come with its extraction…”
oh man, you really need to learn about the history of money, especially in the US before 1913.
galbraith has a great book on money.
“money- whence it came from and where it went”
Dogpile on GetStucco!
A few points: Think bimetal, i.e. gold and silver combined as a basis for a sound monetary system. Also, gold is plentiful, and has a very small flow ratio (the amount of newly mined supplies divided by the aggregate supply in existence). Finally, at some point, CB’s will run out of supplies to sell in the open market. If anything is finite, it’s their supply.
You can dogpile me or curse me all you like — kill the messenger, as it were — but my guess is that the Fed will balance the buck on the backs of goldbugs. Just a hunch, maybe because it has happened before (1869).
“If anything is finite, it’s their supply.”
OK, Fred, thanks for the information that we are running out of trees. I was under the impression that trees were a renuable resource, so thanks of setting me straight on that point.
Hey, a little overly sensitive today are we?? Take a break. I WAS trying to be a bit humorous. With all due respect (and I DO respect your opinions), perhaps you don’t know it all when it comes to monetary commodities and theories. I certainly don’t.
NO NO NO. GetStucco, you are perpetuating the lie that only the Fed can create money. Read the Constitution. Congress is the only body authorized by the Constitution to print money. Got that? Congress could print all the money the country needs without any help from the Fed. The Fed is completely unnecessary and does great harm to our economy. Why has the purchasing power of the dollar fallen by 95% since 1913? It’s because of the policies of the Fed.
You can’t unring a bell, and you can’t reflate a popped bubble. Money just flows to the next speculative investment; housing bubble was the stock-bubble reflation attempt. Also, have you noticed that each bubble requires more capital, and the bubbles come closer and closer together? We are past the point of diminishing returns.
- Another, “I believe that incomes cannot catch up. Too much outsourcing is happening to places where the pay is 1/2 the American wage. The only way to get home price/income ratio back to normal is for home prices to fall (50%+ in my neck’o’the’woods).”
Here in So Cal the division between skill sets and pay looms ever larger all of the time. I make over 100k with performance bonuses…but none of my family or friends make that except with two wage earners. I save money and ‘hunkered down’ for the last 5 years. Most folks that I know piss off every dime they get and feel ‘entitled’ to some kind of ‘good life’.
Thankfully, we have foreign investment to continue this ponzi scheme of life.
I hear you sobay. It is like many people don’t want to deal with the reality of living sound fiscal lives, stagnant wages/outsourcing, so they just say “f*@$ it” and pretend that they can have the lifestyle of a millionaire. “Take on a bunch debt to get you what you want — it’s the American Way — everyone else is doing it”. Many don’t consider that it’s a house of cards that could come tumbling down … not only for themselves, but for the economy … they figure the gov’t will bail the economy out.
by the way … the bond market has been screaming “hard landing” this past week. The 10yr and 30yr treasury rates have fallen hard. the yield curve is getting further inverted.
Not for long!
I agree. Put another way, was there anything the Fed could have done to cause the stock of those money-losing internet companies to retain value? IMO, there is nothing the Fed can do to keep the price of a quarter acre lot outside of Flagstaff at 2005 levels (around $200k).
They Would if they could. This is just the beginning. When the dollar and US govt. drag down every other currecy with it there will be a run on all currencies. One day soon you’ll need a wheelbarrow full of Franklins just to buy a diet cola.
- One day soon you’ll need a wheelbarrow full of Franklins just to buy a diet cola.
Will ‘Euro Peso’ work?
Si.
This is the beauty of the housing bubble relative to more esoteric Ponzi schemes like the dotcom startups. It will be awfully hard to hide the oversupply of 5 million unneeded homes from view once all the flippers and FBs finally leave the demand pool. Ultimately someone has to pay for maintenance, taxes, insurance, etc. on these homes, and without future price inflation, those who bought ten or so will begin to experience a new meaning of the term “mortgage broker.”
Under the inflationary scenario, where cheap talk and loose money get the real estate investing party rolling again, the attendant effect of exacerbating already-severe overinvestment in the housing sector would seem to make that a scenario the Fed would rather to avoid.
There is the further questionable wisdom of continuing to sponsor policies which encourgages the utmost degree of household-level financial profligacy. An incentive system which rewards stupidity is doomed to eventually fail.
Then again, what better way to soak the rich than to have bubbleheaded amateur flippers get away with it all by repaying those loans in hyperinflated dollars?
That’s pretty much the story of the Great Inflation of the 1970s. I don’t think the Fed’s rich constituents (the kind whose hedge funds are buying subprime MBS) will much go for that idea.
“…there is nothing the Fed can do to keep the price of a quarter acre lot outside of Flagstaff at 2005 levels (around $200k).”
That (not Flagstaff, though) is where I’ve bet my money. All of it.
Is it possible to rekindle a mania?
Of course but at this time not in housing; the excess supply of condos and SFHs is crushing the market. I hear the new Elmo is adorable, however.
According to diceman, “You can’t unring a bell, and you can’t reflate a popped bubble.” I agree; the housing bubble is rapidly bleeding air and home prices will deflate. The problem for the fed, however, is no longer extreme asset inflation; it’s addressing the excesses of the credit binge, the upside down loans in the system, the write-downs and write-offs, and the budding timidity to lend and borrow. In other words, the emerging problem is avoiding a consumer side credit crunch.
Let’s face it home buyers over the last 3 years are going to be underwater for some time; they will have at best zero equity but in most cases negative equity. Some may lose their homes b/c of the inability to make payments. Others may receive forbearance. Still others may qualify for BK protection. Not a pretty picture, is it? As a result and when the news reaches Joe Soccermom, we can expect most not all home buyers to be a little more timid about future purchases.
On the other side of this equation sits the lenders. They will soon realize they are holding assets/loans backed by depreciating collateral. As a result, lenders are’nt going to want nor will they be able to underwrite as many loans as they did during the boom years. This will further slow demand for their rapidly depreciating collateral sparking a vicious deflationary cycle in real estate similar to Japan’s.
To stop the bleeding on both sides of the equation and avoid or lessen the impact of a deflationary scenario, I think the fed lowers rates. The NAR and NAHB will foolishly cheer but it won’t help increase sales or prices, the consumer is tapped and the market is overbuilt. Here are several supporting observations for this conclusion: (1) the game plan is pretty much scripted in a fed report published in Sept 2005 regarding global house price declines; (2) with long rates heading lower the bond market is leaning heavily in that direction; (3) an inverted yield curve creates negative margin pressures on lenders that borrow short and lend long; as a result, credit expansion slows; and (4) its typical and predictable fed policy during a recession to lower rates.
You might be asking yourself with lower interest rates, what happens to the dollar? It’s hard to say precisely. Perhaps it plummets at first. There are benefits to a falling dollar, however. It makes foreign goods more expensive for American consumers, inflationary. It also makes assets including real estate cheaper for foreigners to buy and buy they may in hopes that the dollar strengthens in the future. Perhaps it will as a result of additional demand for US assets. Or, maybe it slides. Perhaps some Asian central bank holding US dollars intervenes and stops the slide. Ultimately, the market decides.
From an Americentric point of view, prices will probably fall generally, based on a significant decline in consumption among the largest demographic group - the retiring boomers. On the other hand, several times the population of America is now suddenly emerging into the Middle Class and buying cars - Chinese, Indians. They are using up oil too. Fact is the rate of increase of oil consumption is 3% while in production it’s 2%. It’s a loser’s game and the price of gas, although probably will fall to $2.00 in LA by December, will go up past $7 per gallon when the Saudis no longer can mask their declining output. Oil tankers are also a scarce resource, as well as the labor to work in the oil business. The smart money is in cash, T-bills, buying gold a little at a time, and buying international stock or multi-national corporations with an interest oversease. Paccar is a multi billion trucking company with half its business overseas. A depression in America will not significantly harm Paccar. Americans gotta get busy and produce children. Maybe that will cure the 20 year depression about to ensue.
The view that all Chinese and Indians are emerging into the glowing light of the middle class is a pretty picture, but untrue. Yes, many more Chinese and Indians and other developing countries are seeing more and more of the population wiht cash. This masks the severe structural imbalances in these places. Look behind the curtain, and they are easy to spot.
As many as 40% of the population of India lives in poverty, that’s more people than in the US. The numbers in China are smaller, but the poverty level is huge when individuals are counted. And the internal markets are too small to support GDP without huge inflows of money we (and other developed nations) pour into them when we buy their exports.
When we enter a recession and/or the dollar tanks, these folks are in for a rougher time than we are.
The housing bubble is a smaller part of the worldwide credit bubble. When it deflates, none will be spared. The only question is who gets hort the most.
Don’t forget that China is a creditor country and the USA a debtor country. China will have a lot of room to stimulate their economy should there be a drop in exports - perhaps by accelerating their already rapid pace of infrastructure expansion, or by lowering their extremely high savings rate.
also, let us not think that OUR definition of poverty is India’s…. Only homeless can be seen on par with their type of poverty. We don’t usually have raw sewage all over the streets and tar paper shacks. Certainly not in any real way
Backstage-
Percentage-wise, it doesn’t matter that China and India have major % of their populations in poverty.
Their populations are so HUGE compared to the US, that even if China, with over a billion people has 80% poverty, that still leaves 200 million who are “middle class consumers”- 2/3 of the 300 million TOTAL US population.
And that’s about where the stats were for China a year ago: 200 million “middle class spenders”. India was pretty high too. Combined, the 2 take out the US consumer and we become marginalized.
“Americans gotta get busy and produce children”
Please explain how this will help. They will only consume for the 20 years of your depression. When they start to produce, the depression you predict will have passed.
Why not import children, along with everything else we import? After all, bearing children is one of the most expensive activities a household can engage in outside of the first twenty minutes of the process. Come to think of it, even the first twenty minutes is very expensive if you assume rational expectations.
LOL. Got that right.
Lord Chesterfield said, “The position is ludicrous, the pleasure is momentary, and the cost is damnable”
“A depression in America will not significantly harm Paccar.”
America is still the 800 lb gorilla of the global economy. A depression in America will be even worse for the Indian and Chinese populaces, as we are their export market.
Is the guy living off the benevolence of credit issuers (USA or person with 500k mortgage) going to be hurt less than the issuer of the credit (China / or the bank)) when the game is over? I personally would rather be the guy who is the creditor than debtor. Not just from a financial aspect, but also an ethical one. Maybe you are right. China may be more dependent on our green paper than we are on clothes, cars, technological do dads, and other manufactured goods. Time is going to tell.
The exporting countries are piling up massive amounts of USD in their respective Central Banks in record time. They don’t know what to do with all the cash and are afraid to utilize it in the domestic economy because of domestic inflation concerns.
I don’t know about China but this is the case with Russia. The best idea the Russian finance department came up with was paying of the foreign debt early.
Who’s to say a depression may actually be relatively good for the US consumer?
A depression might be an opportunity for the Chinese manufacturers to take out the middlemen sitting between the manufacturer (China) and the consumer (US).
Everyone knows that the greater portion of the benefit of productivity improvements otherwise known as outsourcing have accrued to the profit line of US corporations that control either the distribution or brand names for the products. As I see it the next stage to “productivity improvement” is to eliminate these “middlemen”. Why should the consumer pay $100 for a pair of shoes that costs $2 to produce in Vietnam? Or a “name brand” shirt for $70 that is made in China for $2.
Since the poor and middle class have a limited stake i.e. minor holdings in Corporate America–I say take out Corporate America and give the benefit to Middle America.
It’s said that a recession clears out malinvestments from an economy. It’s like an enema: not pleasant while it’s going on, but the benefits may be worth the pain.
I could carry the analogy further when discussing a depression, but we are in mixed company. I don’t want to offend TXchick.
“On the other hand, several times the population of America is now suddenly emerging into the Middle Class and buying cars - Chinese, Indians.”
Their combined GDP is 15-20% of the GDP. When US goes into a depression it will create a Demand Destruction not only here at home but all over the world dependent upon American Money (Consumption Debt = New Money). It is the American Debt-Money that is slashing around the world in a Building Boom of which Dubai is a poster child.
Jas Jain
I beg to differ. China’s GDP is about 61% of the US’s, and India is at 27% for a total of 88%. Per capita income is about 10% of the US.
None the less, their economies are is worse shape to accept a shock that is ours.
“I beg to differ. China’s GDP is about 61% of the US’s, and India is at 27% for a total of 88%. Per capita income is about 10% of the US.”
Where do you get your data? Are you falling for PPP? A $ is a $ and Crude Oil is not priced based on PPP.
Per capita income of an Indian has been close to 2-2.5% of an American. Bad data leads to bad comparisons.
Jas Jain
Sorry Backstage, I call BS on this one also.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Where did you come up with $7/gal.? IMO, $7/gal. would do little to reduce consumption.
It looks like we’re having a Japanization of interest rates. I lived in Tokyo from ‘90 to 2000 and RE prices went down every year, even as rates moved lower, from 4-5% at beginning of decade to about 2-2.5% in mid to late 90s.
Maybe, but they are tremendous savers, while in the US it is negative/flat.
They don’t TAX savings in Japan!
I have two words for you: Roth IRA. And soon: Roth 401 (k).
I wouldn’t count on IRA’s. Too much control by the “system”. Congress will change the rules and by the time withdrawals can be made, tax rates will double from current levels. I’ve already heard some liberal politicians complaining that it’s “unfair” to let these accounts grow without paying taxes.
And Fred’s comments would hold with the course of things since the 70’s. Traditional pension plans go away and are replaced by woefully undefunded, but tax preferred accounts. Then the tax benefits go away, then social security gets cut. You are left alone.
I’m quite sure that the conservative politicians would never say that taxing retirement accounts is right or fair, but they will take the money when the time comes. They are already spending it now.
I love that. I can see it and hear as though it was on C-Span.
A politician complaining that lucky people have retirement plans, and poor people have to rely on the bankrupt social security.
“Why should the fortunate few live luxurious retirements” said the Senator, “while our seniors who only get social security must eat dogfood.”
The Senator failed to mention that the “fortunate few” were those who sacrificed and saved. She was quick to point out, however, that 401k is simply a section of the tax code, and that congress was free to amend it with appropriate legislation…
Which female senator said that? I want to know my enemies.
If the Fed accidently created a bit of deflation, we might see a sea change in US saving behavior. But don’t hold your breath, as Bernanke appears to believe that deflation is to be avoided at all costs, including helicopter drops of the green paper from the govt’s giant printing press.
You expect inflation? I thought you were bearish on metals.
Let me say this once now, and I will say it again until everyone realizes: My crystal ball is not nearly as transperent as those of all the gold bugs, deflationists, housing bears, and soothsayers in general who post here. My hobby is entertaining scenarios, and I don’t give a rat’s ass whether anyone here finds that objectionable, save Mr. Jones himself. When he gets tired of my posts, I will find another hobby
Please don’t call me “a scenario”!
“…while in the US it is negative/flat.”
The key word is “is.” What was and what is is not going to be what will be. Americans will become savers, even if of necessity or forced into it.
Yes the US Treasury rates here will be 0% short-term and below 2% long-term, like in Japan, except not many borrowers out side of the Federal govt.
Those who would be able to wouldn’t want to or need to and those who would want to wouldn’t be able to.
Jas Jain
OT:
A nagging compulsion to move up or get left behind
“The richest girl I knew growing up lived in a house with a swimming pool out back. This was a notable luxury in a small Snohomish County town full of modest homes, with backyards more likely to sport a dog on a chain than a shimmering, tiled pool.
“This pool opened my mind to the idea of disposable income, of buying things you don’t need and your neighbors can’t afford. It was like meeting the devil himself, in a swimsuit and a smile.
“I’ve been running from that devil ever since. He’s not impressed by swimming pools anymore. And as wealthy people find new ways to stretch my imagination, neither am I.”
Brilliant.
What a great column.
Although I live as a minimalist, I sometimes need this reassurance that life is good: a 1,200 square ft house is enough; a ‘98 VW will do; cooking in is more enjoyable than eating out. The best thing I’ve bought in the last ten years is a Trek Custom Cruiser to ride to work for $240.
We traveled around the country for a few months this past summer and visited friends and family - some wealthy and other not. I saw no correlation in the wealth/happiness factor. If anything, it was an inverse relationship.
We can all tell the horror stories of those living well beyond their means. What an interesting world (or country) in which we live.
God, (and I truly mean that salutation), that was an amazing essay…
I look forward optimistically, to seeing people start living the values of their self-worth rather than the values of their net worth. I’ve known some very miserable, very wealthy people, most notably a boyfriend from back in the day…his father invented the shopping cart. This guy was amusing, in the way that most everything amuses a 23 year old girl, but he ended up a suicide…his brother too.
Money has no insulation from sorrow….it seems to be an attraction.
OT - Catherine - sad, but very interesting comment. I just saw a documentary within the last couple of weeks about how the shopping cart is made - I believe it was “How Things Are Made” or something like that, perhaps on the Discovery Channel. I found it fascinating because of the variety and number of the separate processes involved and was thinking that the person who could figure out the manufacturing process for such a thing must have been brilliant. Too brilliant to be a father, evidently.
Great read! Thanks for the link. Reflecting upon it, I wanted to share it with a few of my friends. Did not really have anyone that was really like minded and would appreciate it. Suppose that is why we are in this mess.
“This pool opened my mind to the idea of disposable income, of buying things you don’t need and your neighbors can’t afford. It was like meeting the devil himself, in a swimsuit and a smile.”
The devil wears spandex.
Re: Move up or get left behind.
After reading that, I just sat back and thought “Wow! Talk about nailing the feelings.” I did e-mail this to 2 of my friends who might enjoy the incredible correlations to conversations we’ve shared.
Thanks for providing that link, jmunnie!
Can we all agree within the context of the housing bubble smooth talking DL is eerily similar to one of the main characters in this article urging unsuspecting home buyers to get in over their heads and after they do urging them further to stay on a ruinous course. All the while taunting them and calling them names if they openly contemplate heading down a different path.
So what if rates fall next year. Speculators certainly are not going to return to this market and they were a large part of the price run-up. All potential buyers now understand the “prices only go up” fallacy. The gap between cost to rent and cost to “owe” is wide and increasing numbers of people will figure out renting is a good deal. Stuckulators still need to unload or rent their spec properties. It’s hard to imagine any scenario in which prices would hold at today’s levels, much less increase any time soon.
I think your right Chip .I don’t think they can get a uptick housing rally going even if the interest rates go down .Inventory levels will remain high with people wanting to exit .
if you put all these speculators together they are like one big highly leveraged hedge fund waiting to go under. in fact, the entire world economy is basically dependent on them, their high leveraged bets, their consumer spending and helocs.
“… they are like one big highly leveraged hedge fund waiting to go under.”
Is it possible that Fannie Mae is the hedge fund you have in mind?
“Too much outsourcing is happening to places where the pay is 1/2 the American wage.”
OT, but five years ago the fraction might have been stated as 1/4 instead of 1/2. I’ve been watching trends in this area, and what I’m seeing is a slow equalization of Americans’ pay with that of the developing world. Inflation adjusted, our workers’ pay is certainly going down, but Indian and Chinese workers are seeing increases. By working toward equalization slowly, the pain is minimized (can’t be eliminated altogether), and eventually our workers will be at parity. Then watch how we compete.
Anyone notice the recent article about how it’s no longer a slam-dunk decision for a company to offshore its call center(s)? The cost/quality tradeoff is beginning to favor US companies having US call centers. I wish I could remember where I saw it.
A big unknown: Even when pay parity is achieved, will our environmental rules and NIMBY attitudes minimize the return of factory jobs?
“…will our environmental rules and NIMBY attitudes minimize the return of factory jobs?”
A very fair question.
Bill —
Watch what you say on environmental rules and NIMBYism — WeinerDog may say you are stupid for trampling on his politically correct weltanschauen.
Correct me if I’m wrong here but do we really want to bring some of other countries’ environmental nightmares here for the sake of commerce? I’ll bet you there are some families in Love Canal, NY and Waltham, MA that would beg to differ with you on that one.
Well Bill and Chip, here’s your answer…
If I understand CarrieAnn’s train of thought, she’d rather keep sending manufacturing offshore, thereby enabling poor third world families (and children) to make stuff for her while they pollute their countries. Call it International NIMBYism. In the meantime, everyone here loses their job, and the trade deficit grows to infinity. We could export our EPA though.
And CarrieAnn, I trust that you are a person of good intention. I also trust that the US can reclaim lost manufacturing capability and do so without poisoning our land, air and water.
One of Dell’s biggest problems has been their outsourcing of almost their entire customer service department to India, which resulted in extreme customer dissatisfaction. They are in the process of bringing a lot of it back onshore. You can outsource the reading of an X-Ray a lot easier than customer service.
“You can outsource the reading of an X-Ray a lot easier than customer service.”
As an old fart, I find that prospect not comforting in the least.
> A big unknown: Even when pay parity is achieved, will our environmental rules and NIMBY attitudes minimize the return of factory jobs?
A more interesting question to me seems how environmentalism will fare in China and India. China has already big pollution issues, and with the middle class getting wealthier, experience suggests that they resist it, at least in their backyard. I don’t know much about pollution in India, but India has as a democracy already a system in place to transform wishes of an increasing middle-class into action? What do they wish?
I have been to both India and China many times and they are not like the US. Both have sporadic area’s that can compete with the west in general. Bhopal, Bangalore, Shanghai, However, they are a long way away to competing with US technology. Cheap labor is just that. A hill-billy in WV and a coolie in China doing a menial job may have the same IQ but different minimum wage standards. The sad part is in order to bring the Chinese worker up to US standards the US must decrease the standard of living for almost the entire US. This is coming sooner than later.
Existing home sales for August will be reported Monday at 10:00 am. Economists are predicting a drop in the annual rate from 6.33 million in July to 6.30 million in August. New home sales, reported on Wednesday are expected to fall from 1.07 million in July to 1.06 million in August. From this blog it seems like the declines will be much greater. Housing tracker.net shows that inventory is increasing sharply in many of the hot markets. Also, markets such as Seattle and Salt Lake, that were recently showing price increases seem to have hit a wall.
I agree with you the figures will come out worse than expected as all the analysts are behind on the issue and will probably remain behind as things begin to snowball.
The question is how will the market interpret the reported data. I am going with bad maybe not for the day but for the week i.e. reaction like we saw to the Philidelphia Index.
When the NAR reported existing home sales last month, the equity markets had a bad day. Even the homebuilders went down!
But, later when the new home sales came in worse than expected, the homebuilders rallied.
NAR is actually forecasting a slightly-lower number, according to thestreet.com:
http://www.thestreet.com/markets/databank/10308195.html
Generally speaking, the concensus economic forecast on monthly data, even though subject to being well off the mark, is pretty close to being a statistically unbiased estimator and it can be dangerous trying to bet too heavily against it. (It is generally a better market play, IMO, to try to think about whether markets, judging by recent market action, will react more to moves above or below consensus.) Also, remember that these data are seasonally adjusted, so it is important remember that such things as weather this year, number of weekdays/weekend days, etc. come into play.
Having said that, there has been a tendency in the last few months for economists to somewhat underestimate the weakness in the housing market so I wouldn’t be surprised to see this continue.
“From this blog it seems like the declines will be much greater.”
You betcha. I am in that camp 100%.
Deletion of the word “gradual,” regarding the housing slump and removal of “interest rates” and “energy prices” as additional factors in the economic slowdown put the spotlight on housing.
thank you Bill Barnhart, Chicago Tribune for your insight!
God bless America!
‘The housing recession is not the stuff of an economy-wide recession, unless it tips the consumer animal spirits into a recessionary funk.’
I wonder what effect falling real estate prices and the resultant impact on cashout financing will have on Keynesian animal spirits?
I never tried making spirits with animals — corn works great, is cheap and doesn’t use up ammo.
Reading “Hedge Hogging” by Barton Biggs, and it quotes Walter Bagehot (the first editor of The Economist):
“Much has been written about panics and manias, much more than with the most outstretched intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money. At intervals, from causes which are not to the present purpose, the money of these people — the blind capital as we call it, of the country — is particularly large and craving; it seeks for someone to devour it, and there is a ‘plethora’; it finds someone, and there is ’speculation’; it is devoured, and there is ‘panic.’”
Don’t you just love this stuff?
It’s always psychology, yet the damned economists insist on scenarios where people act logically instead of emotionally.
The Federal Reserve is not a “Federal Agency”. It’s name is federal only and comprises of 10 private banks for the prime purpose of loaning money to the Federal Government. They control the rates. My guess is only 1 out of 100 people today know this which is most unfortunate. The facts are there on the internet to open any doubtful
minds. As long as the magority don’t know, the longer this con goes on with the banks and political establishment benefiting with profits and power. The rich get richer, the poor will never get out of debt.
Do you not think the lenders knew in “advance” that by lowering loan standards, what would happen? You know the answer.Enough said.