From Housing Bubble To ‘Reverse Contagion’
As more evidence arrives that the global housing bubble is bursting, the worlds’ economists ask, what’s next? “Rising eurozone interest rates could spell the end of the ‘great European housing boom,’ according to a report issued on Tuesday. The study said, ‘If the ECB does follow expectations and raise interest rates further, the implications for European housing markets could be substantial. The end of the boom may be in sight,’ the report concluded.”
“Analysts fear the cycle will turn as rising interest rates in America, Europe and, soon, Japan choke off global liquidity. Andy Xie, an economist at Morgan Stanley, said the ‘bubble’ could burst this year. ‘It may take just one event to trigger reverse momentum,’ he said.”
“The world economy certainly seems to be turning upside down. Ex-Communist Poland is now so credit-worthy it can raise international capital more cheaply than the US. ‘We no longer face a risk of Russia or Mexico blowing up: it’s the US housing market we need to worry about,’ Philip Poole, an economist at HSBC said.”
“Poole said the world had changed so far over the past decade, the next crisis may well be one of ‘reverse contagion’ originating from the mature economies.”
Paul L. Kasriel has this, “If we do have a housing bust, and we likely will if Bernanke does not soon declare a ceasefire, then the cutback in spending by (the) unemployed would have a, excuse the Keynesian expression, multiplier effect on total spending in the economy, adding some homeowners not associated with the residential real estate industry to the length of the unemployment lines.”
“A slowdown in consumer spending emanating from a busted housing market would lead to an increase in unemployment, which would have further knock-on effects to consumer spending and unemployment. Our smug homeowner might find himself in the unemployment line.”
“Housing today is more highly leveraged than it was in 1989, just before the last bicoastal housing bust occurred. Today the housing leverage ratio is about 43%. In 1989, the leverage was about 35%. Between 40% and 50% of new mortgage debt applied for in the past two years has had an adjustable-rate element to it. Back in 1990, only about 10% of new mortgage debt was of an adjustable rate nature. A lot of these adjustable-rate borrowers in the past two years are in the ’sub-prime’ category or are speculators. In either case, they probably have little equity in their homes.”
“It has been estimated approximately $600 billion of sub-prime adjustable rate mortgages will reprice over the next two years. Chances are mortgage defaults will be on the rise with these repricings. This will put ‘repos’ on the market, which will depress home prices. Speculators, with negative cash flows and slower or no appreciation in their investment properties, also will add to the glut of homes for sale.”
“Again, so what if mortgage defaults are on the rise? U.S. commercial banks have a record exposure to the mortgage market. About 62% of bank earning assets are mortgage-related. History tells us that a crippled banking system renders central banks less potent in combating economic downturns and promoting robust recoveries.”
“In other words, if a housing bust led to large credit losses to the banking system, Chairman Bernanke could cut the fed funds rate to 1% and be surprised that a low interest rate did not have the same magic for him as it had for his predecessor.”
“A housing bust..will give renters a lower price point at which to become homeowners. Yes, unless they are in the unemployment line too.”
It has always been a possibility that a housing bust would be magnified by world imbalances. I certainly hope for the best, but Arizona, for one, isn’t prepared for such a situation. The powers that be have put quite a few eggs in the housing basket and it looks like we’ll find out just how wise that was.
A reader sent in this primer for ‘low-ball’ offers.
Well, this one just about “Sums It Up” now doesn’t it Ben ???
Whats the soup of the day at the soup line? People need to realize that the prices will come down and crash in many parts, but the side effect is a recession and homes really wont sale.
This is some scary sh–.
Good pucker-factor.
Two quibbles.
Quibble 1: Moscow is deeply f***ed by the housing bubble. It is a society corrupt in the extreme, it’s population is crashing, and Russia isn’t exactly a great place when it comes to rule of law. Bribery is a way of life.
Quibble 2: China is even more hosed than Moscow. We’ve all heard the reports out of Shanghai.
We DO need to worry about these places. Particularly Shanghai, which by itself is a bigger bubble than the entire state of California.
RE: China adding to the global mess, here are some comments from George Friedman, a geo-political analyst Citibank hires to give perspective to its institutional clients. In short, China now is like Japan 1993. Everything looks great on the outside, but inside it’s chaos. And china in certain respects is a mirror of US Consumer demand? Lovely. Read more if you care.
“Finally, I want to talk about China, because the question has come up a number of times. You guys said that China was going to run into big trouble, and we don’t see the trouble, so what are you guys saying now?
And I want to talk about that. In our point of view, we are in the same position in China as we were in Japan from 1991 to 1993. The Japanese had hit a brick wall. The banking system was collapsing, the basic infrastructure of Japan’s economy was decaying, but nobody knew it.
Actually, anybody knew it who wanted to look at it. But the consensus was that because the growth rate was still there, the economy was essentially healthy.
We - the question is now, well, when is China going to run into trouble? And the answer is last year. We’ll - I’ll go through some of the details, but essentially China has hit its wall.
It is experiencing massive social unrest, including violence. But it is maintaining its growth rate, and therefore maintaining the optical illusion that it’s healthy.
I want to start talking about that growth rate for the moment. The Chinese announced that they had grown 9.2%, and they made that announcement in the last week of January.
Now, we would assume that that means that they had pulled their numbers together somewhere around January 15. I know of no country — the United States, the EU included — that closes its books on its GDP two weeks after the end of the year.
I don’t even know a major Fortune 1000 company that can pull that off. The mathematical, mechanical difficulty of pulling together the numbers of any large enterprise and having them ready for definitive publication in under a month is just enormous.
It can’t be done. It wasn’t done. Begin with the fact that whatever the growth rate was in China, when the Chinese said in 9.2%, they had no way of knowing that whatsoever.
Now they’ve been doing this for several years and have this following pattern. They announce whatever growth rate they want in January, and they revise it the following December.
Now this year, what they did was introduced in December an entire new sector of the economy that they had said they had forgotten to count. Thereby increasing the size of the Chinese economy about 21%.
That’s what they said they had forgotten to count, or miscounted, or - it wasn’t ever clear what they were talking about or what the parameters of this was. And then they followed it up two weeks - three weeks later, essentially, by announcing that it had grown by 9.2%.
From that, you can assume the following as fact. The Chinese did not know how much their economy grew. You can also know that they knew what number they were going to announce from the get go.
At the time they rolled out the December variations, they already knew it was going to be 9.2%. Therefore, that number should be looked at as what the Chinese want the number to be, not as a real number.
Why do they want the number to be 9.2%? Because they understand that westerners believe that high growth rates independent of things like rates of return on capital and so on, are good.
The western obsession with growth rates in Asian economies is very old. The westerners are impressed by that. How that comes about is essentially by surging exports.
Now, at the end of the Japanese expansion, we looked at Japanese surging exports and saw that as a sign of strength. It also means the Chinese economic wellbeing aside from the question of what is the rate of return on capital, which is almost undeterminable in China, is entirely dependent on the American economy.
It was one of the things we saw last year was that Chinese savings rate rose while Chinese consumption remained stagnant. Now that’s been going on for a long time. And the usual answer that was given on Japan is; well, look at those Japanese. They are a thrifty and disciplined lot.
Well, what it really meant was that in times of approaching trouble, savings rates rise. And an economy that does not have growing demand to match growing output become hostage to exports. It also becomes hostage to cash flow off the exports rather than decent profit margins on the exports.
So you’re seeing, again, what Japan did in ’91 to ’93. You’re seeing very - if you believe the Chinese numbers, and these are all Chinese numbers, static growth in consumption — domestic consumption — massive growth in savings rates, and that usually means extreme pessimism among consumers in a country.
You also have foreign direct investment statistics — again coming from the Japanese — falling slightly by a 1/100 of a point, almost, is what they fell.
What is not clear from the statistics is not only did they not rise last year, but the top position has been changing dramatically.
The largest source of foreign direct investment is recycled money; money that went overseas to the Chinese and then came back as investment, followed by Asian investment. And a very small amount compared to five years ago coming from the advanced industrial countries.
It just isn’t happening anymore. People aren’t - from the United States and Europe are going in in much smaller numbers. The investment pie is not rising. They are fueling whatever growth they are having out of rising savings rates, and that in turn gets into the question of their banking system.
Now, the Japanese - the Chinese had 60% to 70% bad loans according to their own numbers two years ago. This is down to 10%, which is an extraordinary achievement.
But what they really did was created something called asset management control companies and shifted the debt over there. That was a nice move. And it solved nothing except it made the balance sheets of the banks look more attractive for the entry of foreign capital into some sort of position in those banks in an attempt to get additional capital in there.
They have now claimed that 67% — their number — of bad loans that were outstanding have at this point been recovered either in the form of cash or of assets.
And they claim to have done that in one year. So in other words, they have in one year taken $600 billion to $1 trillion in bad loans off the books of the banks, and are now claiming that they have basically converted these into functional loans in these new asset management corporations in one year. That’s quite an achievement, but the arithmetic doesn’t add up.
I mean that literally; that when you sit there with a calculator going through their numbers, even their numbers don’t add up. It adds up to about 42% was converted.
Second, their definition of asset is creative from an anecdotal intelligence point of view. These factories that went bankrupt have been stripped bare.
The asset managers are saying that the assets are there. They’re not. In other words, as we had with the Japanese banks, massive slight of hand is taking place.
Add to that the fact that loans that are still being granted are being granted against land price; land valued at astronomical levels, and you start to see a very old pattern emerge.
One of the things that this has resulted in, which is extremely important, is massive social unrest. In December, we saw, in (Shun Wai) province, a clash between citizens and the military, in which the military shot down civilian demonstrators.
And the civilian demonstrators, for two days, wouldn’t get in. That is, you know, pretty much an extraordinary event. It was noted in the newspaper and that was the only thing that was different about it, because this goes on all the time.
It was noted in the newspapers and therefore somebody noticed it, but it went away. In January 25, 2006, China’s minister of public security said “We’re going to strike hard against all sorts of terrorist activities and resolutely protect state security and social stability.”
He was basically talking there about “a period of - expecting a period of pronounced contradictions within the people.”
And “unpredictable factors affecting social stabilities will increase.” Okay? There’s many more quotes like this and so on. But the Chinese government as said very clearly that they expect more social instability in China.
They are funding their forces to deal with it and so on. There is a direct connection between the banking crisis and China’s social instability.
Basically, what is happening is the aggressive seizure of land because land becomes what they can borrow money against. Resistance by the people who own the land, fighting breaking out, the troops coming in to intervene on the side of the land grabbers, who usually are well connected to the communist party.
According to the Chinese government, there were 87000 incidents of this in 2005. 87000. Now China is a big country, but that’s a big number.
So the fundamental question that we say is, look, how much worse do you want it to get? China has gone from a country that was peaceful, developing, balanced to a country that’s surging its exports, whose banking system is somewhere between chaos and amiss, and where fighting is breaking out all over the country.
In Shanghai, in Beijing, this is not visible. Step outside the cities, and you see social turbulence originating in the massive financial problems — people losing their savings and so on — of just extraordinary proportions.
Do not look at high Chinese savings and low consumption as social discipline; look at it as social fear. So the question is, is our forecast - are we still living with our forecast? Yeah.
We feel very - not good about it - but very confident that the trajectory of China over the past two years as we went negative on them has tracked very clearly and we strongly expect sometime in the next year or two even the Wall Street Journal will notice.”
Get,
Wonderful post.
I was wondering why the Bush administration was hell bent on CAFTA. It seems we need a new China.
Your post was thorough, concise, and very relevant. It is good to gain new sources and insights into the currency bubble. I encourage you to post as often as possible. Thank you.
I posted some of these links the other day, they’re part of the top 29 housing bubble articles.
National Real Estate Investors’ Conference at BWI this week drew about 500 people, and many of them hopped on a bus to Baltimore for a tour of potentially lucrative investments
Historical Census of Housing Tables
Home Values
Even in the county’s toughest neighborhoods, we couldn’t find cheap housing
After a holiday slowdown, the Super Bowl each year marks the start of housing’s prime season.
Average US House Prices Measured In Ounces Of Gold Or Silver
Supply Hits High In Condo Craze
If you want to buy my house, you have to feed the squirrels.
In come the waves(from the economist)
Housing bubble’s burst could cost 1 million jobs and cause a recession, experts say
An Excerpt from the above article:
If you want to buy my house, you have to feed the squirrels:
“Within a month of putting her two-bedroom house in San Francisco on the market recently, homeowner Linda Gao had five offers, each one above her asking price of $699,000. So before accepting the most-attractive bid, she threw in an extra condition: If you want to buy my house, you have to feed the squirrels.”
Of course this is a favorite article amongst the seasoned bloggers of this site…
Lately, Times are a Changin’… so I ask-
HAS ANYONE FED THE VULTURES LATELY?
Its the jobs thing thats scares me the most…The whole underpinning…
“A housing bust..will give renters a lower price point at which to become homeowners. Yes, unless they are in the unemployment line too.”
The time to buy a house will be when almost no one wants one or can even afford one. We will get to that point and it will not be pretty. Cash will be king and debt once again a dirty word.
Your right, IMO. A lot of psychology has to be turned around after a big multi-year run-up.
“Back in 1990, only about 10% of new mortgage debt was of an adjustable rate nature. A lot of these adjustable-rate borrowers in the past two years are in the ’sub-prime’ category or are speculators. In either case, they probably have little equity in their homes.”
FAST FORWARD 15 years….
In Santa Barbara, 86 % of all loans in the past 4 to 5 years have been A.R.M. or exotic loans of some sort.
OH DEeeeeeear… if we don’t fall into the ocean from another major quake FIRST- we gonna see some major SHAKIN’ in our housing market soon. LOOK OUT BELOW!!!!!!!
Haven’t you heard? A developer has allready planned for that. It’s called Los Atlantis Under-the-Sea. They’re allready taking deposits so you’d better hurry, they aren’t making anymore ocean floor. And just think, we fall into the sea and then Ben and his friends in Arizona have instant beach front…and you thought you were in a bubble now Ben!
Hilarious dude!!
The house market in Sac area turned south in August 2005. In Folsom the median price reached at $520K from $310k in August 2002. But since August the house prices started to decline and stood at $495k in January 2006. This is not huge but a good start and will accelarate below 2001 level in next 2-3 years.
Sac Bee has good info where you can check house prices by zip/city starting from August 2002.
Sac Bee Historical Housing prices
Still a Sellers Market in Seattle:
http://seattletimes.nwsource.com/html/realestate/2002848859_homesales07.html
Don’t worry… there’s all the time in the world to tank.
Ditto in Silicon Valley but were cautious….
‘If we do have a housing bust, and we likely will if Bernanke does not soon declare a ceasefire…’
As if Heliben has any real choice in the matter. With the world just saying no to this sea of liquidity, long rates will rise. And if they run out to historical norms, that fresh HELOC holds a 10% interest. How can call a halt to normal?
Good Point TOTL. US and Ben only influence very short term prime rates. Bernake and US have very little influence on the longer term global rates responsible for easing or tightening access to money in US and abroad. Why this author is looking to Ben to mitigate rising rates and save the day is beyond me. Maybe I mis-read.
Thie normal yield curve is sudden death to Housing market. The sub prime mortgages that fueled the housing market for last few years have disappeared as the rates showed some inversion and then the long rates to move up in order to be in the normal shape. The sub prime borrowers were F$$$ed and hiding in their shitboxed which they got for some insane values.
The long rates increase will nuke any hope for the sellers to sell their house at the prices they bought. To induce serious buyers who would like to buy houses to live and not to invest and who preferred to sit on the side lines since past four years these sellers will have to reduce the prices to 2001 level and adjust for higher long bonds. Unless they do it they are not going to get serious buyers and they might only be getting few suckers who could not resist wife’s pressure.
I am very interested to see how this will unfold in next 2-3 years. Waiting is horrible in a market that is declining in value. And those suckers who had been buying for past 4 years, and I am talking about those so called “investors”, will see their sub prime loan to upside down and hope will screw them more.
Economics 101 rules. Equilibrium prevails
Yield curve and a side note
Bond yields soar to 21-month highs
Mar 7: 8:00a
Yield curve close to flat as Federal Reserve official says economy strong, more rate hikes will probably be needed. (more)
There can’t be a global housing bubble, Richard Quest of CNN is going to give secret tips for buying the great overseas investment home this Sunday. He wouldn’t do that if he knew that this is all going to bust, thus, there is no housing bubble.
[Tidbits from the commercial: he's in South Africa looking for real estate opportunities, and he's also going to talk about the great booming real estate market in Bulgaria. Woo-hoo! Toot toot!]
By all accounts the South African bubble is one of the biggest. What a fool. A lot of recent immigrants to Australia are wealthy South Africans who have cashed out of their bubbly real estate. My tenants in Sydney are exactly that. Smart, Cashed out, Rich and patient.
TV programs like these have been very popular in Europe for already 5 years or so, especially with the British BBC, and speculating in foreign RE has been popular in some EU countries for at least the last 10 years.
This is what caused the housing bubbles in countries like Spain and to some extent even those in Oz and New Zealand. Every year there are new get-rich-quick-from-RE countries. The latest craze is some Balkan countries, Turkey, Eastern Europe and Dubai (just to name a few). Young EU folk with hardly any cash go bargain hunting for ‘investment properties’ and sometimes they buy them a dozen at a time (the money is free, so why bother about risk).
When this all comes crashing down I have no doubt that the whole society (especially in these favourite speculation countries) will be presented with the bill.
these banks have vested interests in Fed stopping to raise rates. it directly affects their bottom lines since they borrow at short term rates. Fed should continue to remove the massive excess liquidity they and other central banks have pumped in the systems. lets first see the bubble bursted. Fed showed they can always tackle post bust scenarios by HELOCopter money.
Sorry folks, I just don’t buy the doom and gloom.
50% price reductions, no recession.
The guy on ‘Flip This House’ gets burned, as do a few others, but for the most part- THE RENTERS SHALL INHERIT THE EARTH.
Scare Tactic = “You might not have a job!”
Baloney.
Not only will I have a job-
- I’ll have even more money saved up by then-
FROM RENTING.
Don’t buy the scare tactics, folks.
50% price reductions to match the 50% reduction in speculation.
No Recession.
In my post below I should have said Wiess Ratings not Weiss Ratings.
The recession was due after the stock market bubble, when the RE bubble was a baby. The RE bubble postponed the recession, but it is still coming.
I got it wrong again. It should be Weiss.
“You might not have a job”…
I would rather be renting if I was in fear of loosing my job. As a renter, just break the lease (forefit your deposit and pay the month or so penalty) and move.
You own a home and you loose your job, especially in a housing slowdown, not only are you tied to the area until you sell you are also facing the very real chance of being upside down in a loan.
Yeah, except those people who bought those rental homes as investments can’t afford to reduce rents so they sell as well. The problem is, unemployment will rise with the new housing bust recession and unemployed renters will still have a hard time buying a new home, even if its price has been slashed in half.
I’ve been a reader of this blog since last August and I’m officially now freaked out. I never doubted it would pop but economists are now talking about banking collapses, a depression, etc.
Does anybody know what would happen if the banking system collapsed in America? Would society break down or would we just get in soup lines with wifi access for a while?
I read somewhere that Washington Mutual is the biggest lender for residential mortgages and my personal accounts are with WM. I was half thinking it might be wise to close the accounts and move the money. I feel like part of the tin foil hat crowd for even suggesting it, but WM could be subsidizing the majority of these crazy suicide loans. Any thoughts.
Banks need money in order to make money…thanks for the loan…
We used to have all of our money in WM, but I checked Wiess ratings and I was surprised to find that it had at that time only a C+ rating ( I doubt that it is better now). Now I keep my checking money in WM for convenience, because they have a lot of branches, but our savings money is at Washington Federal Savings with an A+ rating. I moved our money over a year ago. The bulk of our money at any one time is in T bills through Treasury Direct with 3 and 6 month bills at staggered maturity so that if we need extra money we can get it pretty quickly. The money is drawn directly from our WFS account and put directly back into the account.
Rats. WFS isn’t available in CA. I wonder if there is a good alternative. (checking facts now).
In socal try Farmer’s and Merchants bank.
Yes, Famer’s and Merchants is A+ by Weiss.
If anyone wants to know the strongest banks in the USA here is Weiss’s list:
http://www.weissratings.com/HL_Bank.asp
Until a couple of weeks back I was a WM stockholder. While rates were low the dividend yield was great (>4%). Now that deposit rates caught up and the RE bust is imminent I sold out. Sold for about the same as I paid but the yield was nice in the interim.
the_soup_bubbleblog.com
Many economists…employed by RE…
Are trying to scare you into buying a house.
Here is a scenario… World Bank use to go to the African Nations and loan them x-amount of dollars with outstanding interest rates. The rates were so high that there was no way they could pay them back, so in exchange they allowed big businesses to come in and exploit there natural resources and labor. The reason the nations bit off on this, is that they believed the propaganda about being a progressive country. It’s the same story with the RE’s and the potential -buyers.
Remember the S&L scandal? Airline bankruptcies? The magic words in America are “too big to fail.” (Hey, what’s another couple bazillion in national debt?)
“”Remember the S&L scandal? Airline bankruptcies? The magic words in America are “too big to fail.” (Hey, what’s another couple bazillion in national debt?)”"
Alot this time this country has no cushion left as the US is operating in a Technical Default and will Default on parts of its obligations in 2 weeks if congress doesn’t raise the debt limit. This would make the intrest rate sike of the past few days look like a molehill.
http://www.allheadlinenews.com/articles/7002681164
Other articles I have read said that even republicans are showing resistance to passing the debt cieling without a Pay-go type spending plan or somthing…….anything.
“”"”Does anybody know what would happen if the banking system collapsed in America? Would society break down or would we just get in soup lines with wifi access for a while?”"”
Maybe closer than you think
http://www.halturnershow.com/DepositBoxWarning.html
The second half of the article is the most intersting to me as I don’t have a saftey deposit box…………
Hal Turner is a racist scumbag* and anyone who cites him on a source for anything is an idiot.
* Don’t take my word for it. Look for yourself. He describes his “show” as “The Hal Turner Show: News & Commentary For Straight, White People.”
That is some crazy stuff but I believe every bit of it. The new world order and tyranny shall rule!
The other magic incantation in those particular cases was “deregulation.”
I’ve been reading the blog since last summer as well, and until now, have only read. However, your comment prompted me to write. This isn’t the time to be freaked out. This isn’t the time to figure out how you are going to prosper from other folk’s insanity/trust of people they see on TV or on the radio/lack of research on their own. This is going to change our country into something a lot of us have never seen. It is time to realize that if all we do is manage money, trade stocks, trade homes, and buy everything in sight on borrowed money, it can’t continue forever. The rest of the country (those who watch nothing but Sportscenter, E-entertainment, the Oscars, etc) is apparently to absorbed with other, “more important” things than our economic well-being. It’s happens over and over throughout history.
When it shakes out, we will need folks with leadership, honesty, brains, and common sense to actually produce things. People will have to actually get their hands dirty and work. We will need to produce things that others want, at a better price, and of better quality. It’s called hard work. On the upside, with a lot less government hand-outs (we simply won’t have the money to subsidize much), folks will have to work to provide for themselves. They won’t have the time to ride around neighborhoods looking for trouble. Immigration problem? Solved. Folks will be clawing to get any job that produces income. It isn’t all bad, and I mean that seriously. We need a serious wake-up call. If this doesn’t do it, then we will certainly repeat history as another country that became too self-absorbed and thought that hard work was beneath them. I know too many folks who believe in what we stand for (life, liberty, and the pursuit of happiness). It is never too late to turn things around. Time will tell. In the meantime, be someone on the leading edge. Educate those who will listen. The others will be educated, but it will be from hindsight, unfortunately.
best blog yet!!!
Concur!
kerk93, I have been looking over my husband’s shoulder for months reading this stuff. Most of it is just things to make me quit bugging him to buy us the home I love (we can well afford to do so, he is just too smart). Anyway, as a high school teacher here in a privileged area of SoCal, I say AMEN! AMEN to knocking people off thier glutonous, high horses. AMEN to reinstilling a good ol fashioned work ethic. Bring on the pain, because an entire generation of upcoming youth have no idea what real work is. They all think they will just snap thier fingers, have Hummers and McMansions, shop at Ambercrombie daily. When asked how to support that lifestyle, they have no clue because Mom and dad have been using the housing ATM for years. Let’s just hope people do not shrivel in a corner rather than roll up thier sleeves.
“an entire generation of upcoming youth” includes many who never got any handouts and who have to work seventy hours a week to pay the rent and still try to find time and money to try to get an education … please dont make gross generalisations about the generations
Yea I’m pretty tired of the ‘greatest generation’ acting like younger folks are a bunch of slackers. The internet revolution, which I believe is greatly increasing productivity, is driven by America’s youth.
I am 34 years old, and not part of the greatest generation. I am just telling you what I see in my high school. I doubt that any of you are in that demographic. Furthermore, if you are, you are NOT working 70 hours per week and paying rent. I am talking about current sophomores and juniors in high school who seem to have a very skewed view of wealth and material possessions.
I am 34 years old, and not part of the greatest generation. I am just telling you what I see in my high school. I doubt that any of you are in that demographic. Furthermore, if you are, you are NOT working 70 hours per week and paying rent. I am talking about current sophomores and juniors in high school who seem to have a very skewed view of wealth and material possessions.
you are right - I am 38 years old - and I am sure that many younger people who were fortunate enough to have been born here do have that attitude
If you are a high school teacher, then you should evaluate how bad you personally think it will get. Beyond a certain point of economic deterioration, even workers in the public sector will get decimated. Pensions and benefits will be first to go as the economic stress increases.
You might think you have it bad now with whatever the school system offers for pensions and benefits, but many private sector workers are already looking at nothing. So consider that going to nothing as a possible reversion to the mean. When the Soviet Union collapsed, even the teachers, who are venerated far more there than in the U.S., were wiped out.
If it gets so bad that your “get off their asses” wish fulfillment jones’ing actually comes true and teenagers are shell-shocked into the same reality that is occupied by just most Mexican citizens, then we’re probably talking about an era ranking somewhere between the collapse of the British pound sterling’s reserve currency status in the 1920’s and the chaos of the post-Soviet Union Russian Federation. That’s a far cry from the barbarians at the gates of Roman collapse, and we’d still be better off than the desperation of most Bangladeshi citizens; despite the hollowing out we have experienced in the last century, we are still immensely wealthy and powerful.
But Enron-style sudden collapses of institutions thought to be conservative and stable are not out of the question; see the micro-discussion on Weiss ratings in this thread just for banks, for example. So watch your six in your personal finances, and take high ground positions accordingly.
Believer,
Excuse me ma’am. You’re a HIGH SCHOOL teacher. Maybe you’ve forgotten, or maybe you never heard it, but older generations have been calling the younger generations, “slackers” since the dawn of time. If your idea of real work is sitting in front of a sewing machine, making wooden pegs with a block and hammer, heaving coal into a locomotive engine for 14 hrs a day, then you are absolutely correct. We have no idea what so called “real work” is.
Our idea of real work is going to night school and work during the day. We can’t afford to work part time because the baby boomers (the most selfish generation) are killing us with high taxes to continue their entitlment programs and the soaring cost of education.
It is not generation X that created the trade deficit and the out of control entitlement programs. It is not our generation that destroyed the education system and turned high schools into war zones. It is not our generation that destroyed the concept of personal accountability. We did not give parents a free-pass to pawn their children off to some day-care center. The destruction of the family nucleus, the creation of a drug culture, and the total selfish self-centered lives are not the creation of today’s youth.
We are being weighed down by your tax and spend, femi-nazi, no accountability, anything goes, pass the tax burden onto the next generation, trade deficit to live off other nation’s savings which our children and grandchildren will pay so we can support “our lavish lifestyle” generation.
I am sick and tired of baby boomers who have run our economy into the muck blaming me and my generation for the nightmare they created. We are not slackers.
If you call my generation to a bunch of high school flunkies, I think you should take a look at your teaching methods and your parental unwillingness to raise good kids. High schoolers have always been idiots. Don’t compare us to them. There is reason they are in school. They are half-baked and they don’t know any better. Certainly because your generation isn’t providing much guidance.
We are the generation that is having to figure it out on our own. We work hard. A 60hr work week, or two jobs, or a full time job and full time college are the norm for us. So stop calling us slackers. We’re fed up with it. You are too selective with your comparisons.
Your generation did more physical work, but we work more hours and live with more stress. So get off my back because I’M TOO DAMN BUSY to carry your criticisms on my back too!!!
Welcome to global economy. I doubt very much that you want to get paid Chinese wages working in a factory making latest Blueray Sony HD player.
If you were employed in the appraisal profession in an honest capcity, you’d be more than “freaked-out”. Believe me, the ‘89/’90 bust will pale in comparison to what’s out there now.
This house of cards built on cheap money and cheap energy is finished.
Kirk: We need to plan now, with a housing bust and economic collapse we can buy up cheap land… No wait with economic collapse we can just form localized militias and seize land and form our own nations.
Alright, everyone calm down. Each account is protected up to $100k. No bank or S&L or CU is going to do any worse than lose a few weeks interest.
The new financial world order won’t allow “freezing” assets like we saw on my mothers’ day of birth way back in 1933. Money moves too fast and can no longer be corraled.
Lots of things are guaranteed in principle, but in practice, there are so many intricate interdependencies built into the financial system these days, the whole thing could easily lock up for an extended period. There would be massive uncertainty, feeding on itself, with no one knowing whether their counterparties were good for their debts. In time, and with enough injected “liquidity”, things would clear, but in the meantime currencies could collapse, massive defaults could occur, and the end result would be a much different economy.
That’s correct. This will be a bunch of writedowns for the big financial institutions. Many smaller ones with exposure will get gobbled up. The mortgages don’t go to zero. They lose a fraction, up to 50%, but that’s only a fraction of the loans. Financial institutions have insurance plans by which they manage risk, selling MBS to suckers on the open market, leverage long & short… who will also see some losses, but not on a grand scale. Sure there will be pain but this country will recover and in a few years it’ll be something else that captures the attention of the bears.
What everyone fails to ackowledge is no matter how insane the 5 year runup has been, a lot of people made a KILLING…
And promptly spent it all on Hummers and plasma TVs.
Apparently in January, consumers spent themselves into an even higher level of personal deficit spending. According to the NYTimes:
“The Federal Reserve reported Tuesday that consumer credit grew at an annual rate of 2.2 percent in January, up from a 1.9 percent rate of increase in December. It was the best showing since consumer credit grew at a 3.1 percent pace in September.”
Best showing?
“Financial institutions have insurance plans by which they manage risk”
And insurance companies always have enough money to pay up, so don’t worry…
you keep telling yourself that…
I think that was sarcasm
That is true. But what will that $100,000 look like after the currency is inflated to cover those deposits?
just ask the people in Argentina how that works out under the ‘new world order’. The same banks that made obscene profits from the Argentina default work in the US and Europe; they will dictate the terms here just like in Argentina.
accounts are protected for up to 100,000 but I beleive burried deep in that FDIC legal babble there is a clause that says they have 99 years to pay you back.
This will probably just end in a scandle that makes the Savings and Loans scandle look like a Sunday picnic. Its already widely known subprime lenders are ripe with fraud & preditory lending Ameriquest just settled for $325,000,000 with the government but people are refusing the settlement and opting for class action lawsuits… Anyone see any Ameriquest advertising lately? I wonder why?
“A serious decline in demand in 2006″, predicts a realtor in San Diego.
http://realtytimes.com/rtmcrcond/California~San_Diego~bobcasagrand
So I heard that “Crash” won best picture academy award. I haven’t seen it, is it about the real estate market?
SFV Jim,
Movies were invented to enable sheople to “escape” reality, not reflect it and thereby remind them of impending gloom
On the other hand, I have run in to several REALTORS that would have a good run on winning an OSCAR- “more normal market, 2006 should see 5 or 6 % price increases”
Auh Hhuuuuuh. whatever….
OT. I was humming this on my drive back home from work today, and trying different jingles. Here’s one to the tune of ‘let it snow’.
The housing bubble is popping
Prices everywhere are dropping
Lereah has hit a new low
Let it slow, let it slow, let it slow
Great song, LifeLong Renter
I have been following this blog for several months now and am starting to worry about the effects of the housing bubble on 401Ks. Specifically, most of my retirement is in the cash account of my 401K. I realize its not FDIC insured. What are my chances of losing this money. Would you pull your money out of it. Would you stop contributing to it and pay off debt? Any input or strategies much appreciated.
It’s not FDIC insured. I have a portion of my IRA in Fidelity Cash Reserves and I just checked. This is what they say:
Should you sell everything and buy gold bullion? That’s up to you. I’m not.
I think paying off debt is a very good idea. Don’t pull your money out of the 401K if you can put the 401K into something safe. Can you put it into treasury bills or a money market fund that invests only in short term treasuries? There are several. After a couple of years of shakedown, you should be able to move it into something else that may pay better. Money Market funds are not FDIC insured, nor are Mutual funds, of course, but the Treasury funds should be safe enough, although personally I prefer not to spend 1-2% that the treasury money funds charge as management fees because it is easy to buy the bills yourself and keep the 1-2%, but that may not be possible to do with a 401K, I don’t know.
You need to use the web or other resources to find out what the “cash account” invests in. If it is all US Treasury bills and notes then your money is probably as safe as it would be in a bank — if the Treasury doesn’t have the money to pay its debts, it won’t have the money to back the FDIC guarantees, either. If some part is in corporate debt, it is probably in very safe high-grade securities. In general, such money-market funds invest in securities that have near-zero risk of default; the risks of principal loss usually lie in the possibility that the market value of the securities may decline due to rising interest rates, but since they usually hold only very short-duration securities, even that risk is small. (if interest rates on long-term bonds double, their market value will drop to about half, and it will be many years before they mature and repay the full principal so that it can be reinvested at higher rates, but with short-term (e.g. 3-month) securities, as long as they don’t default you get the principal back quickly and can reinvest at the higher current rates, so there’s little loss. Your mileage may vary.
There won’t be any depression unless Congress does something really stupid, like pass a balanced budget amendment. What will happen is simple. We will have 5% interest rates, 1% inflation, which means 4% real rates, which will absolutely crush real-estate, gold and stocks. The government will make up the private demand shortfall with lots of military and health spending, financed by deficits (hence the high real interest rates). Whatever the problems in the United States, the problems elsewhere are worse, so the dollar is not going to crash. If your job is dependent on consumer spending, watch out. If you’re involved in anything related to the military, domestic security or healthcare, then no problems. As for investors, just stick to cash and wait for bargains to appear.
“”Whatever the problems in the United States, the problems elsewhere are worse, so the dollar is not going to crash.”"”
We will see by April fools day…….and I’m serious…..seriously.
http://www.house.gov/paul/congrec/congrec2006/cr021506.htm
http://www.freemarketnews.com/Analysis/106/4012/2006-03-07.asp?wid=106&nid=4012
This is a good road map for the dollar for the next 6 months
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BB5CB41D1%2DD506%2D4484%2D9F57%2D5C8679D6E24C%7D&dist=newsfinder&siteid=google&keyword=
According to John Snow the Full faith and trust of the US government is on the line this month(scare tatics, but nonetheless true)
And congress has never been known to do anything dumb..hey if everyone defaults on their house loans, they can always enlist in the military…hhmmmm..wonder if that was planned…
Hi all,
I have 20 years experience in real estate in Australia and for what it’s worth (and I don’t pretend to know anything about the USA) but my experience in two downturns here is……… that the downturn process is long, protracted and painful. The bottom of this current downturn could well be some 5 or so years away. Speculator profits have to be burned up in holding charges and when that action plays out, the supply of housing for owner occupiers will peak.
Many first home buyers will get caught in this downturn process especially those who bought close to the top of the boom.
The critical ingredients in the current situation as I see it are interest rates and un-employment. Should either of these rise moderately (and I believe the fall will come without either) the bottom will be reached more quickly.
Thank you for the opportunity to post on this board
Thanks for your post. I’m afraid you’re right about the downturn taking five years to play out. For those of us without the patience to wait that long, what’s the market like in Sydney? I understand it is a couple of years ahead of the U.S. in the real estate cycle.
Sydney market is still falling………..seems to have started that long slow decline that always seems to follow a real estate downturn…….affordability is now a big issue. Until people start buying at the low end of the market……….the top end has nowhere to go………except down……….there’s nothing to prop it up.
The Sydney market is slowly falling - nothing too spectacular, but if the China booms slows, it will go down much faster. People are moving out of NSW rather than into NSW, as housing prices are too high, there is no job growth, the state government is on track to run a deficit because it spent too much in the property boom and now doesn’t know how to cut costs…and a lot of the infrastructure needs upgrading… sounds a lot like cali.
Roll on 5 years.
It’s interesting to see if some countries can fare better than others. Countries like Japan, Korea and China use cash to purchase properties. In downturn it won’t directly affect banks. It may explain why that Japan didn’t have panic selling during slowdown.
it is well known that in Japan/China, banks/government keep bad loans on the books forever, although everyone knows they will not be paid back. That’s probably mostly business loans, but I wouldn’t be surprised if they do the same with mortgages.
In some EU countries like Netherlands the housing bubble is already about 15 years old, and still growing (although slowly).
I think it might take one generation here for this bubble to get fully erased. Government (and politians from left to right) is doing everything they can to keep the bubble alive.
but it is not always a slow and painful correction.
In the seventies the Netherlands had a minor 5-year housing bubble with about 100% pricegains. Around 1979 there was a 40% pricedrop within 1.5 years that - together with some inflation - erased all the gains. Buyers suddenly disappeared from the market, like they say ‘the bottom fell out’. There was no really clear cause for this crash, it just happened.
Because it was a quick crash, there was hardly any damage to the economy (which was already in not-so-good shape). There was some collateral damage to speculators though - house prices went nowhere for at least 10 years. After that came the current 15-year bubble with 500-1000% price gains …
What I can’t understand is how, notwithstanding all the hocus-pocus financing, can these house prices, necessitating two-incomes to support, hold up in the face of what is recognized as a 50% divorce rate in the US? The numbers just don’t compute.
Interesting observation. While I would be very surprised if the divorce rate were actually as high as 50%, it nonetheless is historically very high. In a big and broad crash, I’d think the divorce rate should decline — economic necessity will keep more couples together, as it has from the beginning.
Totally agree. You’ll see a lot of still married, but miserable people in the near future. (NOT an advocate for divorce!!!) I think this bubble will fuel the discontent even more. Imagine families where one spouse pressured the other to buy a house because “real estate always goes up,” even though the other spouse wanted to wait.
I heard that RE agents love those new neighborhoods with double-income, leveraged-to-the-max ambitious young couples.
Once there is a divorce or breakup (which forces them to put the home up for sale) the selling spreads like wildfire because it drives down valuations, causes more financial+relation stress, more divorces, more forced sales etc. Sometimes I get the impression that many of those couples only team up to get some steps ahead in the financial rat race.
Higher divorce rates splits one household and creates 2; so it should increase the demand for housing, at least temporarily until they get married again. I would also think that the trend for people waiting longer to get married has caused a lot of people to purchase condos and townhouses to live in by themselves, increasing household formation. Once loose credit is yanked and real estate is not longer viewed as a surefire way to get rich, these same people will live with parents or rent.
NPR just did a bit on today’s bond movements and the resulting negative influence on the housing bubble. We’re gaining momentum, folks - hold on!!!!!!!!!
I’m stupid I guess, I had to look it up:
I heard a Genesis mortgage ad on the car radio today. Their 3 main points:
1. They offer “pick your payment” loans.
2. They can often get you approved from your car. “Getting a mortgage should be as easy as ordering a pizza.”
3. They specialize in bad credit borrowers. FICO score 400? No problem.
mmmm……make mine a thin crust peppereroni, extra crisp.
Great order! Wash it down with a beer or a nice glass of red. Can I have a loan now?
Make that extra anchovies with my neg-am.
“Getting a mortgage should be as easy as ordering a pizza.”
I refuse to give Domino’s three years of tax returns along with my FICO score, W-2’s, employment history, personal balance sheet, and house appraisal!!!!! You would need all that stuff to get a mortage, right???
Today S&P downgraded NVR (bigwig here in Northern VA) to sell (from hold) and Centex to hold (from buy). NV Homes is the biggest rival to Toll Brothers here, basically.
I called Ryan homes (owned by NVR) and they’re offering 50K off just about everywhere, but I do think the prices are still just too high for the area and for the quality of their neighborhoods.
I have a friend that bought last August in NVa. Builder just reduced price by 100k. So it is happening in NVa. Same thing happen to me in 92 when I bought my first home but it was like 5k on 130k home. It took 7 years before price went up again.
I just read this, and it sure seems to fit this discussion–from ironictimes.com (a satirical site, just in case you didn’t know):
Analysis: American Economy Enters New Era
We borrow trillions from other countries to pay their workers low wages to make things our laid-off workers can afford.
“So I heard that “Crash” won best picture academy award. I haven’t seen it, is it about the real estate market?”
The other favorite for Best Picture featured herds of sheep.
Broke Bank Mountain
Memoirs of a Glut
Sign the Line
Hi yes, I need a 10 yr IO at 3% with a side BBQ’d squirrels from SF. Have in here in 30 min or else there will be a discount of all points.
No bubble here in Seattle. We’re different!
Yep, I still hear this from folks up here as the bubble is just now reaching the top up here. Spring will be telling.
Was in Warsaw Poland last year and prices had really shot up in Warsaw. But things have cooled quickly according to friends over there.
My sister and her husband live in Terrigal, a small beach town 4 hours or so north of Sydney, Australia. Prices seem to have peaked over a year ago and they have a lot of real estate. They are scared as sales are dead in the area. But people are holding on to the inflated prices desperately waiting for the “magic buyers” to appear.
Getting back to Seattle, a “soft burst” could send prices down anywhere from 20% to 40%. If it is a “hard burst” prices could drop by over 50%.
Facts:
The mania bidding wars of last summer are history
1) The median wage in Seattle is about $55K.
2) The average house price in Seattle is just shy of $400K.
3) The seemingly never ending supply of CA equity refugees is about to be “turned off” by their inability to sell in CA (who is left to sell to?)
4) According to several friends in the Mortgage industry over 70% of loans cut in the last 2 years were “exotic” loans
5) Interest rates are rising
6) Adjustables are rising
7) Property taxes are rising
9) There are more and more “price reduced” signs
10) Homes are sitting, being taken off, and relisted with new MLS
I lived in California for 10 years. I bought a Condo in Huntington Beach for $212K in 1987. By 1989 it had shot up to $379K. I sold it for $232K in 1995. I have been in a bubble. It is great on the way up and hell on the way down.
You know that moment when you are at the very top of the roller coaster and you look down………..
This is what defies logic. People say only areas like CA, AZ, FL, and some areas on the east coast will see massive declines.
Well, what about all the people who are cashing out and moving elsewhere and creating bubbles there? Areas like Arkansas, TX, Idaho, New Mexico, North Carolina? I think there will be a wide area that will see housing declines. Then will everyone move back to CA? NO, because they won’t have any money to move and their won’t be any jobs in CA for them.
good point.
from what I see in Europe, the price gains in the secondary bubble markets are often much bigger than in the primary bubble areas, mostly because the original price level was much lower. And unlike in the primary bubble areas, there are usually no jobs or other income to support these bubble prices. The only support is easy credit and equity from the primary bubble.
I guess the secundary markets will correct to the historical norm (plus overshoot) just like the primary markets and that will often mean an even bigger correction with devastating results; I don’t think anyone is prepared for this.
more housing bubble articles
#11 Analysts eye Miami’s condo boom, raise a ‘more risk’ sign
#12 Attention, Speculators: Here’s a Lesson from Hong Kong’s Housing Bubble
#13 Rich House, Poor House
Financial guru Robert Kiyosaki has turned bearish on the boom he helped create
#14 Real estate: When booms go bust…
Home prices can and do go down. Here’s what declines have looked like in the past.
#15 Real estate clubs ride the housing boom
#16 Global credit ocean dries up
#17 Understand risks of ‘creative’ loans
#18 Renting versus buying
#19 Real Estate Rebound
After a long, painful slide, housing prices around the Bay Area — especially in certain zip codes — are finally heading back up
Jonathan Marshall, Chronicle Economics Editor
Sunday, April 9, 1995
#20 Pension funds play catch-up with high rise of real estate
I think this is worth a read………….
http://www.aireview.com/index.php?act=view&catid=8&id=3672
I’d send it to a real estate agent but nah…………he wouldn’t understand it.
I’d be laughing if it wasn’t so damn serious.
FDIC will honor their commitments if the banks go belly up. The REAL QUESTION is what will that $100,000 look like after the Currency is inflated to cover those deposits? Nasty, aye?
Think $100,000 might buy a loaf of bread after this is all over?
just check Argentina: mortgages and other debt was adjusted for currency depreciation during the time deposits were frozen. Standard savings accounts, salaries etc. were NOT adjusted. Many people (especially small business owners) went bankrupt simply because of this trick, despite the ‘deposit insurance’.
The only citizens who came out ahead were the financial elite who already had their money in US banks (or who could funnel their money over the border when bank deposits were officially frozen).
My question is: Will my Ameritrade account itself be safe. Are there any issues with brokers like them?
25 Year ago, a friend bought home a commodore pet computer. It had a staggering 16k of ram and came with a text based sim program that set you as the president of a small island nation. By playing with the numbers you could stay in power longer almost always through massive debt. Finally the residents would rise in bloody revolution and of course that is the game lost. Here too, I believe our government has given up trying to avert disaster, in favor of putting off the inevitable. This is accomplished one bubble after another… Think about it!
Did the game allow you to saturate your nation’s media with propaganda so you could scare the population and go to war with Muslim states?
lol - no, but I do recall you got to live longest by going into debt big!
These articles don’t cover the half of it, which is why I keep stating that I see no way around a depression. Anyone depending upon the government and/or government chartered institutions only needs to consider their track record to know that no one is truly safe.
These are times to recall the true American pioneer spirit. Independence, hard-work, thrift… prepare for the future as if you’re going West on the Oregon trail into the vast unknown of the 1800’s with only your family, horse and gun to see you through the best and worst conditions life has to offer.
Nice post, TJ! I concur.
If the ECB does follow expectations and raise interest rates further, the implications for European housing markets could be substantial. The end of the boom may be in sight
Reality is that the ECB has raised rates by 0.25% for two times now with three months between those steps; it is just a joke. Talk from the ECB still suggest that they may be done tightening soon.
When they raised rates for the first time in december, interest rates on savings accounts and mortgage rates in the Netherlands went DOWN by 0.50%. In the Netherlands we still have the lowest mortgages rates in 400 years.
Don’t believe this talk about the ECB tightening credit or the end of the EU housing bubble until you see the evidence. These ECB buys like Trichet don’t have the guts to seriously raise rates, because if they do they will cause a riot in the EU parliament (filled with ignorant bubbleheads) and EU politicians will take over monetary control. That will probably spell the end of the euro, but who cares …
Just think of all the Corporations such as Microsoft, IBM, Citigroup etc… sitting on ALL THAT CASH. What will happen when inflation runs wild? It devalues. They all have an interest in this, but could care less… until it happens to them… but heck.. what do I know?
Long time reader…first posting…..amazing how much info. these blogs have and how it has reinforced my belief that this housing boom is doomed…I have a lot of friends who bought houses in the past six months..wish they had been read this and other blogs out there….
I have a question for you guys: what is the effect on our economy?
I guess interest rates will go up, kill the housing boom, slow growth and then interest rates will be back down again? Also, the dollar will keep declining…so what should be the plan of action? Holding cash that loses value against Yen, Euro? I want to move 25% of my assets out of USD into some other currency. Euro or Yen ?
Say, if the dollar loses value, what happens to people holding debt?
Are they better off, since the debt is worth less and can “easily” be paid off?
nobody knows what will happen, especially with guys like Bernanke at the helm. If the FED does what they should do (and don’t try to mess with the economy) interest rates will keep climbing for some time, and the dollar will fall (despite rising rates).
If you have a lot of cash it is wise to spread it, but (being a EU citizen) I think the euro is just as doomed as the dollar. The ECB is printing just as much money as the FED, maybe even a little more. The BOJ has been very busy printing yens as well, but my guess is that with the yen you have more chance that the currency will appreciate (relative to dollar and euro) in the next 1-2 years. Other people may prefer to hold gold or goldstocks as a safeguard against inflation.
The value of the dollar does not have any influence on the debt of a US citizen. The exchange rate of the dollar can have a large influence for foreign holders of US debt paper of course, that’s the tricky part.
Inflation can erase debts, although in the current economic climate it is unlikely that people will be able to service their mortgages in that case. Most recent buyers have adjustable rate mortgages, and their mortgage payments would rise much faster than their paychecks when inflation gets out of hand. Buyers with a fixed rate mortage would be better off provided they have enough equity in the home (paying the mortgage gets easier for them, but inflation will erase the value of the home).
Well, if we experience deflation, then you don’t want to hold debt, but if the dollar loses value, then holding debt might be good, as long as the debt service isn’t too high. If you want to know the deflationary argument side then read “Conquer the Crash” by Robert Prechter. One thing people on this blog should realize is that, since money is debt/credit in a fiat system, when debt is defaulted on it shrinks the money supply, which is deflationary, and most people in this blob are expecting defaults on mortgages, which will be deflationary.
As the housing bubble deflates it is most likely there will be large numbers of defaults on mortgages. Because of this, interest rates will stay high for most borrowers, no matter what the Fed tries to do to lower the rate, because one important factor that raises interest rates is the perceived risk.
Whether the dollar loses value against the Yen or Euro depends of whether those countries are experiencing deflation or inflation and how it compares to the rate of deflation or inflation in the USA. I couldn’t begin to guess which currencies might do better than the dollar, and I doubt than anyone else can either because those countries will be experiencing problems at the same time as we are. For example, the Yen has already been through deflation; does that mean that it will now inflate compared to the dollar? Or will it deflate more? Who knows?
Based on the two comments above (inflation and deflation), I would buy gold, silver, platinum, plutonium, toilet paper, beer, water or anything that can be bartered. This is basically the argument for holding gold and silver bullion coins. If all the economies/monies go to pot, you will still have something that is worth something. You can trade for other things you might need. This is why metals are so popular. They are universally understood to be *money* and they are easily exchangeable for other things you might need. The other positive is that they are small. Toilet paper might be great to trade, but you would need to have a warehouse full before you would have any real wealth.