The Housing Bubble

“For here we are not afraid to follow truth wherever it may lead.”

Thomas Jefferson

Here is a little “tin foil” to go along with the holiday fun!
http://www.independencejournal.com/

more like mentality of pirates rather than gangs or mobs

very funny 23k cocktail waitress with a large portfolio

happy 4th to all

ROTFL

That’s one of the funniest things I’ve ever read!

Got popcorn?
Neil

Yes, the ECB will raise rates. They kept them low because of the stagnation / recession in Germany. Now that salaries rise again,…

Have a look at the ECB statutes, the task of the ECB is to maintain price stability.

It is well known that Spain is toast. They had negative real rates for years. How stupid can you be to believe that is going to last?

The Spanish goverment was warned by the ECB, the OECD and the EU commission several times. It’s going to be really tough for them. It’s not just their housing bubble, it is also their account deficit of 9%. Unlike the US, they can no longer debase their currency…

Spain will now learn what happens when you don’t spend all the cheap money in productivity gains.

siggi: the ECB does not give a damn about price stability. Money supply has been surging in Europe from the moment the ECB got control, just like in the US. The difference between M3 and official rates is even bigger (more negative) in Europe than in the US.

And yes, salaries are rising in some EU countries but the rise does not keep up with inflation. There was an analysis in the Dutch papers today about the goldilocks economy that our government is boasting about to its citizens: the reality is that despite 2-3% wage increases this year, for 95% of the citizens disposable wage is declining (again, like it was for the last 10 years or so).

Spain will also be in big big trouble! Ireland also.

But Spain accounts for only 8% of overall economic activity in the Eurozone. Germany has lagged for a decade and is now leading.

Germany stands for almost 20% of Eurozone gdp. And with the downtrend in Spain and the uptrend in Germany it will soon be 3 times the size.

Here is a nice list (2 page pdf)
http://tinyurl.com/2kbdk8

This all looks very different from a German perspective. The rates were just fine for Germany, but too low for the Netherlands and Spain. Remember that in February 2005, unemployment was at 5 Millions in Germany officially. And, there was no inflation. Food and RE was extremely cheap, only energy costs were rising. The saving rate was at 10%.

Wages will increase by 4% this year. Unemployment is now at 3,8 Millions. That’s why the ECB has raised rates already. For some reason, probably the size of the German economy, the ECB has the right policy for Germany, while Spain and the Netherlands need a different policy for sure.

The disparities in the eurozone are not unexpected. Consequences?

All I can say is that 1923 is still very present in this country. Any indicators of inflation can cause pretty severe reactions.

yes, there are a few German bankers who still remember the Weimar era. But the ECB is ruled by burocrats, and I’m sure they will be voted out of existence by the dumbocrats in the EU parliament when they try to raise rates high enough to slow the housing/credit bubble.

Maybe the ECB rates were OK for Germany for some time, but they were definitely wrong for ALL the other EU countries, and they know it. Inflation is contained in the heavily manipulated ECB (Eurostat) statistics, but not in the real world.

I agree nhz.

The influence from hawks like Issing declined dramatically in the past years. They have an official money supply target of 4-5% (it is running now over 10%). Since 2002 the money supply was only 2 quarters in that range!!!!!!!!!!!!

They are really not so tough on inflation as they want us make believe…..

I agree that the ECB has known all the time what they were doing. But they are not just burocrats. Issing at least was a very experienced banker. The ECB is designed according to the former Bundesbank, and the German government will not accept any changes, Mr. Sarkozy can be very sure about that.

The EU parliament will just approve the candidates nominated by the Council. And as long as Mr. Lafontaine is not the chancelor of Germany, they will not nominate pro inflation types.

‘they will not nominate pro inflation types’

real rates in the EU have been around 7% NEGATIVE right from the start from the ECB. The current ECB is fighting inflation with empty words only, their actual policy is all about increasing (asset) inflation to benefit big business and the rich. I don’t believe for a moment that the ECB is independent; last year there were already some riots in ECB parliament about raising rates, any real tightening (tightening that is enough to scare the surging markets) will bring out the dumbocrats in full force and change the rules. Don’t underestimate the powers of inflation heads like Sarkozy, Brown and many other high ranking EU officials. There are a few German bankers that fight the raising inflation tide, but history proves that their influence on ECB policy is marginal at best.

If you are right, nhz, and I start thinking you are, because there is quite some evidence, and I just read an interesting interview with Ottmar Issing, I think the EUR is doomed to fail. There is always a point when asset inflation spills over into the commodity markets, and they can only fool people so long.

The disparities in the eurozone are getting worse every day, we only need to look at the different policies in the housing markets in the Netherlands and Germany, not to mention the Southern countries.

“Siggi wrote: It is well known that Spain is toast. They had negative real rates for years. How stupid can you be to believe that is going to last?”

Gee, thanks. I’m blushing. You seem to suggest that because a bubble is widely acknowledged, then it’s effects are over. Housing has just started to flatten in Spain. They seem to be running behind the US, and we’ve just gotten started.

So German manufacturing can handle 4.75%, but that means 96% of mortgage payments in Spain go up another 18%. How about the quarter million Brits with property in Spain? I guess Florida has gotten them used to dropping values? How about Eastern Europeans with Euro mortgages?
None of that matters because Germany is still going strong?
Keep on truckin”, I do love my Miele vacuum and my boys love anything Playmobil.

I am just watching what’s going on. And the ECB started to raise rates when Germany’s long stagnation ended. Coincidence?
We have those disparities in the Euro zone, and Germany has regained some economic strength through stagnant salaries for ten years, while the salaries in the other euro countries increased about 25%. That’s one of the consequences of the single European currency: You can no longer debase your currency in order to improve your competitiveness. It’s all about productivity now. Germany has had one of the most stable currencies after 1949. The countries in the south, in contrast, were used to debase every now and then. That’s over.

During the time of easy money, in Spain only one sector boomed: RE. We had a housing boom in the East, just after the reunification. After that boom ended, it took more than 10 years for the builders to recover. But building has never been 10% of our GDP, except after WWII.

I expect at least one more rate hike this year. If not, we will get visible inflation in Europe, not just assets, but common goods, too. Even Eurostat cannot hide that.

What happens to the Brits, the ECB won’t care much. Their own BOE is raising rates anyway. Eastern Europeans will still be better off with Euro mortgages, because in most countries, that rates are higher anyway. And Spain? I really don’t know. Maybe they should leave the Euro, but then, the rates would probably go up even further.

The EMU is based on a couple of deals, one of them is that governments must keep their economies under control. Spain could have cooled their housing markets simply by adequate taxes or regulations or whatever. All the corruption in Spanish towns tells the same story. In some places, the entire town parliaments have been arrested. It’s all very ugly. I’d say, Spain is already doomed, and it doesn’t make sense to ruin the other countries through increased inflation for everyone.

If it gets too bad, I could even imagine Germany to leave the eurozone again.

there are some more economies that could drop out of the euro very soon, like Italy and Greece; they use all kinds of statistical tricks and plain lies to suggest they work within the rules of the euro framework. Everybody knows they are not playing by the rules. And I’m sure that if voters in Netherlands had a choice they would vote to get the hell out of the euro and back to the Dutch guilder (which worked fine for about four centuries). For Spain it’s mostly a housing bubble problem, their economy is doing better than some others. If Spain drops out of the euro, it’s the beginning of the end because others will follow. I think there will be a stealth recue operation from the ECB, no doubt they can learn from Bernanke and Paulson to print some more fiat paper and keep the virtual economy humming along. Times have never been better for the upper class of Europe, so why change a thing?

A U.S. Investor in NZ$ cd’s coulda cleaned up with a tidy 35% return, the past year… (7% interest & 28% return on exchange rates)

yes, the potential gains were spectacular. Just makes one wonder what happens when it all shifts in reverse, there must be others somewhere who are going to pay dearly for this.

Oh, yeah, just for grins, Chuck Schumer (D-New York) was on the news talking about how we need a “czar” to oversee imported food products. Geez, every time some agency takes a dump, we need another “czar”. Really worked out with Chertoff, not.

We already have that. It’s called the FDA, the USDA, and the Department of Commerce. If those people were doing their jobs, we wouldn’t have this problem.

Testify, cynicalgirl! Problem is, these agencies appear, at this time, to be working for multinationals, not “the people”.

Doesn’t matter if it says “Made in the USA” on it…they are buying their raw materials from China, which are even LESS controlled than finished products, smashing it together and selling it.

Palmetto,
Sorry to tell you, River is right. It is no longer enough to see “made in USA” on the label, you must know the origin of the ingredients. Sad fact; almost all vitamin ingredients are now made in China, from unknown sources, in unknown conditons, from producers with zero oversight or safety concerns. Consider whether you really need vitamins…or just fresher, locally grown food.

We have huge budget deficits, and need to cut spending. However, the bulk of the budget is Social Security, Medicare, Military, VA, and interest on the debt, which can’t be cut.

So, we cut “the other stuff”.

My 67 y/o dad was bitching about high taxes. So I asked what to do about the deficit. His cliche Republican self says “cut spending”. He’s still living in the fantasy world that we’re running a deficit because of giant welfare payments to every black person in the country.

So, I sent him the link the the U.S. budget with a summary and the details of where the money goes. Now slice $300 billion out of the budget.

After a few days he came back with, cut taxes and stimulate the economy….

Ugh. I give up.

Why do the rich pay so much taxes???? Because no one else can afford to!

OT: I feed my dogs human food, I buy local when possible, I make them a big pan of glop (veggies, rice, pasta, etc., whatever is handy) and they love it. Must be OK, my Dachsund just passed away at nearly 19, and I have two Blue Heeler mixes approaching 16, all healthy. Even the better kibbles are pretty bad. Me, I eat TV dinners (not really, I eat the glop, too).

This incompetent redneck named Wayne who only keeps his job because he shows up every day (it really is different in the South) was telling me that taxes are too high.

I said sure, we could cut taxes, for example payroll taxes, but there would be no more Social Security and Medicare. (What do I care? I’m 27.) [Also, stop fighting stupid wars. Anyway, he didn't argue about the military budget.] He said that Congress etc. would never stop funding for social security. He was confidant that the bennies would be there when he needed them.

I tried to make him see that the money for the bennies came from current tax receipts, but he just didn’t get it!

Sure, okay, fine! Money grows on trees! Of course, when it grows on trees, it isn’t worth very much…

How low is this guy’s IQ? Seriously? And why are these rednecks so dumb? Urban poor in Boston who grew up eating lead paint chips are smarter than this guy. Guh….

I mean, at least the KFC/Pepsi infertility conspiracy theory had INTERNAL logic going for it….

Royal Canin is also very good.

some of their products were recalled.

River and spike66 are right - Made in the USA doesn’t mean a thing if they buy, e.g., contaminated wheat gluten from China and just bake it in here in the U.S.

Even the USDA organic certification appears to allow application to imported foods. I could be mistaken, but the list of “Accredited Certifying Agents” at http://www.ams.usda.gov/nop/CertifyingAgents/Accredited.html includes foreign certifiers - if I’m wrong, please do let me know, but this makes me seriously question the value of the so-called certification.

BTW, while on the USDA site I noticed this page on the food CPI, http://www.ers.usda.gov/briefing/cpifoodandexpenditures/consumerpriceindex.htmhttp://www.ers.usda.gov/briefing/cpifoodandexpenditures/consumerpriceindex.htm, something else to keep an eye on.

Getting rid of all lobbyists would help a lot. Corporate and foreign interest cartels should be forbidden to set foot inside any Congressperson’s office. And members of Congress ought to be required to spend more time in their districts and less time in Washington.

Thanks Daniel, for reminding me what a great country we have on Independance Day, and amoung our 250 million citizens, we still have the right to be prejudiced and stupid.

Japananeese companies spend $10,000 designing a car and $5000 building it. They then sell it for $20,000.

American companies spend $6,000 designing the car, $4,000 building it, and $8,000 in extra pensions and health benifits to older and retired workers. Then try to sell the car for $20,000, but have to give $2K cash back to get it off the lot.

Just like the older airlines that can’t compete with the young boys, until they go bankrupt and dump their retiree benifits, then come back from bankruptcy with better service and high profits.

Amen! NY City Boy….a little pride in the product! Oh, and taking care of the customer would be nice too….

Some posters talk about dumb workers (J6Pk) but in my former industry I was constantly told to dumb it down and get the product out the door. That was in the 90s. I tried to think quality as I had worked for some pretty high end clients (so dumb me thought this would make people happy) but it actually showed up in my reviews that I was too concerned about it.

Fast forward 15 years and I don’t even think they train frontline people the same way I was. I’m sure many aren’t even trained to be nice never mind trained to analyze and solve the problem. Personally I’ve got a long list of companies to avoid due to this problem—such as Sears, Home Depot, Culligan, American car makers, etc. If Americans are avoiding your product why would foreigners want to buy?

“I’m sure many aren’t even trained to be nice never mind trained to analyze and solve the problem.”

As an educator, that is exactly what we are trying to do. At least most of us are. My kids aren’t spending weeks building a model of Independence Hall or whatever (and I remember that stuff happening when I was a student back in the day).

The word out there is to get these students to think, really think. The challenge is to let them know that they do indeed have skin in the game, so make the effort.

We need support from their parents…..and society in general - the “entitlement” trip is driving me nuts.

BTW, Palmetto, when we study the Declaration of Independence, I’m real big on conveying the “duty” we have to throw off an oppressive government. Like….know what’s going on, get involved (which means you’re actually going to have to do some unremimbursed WORK - or, at least donate) - and vote (I know, I know).

The old hippy in me would enjoy a rad paintball match though.

So … Darrell … you’re telling me the Japanese don’t have to pay pensions and/or import duties?

So … Toyota got a better deal from UAW when they took over the Fresno plant from GM? I never heard any such thing.

According to some books on business I have read, Toyota kicks GM’s ass every day because they are better at manufacturing cars. They sit the engineers, foremen, and linemen at the same table and they improve their manufacturing process every week. They also designed their factories to be more efficient. (Terms such as “push” and “pull” manufacturing come from Toyota manufacturing concepts.)

GM has really good engineers in R&D, but the company is run by a bunch of suits who have, since the 1920’s, seen their business as a financing business, not a manufacturing business. GM is a bank, not a car manufacturer. This is why their cars suck. Comes straight from the top.

Companies like Honda, which see better engineering as their focus, are always going to eat the lunch of entities like GM, which ignore their engineers and see lobbying Congress as their focus.

Incidently, Honda makes nicer engines than Toyota, IMO, but Toyota is more profitable because of their superior manufacturing systems. Toyotas are slightly, but significantly, more reliable than Hondas, despite Honda’s high-tech philosophy. Toyotas are also cheaper. This is why Toyota was able to take the hybrid market while Honda floundered. Toyota is able to realize economies of scale with much smaller production runs.

Today’s Toyota is a multinational which employs many Americans … many of whom have pensions. Also, I don’t think GM’s international plants really pay that much worse than in the states. It’s just that GM overseas has to compete, has to build a better car, whereas domestic GM just lobbies the right people in Congress.

GM was super-profitable when Congress was doling out tax breaks for Hummers.

GM management wants you to believe that it’s the union … but Toyota USA has the same union (UAW) and they are kicking GM’s (not to mention Ford’s and Chrysler’s) butts. Hell, GM has plants in Mexico and Canada.

It isn’t the union. It’s management.

Toyota builds and markets to intelligent people who value reliability and good engineering. GM and Ford build and market to redneck sensibilities (is that an anachonism or what?).

Just bought my 3rd Toyota, still have the second - 207,000 miles on it and runs perfect, have only had to replace the clutch - still has the original brake pads!

the last time i read, gm cost about $800 more to produce a car than toyota due to benefits to unions. gm could easily tuck that in the car cost and will still be within the range of a comparable toyota. nevertheless, one major car breakdown within 5 years and after warranty period will cost you more than $800. i bought a toyota even if cost higher than a comparable gm precisely because of reliability.

Read ‘Jump Start: Japan Comes to the Heartland’ by David Gelsanliter for the inside scoop on Honda and Toyota building plants in the US, their location, and the UAW.

http://worldcat.org/oclc/21302097

I’ve heard that the pension/healthcare benfits to union employees runs around $1,500 per car. I’ll **gladly** pay that in order to maintain a “middle class” in the USA.

Problem is I don’t want to buy unreliable junk, and the U.S. automakers have earned a poor reputation WRT quality. We own a Honda. Could have bought a similar U.S. car for less, but wanted the safety & reliability of Honda.

It’s NOT the unions. People need to stop being brainwashed & realize what would happen if we eliminated the middle class (sure to happen without unions).

We need to actively seek out the REAL problems, not what we are *told to believe* are the problems.

“Information is where the future belongs.”

Can you drive, eat or export information? My guess is NO on all three. (Yes, I know that information can be exported, but only if you can compete on price, which the U.S. generally cannot.)

I’d say we need a combination of manufacturing and information. Information services are too easy to export to India as we have found out.

That said, I also very much agree NY that we need some significant sucesses in development. I know we can develop and build a better engine. We just need to light a fire under the right people’s butt to get it done.

It’s healthier to have a diverse economy instead of 250 million people shuffling papers and working on spreadsheets. We have to buy products from other countries. They don’t have to buy our information. They can easily steal technology. Thus the trade deficit.

Make it and sell it in in the USA is not just a patriotic idea is should be a National Security idea.
If China ever decided to take the USA down all the need to do is slap sanctions on us and refuse to sell us anything. We would be on our knees with in a few months.
People say that won’t happen because China needs our consumers to keep their people working. That may be true “now” but wait a few years when their standard of living increases more and they can absorb what they make. Or when the Amercian consumer is too far in debt to buy most of their stuff.
Then Kaboom!
20 % of all of the people on earth are Chinese

In 1966 I was reading Mao’s little red book and the English translated version brought some amusement. “A man on fours is Chinese”. I pictured a bunch of people crawling around on all fours. A few seconds later I realized it should have said, ‘one man out of four is Chinese’. I have been pretty careful translating since then, but I do love the lyrics to the Chinese National Anthem

“Arise, those who do not want to be slaves!
We will use our flesh and blood to build another Great Wall. China has reached the brink of national collapse.
All the people have been making their last outcry.
Arise! Arise! Arise!
All our hearts become one.
Let us face the enemy’s gunfire.
March on! Let us face the enemy’s gunfire.
March on! March on! March on! On!”

and on this glorious 4th La Marseillaise:

“Let us go, children of the fatherland
Our day of Glory has arrived.
Against us stands tyranny,
The bloody flag is raised,
The bloody flag is raised.
Do you hear in the countryside
The roar of these savage soldiers
They come right into our arms
To cut the throats of your sons,
your country.

To arms, citizens!
Form up your battalions
Let us march, Let us march!
That their impure blood
Should water our fields”

Why should we really care about the decline of American productivity - more shoddy products that the rest of the world won’t buy? My answer? If you cannot beat them, join them. Ever think of investinng internationally? What a concept! Now you can own the companies overseas where they pay lower hourly rates and produce more - you can profit on their higher competitiveness! Imagine!

I knew that all along. It just seems like a lot of you are spring chickens since you worry about America’s economic leadership. Doesn’t matter to me. I am a world citizen and invest in the world.

If everybody “invests” for a living, instead of working, what would the outcome be?

Gotta think long-term.

No offense, Bill, but I think those of us who have kids think a bit differently that those who don’t. We tend to think longer-term and from a more selfless perspective.

We actually want to see a healthy **society** (the masses) rather than creating opportunities for the very few to enrich themselves by sucking the benefits from other people’s labor.

Don’t forget to add Walmart to the mix…great PBS documentary on that….Sam Walton would be turning over in his grave right now if he could see what they did…especially on the 4th of July

the 90’s? a tax break??

hey.. go back to the late 50’s .. USSteel strike lasted 4 frickin months. 90% cut in production.

What happened? Steel imports, that’s what.. and the decline of the United States steel industry had begun.

result.. industry jobs kaput.. and cheap imported steel.

“Has turned into”? Ever heard of a fellow named Mugabe?

That would be kind of like saying Germany “turned into” a fascist, megalomaniacal war-state in the late 1930s and early 1940s, without ever mentioning Hitler.

> They still like to shop, though.

That’s totally understandable. When I lived in Russia in 90s, we had a hyperinflation there. We went from prices of 5 rubles to 5,000 rubles in two years. Nobody wanted to hold cash - whenever people got money, they would rush to the stores to dump it, because it be worth less tomorrow, literally. Prices in stores would get marked-up daily.

That’s an interesting phenomenon. It makes inflation much worse because the velocity of money increases dramatically and it is equivalent to more money in the system. That’s probably why you have to raise rates and keep them high for a very long time - to convince everyone it’s OK to hold cash.

you mean jet engine and avionics are not?

Or you could do what some neighbors did to relatives of mine who were pissed off at them and found out they were trying to sell their home…invite the local christian rock band to play in your garage during the daytime when open house hours were. And everytime a realtor or any other person shows up and parks a car in their neighbor’s driveway. When I first heard that gawdawful loud band next door to my relatives house, I knew exactly then why their house hadn’t sold, despite being clean and decently priced at the time.

If I did that the neighbors would bring their guns over thinking we were going shooting and having a party later. LOL

Well, of course… how else do you spend a holiday weekend?

Ah, good times! Used to get everyone together to shoot clay pigeons in the field right across the street…

Don’t know why I capped visa there, too used to writing the other version I guess…

that’s still just nibbling around the edges of the problem. Living underground is entirely possible and a huge percentage of them already are.

Employment is the crux of the illegal immigration problem. Cut off the jobs and they will not only stop coming, they will leave voluntarily.

Agreed.

In 1989, I bought a 1270 square foot home for $455,000 with a 20% down payment. Within a few years I had lost all of my equity in the early 90’s downturn, but I managed to hold on for six more years and sold at $590,000. I was interested in trading down to a smaller, more affordable place, and was also traumatized from the experience of having bought at the old top of the market. I found my current place listed for sale or for rent. Thankfully, I made the choice of buying, as home prices and rents escalated to new highs. Rents eased in 2002, but they are again at all time highs in Manhattan. So I did error in my initial home purchase, but eventually used the equity gains to own something smaller debt free. Had I made the decision to not sell my old place when I did, I could have rented it out to pay the mortgage and eventually sold to a neighbor for well over a $1 million. But rather than regret that second property transaction error, I am grateful for what I have. I could have easily decided to rent my current home in 1998, as it was an option offered at the time. Had I not made a commitment, I would not be in the incredibly nice position today.

…what we would want to get out of the house.

*Want* is totally the wrong way to think about it. Getting out with whatever you can possibly salvage *is*. Every day you wait is costing you a lot more than $120/week.

We have plenty of day laborers in Gainesville who are American natives with English names. What laws are they breaking? Last I checked, it wasn’t against the law to be a recovering loser alcoholic.

There are no new numbers about rents yet. But housing starts have declined some 25%, so I expect prices to come down.

About rents: They are very diverse in Germany. Relatively high in Munich or Stuttgart, low (5 EUR/m²) in Berlin.

Guh?! I’m moving to Berlin! It’s fricking cheaper than Florida, and the weather isn’t so … sunny. *shudder*

Kind of stinks how it’s hard to get a job in Europe these days if you aren’t of European nationality. Ditto Canada, etc. I’d say it’s the same everywhere, but apparently it’s easier to get a job in a technical area in the US if you aren’t a US citizen.

“Perhaps it would be time for a ‘colorful metaphor’?”