Bits Bucket For October 25, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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Very well here Ben
You have heard it said that this is an age of moral crisis. You have said it yourself, half in fear, half in hope that the words had no meaning. You have cried that man’s sins are destroying the world and you have cursed human nature for its unwillingness to practice the virtues you demanded. Since virtue, to you, consists of sacrifice, you have demanded more sacrifices at every successive disaster.
In the name of a return to morality, you have sacrificed all those evils, which you held as the cause of your plight. You have sacrificed justice to mercy. You have sacrificed independence to unity. You have sacrificed reason to faith. You have sacrificed wealth to need. You have sacrificed self-esteem to self-denial. You have sacrificed happiness to duty.
You have destroyed all that which you held to be evil and achieved all that which you held to be good. Why, then, do you shrink in horror from the sight of the world around you? That world is not the product of your sins; it is the product and the image of your virtues. It is your moral ideal brought into reality in its full and final perfection.
John Galt
I dont think John Gault would hold a gold certificate in the Perth Mint.
—–
practice preacher man.
“Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
The flaw was the theory itself. Nobody listened to the Austrians before the GD, why start now?
if anything, the last few weeks prove that the governments are listening even more (if that is possible) to the Keynesian economists and other ‘experts’ that caused this crisis. All recent action seems directed at making the same mistakes, only on an even bigger scale.
And why not, people who run a pyramid scheme (like our politicians) usually are too busy keeping things going to notice that the bottom of the pyramid is crumbling. Only the really smart guys took the money and ran, or they are now busy arranging exemption from prosecution.
NHZ, I agree. So far the bank bailouts and the other mechanisms they are using are similar to what the US Government used in the Great Depression.
Last night on a flight out of Baltimore I watched “The Cinderella Man.” The movie came out in 2006. But it’s about a real life depression era boxer who made a comeback. The background about the Depression was sobering, but would not have been sobering to watch perhaps back in 2006.
The notable thing about Jimmy Braddock was that, at least in the movie, he was depicted as a humble man of principle, a gentleman, and had enough sense of right and wrong.
If we are in for a depression, the people caught in it will mostly have no humility, no morality, and be savage.
Ron Howard and his production staff did a lot of research on the Great Depression, to really communicte the realities of it. The contrast between Jimmy Braddock paying back his relief money, and the scum that have invaded our country is eye opening.Great movie.
If we are in for a depression, the people caught in it will mostly have no humility, no morality, and be savage.
Hmm. I guess we hang out in different circles. I wouldn’t expect any of that. Also, it seems like being a jerk to people in an environment where money is scarce is probably a bad plan.
Bernanke, the scholar of the GD, apparently made it his central thesis that the gov’t didn’t do enough to rescue banks early on, and kept rates way too high.
Frankly, I think the Keynesians were just as much to blame for this debacle as the Friedman Monetarists.
If you’re going to wield power, wield it responsibly or not at all…
“Ron Howard and his production staff did a lot of research on the Great Depression, to really communicte the realities of it. ”
Indeed a great movie. I bought it.
Sobering scene for me is where Jimmy and his Dockworker friend are chatting over a beer lamenting how they both lost everything in the stock market.
I watch myself carefully when I begin feeling especially exhuberant over anything now. Takes more work, but has paid off big time.
DOC
“If you’re going to wield power, wield it responsibly or not at all…”
It would be best if policy makers played a strategy of first do no harm, but this exposes them to the threat of losing a game of Political Chicken (see explanation further down this thread).
After seventy years, the Keynesian bubble has finally popped. Time for someone to set forth a better theory, preferably one which rewards good decisions and punishes bad ones.
TPTB prefer the theory which requires they be in control. Any theory not supporting that notion will be rejected out of hand.
“TPTB prefer the theory which requires they be in control.”
Do the controls have to work? Because they aren’t working very well, at least for the time being…
Not working to what end?
I pointed out the other day that the Austrian model concludes less govt control. The Keynesian model the opposite. If the goal is increased power, it seems the Keynesian model is working swimmingly (is that a liquidity joke?) well.
Nope. It isn’t actual control. It is appearance of control, or, to be a little less conspiracy theory about it, appearance of making things better. When times are good all you have to do is bring back funding for a memorial or highways and bridges. When times are bad they have to do something that the average Joe/Jane thinks will plausibly help the mess (even if the ONLY thing that will help the mess is time and a nasty recession).
This also points out that avoiding a crisis isn’t as effective for politicians as bailing out a crisis. The first is done with small changes and complex, geeky stuff that few people understand. The second is accompanied by big speeches and grand rhetoric. In this crisis, a lot could have been averted if Congress had noticed the change in business model from banks originating and keeping loans to selling essentially all of them to investment banks that sold nearly all the resulting finacial derivatives. A few wonky regulations about keeping substantial risk on the books of the sellers would have prevented nearly all the stupid loans and prevented the bubble. But you can’t make grand speeches about regulations that prevented a crisis that never happened. I DO NOT think they did this on purpose. But I do think their eyes are concentrated on things that are already a crisis, not on things that might eventually cause a crisis.
Regulators, on the other hand, are paid to prevent a crisis just like this. They should have figured this out and screamed and screamed until someone listened. That is their job.
I meant “…in power” not necessarily actually able to “control” or correctly steer. I should have used a different word there I think.
Polly — Excellent, insightful post! Thanks for sharing that grim view of political equilibrium.
Agree. That was an excellent post, Polly.
Circumspection is a strange errand, and humility is a foreign emotion to the Maestro, isn’t it?
The greatest good for an Objectivist is when all your superior allies and sycophants are unfettered from government so they can do what they do best: make money
So how could that possibly have ever gone wrong? I learned that Ayn Rand was a sham when I was in college (well, 75% of it anyway). It’s embarrassing to see a grown, decrepit old man still holding on to childish fantasies.
Are you sure Greenspan is still an objectivist? To me it appears that he abandoned objectivism in favor of the utopia of a central planning system. Once he became the one in power it overcame his idealism and he believed enough in his own ability to centrally plan the markets through the use of short term interest rate manipulation, that he abandoned the belief in the individual.
Re-read his quote. the flaw in his system that he is referring to is that a central bank can perpetually avoid minor corrective recessions by priming the pump. His flaw was that in doing this a central bank can’t control where the money will flow and that once other players in the game discover this new rule, they will reassess what the real risks are.
What we saw was players in a game that took huge risks counting on Greenspan bailing them out. Those players all simultaneously took enormous risk not aware others were doing the same, and so created a system that was beyond saving by the central planners.
An inevitability if you ask me.
Greenspan did pretty much what Francisco D’Anconia in “Atlas Shrugged” did: he brought down a rotten system (fiat paper money, in Greenspan’s case) by pretending to be playing along with it. Is this a coincidence? I doubt it.
That is a great theory, and one I admittedly had not considered.
Though it did occur to me once or twice that the collapses of BSC, Lehman, Fannie Mae and Freddie Mac before the bailout was rammed through Congress might have all been planned accidents…
Yes, great theory, insightful. Fit’s well with his, “I am shocked …” stance. If you are correct then this game has only just begun … and we must ask,
Who is John Galt?
Morning, Ben. Congrats on your NYC radio interview. I take your server problems as a sign that you must have had some significant impact on the hearts and minds of Big Apple denialists.
Kudos once again, Ben. Great hearing your very reasonable voice in the unreasonable climate of Peak Housing.
When you have them by the b*lls, their hearts and minds will follow.
“I take your server problems as a sign that you must have had some significant impact on the hearts and minds of Big Apple denialists.”
These dumb$hits around here still don’t get it. They still don’t believe that Wall Street isn’t coming back in its 2005 form. They only believe in the existence of the hammer when their skull is cracked into 26 pieces. And sometimes not even then.
Each week I see a sofa and mattresses put out for “trash collection” on my street.
I think the data speaks for itself. They’re moving out and not coming back.
Each week I see a sofa and mattresses put out for “trash collection” on my street.
Add another one to that next week. I’m doing the same thing. Got a new engineering contract on the left coast and have to ditch the furniture I had to move out. That furniture cost me $1300. To rent, I would have to pay $300 per month over 13 months. To move would cost at least $600. So throw away I shall.
Either way, they’re not here which tells me something about rents.
I haven’t seen anyone moving in.
Can’t you at least give it to a charity ?
Charities don’t pick up any more. That’s what I hear from my friends in various parts of the country.
Most people are simply not going to pay to rent a truck to give to a charity. This is obvious.
I’m with you. This is a total waste but we’re talking basic economics here.
Yeah I was wanting to give it to Goodwill. I called them and they said they don’t pick up the stuff. So to the dumpster they go. I’ll give away a small table and chair set and a tiny color TV to any of my neighbors that are not too lazy to take it - I only know one neighbor and she gets a hepa vacuum cleaner.
Can you list it in craigslist in the free section? I graze there often and got a great leather chair that was listed as “out on the curb”. Drove right over and snagged that rascal.
I had a conversation with a colleague a couple of days ago on the topic of whether it is time to buy a home yet. He is champing at the bit to buy a house at currently discounted levels compared to 2005. I suggested he sit on his hands for a bit, as the collective consciousness has yet to digest the fact that the virtually the entire Wall Street investment banking sector shuddered its operations last month.
I further pointed out how the the big investment banks were the kingpins who used mortgage securitization to funnel investor funds into the subprime lending pipeline that enabled Central Valley strawberry pickers earning $30K/year to purchase $700K homes. There is no possibility whatsoever that the housing market has adjusted to the evaporation of false demand that disappeared when the subprime mortgage lending kingpins on Wall Street folded shop.
Is it “shuttered” or “shuddered”? I think my spelling may have suffered a Wall Street Halloween crash Freudian slip there…
Shuttered.
But we all read what you mean not what you say.
If the old rule of thumb was that a house was worth 3x your annual income, and incomes are falling precipitously, will we get to the point where houses sell for 2x annual income, which would makes most houses not worth a whole heck of a lot?
Think $50k in San Diego in 2-3 years…
I don’t think they will get that low in nominal terms, due to the $100 bns in helicopter monies that are currently getting dropped by the Fed. Maybe in real (inflation adjusted) terms, though…
>Think $50k in San Diego in 2-3 years…
So is it your contention that the average SD household will make $25K or just under $17K a year in 2-3 years?
Absolutely…
Jobs are going away and most of them aren’t coming back.
Employers will be able to pick and choose from lengthy lists of potential employees, wage advantage going to the employer, naturally…
A little to apocalyptic for me Alad but I do think we are in for a severe consumer contraction for the next several years…
“Jobs are going away and most of them aren’t coming back.”
“Employers will be able to pick and choose from lengthly lists of potential employees, wage advantage going to the employer, naturally…”
And from all this you conclude the U.S.is doomed to endure hyper-inflation?
Lol.
See Mexico: 1975-1992
The jobs went away along with the middle-class, when hyper-inflation came a’ calling.
Former Soviet Union and Eastern Europe circa 1989-1994 too – unemployment north of 20% and falling incomes, at the same time hyperinflation.
The few of you that don’t miss a chance to knock immigrants, might be amused to know that they came here mostly on account of hyper-inflation in their countries of origin, south of the border.
Mexico-El Salvador-Guatamala-Nicaragua were all victims of it in the past 25 years…
The same fate awaits us, and the only question is, where will our people go in search of stable jobs & wages?
Canada better build a big wall…
My elderly mother remembers the rule quite vividly as 2 X income, at least in the post-WWII years. Typical good job paid between $5 and $10 K per year and typical house cost $10-$20K. Put down 15-20% with a steady company job.
The most expensive houses in most small cities in Va. costed $25-$30K. And if you were a plant manager or a small businessman and made the kingly sum of $20-$25K/year you didn’t buy a $50K house because there simply wasn’t such a thing - just like the average car was $2-$3K and the most expensive (Cadillacs and Corvettes) were $5-$6K.
RE: The same fate awaits us, and the only question is, where will our people go in search of stable jobs & wages?
As far as I’m concerned the constitutional legitimacy of the US Federal Government ceased the day the Wall Street Bail-Out Order was signed.
The idiots in Congress signed their own death warrants.
Watch for a subtle, insidious balkanization of the US after this election (WTF-50% hate the other 50% already) with flight from states which harbour vast numbers of the welfare dependant and their governmental enablers in huge, destablized, festering urban centers, to areas/state-regions, which have the ability to be motivationally/resource self-sufficent, and refuse to reward those who produce nothing.
It will be an “Alamo mentality” of the producers vs the parasites, as the financial underpinnings of the Welfare State collapse.
Those who have the financial capacity and immigration qualification will head to various welcoming “under the radar” foreign enclaves.
They will be the lucky ones.
Hello Hd74man,
Interesting thoughts. Already getting the urge to ditch here in California. Have a bad feeling that we will get taxed to death in short order.
Figure move to someplace less dense with less of a burden.
Reading lots of hostility on the net tword Californians because of the bailout. Other states are asking why the heck are we on the hook for Cal, NY and Fla making dumb decisions. As suffering intensifies its going to become out and out attacks. Probably soon.
RE: Already getting the urge to ditch here in California. Have a bad feeling that we will get taxed to death in short order.
Figure move to someplace less dense with less of a burden.
Hey, James….If it’s in your head to bail-how many others are thinking the exact same thing?
And once the exodus of the productive inhabitants start, it all becomes a death spiral.
Arnold was just $16 billion short last quarter to keep the doors open and lights on.
What’s he gonna do when things really get bad?
Good morning HBBers. Beautiful day here in Moab, Utah.
I mentioned the fire here, am posting a link to the video I did for anyone interested, a little weekend entertainment. It’s not OT if you imagine the song is being sung by realtors/mortgage brokers to Bernake et al, and the visuals are the economy, works pretty well.
www dot youtube dot com/watch?v=wQhYgJKd5tc
nice shots.
did a house burn? (you said arson)
No, but the fire came within 100 feet of houses, they evacuated, also hotels. Tire tracks indicate arson, also clear skies (no lightning). Suspicious. They called it arson.
This is beautifully produced. I like the pre-shots and the build up. Sorry I’m not a technical movie-type, but I found it moving how you showed pictures of the austere beauty in the beginning - then showed hints of ‘not all is well’ - and concluded with the insatiable inferno. And the music augmented at the same pace.
Thanks for posting it - a beautiful thing.
Thanks SO much for your comment, means a lot to a newbie.
Oh, Chinle.
The conflagration segment is just gut-grabbing; exceptional footage and editing…what an amazing start to your new career! But dang, girl. Did you have to ignite all 500 acres? (The lengths you filmmakers go to for your art….)
LOL!!! Thanks for your great comment, BTW, good idea.
I saw it and thought it was next door, it was SO big, it was actually 6 miles down the valley. It was really late, but I decided to go look anyway, didn’t get to bed until 3 am and only because I ran out of film.
But now I’m wondering, how can I improve on THAT for action?
Hmmm…a bIg flashflood might be cool…gotta go call some of my Hopi raindancer friends…
Fantastic photos and editing with the music, Lost!
You live an awesome life, and it’s nice of you to share it with us!
–
Local Observations on “Inflation”
1. I filled my gas tank @$2.899. Down some 20% since September 2005 peak. Yes, in California. DEFLATION IN GASOLINE.
2. Went to a local bar with restaurant for lunch with neighbor. There was a regular white guy my neighbor knew who is in construction business (new homes and home improvement). Work is very hard to come by. He said that he now works for $12/hour. A year ago he worked for $18/hour and when I asked him what he got paid 2-3 years ago, at the height of the boom, he said that back then he got paid by the job and not hourly. He couldn’t calculate an hourly rate from the payment for the job, but I guess it was closer to $24/hour. DEFLATION IN LABOR. The lunch tab was lower than I would have thought.
3. Went to the local Chinese for take out. I know the chef/owner. He is heavily into real estate. He bought a home in Palmdale West at an auction for $118K. He had sold the same house 2-3 years ago for $269K. The owner who defaulted owed $380K! Assuming that the home was appraised at $380 it is down 70%. Actually, in the worst zip code in Palmdale East PPSF is down 70% from the peak some 15-20 months ago. SERIOUS DEFLATION IN HOME PRICES. The Chinese guy is going to rent the house and I am willing to bet that the rent he will get is 15-25% below what he could have gotten a year or two ago. I expect falling rent to show up in the CPI data some time in 2009Q2/Q3 and we will have negative YoY CPI.
All the while when “Printing Money” is overdrive. “Printing Money” dopes (almost all of them commodities bullsh..ers) have a big hole in their theory about inflation/deflation and demand for commodities. They didn’t see oil and copper prices falling more than 50% in 4-6 months coming, did they? They didn’t believe me when I said, repeatedly, “US Recession — > Commodities Bust.” Aren’t we there already? You know the next phase if you read my forecast – Deflation and Depression. The “Peak Oil” theory foretold Peak Price and not Peak Supply Limit. The demand might have already peaked for decades to come.
Jas
Jas: you are partly right, and I’m surprised with the speed some things have turned around. But you definitely are NOT right about deflation happening in general. What I’m seeing in Europe (possibly a bit different from the US, but probably more representative for the world in general) is wages rising at 4-10% yoy (high income officials far more), prices and taxes rising at FAR above official inflation almost everywhere (generally in the 8-15% yoy range, especially prices influenced by the government).
Our prices for natural gas (major heating source over here) and electricity are going UP next year, instead of down. All kinds of government service costs are going UP. Wheat prices crashed, but milk and bread prices are still near all time highs in our supermarkets. Nice that gas at the pump is now $7 instead of $9.75, but that does’n't help much with all the other cost increases the average citizen is faced with.
Regarding home price deflation: I still don’t see it happening on the EU mainland, at least not in a significant sense. Governments will fight it tooth and nail. The biggest homeowner organisation in my country is pressuring the government to hugely increase the NHG mortgage ceiling (a bit similar to the F&F ceilings in the US) and to ‘do something about the tighter lending rules’; I’m sure the government will do exactly like they ask.
I wouldn’t be surprised to hear within a few weeks that the EU governments will be guaranteeing ALL mortgages, in order to keep prices where they are now. Of course they can’t really guarantee this because there is not enough money, but the same applies for savings accounts where they already made this promise. They will make sure the music keeps playing until the bitter end.
I’m mostly in cash, but not feeling good about it. I don’t believe for a minute we will see real deflation in general prices in Europe (and probably not in the US either).
Jas,
That wage deflation you speak of in construction is reverberating throughout the financial industry, soon to make to to the sales end (will sales quotas be slashed in this recessionary environment?), and the technology job losses alone will adjust wage expectations for at least the next decade.
Expect to see median household income numbers drop for the next couple of years. White collar jobs…I hardly knew ya.
“White collar jobs…I hardly knew ya.”
Are you listening, Seattle? My cousin and his wife are programmers in the Emerald City, and work for the same company which has already begun outsourcing. Her job is next to go, and his is in jeopardy in the next few years. These are high paying jobs which are not being created as fast as they are being destroyed, much less at the same rate of pay.
Are they home-pawners?!?
C’mon, throw us a bone here. We entertain you all the time; why not a little quid pro quo, huh?
Please, pretty please! Give us today our daily schadenfreude.
But have you both seen this?
Hyperbolic money supply:
http://research.stlouisfed.org/publications/usfd/20081023/usfd.pdf
(small PDF)
Please, tell me how hyperinflation will NOT occur?
–
In my opinion this should be the most talked about item here if we are to stay ahead of the crowd.
Because the derivatives mess is 100-1000x bigger than this mess and that is deleveraging and defaulting.
You’re looking at the base money supply not the absurd inverted pyramid on top that is crumbling and gonna collapse.
That still spells like the big D to me.
FPSS,
You, jas, bear, nhz, etc are all more knowledgeable than me.
I understand that the utter size of this and the forces at work make it difficult to predict with accuracy.
Here’s what I see.
1. Per charts above (by the St.Louis FED) money supply is
hyperbolic. Nobody has seen this in the U.S., ever.
2. The dollar is strong only because the carry trade unwinds
here, in this shore, (and in Japan also)
3. Strong dollar = price of gold and other things are low.
4. The unwind of carry trade will eventually finish.
-
Please, help in explaining these things
I claim to know little. But I see an epic struggle underway between fundamental deflationary forces and the Fed’s effort to offset them. I don’t have anywhere near the confidence about the outcome of a Jas Jain, who is sure the world is headed into a highly-deflationary Greater Depression, or of an Aladinsane, who knows he will soon be able to buy a house for a song, provided he pays for it in gold coin. My best hunch is that the Santa Ana winds buffeting the tight rope between inflationary and deflationary forces, on which Ben Bernanke walks, will require continuation of the red flag warning for financial market conflagrations over the foreseeable future.
On account of no American living having experienced rampant inflation, but many bouts of deflation, we are hard-wired to look for one, but not the other…
I think Jas is wrong and we are not seeing de-flation but de-leveraging. Now that the debt bubble is unwinding, deleveraging will cause prices to go down for things that were purchased on debt, but not for things that are purchased with cash. What I’m seeing (and what Muir is seeing in the charts) is NOT general deflation, not at all.
As alad’ says, coming from Europe where we have more than enough experience with hyperinflation I probably look at the world through other glasses than the average American.
Deleveraging = deflation = credit being destroyed.
Since you don’t even understand this basic point, the rest of the argument is nonsense.
Muir,
A couple of different things are going on. The money supply is a combination of credit and physical currency. Now, a lot of what is being created is still debt or credit.
Much of the debt that already exists has already gone bad. It has not been “destroyed” yet because it has not been written off. Hence it still appears in the reports.
Meanwhile the government is causing inflation. Not sure if they are priniting physical currency or just issuing more treasuries. Treasuries are almost the same thing but because the money is spread over a longer period of time, the effect is less of a multiplier than actual cash.
So, the deflation/inflation numbers are not easy to read at this point. I’m looking for the ratio of M3/M0 to return to a lower level indicating leverage of less than 10:1.
We also have all the derivatives bets that need to work out. Not sure how they count in all this mess.
The point here is that perhaps we are seeing signs of potential hyperinflation. Or perhaps we are seeing signs as Jas was pointing out of deflation.
The government can print a heck of a lot of physical money and treasuries at this point and not seem to be creating inflation because of the deleveraging and deflation of other sources of credit.
Hope that helps.
Yes, it helps.
Thx James, FPSS, nhz, alad and profBear.
Very kind of you all.
This is “monetization” of PAST inflation (which has already occurred) not FUTURE inflation.
It’s like legitimizing squatter’s rights after they’ve already squatted for 20 years.
Do you understand this point?
“deleverage = deflation”
nonsense …
If inflation = increasing credit then decreasing credit = deflation which is what deleveraging it. It’s axiomatic.
Give it up, cookie! You’re clueless about finance.
Which is an effin’ shame because your ancestors effectively invented “modern finance”.
I thought that this article explained the strength of the dollar.
http://www.financialsense.com/fsu/editorials/willie/2008/1023.html
What is pushing the US Dollar up cannot be construed as anything remotely resembling healthy factors. In no way whatsoever does it resemble investment. It is more like paid off death contracts, paid off death investments, paid off transfers from toxic US bonds into what are falsely regarded as safer US bonds with a guarantee from a crippled USGovt. Foreign financial entities are liquidating on massive scale. They need a tremendous amount of USDollars in order to complete transactions. Also, a tremendous amount of USDollars are needed for CDSwap payouts as defaulted bonds are resolved. Almost all CDSwap and other credit derivatives are paid out in USDollars.
The point of all of this is that in the short term people need dollars, but eventually this demand will end and unemployment will be through the roof (due to lack of investment). Big companies are starting to hunker down and the first phase of hunkering down is to liquidate into dollars before the can start hiding their wealth in something safer.
This is “monetization” of PAST inflation (which has already occurred) not FUTURE inflation.
Do you understand this point?
I don’t.
You are saying that the inflation occurred at the moment the govt borrowed and spent, and the act of selling debt to the Fed is a, shall we call it, recognition of that inflation?
If so, that’s an interesting point I hadn’t considered.
When the treasury sells debt to the public, is that still a monetization process or is that the borrowing point?
Also, before the treasury monetizes debt, they could have (instead of funding it from the Fed) raised taxes (or decreased spending) to service the recently generated debt. In such a situation, does the original borrow/spend still qualify as inflation, or do you call it inflation b/c you assume they will get it from the Fed later?
NO. Let’s work this over slowly.
Inflation is created when “somebody” borrows money from the bank. Why is this inflation? Because they are creating money via “fractional-reserve” banking. This money is now loose in the real world where it will pay wages, buy goods, etc. driving up the prices of these services.
(There is a secondary version of this via derivatives which allows arbitary credit-growth too. I note this here now because we need to talk about it later.)
Now, you either have to pay the credit back with productivity, or default (= deflation), or roll the credit into new credit at cheaper rates (= what has been happening from 1983-2007.)
What is happening now is different.
They are taking the past credit and selling it to the Fed. The Fed is “printing” to pay for this credit. This credit is already in the system in the form of goods and wages. This is just “monetization” not new credit.
You need new credit or an “excess” of monetization to get inflation.
New credit ain’t happenin’ (this is obvious! who’s gonna borrow more right now?)
To understand whether or not “excess” monetization takes place you really have to step into the derivatives world where close to $700T (yeah T) of credit is sitting in various forms. (These are notional dollars so they don’t quite correspond to the actual amount of credit but let’s assume 10% does. So that’s $70T.)
Talk to me after they print 10% of that $70T = $7T or so. Then I’ll jump into your camp. Understand?
Thanks, I’m going to have to think on this a bit.
I totally misinterpretted what you were saying earlier, I get fractional reserve banking and why it causes inflation, I didn’t mention it earlier b/c I thought we were talking about govt only.
I don’t really understand how derivatives cause inflation, but that’s one of the things I’m going to think about.
One thought, to the extent financial institutions are monetizing existing debt with the Fed, doesn’t that free up capital to allow for more debt? If so, then in effect the monetization is itself inflationary, it’s just a matter of whether you choose to measure it at the point the new money hits the banks or wait until after its lent out to call it inflation.
Theoretically, yes. Practically, no.
Everybody likes to make money including those with a govt. guarantee. Right? Everyone likes a bonus based on those new “profits”.
Who’s gonna lend right now in their right mind, govt. backstop or no backstop?
That’s why Japan went through a 19-year deflation even though the money-supply never declined. Credit imploded. No more credit, no more inflation.
PC,
What about cash rich like Cisco, Microsoft. These companies don’t carry debt. Their revenues might go down with less business from companies that are leveraged, but other than that, we get what we see in such companies, right? I am having a difficult time resisting Cisco at 16 p/s.
Maybe they don’t carry debt, but most of their big customers do. Many big companies in US and Europe can only survice in their current state if rates remain artificially low (real negative), and easy money keeps flowing. At least for general business it seems that the easy money era is ending, so I don’t see why one would like to purchase shares from companies like Cisco…
I’d have no idea what this will do to the dollar.
Reuters
U.S. has plundered world wealth with dollar: China paper
Fri Oct 24, 2008 6:14am EDT
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies. (Cont’d)
——
Some have predicted the dollar losing it’s peg, but wow.
Leigh
The U.S. $$$ being the world’s trade currency is what allows the U.S. to run trillion dollar deficits in trade and the federal budget.
That is about $10K subsidy to the average working American. If that goes away, so does the American wealth and power.
All squandered for globalization, tax cuts and the war on terror.
So, you think long term you can trust China?
Good luck with that.
James, I agree. The Chinese do not share the ‘traditional’ western values of rule of law, particularly in contracts. They do value respect for their ancestors, best displayed through wealth, with which to honor them. If the road to honoring one’s ancestors is adorned with fraudulent conveyance, defalcations, piracy, and expropriations, so be it. Those who labor under the presumption that others will honor the tissue-thin protections of the rule of (western) law in the way we used to, are somewhat naive. But then - except for the villains of greed on Wall Street and the REIC - that is the American character. To the Chinese, we are vermin. I guess the Islamo-fascists think of us that way as well.
Matter of fact, folks who think as we do about western cultural and legal traditions are getting harder to find, even in our own legislative branch. More than anything else, this is my signal that it is time to lock down the borders - yes, I know I can’t do anything about the Big Borders, I’m talking real local here - batten down the hatches, and hope they all destroy one another in the next generation or so. I guess I should lay in resources to teach my grandchildren Farsi and Mandarin.
Reverse quarantine worked well during the so called Great Influenza 1920-23. The three locations which practiced it - one, an island; another, a town; and another, an orphanage - did not have a single illness. I view this emerging Great Evil as a similar contagion. Our lawmakers - not to mention our trading partners and domestic plutocrats - are lawless, and it’s spreading.
Huh?
The “money printing is in overdrive”? It has barely started, IMO. Check back in a year from now and see how much money’s been printed.
Also, commodity downdrafts have been caused by short-term dislocation of supply and demand (IMO). We have oil tankers (full) sitting idle in ports in the Middle East. At the same time we are starting to see oil being pulled OUT of America’s Strategic Petroleum Reserve. How long can that last? It’s a temporary phenomenon, driving oil prices down, down, down. The $147 was an anomoly (we were ADDING to the SPR then), every bit as much as today’s $63/barrel is an anomoly.
There WILL be deflation of commodities if the supply/demand dislocations are not quickly solved. I live in Wisconsin, and if farmers cannot get products to markets, expect to see milk and cheese prices collapse - dairy farmers dumping milk into ditches, and livestock farmers shooting their hogs and cattle and burying them rather than sell at distressed prices. This has happened before, and will happen again, probably soon. At the same time, people in developing countries who rely on American exports to eat will starve, and inflation will be rampant in those countries.
If you’ve had your eye on that big-screen television (made in China/Korea), buy it now before prices skyrocket. I expect to see deflation in producer countries, and inflation in consumer countries, if the supply/demand dislocations cannot be worked out. And it will be bad for everyone. Nobody wins…
Deflation of commodities is in progress….happened to catch a local farm program last Sunday. Corn is 50% off the June high.
My corn flakes don’t cost 50% less though………
$1 of corn doesn’t translate to $1 of “manufactured output”.
There used to be Texas wheat farmer who posted here that pointed out that $1 of wheat increase translates to about 6-8 cents of increase in the price of wheat products (something like that, not totally sure.)
Wonder what happened to him. He disappeared. Anyone know?
Same thing for crude oil and gas prices. It’s called a “crack spread” (seriously! I couldn’t possibly make something like this up.)
RE: My corn flakes don’t cost 50% less though………
Precisely, Gulfie…My Sat. AM shopping list…
A 10 pack of shit quality Rite Aid razor blades @ $8.50.
1 Harley-Davidson FLH battery, 4 qts. of oil; and a filter-$158.00!
Deflation?????
Deflation for the frivolous…
Anything of neccessity? Inflation thru the roof!
The commodities spike was a temporary anomaly created by fear and greed. It was the result of speculators buying up futures contracts out of fear of inflation and greed. It wasn’t all real demand.
The speculation, however, caused an expansion of supply and supplier capacity. This excess supply will contract violently across the globe as reflected in commodity prices and currencies.
As a result of falling home and other asset prices (negative wealth effect), demand is falling off a cliff in the Western world, the world’s largest consumers of goods. There is no such thing as decoupling, a fallacious argument promoted by commodity bulls. Speculation is real, however.
And one other thing…
Suck up that $2.89 gas while you can. It’s not going to last very long.
Gas is in under $2.50 in many places - Missouri, South Carolina, etc. And while it is true that as the price of oil goes down, the correlation between gasoline and oil prices decreases, it is also my observation that one of the best predictors for oil prices is OPEC actions - if they are talking about cutting or instituting cuts, the price will fall.
Personally, I’m not even filling up right now. I think 10c/gallon declines every few days or so are still likely for the next couple weeks. And after that, my bet would be on lower rather than higher prices.
It’s also true that many products - especially those with slow inventory turns - are at record prices that do not reflect the current price of the underlying commodity and current transportation costs. I had the misfortune of having a blowout and having to buy a tire - I felt like I was buying at the very top of the market and paying for the $5/gal. diesel that likely brought it there.
In fact, it’s the stickiness in prices - especially things like government labor prices and contracted delivery prices - that causes trade to decline so rapidly during periods of deflationary pressures that drives/will drive unemployment to such high levels. I’m thinking those increases are going to be measured in the %s rather than tenths of a % going forward.
$ 2.39 at Speedway in Michigan - I was very surprised. Filled up, too.
I always find this fascinating. When prices are going up, people wait to fill up. When they are going down, they fill up as fast as possible.
It is not logical, but not much is where people are concerned.
FWIW, in the past 10 days, gold has made record highs in the following currencies:
British pound
Australia dollar
Indian rupee
South African Rand
Canadian Dollar
That’s because those currencies are being inflated as they flock to US dollars.
Local observations on inflation:
1. I filled my gas tank at $2.97 a gallon for 87 octane. When I bought this car 7 years ago gas was $1.10 per gallon.
2. Went to home depot just now and paid $70 for a quart of touch up paint, a roller brush, cheap plastic container, 3 CFL bulbs, another house plant and some dirt.
3. Went to the grocery store and spent $41 for ingredients for chili. Ground beef, beans, chili powder, sour cream, some cheese. I used to make this back when gas was $1.10 for about $20 total.
4. The townhouse beside the one I rent is going to foreclosure auction. It was purchased for $420k. One building over another townhouse that is up for rent for $2300 per month is in its second month on the market and still has not rented.
As I have posted here before, we began to buy the bulk of our groceries through Angel Food Ministries beginning last May. As steak has climbed to $ 10.99 - $ 13.99 per pound at Kroger, we’re able to get quality meat such as offerings for this November which we ordered and prepaid at the church site today =
1. Basic Box all for = $ 30. Contents :
1.5 lb N. Y. steak strips - 4 6oz steaks ( not the finest but quite good if you marinate them
3 lb. split chicken breasts
2 lb. baby back pork ribs
28 oz Jumbo charbroiled beef patties with gravy
1 lb. smoked sausage ( we’ll be giving that away )
1 lb. ground turkey
1 lb. diced sweet potatoes
10 oz. peanut butter
15 oz. cranberry sauce
7 oz. beef-flavored rice and vermicilli
20 oz. shoestrong fries
32 oz. 2 percent shelf-stable milk ( tastes just like regular milk)
6 oz. pancake mix
1 dozen fresh eggs
1 dessert item ( choc. chip cookies)
We also ordered ( you have to take the basic box before you
can order the add ons )
Special # 2 - Meat Combo = cost $21 contents:
1.5 lb. Bone-In Ribeye steaks ( 2 x 12 oz. ) We’ll be splitting
each one of these.
1.5 lb. Kansas City strip steaks ( 2 x 12 oz. )
1.5 lb boneless center-cut pork chops ( 4 x 6 oz )
and
Special # 4 Fresh Fruit and Veggie Box = $ 21 contents:
3 lbs. North Carolina New Crop Red Rome apples
3 lbs. Washington State New Crop Granny Smith apples
4 lbs. New Crop Florida Navel oranges
1 stalk of California celery in sleeve
4 lbs. Premium Idaho baking potatoes
3 lbs. New crop North Carolina sweet potatoes
2 ruby red grapefruit
1 lb. Premium California carrots ( cello wrapped )
2 lbs. Large-medium yellow onions
I have priced it out, and we can’t even touch the same groceries for 40 percent around here. The quality on 95 percent of it is very good to excellent. It’s really helped us save money. No hyperinflation here that I’m seeing, but boy it’s rampant at Kroger, Meijer, etc.
sorry, I should have posted ” we can’t even touch the same groceries for under 40 percent more around here. ” Without the “more”, the end of my post was very confusing. And lacked hyperbole. I mean, hyperinflationary hyperbole.
Silverback, thank you for the referral. This is a fab find. I am a single nester, and could conceivably do an entire month with one box! Other than for bread, fruit, coffee, butter, etc.
With gritted teeth, have attempted to scale down to more sustainable living. Although job seems secure, and renting is a real savings, life does throw out nasty surprises. I just CAN’T summon the grit to cut cable, wireless internet, and a four cell phone plan (one for me and one for each of the kids. I justify on basis that the money I pay is dirt cheap for four sets of unlimited minutes and texting). The others I justify as necessary background stimulation.
This food connection will free up cash for the emergency fund. Thank you for the option!
What’s up with this? Two people who have means (you Silverback, raping younger generations with your 6% per year pension plus SS) and you Jane, unwilling to chop out luxuries you don’t need whilst grabbing things at a discount via a church…
and here you both sit whining about how expensive everything is.
Stop living off other people - you’re NOT entitled to other people’s money.
The greed never ends.
A possible weekend discussion thread about the biggest bubble of all: the population bubble.
Since the influenza outbreak in the early 20th century, WWII, and Stalin’s, Mao’s and Hitler’s massive efforts, there have been no significant population growth pauses, let alone declines.
How does this bubble end? How soon?
On the heels of the entire world finding out that we’ve lived a Cinderella existence since the end of World War 2, and the clock just striking midnight…
Here comes climate change, disrupting our time-tested proven methods of growing food-using industrial production techniques, which was a product of the industrial revolution, when just 750 million of us roamed the globe.
There are 9x as many of us, now.
Static analysis along with linear projection.
The same thing that buried Malthus’ forecast completely and utterly.
You realize, of course, that Malthus has NEVER been right?
Malthus’s world-view was formed at the beginnings of the industrial revolution, not the end.
He couldn’t have envisioned the population growing ever larger due to great advances in science and more importantly, the eradication of diseases, in wholesale quantities…
Right, he couldn’t foresee the industrial revolution just like you can’t foresee what some future technology and science will bring to the problem.
Just like Comte proudly declared that science would never figure out the composition of stars and then just 20 years later, Bunsen and Kirchhoff discovered spectroscopy.
You’ve just stated the exact thing that buries your argument.
I’ve seen what we can do, and our technology and science has done it’s utmost to divorce us from reality, and most of us only survive living lives derived from it, and I don’t know about you, but I see the entire world taking a rather extended time-out from learning, as we’ll have much bigger fish to fry.
FPSS —
I agree that Malthus’s theory completely missed the role of endogenous technical change. But at the other end, first-world economists tend to conveniently ignore the immiserizing effect of endogenous population growth in response to the manna from heaven realized through developing a fossil-fuel-based world economic order. This worked quite nicely when only a few western companies were the dominant beneficiaries of fossil-fueled technology. It is a bit murky whether it will continue working when 2bn Chindians try to join the party.
The dismal (Malthusian) question is whether human population growth represents a bubble in response to the wealth provided by the transition to a fossil-fuel based technology. If the Peak Oil theorists are right, then the next fifty years may prove highly unpleasant as this bubble unravels.
We should all hope that Julian Simon’s optimistic vision will prevail over Malthus’s grim prognosis, through exploitation of unforeseen riches soon to be unlocked by future human ingenuity.
I’m with you there. We may not agree on the exact nature of the why but I agree with the sentiment 100%. Technology is but a tool not a Saviour. Man’s arrogance has no memory. For all of our advances we are still the fallible creatures we have always been and prove it once again. Not to mention that it requires constant vigilance on our parts to have any hope of ever keeping it in check and we need to relearn that as well.
“He couldn’t have envisioned the population growing ever larger due to great advances in science and more importantly, the eradication of diseases, in wholesale quantities…”
The great leaps in eradication of diseases happened long ago in the industrialized world. It has way more to do with sanitation engineers than doctors. Look in a public health text book at changes in world morbidity rates - plunges right around the time the water gets safe. Invention of broad spectrum antbiotics is barely a blip.
My mom describes Polio as something where you never knew when it was going to strike, and it took down young lives like piles of cordwood, but only after making them suffer for years…
Scarlet Fever sounds more like a porn name, than an eradicated cold-blooded killer.
My mom terrified us when we were kids about washing our hands after, you know, p00ping.
Inspite of the fact that we were all vaccinated for polio and just about everything.
Best. Con. Ever. She should’ve been a banker.
You and other members of the economics profession suffer the bias of short-term thinking. Malthus will prove correct, in the long run.
As Mao remarked when asked about the effects of the French Revolution on the world, “It is too soon to tell.”
I’ll posit, “Après moi, le deluge.”
In the long run the population of the earth will be zero.
“It is too soon to tell.”
I cannot disagree with you there.
“In the long run the population of the earth will be zero.”
J M Keynes pointed this out a while ago (”In the long run, we are all dead”).
It’s worse than that.
Just like we bear scance resemblance to our 20,000 year-old ancestors, the future “men” will not resemble us either. It’s called evolution.
David: Oh sorry…well this is thoroughly depressing.
Nigel: It really puts perspective on things, though, doesn’t it?
David: Too much, there’s too much f***ing perspective now.
[during the drop to LV-426]
Hudson: I’m ready, man, check it out. I am the ultimate badass! State of the badass art! You do NOT wanna fuck with me. Check it out! Hey Ripley, don’t worry. Me and my squad of ultimate badasses will protect you! Check it out! Independently targeting particle beam phalanx. Vwap! Fry half a city with this puppy. We got tactical smart missiles, phase-plasma pulse rifles, RPGs, we got sonic electronic ball breakers! We got nukes, we got knives, sharp sticks…
Wake me up when we get super vision (night vision, infrared, and super distance); alternatively something like sonar would be cool. Or the ability to instantly understand any language and communicate with dolphins. I’ve heard they know the truth about our alien roots.
[during the drop to LV-426]
Hudson: I’m ready, man, check it out. I am the ultimate badass! State of the badass art! You do NOT wanna f*ck with me. Check it out! Hey Ripley, don’t worry. Me and my squad of ultimate badasses will protect you! Check it out! Independently targeting particle beam phalanx. Vwap! Fry half a city with this puppy. We got tactical smart missiles, phase-plasma pulse rifles, RPGs, we got sonic electronic ball breakers! We got nukes, we got knives, sharp sticks…
Faster,
Actually we resemble our ancestors of 20,000 years ago quite closely. Evolution takes a lot longer than that. Our STUFF is very different than that of our ancestors. But that isn’t evolution, that is invention.
“Actually we resemble our ancestors of 20,000 years ago quite closely. Evolution takes a lot longer than that.”
This is true. In fact, I’ve seen many who bear the resemblance of our ancestors of 250,000 years ago, in their social refinement at least…
As I see it, we have been living above the natural carrying capacity of the planet for several generations. This was made possible by the “green revolution” that in turn was made possible by consuming stored energy, mostly in the form of oil.
If the stored energy ever runs short, the carrying capacity will be reduced. In nature, populations are reduced through starvation, disease, drought, reduced fertility, and predation. It will be no different with humans, except replace predation with war.
The weakest always are the first to go. The strongest, the last. Populations will come in to balance as they are a reflection of energy flows.
Really just thermodynamics.
I agree with you. And I try not to think about it. There’s really no point in speculating how exactly the earth’s population will be reduced, assuming we are hovering at “Peak Population”. However it happens, it cannot be pleasant.
Reduced fertility have already appeared on the scene, mostly by choice (thankfully) at this point. Child per woman ratios are dropping around the world in every nation.
Not in most of Africa. 5-7 children per female. Not really much change.
Carrying capacity of the planet? How exactly do you determine that? By what scientific measure to you pull that sort of data? What is the energy generating capacity of the earth? What is the total maximum yield of all arable land, and what technological measure would you define that?
Paul Ehrlich predicted such things in the late 60’s and declared on “Earth Day” 1970 that the world would be unable to produce enough food for everyone. He wrote a book called The Population Bomb. Most of his predictions were wrong because their failed by the same hubris and broken logic referred to earlier. You have no measure of what the “carrying capacity of the planet” is. Also as FPSS astutely mentioned it is hobbled by static analysis and linear prediction. Ignoring scientific advances, better use of technology, etc will always make these doomsday predictions fail.
It’s just thermodynamics.
I don’t have any metrics. If I understand what you are implying, you are right. We don’t know what future technology brings. Likely I think, each day the bar will be set higher. I’m just extrapolating from what we observe in nature.
We could however determine the carrying capacity empirically. Two methods at least come to mind. 1) Keep adding more people. 2) Reduce the energy inputs. In nature, frequently we see the carrying capacity exceeded (overshoot), followed by a population crash (undershoot).
I pray that neither of these happen. But, as the saying goes: “if wishes were fishes”
Simply put, the carrying capacity doesn’t have to be measured, to know it exists, nor does it have to remain fixed. Sort of like peak debt.
Just thermodynamics.
Carrying capacity of the planet? How exactly do you determine that? By what scientific measure to you pull that sort of data? What is the energy generating capacity of the earth? What is the total maximum yield of all arable land, and what technological measure would you define that?
Hmm.. well, you don’t, not in exact numbers.
It can be inferred, however, by children’s history books. Seriously.
The earth’s population growth curve is parabolic one with most of the expansion occurring in the last thousand years or so. (I apologize if I got the name wrong - it’s type of curve that’s flat for a long time then shoots up like the right 1/2 of a U)
The human population/time graph looks like what happens when a species explodes onto the scene, outstrips it’s resources, and then must reduce or disappear entirely. Or like housing prices in the last 2 decades. Or any unsustainable, exponentially based trend.
The only thing we don’t know is how long our population party lasts. Technology will make it last longer, for sure. But at some point we will outstrip the earth’s resources and we must experience a population reduction. Empires and species don’t last forever.
Heh. It’s slow to come through, but I just said something very similar…
Cinderalla? I think not. When my father came home from WW2, he and the millions of service people started or worked for start up companies. They were very sucessful. Small companies, making anything from fence posts to toys. Their sucess continued till their children took over their companies, or if they were corporate, the MBA’s took over. The MBA’s only new numbers. They didn’t care about workers, health care, or retirements. They changed the work idea, that even if you didn’t have a college degre, you could still advance in the company. The bottom line was their only concern. The MBA effect took hold in the late eighties and early nineties. A company I worked for in the Fox valley, was a well run nuclear power and paper mill contractor. Approximately 40mm annual gross. First, an MBA from Arthur Anderson was hired as financial vice-president. A real number cruncher, who didn’t have the foggiest idea on how to do anything mechanical. He couldn’t put a nut on a bolt. Computers were his thing…..
About the same time, the owner a WW2 vet retired. His son took over. Within a year, we were deep in new systems for accounting, inventory, job tracking and payroll. Guess what? Within 2 years, we went bankrupt. The real employess with knowledge and experience were bypassed in favor of computer models and bottom line number crunching. All theory and no common sense. Since that time, in other companies, I have come to despise the MBA’s. If a company makes a product, its employees, including the accounting and financial end should know and understand how the nuts go on the blots. My father did and he knew that the best people are not those with the college degrees. The best people are the ones with good old fashioned common sense. Cinderalla started when common sense went out the door.
RE: an MBA from Arthur Anderson was hired as financial vice-president. A real number cruncher, who didn’t have the foggiest idea on how to do anything mechanical. He couldn’t put a nut on a bolt. Computers were his thing…..
Kudos, on a great post, Terry!
It’s the perfect short “from the guy on the street” synopsis as to why the country is in the shape that it’s in.
Amen, Terry!
Bill,
Saw shooting stars last night…was thinking we haven’t had an impact crater like the one near were Mr. Ben lives in quite some time…were the Vikings tough because they lived in a very cold climate?
Nah, we’re tough because we’re a mutant strain…hence the light eyes and blonde hair in a region of an otherwise Mongoloid genetic pool.
Also, it’s the lutefisk. That’s enough to make ANYone tough….
I though the light eyes and blond hair were just a gentic accident that went along with pale skin that was necessary to increase vitamin D production in an area with limited sun for part of the year. People with relatively dark skin who live up north have to get their vitamin D from supplements (now) or a diet with tons of naturally occuring D (like oily fish and whale blubber) or get rickets.
So my very light skin can create Vitamin D? I find out something new all the time.
Humans make vitamin D in their skin when it is exposed to sunlight. Melanin interferes with this process somewhat, but provides other benefits like protecting you from sunburn. In many areas, you get enough vitamin D even with lots of melanin because you will tend to have enough sun exposure to make up for the less efficient production. If you live someplace where you aren’t going to get enough sun exposure with the melanin, you either get pale or get rickets. Remember, if you go back far enough, all our ancestors came from Africa. There had to be some sort of environmental pressure for evolution to change the color of our skin.
Deficiencies in Vitamin D and related chemicals will first produce mental problems - depression, etc before you get rickets (which is the extreme version of the deficiency.)
I should know on that one.
I need “extra” sunlight in the winter, even as a pale face, or life gets rough…
Lutefisk! Hah!
How about red hair and haggis? Makes you tough and mean!
A nasty virus will be unleashed upon the earth, by the powers that be.
That’s a scenario I’ve thought of as well. Innoculate “The Chosen” and then unleash the virus.
Gore Vidal thought of it long before you did. He even wrote a novel about it, Kalki.
Which (I thought after reading) was a re-write of his “Messiah”.
Excellent question! Disease, riots, and medical science interfering with natural selection. (The long term consequences of fertility treatments are unknown.) Do not think US medical system can handle any sort of major influenza or other disease outbreak.
“…long term consequences of fertility treatments are unknown.”
Not true. From a purely evolutionary point of view, the long-term consequences of perpetuating infertility are obvious. Not saying this is necessarily a BAD thing…just that it will take so much longer- kinda like all these bailouts prolonging the inevitable….
One of my favorite movies is “Children of Men”, and happens to be precisely about this very topic. Excellent cinematography as well.
I’ll second that, excellent movie.
China had the one child policy and that will set limits on their growth. As for India… don’t know.
I can see the US, China, Russia and Europe all heading into population declines. Expect war/famine/disease to handle the third world and India soon. Europe and Russia are already on a serious downswing.
Get the feeling of general malize settling over humanity and that population will decrease over the next few years.
not worried about resource constraints being a problem beyond food and water. Wind and solar energy are avaiable if less practical than oil. Plenty of coal and nuclear power available as well. Yeah, there is some impact on the old lifestyle but a combination of lower use and improved technology and we are fine.
There is still a lot of oil too. If the price of oil goes up then it seems that Americans are able to cut back. go figure. Oil shale is availble in huge if expensive quantities. It means more Prius type cars and less SUVs. Big fricking deal. I’m sure in 10years from now the technology will make for 75-85mpg cars common if we want it.
We are witnessing oceanic trade dwindle to almost nothing (down 75%), and the knock-on effects for overland trade must fall by about the same number, as we import virtually everything except for some foodstuffs…
Combined with corporations closing down retail stores by the gross, shopping should be downright interesting in a year or so, as there’ll be few places to buy anything, and little to buy.
“We are witnessing oceanic trade dwindle to almost nothing (down 75%) …”
Oil tankers are still anchored off of Seal Beach. This phenom started showing up about a year ago; Tankers would come into port, offload their crude, then sit at anchor for weeks waiting for orders to go back to get more oil - orders that never came.
The signs were there for everyone to see if they cared to look and think about what they were looking at.
You should never look at any signs except for those positing societal collapse, donchaknow?
That means the precious. All other observations are null and void.
Fundamentalists of all stripes are like this. When you start with the conclusions and work backwards, things always make so much more sense…
I fear that we’re entering a phase of our history in this country where our institutions will primarily be dominated by a whole series of these “new fundamentalisms”. I’m not one prone to this type of worrying, but I see a lot of distressing signs. I hope I’m wrong.
Well, I’m with Ben.
To totally swipe his words, “within the largest economic upheaval any of us will see, there is opportunity.”
I can sit on my pot of gold or I can go looking for this opportunity. The choice is mine.
You missed our 401k conference call this week. I sat in on one of these for the first time ever. I needed the laugh. The stuff that the management company said was ludicrous. I was embarrassed for them. One of the reps told us that the Dow would not go back below 8,000. The woman on the call said that we should hope and pray for better returns.
I have most of our retirement money in money markets and such. That means that we haven’t had the 40 - 45 percent drops this year. I could start dollar cost averaging now at a much lower point. I don’t know if I’m ready to start that yet. That seems like an opportunity that was borne out of my fear of this situation and acting on it.
Speaking of fear, it was incredibly thick in that meeting. The same people that were laughing at my warnings two years ago looked like they were going to cry. I feel so bad for them.
Why do you feel bad?
Never apologize, rub it in. Tell them about their tattered “dreams and desires”. Show the “rubes and retards” exactly what you think.
On your other question (getting back in), wait a bit. We haven’t seen the fireworks yet. We’re not far off either.
FPSS, what do you think about DCA on the short side? If one believes that we are going the Japanese way, it seems like a reasonable investment strategy…
“Never apologize, rub it in. Tell them about their tattered “dreams and desires”. Show the “rubes and retards” exactly what you think.”
I think Ozzy Ozbourne actually said this one below;
(paraphrasing)
“Be nice to others on the way up, you just might need their help on the way down.”
DOC
I dislike DCA. Period.
I would rather time my entries. It’s never going to be perfect but that’s OK.
And the US adjusts much faster so I would be skeptical of a Japan. Look at the spreads blowing out.
On the bright side, we have plenty of time. Look for this conversation to “heat” up as we get into Q2 or Q3 of 2009.
Paging señor combotechie, paging señor hoz, paging señor vozworth. Please report to the front desk.
I agree combo….The signs are all around us if you just pay attention….
That’s how we all ended up here at the HBB. We looked around and saw with our own eyes…things that didn’t make sense.
Sometimes, it’s the obvious things that tell you what the future holds.
I don’t think the trade is down that much, except if you measure the trade in dollar value of the shipping cost
“…as there’ll be few places to buy anything, and little to buy.” lol
Alad, seen any Amish walking amongst the really big trees lately?
America ain’t Russia…we got Budweiser, who needs potato vodka?
Didn’t see any Amish (I have seen them in past years) this year, but I did see a quorum of Buddhist monks, all in golden robes-offset by the red giants…
Eye candy overdrive
“Eye candy overdrive”
Did this comment some how get disconnected from a post on the Republican VP candidate?
Just because the price of ship charters has dropped up to 95% does not mean that we are “witnessing oceanic trade dwindle to almost nothing (down 75%).”
Some vendors say sales down 50 percent
By KATIE ARCIERI, Staff Writer
Published October 23, 2008
Beaten by a weak economy, major boat companies said sales sank as much as 50 percent at the famed Annapolis Boat Shows that wrapped up last weekend.
…
Garth Hichens, owner of Annapolis Yacht Sales, which sold five Beneteau boats at the sailboat show, nine less than last year, said the timing for the show “couldn’t have been worse.” The show took place just as the stock market fell dramatically and right before the presidential election Nov. 4.
He said it’s not that boaters don’t have the money to spend.
“They don’t want to be perceived as spending money in a down time” while their employees are suffering, Mr. Hichens said. “I can’t blame them for that.”
Really, he has proof that they have money?
They had credit not money. No more credit. KABOOM!
The Money still has money. One of the reasons why is because it has the good sense– born of bitter experience– not to draw attention to itself during times of plenty, let alone duress. Retranchment and all that.
Dubai is sooooo screwed.
Yeah, but The Money with a capital T and M, doesn’t buy at boat shows. They discuss custom jobs with builders or buy privately from others with Money. Just like real rich people don’t pick out a few modifications to the floor plan of a McMansion in the developer’s office. They work with architechts.
Local boat dealers here have taken to putting their excess inventory on vacant tracts along the main drag through town. Remarkably, none of them have closed yet, but I can’t imagine them hanging on much longer.
Interesting, Bear. My daughter lives above one of those yacht sales places across from the dock in Annapolis (college student). I’m going there next week and it will be interesting to see how housing havs changed since last year. But the main goal is seafood and fun.
One of Slat Lake City’s major RV dealers (Blaine Jensen) is now offering new RVs at 50% off.
My office-mate told me a few days ago that his wife’s uncle just bought a boat that is 39 ft long, 14 ft wide and sleeps six. New it would have been 140k, he was the only bidder on ebay at 30k.
I don’t know anything else about, such as its condition, age, etc.
He’ll soon find out what the acronym for BOAT is, Break Out Another Thousand.
There was an article in the Saint John (NB) Telegraph-Journal a few days (sorry, no link) about a boat builder who has been selling what looks like fancy fishing boats to Americans at $ 250,000-300,000 a pop. He was beating the drum for investment from the government because his business was ready to take off…yeah, right. One of the local politicians was also saying it was time for government to invest…
Here is the link:
http://dailygleaner.canadaeast.com/search/article/453688
My grandpa used to tell me, “if it floats, flies or f’cks, it’s better to rent it” and “a boat is a hole in the water into which money is poured.”
Some rentals can give you VD.
Some rentals require the Trojan option.
Well worth the extra cost…
Trojan whores…
Best kind. They’re “hyper-inflationary” too.
I dunno….I have had my little bass boat for 10 years now…I love it…I will never sell it…
“Garth Hichens, owner of Annapolis Yacht Sales, which sold five Beneteau boats at the sailboat show, nine less than last year.”
I’m surprised he sold five.
Somebody here made a great statement awhile back re: boats…
“The happiest days of boat ownership; the day you bought it, and the day it’s sold.” LOL
Boats and RV’s=financial black holes.
DOC
Boats and RV’s=financial black holes ??
Not for me…Owned them for 30+ years….
Well, there’s boats, and then there’s BOATS. Sister’s bassboat is 6 years old, easy on the gass, and goes on lots of fishing trips up north. Dad’s 41 ft. almost-yacht, although wonderful when he bought it used 20 years ago, costs a fortune to house ( dock ), winterize and store when the weather turns cold, costs a lot for the repairs he can’t do himself ( all new canvas up on top - where they sit and drive the thing ), and gets a whopping 11 mpg when it’s not on a plane. When it’s on a plane ( going fast with the nose out of the water ) it gets about 4 mpg . Or less. On the other hand, he’s an active 83-year old who’s sailed most of the Great Lakes and the St. Lawrence Seaway in it over the years, including extensive tours of out-of-the way waterways and tribal-owned marinas up in Canada, and it went up the length of the Rideau Canal. The amount of happiness it’s brought my stepmother and him over the years has been worth it all, and it gives him something to live for. Now, it’s being turned into a marina-bound party boat.
Chris Cox has a case of Spitzer face in the linked photo. The condition must be somewhat contagious in high-level policy circles, because I have seen recent photos of Hank Paulson with the same contorted expression on his face.
Gloomy Forecast On Hedge Funds
Analysts Expect Losses to Deepen
SEC Chairman Christopher Cox at a House committee hearing Thursday. Cox said the SEC favors greater authority to regulate hedge funds. (By Mark Wilson — Getty Images)
By Kevin Sullivan and Neil Irwin
Washington Post Foreign Service
Saturday, October 25, 2008; Page D01
LONDON, Oct. 24 — The hedge fund industry, a once-unstoppable profit machine that has already lost more than $200 billion in value this year, could shrink by a quarter or more as the global financial crisis deepens, according to industry analysts and fund managers.
Poof. More money destined to vanish into thin air.
It’s gonna shrink by 50%.
Everyone and their brother and their brother’s dog had put their hand out for the 2 and 20.
It was the flip side of the credit bubble (just like the absurd rise in “growth mutual funds” was the flip side of the Internet bubble.)
The sooner hedge funds blow up and insolvent banks get shut down, the sooner we can start from some fundamental base level and build up. What are your thoughts of what will come out of Brenton Woods part Deux? Who now holds the trump card in this currency game? Will free floating currencies be shelved in direct disavowal of U.S. policy? Stay tuned.
Major HF deleveraging is already underway. Credit is scarce. As a result, big houses have their fingers on the sell trigger. On the other end, clients are furiously withdrawing liquid funds. It’s the mother of all squeezes.
It’s been somewhat orderly, however. We’re going down in a sideways channel. If you look back to the latter half of September, it’s obvious they were itching to sell. Yesterday’s volume was eerily light, however. Plus we broke through the channel on Oct 10.
how many of those hedgies are ‘Too Big to Fail’?
Well, most of them “prime broker” at the big boys so even if they go under, the Treasury will bail out the counterparties not the funds themselves.
Many of them appear to be getting “broker” by the day…
“…SEC Chairman Christopher Cox at a House committee hearing Thursday”
Can’t be true, there’s a youtube post showing him following the 26′ U-Haul in his Mecedes…cruising the Vegas Strip on his way back to Facist Island in Newport Beach, CA
A key problem with the “lightly-regulated” hedge fund industry, as currently constituted: MANY OF THEM NEGLECTED TO HEDGE THEIR RISK!!!
Hedge Fund Industry’s Role in Wall St. Crisis
By Nancy Trejos
Washington Post Staff Writer
Saturday, October 25, 2008; Page D03
Hedge funds seemed unstoppable during the boom years, lavishing riches upon their investors and managers alike. Now that those riches are quickly disappearing, some analysts are blaming them for propagating the high-risk culture that led to the crisis on Wall Street. We try to shed some light on the hedge fund industry.
Prof., proposition:
When there is excess credit, assets tend to be overvalued and thus lessen the fundamental inverse correlation that makes Y a hedge to X.
My version: A rising liquidity tsunami tide lifts all boats by much more than the fundamental value of their buoyancies.
When I started playing poker at 16 I learned that the more chips the looser the playing becomes.
It’s why I am in favor of the penny.
Doh, I found out the property management company jacked the rents up $200/month on the people across the hall. Currently 4 units will be emptying (35 unit building). $1350 a month for a 2 bedroom, near downtown Norfolk, coin operated laundry, often broken other facilities (elevators, etc). Old fixtures, worn out HVAC units. Nuts. 280 new apartments coming on the market soon (all will be “luxury” and overpriced I’m sure). I got to thinking about it, and I bet they are going to put the building up for sale. Rent increase has me a bit stressed though, I won’t see mine until Jan-Feb IIRC.
When your lease comes up for renewel, call the management company. Explain that you are terribly sorry, but you are unwilling to pay higher rent when there are xxx units vacant. Point out the apartments going on line and explain that if they really need extra rent money you will go month-to-month.
I did that a while ago. I was exceedingly polite and the nice woman at the other end put me on hold for a while. Then, she came back and asked me to write a letter. So, I wrote a very nice letter stating that I did not want to pay increased rent.
And, a new lease arrived with the old rent price.
Management companies are not dumb. If you are polite, you may encounter some one with a brain.
I’ve done it a few times so far
I probably think I’m cool for talking them down, and they probably think I’m a sucker for still paying slightly more. There are some better places opening up around the corner, so in the end…
Wall Street Journal
* REVIEW & OUTLOOK
* OCTOBER 24, 2008
Another Bubble Bursts
Subprime mortgages were just the beginning.
Credit markets have started to thaw, yet stocks and the larger economy keep sliding. What’s going on? Among the problems are the reality of recession and the uncertainty over Barack Obama’s policies. But the larger story is that the global economy is fast popping its latest monetary bubble, the one over the last 14 months in commodity prices and non-dollar currencies.
After BB lowers to 1% as expected his pea shooter will be out of bullets. Interestingly enough it will probably coincide with October 29 (Black Tuesday) anniversary. The upcoming crash will be spectacular to witness.
‘In the days leading up to Black Tuesday, the market was severely unstable. Periods of selling and high volumes of trading were interspersed with brief periods of rising prices and recovery.’
This is an awesome piece. It is spot on, man. It’s also related to the currency questions I raised below. I’ve been going on and on about this mistake — the commodities spike and how it drove the economy off a cliff. BB didn’t have the courage to fix it. Mad man Trichet did not hesitate, however. More:
The tragedy of the second bubble is that it has left the economy in a weaker position to ride out the housing slump and credit panic. The American consumer has been whipsawed with $4 dollar gas and food inflation, while entire industries have been put on the edge of bankruptcy. Detroit’s auto makers have spent the last year taking down their truck and SUV assembly lines while gearing up to make hybrids and electric cars, even as their cash flow has been ravaged. Their new investments are based on the expectation that oil will stay high permanently, but will the market for hybrids exist if oil is $50 a barrel?
Don’t forget wonderful Ethanol….well maybe cheap corn is good , if the guvmint subsidizes the corn farmers
I just don’t get why we don’t promote diesel…it gets about 1/3 better millage…and at far less $$$ than a hybrid
————————————————————-
but will the market for hybrids exist if oil is $50 a barrel?
I just don’t get why we don’t promote diesel From what I’ve read, mostly environmental concerns. Bloomberg: The state of California is contemplating new mandates on diesel burning trucks, estimated to cost truckers there $5.5 billion over the next 10 years, all to save the environment and an estimated 9400 lives. If passed,this will certainly affect smaller diesels.
Over 50% of new passenger vehicles sold in Europe are now diesel powered. US major manufacturers produce many of them.
With the current economic crisis, manufacturers will be unable to tool up diesel engine manufacturing for the US market, they will be struggling to merely survive. I have no idea where the trucking industry in California will come up with the $ needed for the new mandates.
California already has a no-idle rule for trucks, although I don’t know how stringently it is enforced. An hour of idle burns about a gallon of diesel, so the (sleeping) driver pays $30-$40 for climate control and keeping the alternator going while other electrical appliances are being used. Of course, the CA climate is generally not so hard to sleep in without heated or cooled air as the South in the summer or the North in the winter.
It is my observation that regulators prefer to create and amend regulation than to actually regulate - the former is cleaner work - confronting truck drivers at night in truck stops is messy, confrontational, and perhaps dangerous.
A number of fleet operators (like Walmart) are installing APUs (aux power units, basically little diesel generators) on their long-haul rigs specifically to deal with overnight idling. Haven’t priced them myself, I’m told they’re about $1-2k, but will pay for themselves in fuel savings in about a year.
Krugman was wrong when he said the Fed had run out of bubbles with the housing bubble. He forgot about the possibility that bubbles could be recycled. Next up: another stock market bubble (after the market bottoms out). Lather / rinse / repeat…
It’s difficult to envision a stock market bubble with all the regulation and deleveraging up ahead. What’s more, companies are short on cash; as a result, buybacks are going by the way. Further, as Mr. 6Pack prepares for hard times, 401k and other retirement contributions are surely going to dwindle. Moreover, earnings and warnings of lower earnings are just beginning to head south. We haven’t even entered the heavy bankruptcies phase. Lastly, a strong dollar is not good for exports and multinationals. Relief rallies aside, where is the growth?
So are you suggesting we should all dump stocks now before the market really crashes?
YES
I’m not giving anyone investment advice. However, the time to dump was the last quarter of 2007 during the rate cut rallies.
Margins expand and contract. We’re in a period of margin contraction — less var demand + fixed costs = lower profit margins and higher var unemployment. What’s more, we’re also in the process of major deleveraging and capital raising dilution. Add to that falling home prices. It’s like a perfect storm.
Where is the growth — margin expansions to support stock price appreciation and signal a turn? Lower commodities — perhaps — but we’re months away from that playing out and it could be deflationary, even more pressure on margins.
If stocks follow the pattern of 1929-1937, we have seen about 1/2 of the total correction in the past 12 months. That is, someone holding has already taken 50% of the total hit they are going to take under a (almost) worst case scenario, and can only lose about another 40% of his original investment.
For someone just entering the market, it is different. Although they are in much better shape than someone who entered 12 months ago, they could still take an approximately 70% hit under the same assumptions as above.
P.S. The markets are already crashing relative to other periods. We are going down in a steep channel when you widen the view. SPX is already near 2003 lows, 775. Nasdaq and Dow are a couple hundred points away. If we are lucky, we’ll probably bounce sideways thereafter.
You make assumption that new players enter the market to buy stocks. I do not know what percentage of people buy or sell short. But I entered stock last year, mostly shorting anything with high P/E and shaky out-looking, it was not bad. And I certainly did not lose 30%. If any new comer with similar strategy, he will not lose 70% even what you suggest is true.
I am talking about my assumption in my first paragraph that we would have a Great Depression-like decline in prices.
Prices fell approximately 85%.
Thus 100 becomes 15.
Currently, 100 has become about 58. Someone hanging on until 15 would have lost 42 and will lose another 43.
Soomeone entering now at 58 going to 15 would actually lose more than 70% - I was just roughing out numbers.
The Fed and Treasury have done a masterful job of exporting inflation as freely indicated by the resident gold nuts acknowledgement that gold is rally against all currencies….. except the dollar.
They can’t “export” inflation unless the countries maintained currency pegs.
If you have a peg, you’re effectively in dollar-land too.
But the peg allows you to concentrate inflation “over there” rather than “over here”.
Masterful or not, they were fully complicit in digging their own grave. Now they are bitchin’?
Bit late now, ol’ chump. Better luck next time.
I have cash, currently renting at 1400.00 per month, jobs are secure hubby works for the FED gov, I work as a corporate trainer for a collection agency.
I am very frustrated, there have been some sales in my zip 33470. The home that I had been eyeing sold it went for 250K. The home had sold for 405,000 in 2005.
It was a bank foreclosure, a beautiful home 2240 under air, 1.3 acres, Loxahatchee florida. I know the a/c units had been removed that as far as I know was the only damage.
I am sitting and watching and wondering 111.60 per square foot under air, or 76.92 per total construction square foot, is still knife catching in this zip?
Someone help me out here, I am needing to either buy now or re-sign my lease next month. If I found a similar home and purchased it for 250K am I being stupid?
Please someone either slap me with a trout and tell me to go back to my lurking position or tell me that this price is reasonable and go ahead and jump.
Here is the house:
Pre bubble, what should I have been looking to spend for a home like this: http://www.zillow.com/homedetails/birds-eye-view-map/67164759_zpid#birds-eye-view
You’re catching a knife. Wait for at least 2 years if not more.
We’re headed into the mother of all recessions. This is not the time to do crazy things like buy houses.
Yeppers.
I agree. Wait, it’ll go lower…
I agree, don’t buy a house.
Save as much as cash as possible. I regret paying down my wife’s student loan (3%) with my house fund. We’re going to continue renting (Pinellas County) and save cash.
It’s really tempting, I know. I have an infant and my wife accepts the crash but still wants a house (new mom = irrational actor). I told the landloard that I would undue any personalizations and she agreed. So now my wife is happy; we have drapes, painted rooms, wall hangings, a nice nursery, and some garden type improvements in the back yard.
Yep.
We’re doing this, too. It’s not that hard (or expensive) to undo your customizations.
“Save as much as cash as possible. I regret paying down my wife’s student loan (3%) with my house fund. We’re going to continue renting (Pinellas County) and save cash.”
Sigh. If my girlfriend had listened to me in 02′ and saved (instead of buying all the clothes, toys and crap she did), we’d have enough to pay cash for a house next year.
On the other hand, I’m very concerned about job security and the possible need to be vocationally mobile if things get real nasty.
DOC
Doc, this is a battle I must fight as well. Somehow spending $80 bucks on some flashing widget is more purposeful than letting the little guy crinkle and tear up junk mail. He doesn’t care either way.
Easy one…
Buy house: NO
Re-sign lease: YES (after shopping around to see if you can do any better on the rent)
To get my wife to go along with another year of renting, I had to agree to fix up some parts of our rental home, which is starting to fall apart as our FB-landlord has no cash available to fix stuff. I guess doing a little home repair work beats losing $100K+ or so by catching a falling knife in the purchase market.
A little scotch tape, rubber bands and bubble gum here and there and you’re good to go for another year.
Duct tape, pal!
Stop paying rent. Take them to court. Push them over the financial edge.
Do your bit for the lawyer bubble and the foreclosure bubble and the future sustainability of the economic eco-system.
P*ssy-whipped academics, I tell ya!
Professor,
Lose the duct tape.
Tyvek tape. Buy a case of it online and it will last for ten years.
It holds together everything from my tractor to my skirt hems. Doesn’t disintegrate in the sun, loose under moisture, or dessicate in the wind. Patches screens, woodwork, loose shingles, flooring, wounded furniture. Replaces caulking, rusting welds in pipe corrals. In conjunction with used chewing gum, repairs most leaks.
Truly a miracle substance–the half fast repair-person’s Godsend. When the Awesome Depression hits bigtime, I expect DD stock to skyrocket- based on this product alone.
Yeah, we’re in rental situation #2 where my sense is that we handle money better than our landlord. Or least we seem to have more cash available.
Luckily the interior is in good shape and that’s where we live. If they don’t replace the siding or roof (which both need it soon) in the 3 or 4 years we’re planning to rent, that’s their problem.
FPSS is right
-
“Please someone either slap me”
Ok, thank you!!
-
-
You silly cow!
What are you thinking?
Look at the property appraiser site!
Look at sales for 1997-1999
-
Only if you believe there’s an IMMINENT hyperinflation event about to happen and you want the house (which is in a flood zone) because you plan to farm the backyard, then buy.
All Sales
Owner Name: HSBC BANK USA NAT’L ASSOC
PCN Number: 00-40-42-35-00-000-5520
Sales Date Book/page Price Sale Type Owner
Sep-2008 22906/1583 $250,001 WARRANTY DEED LAWRENCE DARMA TRUST
Aug-2008 22799/1196 $100 CERT OF TITLE HSBC BANK USA NAT’L ASSOC
May-2006 20465/0463 $10 QUIT CLAIM NUNEZ JOSE D
Feb-2006 20020/0767 $10 QUIT CLAIM VALVERDE MICHAEL
Jun-2005 18727/0559 $10 QUIT CLAIM VALVERDE MICHAEL &
Feb-2005 18245/0403 $405,000 WARRANTY DEED VALVERDE MICHAEL
Feb-2004 16644/1328 $95,000 WARRANTY DEED JRL CONTRACTING INC
Jan-2003 14672/1765 $60,000 WARRANTY DEED SARABJEET SEEPAUL &
Mar-2002 13520/0873 $30,000 WARRANTY DEED CEKADA ROBERT &
Dec-1995 09039/1595 $100 QUIT CLAIM
May-1994 08259/0213 $3,000 WARRANTY DEED
Nov-1980 03425/1442 $7,000 WARRANTY DEED
Hey honey…..just remember…..no job is secure. Cash will be king…..just wait. More hedge funds will explode, more jobs will be lost, more rents will come down, and eventually property taxes will decrease.
She gets it. We bought our last two homes during previous recessions…
no job is secure ??
Maybe in the private sector but IMO a good goverment job is about as secure as you can get..They NEVER reduce in any significant way…Example; In Cali, Sacramento, they told 900 employees that they had to take one day off per month with no pay….Thats the goverments example of a cut back…Big fricken deal….
But that’s a 3% paycut. You think that is not real?
Now, I know you’re talking about government but I’ve seen it happen in fairly “high end” sectors.
It’s a perfectly reasonable response where hiring and firing skilled labor takes so much more time than just telling them, “Look, everyone’s gonna go on an unpaid vacation for two weeks.”
firing skilled labor ??
You mean like the “Water Meter Reader” who makes around $65,000 ?? I could teach a 7 year old kid to do that job…
RE: IMO a good goverment job is about as secure as you can get..They NEVER reduce in any significant way…
How nice…
The private sector gets hacked to death while the public employee parasites party on.
This is exactly the reason that what’s left of a future economy will involve a huge cash-only, black market/barter, “underground” system.
No way is Joe6P, once he realizes he’s financial toast, gonna pay for the lavish pensions and life time health care of these leeches.
I believe @ $100. per foot it starts to become pretty compelling “IF” you intend to stay there for a long periond of time (min. 5 years)…With hubby’s FED job it appears you have some job security….I say buy….
We intend to retire in our next home. We saved for five years to make this happen.
We are losing money by renting because of how much cash we have.
We just don’t want to over pay and never live it down.
never live it down ??
Live there until you die and you don’t need to worry about it…:)
Hmm.. by definition you are not losing money if you are avoiding overpaying.
If it costs you $50,000 to rent for 3 years while the price lowers by $100K, by my math, you’re ahead $50K.
Also, you get 3% on the cash on hand while waiting. Not bad return, really.
SKB- I would wait as well. I am an appraiser and we haven’t see anything yet in Fl. Question tho- That place looks low to me. Looking at aerials I see a lot of ponds and they appear to be full to about the grade of homes. Is it in the 100 yr flood plain?
I suspect a big H could reveal some other out of your control issues.
Sorry but I couldn’t help it. Had to see what the area looked like. The appraiser in me.
Frankly, I would wait for all the good reasons around us here on the forum. Further, demand is waning regardless of what we read and hear and we also have a huge outmigration in the making.
Prices will continue to fall here even after there is some stability in the heartland. You are really in a postion to make a great buy at some point. Just don’t rest your finger on the trigger. You won’t have to ask the question when it is right. Trust your instincts. The guy who trained me in real estate appraisals retired at 45, rich. I asked him how he knew when to buy or sell. He said, ” When it is right you just know.”
The key is to research and to have enough knowledge to “just know”. If you have to ask the question, well, you know.
Good point about out-migration. For Mexicans, Brazilians, Colombians, etc. who have some U.S. savings, houses in their home markets just magically declined 40% in the past month.
Thank you for your thoughts, I have no idea about the flood plain. You are now throwing in something else to consider.
I think waiting is the best thing after all. My landlord owes over 300K on this home that he paid 102,000 in 1999. He kept going back to the house ATM when he lived here.
With our rent he is out of pocket 600 each month.
He built a big house up North and owes a fortune on that one to.
I keep checking the clerk and comptrollers site, he not listed as LP here yet. When he is I am sure as hell not going to pay him 1400.00 a month to squat here. If he stops paying the mortgage we are going to stop paying him rent plain and simple. I want something out of this to, this housing bubble has been MORE than a pain in my ass and heart.
I want MY dream home that we CAN AFFORD.
You are in zone B (between 100-500 year flood)
But, dont let that fool you, you will flood.
I looked it up (again) to verify.
I’ve done it before that’s why I posted earlier that you were in a flood zone.
Google FEMA FIRMS for maps of flood zone
Property appraiser for previous sales.
Careful, grasshopper! You’re sounding ticked off and entitled! Pls. consider pros and cons of contacting a tenants advocacy attorney, putting your rent into escrow account, and filing suit for breach of contract (?) immediately should your FB stop paying mortgage. It will give you standing to hold off eviction actions for a long, long time.
“I want my dream house now”?? You may not want to profile like a Long Island princess. People a lot worse off than you may be looking for scapegoats down there when the SHTF. Just sayin’.
Sue them for breach of contract? That would serve no purpose as they don’t have ANY money.
I think better for me to save the 1400.00 each month in my own bank account. If the authorities/bank come calling well, to bad. Just like the masses are going to benefit from their bailouts with our tax dollars, I will benefit from my own personal bailout I will give to myself.
A bit of payback for the lack of interest rates in our savings and my husbands THRIFT SAVINGS dwindling down. Having our plans put on hold forever due to the worry about over paying for a house.
“Long Island princess”, if you knew my story, you would understand why I am so bitter against this housing bubble.
Lets just say I had a plan that started in 1999 and we stuck to it despite a lot of heartache, sacrifice and long suffering.
These people that are “worse off” than me created their own destiny while we were doing the right thing. I could care less what they think or do.
Distortion is the new normal for markets: James Saft
Fri Oct 24, 2008 4:45pm BST
James Saft is a Reuters columnist. The opinions expressed are his own.
By James Saft
LONDON (Reuters) - The evaporation of borrowed money has fundamentally changed the way markets function, and what look like crazy anomalies may end up being closer to the new reality.
Across financial markets, especially in fixed income, strange things are happening.
“The trap is liquidity, which having been ample across so many markets is now thin to nonexistent.”
There it is. This means those who have the cash call the shots.
True, but the author’s argument was a little more technical.
Without leverage, traditional “arb” doesn’t work. This is correct, and a lot of funds were just in the “arb” or “stat arb” business.
Lots of pain, and wild swings all over the place as spreads blow out and/or “basis” risk shows up.
Frank warning to hedge fund managers: “Either play along with my plans to violate the sanctity of private contracts, or else face a Congressional inquisition.”
Mortgage Threat From Hedge Funds Irks Democrats
By BARRY MEIER
Published: October 24, 2008
Several Democratic lawmakers lashed out Friday at hedge funds that have threatened to block attempts to renegotiate mortgages for struggling homeowners.
This is an empty threat by Congress. No way are they going to push through the legislation in time for this mess to be resolved.
Two years too late to the party, IMNSHO.
The political air seems to be full of non-credible threats these days, no?
“…in time for…”
What is the time constraint to which you refer?
Any reasonable time constraint.
Pick a constraint, any constraint.
Option-ARM reset, ARM-reset, neg-ARM reset, neg option-ARM reset.
You remember that reset graph?
If they start useing tax payer money to reduce the pricipal balance for the home suckers I am going to FLAME…
Gee’s Bear…Where do you find all this stuff…I am going to be reading for the next two days !!
Palm Beach County Fl. median prices Nov. 05 $421,500
May 06 $391,000
June 06 $405,000
July 06 $390,100
Aug. 06 $386,000
Sep. 06 $365,000
Oct. 06 $365,600
Nov. 06 $370,400
Dec. 06 $368,200
Jan. 07 $388,000
Feb. 07 $374,300
Mar. 07 $375,000
Apr. 07 $376,300
May 07 $387,800
Jun. 07 $377,900
Jul. 07 $372,200
Aug. 07 $366,200
Sep. 07 $355,300
Oct. 07 $348,300
Nov. 07 $ oops
Dec. 07 $337,900
Jan. 08 $343,200
Feb. 08 $344,600
Mar. 08 $320,200
Apr. 08 $314,000
May 08 $330,900
Jun. 08 $334,300
Jul. 08 $291,300
Aug. 08 $323,300
Sep. 08 $292,200
And it`s always been a great time to buy !
What does a U$ dollar devaluation look like? Was the dollar’s recent value tied to the global commodities boom? The global commodities and currency bubbles recently popped. Is a dollar devaluation in the past or future? Has anyone ever lived through a currency devaluation?
Early 1980’s: Buenos Aries
Argentina is going through serious hyperinflation…
A friend of mine went down there a few times a year, and he’d stay in the same hotel room for 3 weeks.
The day he got the room key, the rate in U.S. $ was around $25 a night, by the time he checked out and paid his bill 3 weeks later, it was down to around $10 a night.
I was in Mexico buying merchandise this week. The first day I only changed enough to get where I was going. The next day I gained about 10%. The final day I gained another 5%. Prices are generally denominated in pesos although the underlying driver is the dollar. There is a couple days’ stickiness in prices which allows you to get the full advantage of the weaker peso, so I did well. Inflation to follow.
I have seen late-stage hyperinflation in Peru, during Garcia’s first presidency, on the order of 30-40%/day. In such instances, most prices are changed daily, and everybody is constantly changing - and spending - money, always counting out huge wads - I wouldn’t be surprised if 10% of productive work is lost due to counting, changing, and storing money and another 10% spent changing prices. It is very inefficient, not to mention the obvious effective shutdown of capital markets. You actually feel safer carrying huge wads of money, because everyone else is, too - as the top-denomination bill quickly sinks to $5 or so in value. Thieves can’t easily snatch or hide big wads and even they have to spend fast.
I have also seen it in Brazil, though not so spectacularly, as well as price controls. Price controls are worse than hyperinflation for the tourist - I readily recall getting a draft beer with half a glass of foam and a piece of steak filled with fat and gristle.
During one year of ultra-hyperinflation in Bolivia (I believe in the early 80s) banknotes - the actual physical notes, printed in W. Germany - were the second largest import.
wait until the first run of the deleverage process stops and we will see what the dollar is really worth; I’m pretty sure it will decline to zero even faster than the euro. The dollar is historically overbought, this cannot go on much longer.
There is a good chance most of the devaluation will happen during a bank holiday, just like in Argentina some years ago.
Zero, huh; You’re saying the dollar is going to zero?
Lol.
Nah — I think he is saying the price of gold is going to infinity!!!
(and beyond…)
Our peers are pretty much all in unison pretty pissed off at us, all over the world…
Why would they pump their money into Yankee Dollars?
It makes no sense whatsoever.
I expect a Grand Mal-investment $eizure soon
yes, the price of gold in Dollars will go to infinity, although I don’t know when but probably before I retire. Do you know the current price of Gold in Reichsmarks?
Everything has to make sense on some level.
Pooh-pooh it all you want, but during times of crisis, the dollar commands a premium for two important reasons: (1) the U.S. Constitution, and (2) the U.S. military. Whether foreigners hate us or not is actually pretty irrelevant.
Paul: read about the fall of the Roman Empire and you will (hopefully) understand that it IS very important what the foreigners think at this time.
RE: ) the U.S. Constitution, and (2) the U.S. military.
“HAS BEENS”
zero, of course, like all fiat currencies before it. What makes you think the Mighty Dollar would buck the trend of the thousands that came and went before it?
Well, nhz, at least we can still use it to trade sticks for stones with each other here in the beautiful U.S.A., or to start fires with. How much will Euros be worth ?
OT: Yesterday, someone mentioned investing in alcohol and chocolate. From todays Salt Lake Tribune (sltrib dot com):
God is good - and so’s his beer, festival declares
DENVER - In the beginning, there was a long line for Judgment Day ale.
Shortly after the doors opened on the 27th Great American Beer Festival, a crowd congregated at the booth offering that and other pours from The Lost Abbey of San Marcos, Calif., where the tap handle is a Celtic cross and the legacy of beer-brewing monks endures.
Standing under a banner promising “Inspired beers for Saints and Sinners Alike,” proprietor and former altar boy Tomme Arthur had a confession: He’s using God to sell some beer.
“It’s the oldest story ever told - the struggle between good and evil,” said Arthur, 35, a product of Catholic schools in his native San Diego. “There is a battle being waged between those who make good beer and those who make evil beer.”
Is the beer objectively any good?
If so, I don’t care who brewed it or whether it used the blood of the sweet baby Jeebus himself.
He turned water into wine. I don’t know that He was involved in the beer making business, though, as there were no Lutherans around back in biblical times.
I believe I pointed out that we are definitely in a beer market now
Is it time to buy the sip? (sorry)
There has never been a better time to drown one’s sorrows in liquidity
What sorrows?
Invest in BEERX, oops I mean BEARX, lol.
So, you mean that you guys at the FED in Minneapolis are telling me that the 700B bailout was a hoax?
-
PDF but not large
http://www.minneapolisfed.org/research/WP/WP666.pdf
Facts and Myths about the Financial
Crisis of 2008
V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe
Working Paper 666
October 2008
ABSTRACT
“The United States is indisputably undergoing a nancial crisis. Here we examine four claims about the way the nancial crisis is a¤ecting the economy as a whole and argue that all four claims are myths.”
Interesting. So we were essentially fed four “urban legends” as a way of selling the TARP plan? I heard those four things from commentators and guest analysts repeatedly on CNBC while the TARP plan was being discussed / debated. And, the rationale for the whole thing was changed to “this is a bailout for Main Street” after TARP got voted down the 1st time.
All I can say is “Wow”…
“Working Paper 666″ (!)
You mean it’s NOT all about the availability of commercial credit?
Ya think?
Neil Reynolds had an interesting column in the Saint John (NB) Telegraph-Journal today titles “Global Housing Bubble Not Fault of US” . It’s behind the subscriber wall, but his columns also appear in other papers so it might show up on the Globe and Mail site later in the week.
Anyway he starts :” Everyone appears to think that the credit crises that engulf the world trace back to American greed, reflecting in a global judgement of rare unanimity the supremely funny headline on the satirical British website The Daily Mash ” Bastard Americans ruin your Life!”"
Other excerpts “Do we make the US responsible for Europe’s absurdly inflated housing prices…After all, one bedroom apartments in Dublin sold for $ 600,000..”
“Spain built four million houses in the past decade, more than Britain, France, and Germany combined”
Also references an IMF study that purports to show that the top of cycle bubble component of housing prices was worse in Ireland, Netherlands, Britain, France, Norway, Denmark, Sweden, Belgium, Spain and Italy than in the US (or Canada).
Interesting column. He tends to write stuff that is against the CW.
there are greedy people all over the world (especially in the anglosaxon world I’m afraid). But most of the tracks of the worldwide property bubble lead back to the U, its new financial/economic model built on (mortgage) debt and the Maestro of it all, Alan Greenspan.
sorry, should read ‘lead back to the USA’ of course …
From the NYT article yesterday on the Hamptons:
“The main factor protecting this exclusive enclave from a downward spiral in prices is that owners can still rent their houses for tens or hundreds of thousands of dollars for the summer rather than accept a low offer to sell. And by most accounts, last summer was still a strong rental season, although one when more people opted to rent for shorter periods, causing some owners to hustle for three monthly rentals rather than one seasonal tenant”.
http://tinyurl.com/5p35jk
Let’s see what they rent for in 2009. The rental season starts in January I believe. It could be a cold month.
The money keeps getting spent on travel:
http://biz.yahoo.com/ap/081025/airlines_holiday_travel.html
And I’m looking forward to my annual trip to Hawaii the end of February. Hang Loose! Crude oil prices coming down is like a big tax cut! Should keep airplanes pretty full.
What other gloom can I provide? Gloomy news to gloom and doomers is actually good news.
Buying stocks and gold lately? Discount prices!
Any thoughts on how the tension will resolve between the Fed’s position that the economy is just in a slowdown and the rest of the world’s view that we may already be in the middle of a rather nasty global recession? I can hardly stand the suspense!
October 22, 2008, 4:22 pm
Bernanke Still Avoiding the R-Word
…
Asked during a congressional hearing to answer “yes or no” whether the U.S. is in a recession, Bernanke replied that recession is a “technical term.”
“We are in a serious slowdown in the economy, which has very significant consequences for the public, and whether it’s called a recession or not is of no consequence,” Bernanke said.
Off the Charts
More Evidence That the Recession Has Already Arrived
By FLOYD NORRIS
Published: October 24, 2008
FORECASTING the economy is hard. Figuring out what has already happened should be easier. But even that seems to have eluded many economists this year.
I’m petty sure somebody would rather be in a tweedy coat, teaching about the Great Depression, rather than starting one…
I wonder what caused Bernanke to sell out his soul?, they say every man has his price.
Some of my friends muse about that after a few beers, make that a lot of few whiskies but nobody has come up with a credible reasonable explanation.
I would drive a company with thousands of employees to ruin for $500,000 a year. That’s about 1/10 the going rate.
The dude also said in recent congressional testimony that there was no commodities bubble just as the thing was imploding.
Free (taxpayer-funded) reinsurance for the insurers, now? It is definitely turtles all the way down in the FIRE sectors anymore.
Wall Street Journal
* OCTOBER 25, 2008
U.S. Mulls Widening Bailout to Insurers
By DEBORAH SOLOMON and LESLIE SCISM
WASHINGTON — The Treasury Department is considering buying equity stakes in insurance companies, a sign of how the government’s $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries.
of course, make sure that all the scum survives this crisis and no honest company or individual is left standing
Talk about the pot calling the kettle black — isn’t McCain’s proposal to buy up all the bad mortgages socialistic?
Ordinary Joes have mixed feelings on wealth
By ADAM GELLER
The Associated Press
Saturday, October 25, 2008; 12:22 PM
…
“I think that when you spread the wealth around, it’s good for everybody,” Obama told the man _ maybe you’ve heard of him _ Joe the Plumber.
The remark may have sounded pretty innocuous. But McCain has lambasted his rival’s words as sounding “a lot like socialism,” and turned the criticism into a central theme of his campaign’s final round. Obama’s remarks, McCain says, are emblematic of a tax plan to confiscate wealth and give it to the poor that would make the IRS “into a giant welfare agency.”
Nobody’s gonna do anything.
You never seen a “three-card monte”? If so, I suggest you get your @ss down to New York pronto (or any other major world city.)
It’s all “political three-card monte”.
Watch the birdie, watch the birdie. Ooooops! No birdie for you.
No more money? Too bad, so sad, come again.
The plans of both Obama & McCain to deal with the crisis are complete nonsense. If you want to poke fun at one, be sure to include the other.
That’s why I said “nobody’s gonna do anything”. It’s all a buncha hoo-ey.
Did you read what I wrote?
I belong to the Pox-on-All-Politicians-Party™.
I believe we are seeing a version of Prisoner’s Dilemma in play, which I call “Political Chicken”:
1) A politician (or bureaucrat who serves one) makes a lame, high cost proposal which is touted as a panacea to whatever is currently vexing the economy (e.g., too many home foreclosures). Call this guy Player 1.
2) Player 2 refers to the individual or group of politicians who must respond to Player 1’s dumb idea. If Player 2 says the idea is dumb and will not work, then Player 1 gets to play the blame game (”We could have saved the world if only Player 2 had not stood in the way of my brilliant comprehensive solution”). The payoffs to this outcome are described by (1,-2), where the first number is Player 1’s payoff and the second number is Player 2’s payoff.
3) If Player 2 plays along with Player 1, i.e., both players favor adopting the bad policy, the payoff is (-1,-1), reflecting the fact that society ultimately loses, as do the politicians, when everyone catches on that the policy amounted to throwing money down the drain (possibly into the hands of bankers or other FIRE sector money pits).
4) If neither player does anything (”first do no harm” strategy), the payoffs are (0,0).
5) Player 2 can propose the bad policy, leaving player 1 with the choices of do nothing with outcome (-2,1) or jump on the bad policy bandwagon, resulting in (-1,-1).
6) The Nash equilibrium solution is that the bad policy is adopted. If Player 2 sees Player 1 doing nothing, his best response is to propose a bad policy, in order to claim to be “doing something” about the problem. Knowing that Player 2 will take the lead in proposing a bad policy if Player 1 plays “first do no harm”, Player 1 will set forth a bad policy, leaving Player 2 with the choice between a payoff of -2 if he does nothing and Player 1 makes political hay over Player 2’s inaction, or going along with the bad policy in order to enjoy a mutual payoff of -1.
Makes sense. I also note that even if your hypothetical payoffs are (1,-1) or (-1,1) instead of (1,-2) or (-2,1), the likely outcome is still to adopt the bad policy that yields (-1,-1) since Player 1 and Player 2 are almost certainly in a competitive situation and either player would prefer bringing his situation vis-a-vis his opponent back to even from being down 2, even if his own situation is not improved.
To take the analysis a little farther, if a little farther off track:
As a player accumulates negative points he may face a situation of being eliminated from the game at some trigger point (Bernanke, most politicians), and thus have a motive to undertake more and/or more risky policy measures than if he were in a positive point situation; OR, a player knowing that he soon will be automatically eliminated from the game (Paulson, most members of the administration) may, if in a serious negative point situation, may decide that the cost of further negatives is less than the benefit of future positives, and also seek more and more risky behavior.
Exactly! I’ve been trying to explain this to people… you do a much better job than I.
In context that it was said, wasn’t the “spread the wealth around” comment equivalent to “a rising tide raises all boats”? If so, then it doesn’t sound very socialist to my, and instead, sounds more like Jack Kemp.
Talk about the pot calling the kettle black…
Oops — Obama is black!
“We are witnessing oceanic trade dwindle to almost nothing (down 75%), and the knock-on effects for overland trade must fall by about the same number, as we import virtually everything except for some foodstuffs…”
This week deleveraging has gone global. This is now beyond housing, or even the United States or the financial system. The worst case scenario seems to be playing out.
And for the moment it appears that the elimination of all that unservicable debt will occur by mass (perhaps universal) bankruptcy rather than high inflation, but who knows?
We’re not going from unbalanced and unsustainable to balanced and sustainable. We’re overshooting on the downside. And after wondering what was taking so long for things to unravel, they are now unraveling at a frightening pace.
“The worst case scenario seems to be playing out.”
This is true. We have several bubbles — currencies, stocks, trust, and commodities — imploding simultaneously during the latter half of the mother, the housing bubble. The best they can do is triage this situation, make it orderly, lessen the blow. We should not expect more. They are putting a ring around FIRE as evidenced by recent reports. Preserve now. Rebuild later. Don’t expect a 100 m sprint from our economic athlete. He’s flat on his a$$ gasping for air.
The biggest bubble of all seems to be global trade, which has more unforeseen circumstances than anything else…
Personally, I don’t want to prop up the housing sector. I would rather see it, and the banks that are responsible for the mortgage mess, fail spectacularly, and start over with a new model, than to have the rescue plan take us back to bubble land. I realize that the rescue is an exercise in futility, but even if that were not the case, I still would not support it.
For housing, no easy fix
Taxpayer funds prop up the banking sector, but there are no easy solutions for the foreclosure mess.
By Colin Barr, senior writer
Last Updated: October 24, 2008: 9:49 AM ET
As the economy worsens, foreclosures will likely prove an even bigger obstacle to a housing recovery.
NEW YORK (Fortune) — Calls for a sweeping federal response to the housing mess are getting louder. But finding a solution isn’t getting any easier.
Sheila Bair, the chairman of the ederal Deposit Insurance Corp., said Thursday that the feds are considering guaranteeing payments on some troubled mortgages. The move, she told members of the Senate Banking Committee, would aim to reduce foreclosures by pushing investors and lenders to agree to restructure loans.
While such an outcome would no doubt keep some residents in their homes, it’s worth noting that the government has yet to put forth any proposal that approaches what it has done in the financial sector. There the feds plan to pour $125 billion into nine big banks including Citi, Goldman and Bank of America and promise to backstop the markets for short-term commercial borrowing and bank debt, among other things.
No evidence so far that the banking industry intends to use Federal bailout money to make new loans, which was the announced rationale for the bailout. It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.
Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. The Friday takeover by PNC of National City Bank is the first piece of evidence.
Article ends with Thursday quote from Sen. Dodd: “If it turns out that [banks] are hoarding [bailout money], you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”
I am very puzzled that this is not a campaign issue.
I agree, that article really ground down what little faith I have left in Washington.
Lie, lie, lie to the American people, get them to panic and support legislation protecting “their” interests, and then do what you want anyway. I haven’t decided if this isn’t just another sin of the Bush Administration, or just the way it’s always gonna be.
Well, remember it was essential for the bailout to be passed immediately with no strings attached, or else it would not work.
I guess that explains why it is not working, as first the House voted it down and then they larded it up with all kinds of pork to get it to pass on the second try.
Sheila Bair is a twat. Foreclosures are part of the healing process. Stopping them is just f–ing up the patient.
Last night I watched a movie called, “Fun With Dick and Jane.” Wow! What an eye opener. The movie itself ain’t that great and it’s pretty stupid in places but the premise could slot into what’s happening today with very little trouble. The movie was made in 2005. That probably means it was shot in 2004 but released in 2005.
The similiarites concerning what we are seeing today are amazing but TODAY IT’S FAR WORSE. Not going to “spoil” the movie by telling you the premise but, if you subscribe to Netflicks (which I do not) or you have a local DVD rental outlet near you, pony up the few bucks and rent it.
I will only “spoil” this part. Dick and Jane, in the movie, are going to be multiplied thousands and thousands of times in the USA over the next few years (WITHOUT the movie’s fantasy happy ending).
The CEO in the movie, Alec Baldwin, is a poster boy for every Wall Street CEO and many other non-Wall Street CEO’s we are seeing today. Except TODAY’S CEO’s get to keep the money they stole besides collecting our tax payer funded corporate welfare checks. Socialism for the Wall Street Financial Gangsters and capitalism for the rest of us peons.
At the end of the movie, as the credits are rolling, they dedicate it to Kenneth Lay of ENRON, followed by all the CEO crooks from that period. A long list.
Here’s the scary part. Obviously, the government, the SEC (which in my opinion is one of the most corrupt agencies in government) and the ratings corporations like Moody’s, knew how these CEO’s were operating and they did nothing.
If you have nothing to do this weekend, rent it. In parts, you will sit shaking your head.
The original “Fun With Dick and Jane” was released in 1977, starring George Segal & Jane Fonda, and was absurdly funny. Had to love it when they were robbing the phone company and everyone in the lobby was cheering them on.
Someone here recommended that movie when it first came out. We were laughing so hard during parts of it, because we saw that the writers (or the choice to come out with the movie when they did) were onto the ponzi scheme. Nobody else in the theater seemed to get the joke.
Just like the writers on SNL **really** get the current financial “crisis” (they MUST be reading the blogs!), sometimes the entertainment industry is ahead of the times.
U.S. has plundered world wealth with dollar: China paper
BEIJING (Reuters) - The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
http://www.reuters.com/article/email/idUSTRE49N1XX20081024
Then they shouldn’t have pegged their currency to the dollar.
You got gamed. That’s how it works. Tough!
Better luck next time.
they know they got gamed and are making that clear now. Next step: they also stop playing according to the rules. As I said the other day, the Russians and the Chinese are pissed and this would be a good time to play their wildcard.
What wildcard? What are they gonna do?
They have a billion people, and a good fraction have gotten a “taste of the good life”. Their primary job right now is to prevent some bat-crazy shee-yat from happenin’ on their own shores.
I’m worried about a lot of things but this is not one of them. It’s called “credible plausibility”.
The US gamed France and Japan in the 60’s (ending with Nixon closing the gold window and France leaving NATO.) Then, it gamed Japan in the 80’s (which ended with the Plaza Accord and the abyss for Japan.) Then, it gamed China and Japan and the rest in the 90’s.
You think the Japanese would’ve figured it out by the third time? Clearly not.
They got taken. End of story. Start figuring out how to rebuild your own economy. We’ll worry about ours.
Aren’t they the ones that won’t let their currency freely move to its true value? F— them. Cheaters often get cheated. Don’t expect anybody else to play the game fairly when you keep 2 queens, a jack and a 9 up your sleeve. We had 3 aces up our sleeves. Boo hoo.
I want the U.S. to play fairly but getting criticized by the Chinese in financial matters is like having Charles Manson criticize your etiquette.
Yep, they played the long-discredited “mercantilist” card hidden inside a modern-day setting. We played the “we’ll pay you later for the merchandise now” card.
Guess who won?
BTW, I forgot to mention that if the peg “exports” inflation then the peg “exports” deflation too!
DUH. It’s not like a one-way mirror.
So, we stole their productive wealth via the peg by making them work for us for nothing, and now they have all this absurd productive capacity, and what are they gonna do about it?
They can either shutter all the factories and starve, or they can sell the same goods to us for less.
Ooooopsie!!!
or maybe China could decide to produce for other customers now; the world is a lot bigger than just the USA.
China only cares about one thing. China has to create 5MM jobs every year. The US screwed up. China is setting up for massive infrastructure rebuilding. They will buy most of the materials from their backyard markets in Africa and South America.
China’s exports may drop by 10%. I really don’t think they care. You are looking at ‘white noise’ . The forward position, China is setting up to explain ‘why they will not buy treasuries.’
Who?
China? India? Brazil? Russia?
Don’t make me laugh, kiddo! They have no incomes; all their incomes came from the dollars that were raining down upon them via the peg.
The shower just stopped and none of them have any internal economy whatsoever. They’re all gonna get beggared just like the farmers in the 19th century when the bankers played their tricks the same way.
This is a “classic” play-by-numbers game. It’s not something “new” in the history of finance.
US 19.1% of China’s exports go to the US.
CIA World Factbook 2007
Since 2007 I am sure the number is smaller.
Fine, so this explains Jim Rogers’ point about a commodities boom.
I concur. I will be long too. Just not yet.
There was a commodities bubble. Everyone jumped on that game with borrowed money. I will jump on when this borrowed money gets wiped out.
We all agree that going forward the game will be different. But talk to me after China builds a company the equivalent of Caterpillar or Boeing, or has a system of IP, or understands the basic nature of contract law and property rights in a capitalistic society.
Right now, you have a game played by the bureaucrats. Same in India.
You have a nation full of peasants that going forward are gonna do “great things”. OK, assuming we don’t steal their best and brightest. Wait, we already do!
FPSS,
Would you be kind enough to briefly explain how the US absconded with Chinese wealth? Through US Treasuries? How?
Please explain…..
You make sure they have a currency peg; you buy “stuff”; and have a “balance of payments”; in order, to maintain the peg, they have to print local currency to keep the peg (= massive local inflation = stealing from local population’s productivity and savings.)
What are they gonna do with the excess? Invest in US treasuries. You default on the treasuries via inflation but not until later.
Bingo. You steal via the peg.
Moral of the story? Don’t maintain a peg. But they are ALL sheep; if one absconds, you just shear the rest. Only if ALL the sheep abscond will the US have a problem which ain’t happenin’ as long as you can bribe the local governments correctly.
Oh, and you import all the “smart” people via the university system to build the next generation of science and technology.
Please! Have no illusion about why our prosperity is being maintained. Just understand the system.
The average loss to China by purchasing US Treasuries is 15% per year. Even with the currency peg, the Renminbi Yuan has appreciated 8.3% against the dollar this year. The Yuan is 30-40% undervalued. The Chinese blogs feel that China should buy a large percentage of the US major companies.
China is Marked to Market. Their primary holdings were not US Treasuries but GSE’s advocated by 42 trips from Mr. Paulson’s staff to China in the last 2 years. (Wouldn’t you be a little pissed if the head of GS told you to buy GSE debt?)
Since August, China has sold $53B in GSEs. They do not trust the guarantee. The US convinced China to buy Treasuries. So China was buying (will continue to buy?) 1 month to 2 yr Treasuries. (Federal Reserve TIC data)
China wants an international currency basket for trading. Dollars, Euros, BRICs etc. They do not want to end up with just ‘dollars’ from other countries in the future.
Hopefully, China is not betting on a major commodity collapse and that they will be the saviors. At the current time, it is in China’s best interest to diversify away from the dollar (while it is artificially strong) and into the EM currencies, stabilizing these currencies and further bolstering China’s trade.
I do not know if they will do that, it is a stretch to imagine the bureaucracy of China being nimble enough to react posititvely.
China’s complaint against the US is that we are fiscally irresponsible. No surprise here.
hozzie baby,
Changing our tune are we? Now they are “only” losing 15% a year, are they?
Let’s go Sheila Bair lover, I need to extract a real pound of flesh from you.
FP, likely an elementary question but why do they (China) have to print to maintain the peg? Because we are doing the same?
exeter.
It’s really simple.
You have country A and country B. They are exchanging goods.
Let’s assume country A buys more than country B so you have a “deficit of payments”. Simple demand and supply argues that the currency of B must rise just enough so that the balance of payment = 0.
Now, if country B has a “peg”, they need to devalue their currency by exactly that amount to keep the peg so they issue local currency = deficit of payments. This is inflation. You are devaluing your currency to maintain the peg.
There are a few more operational details to figure out but the basic idea is simple, huh?
Who’s getting shafted? Citizens of country B naturally.
“(Wouldn’t you be a little pissed if the head of GS told you to buy GSE debt?)”
How about if later he turned out to be a high-level govt official?
I’ve read (it’s been quite some time, I don’t recall where) there has been some internal (in China) differences about letting the Yuan float. As I recall, the Finance minister (or some such, sounded equivalent to our Treasury) and one of the leaders in another part of govt disagree.
The finance guy wants to let it float for monetary stability, the other guy wants to keep it as is to maintain exports and jobs. So far, I guess the non-finance guy has been winning, but I gotta wonder what happens when the finance guy’s argument becomes pursuasive enough.
The US has been pleading with China to slow the flow of dollars to China in exchange for Chinese goods. China continued to buy dollars at inflated prices even though the US asked that China allow the value of the dollar to fall.
Not only did China _choose_ to purchase all of this US junk/fraudulent paper, they chose to do so when we were suggesting that they stop.
They were not gamed by the US. They were gamed by their own greed.
They were not gamed by the US. They were gamed by their own greed.
They weren’t gamed by anyone. The path the Chinese took was the same as the one taken by the Asian tigers and Japan before them. Namely, keep your currency cheap and consider foreign exchange losses the cost of industrializing rapidly (by getting foreigners to build factories in your country), offset by not having to pay off locals not to riot. This current bellyaching by the Chinese is a sign that they now want to have their cake and eat it. They have decided that Chinese labor is indispensable to the global supply chain. Wrong. It is eminently dispensable - China’s contribution to it is largely in the area of assembly, and its importance was largely in the area of cost - China’s was lower before the recent raft of regulations and clawbacks instituted by the Chinese government. The one good thing about this article is that if the Chinese mouthpiece quoted in the paper represents the views of the Chinese leadership and that leadership chooses to act on these views, China’s economy is about to go into the crapper.
The Ten Habits of Highly Indebtive People
Danger ahead
10 bad habits that lead to debt disaster
By Leslie McFadden • Bankrate.com
This is all a buncha hoo-ey. Credit scores. What a crock!
Don’t spend more than you earn. THE END.
Do Not Buy Stuff that You Cannot Afford.
You are so right, pussy. I keep an eye on my credit report. I haven’t checked my credit score in a long time. Instead I pay off my bills quickly. We charge rarely and pay that off. The only time we need a credit score, theoretically, is when we change apartments.
The solution for people is simple. Don’t spend what you can’t afford. And don’t borrow what you can’t pay back.
I’ve never once bothered about that stupid score but I keep my eye on the credit report (for obvious reasons and it’s free now.)
I once put one of these bank tellers in their place by telling them, “I’ve reached a point in my life where if I ever need credit, I’ll call you not the other way around.”
SIGH. Corporate monkies, didn’t know what the right response was. That wasn’t in their “little blue training booklets”.
You should worry about errors on your credit report, as the burden falls on you to correct the rating agencies’ screw ups.
That’s why I said I keep my eye on the credit reports.
Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
– Charles Dickens –
(from David Copperfield)
>Don’t spend more than you earn. THE END.
But that would *only* mean a saving rate of 0%… you should say don’t spend more than 80% of what you earn.
Somebody somewhere will save. Don’t get all technical on me and don’t make me whupp your sorry @ss.
Anyway, savings is a good thing for society as a whole. That’s what builds future productive capital.
The list doesn’t even mention using HELOCs for consumption purposes. Duh.
Credit + consumption = bad outcome.
I am not against leveraging but I would only use it to buy appreciating assets or as a “true arbitrage” magnifier. Of course, I would make sure I could pay the margin calls too.
The cases that satisfy all these conditions are rare, very rare but they have existed in the past and will exist in the future so I refuse to rule out that case.
Utahs largest realtor group is out of business. (link)
http://www.ksl.com/index.php?nid=148&sid=4614585
Bankruptcy up 42% in Utah this year. (link)
http://www.ksl.com/?nid=148&sid=4609327
The credit lifestyle is crashing hard here in Utah.
Local Observation, Putnam/Dutchess/Westchester Counties that are commutable to NYC-
Over the past, roughly 3 weeks, I’m seeing a proliferation of “for rent” signs on the 45 mile path I take to work. I’ve never noticed rental advertising anywhere but the local rag called the Pennysaver that covers all counties commutable to NYC, north of the boroughs, both sides of the river(Rockland, Orange/Westchester/Putnam/Dutchess counties). I made mention a number of weeks ago of the massive increase in the number of rentals in the Pennysaver and now it appears that this supply is getting advertised on lawns and front yards.
I used to commute from Orange County to NYC
World Trade Center.
For four years 1974-8. Drove to the Weary Erie station in Goshen, rode the train down to Hoboken, then PATH tubes to WTC. What a hoot. Bar and smoking cars. Good times. Lotsa guys with a lot of juice IYKWIM
Lived in Hoboken for 3 years… loved it.
Yeah. I’ve heard alot of stories about the bar cars… Many MetroNorth commuters still lament their absence while discussing the good old days.
What lament? They’re still there as of a two months ago.
Not on the Harlem line and I’m pretty sure not on the Hudson line.
You’re telling me that I didn’t drink the drink(s) that I did drink on the Harlem line?
This is like the Arabian Nights. I must’ve imagined it all.
Dude… there is NO bar car on the harlem line. There hasn’t been since I moved to this dump in 1999.
It’s there after 6pm.
Us proles aren’t on the train that late.