Bits Bucket For November 20, 2010
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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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~Today Show
If you’re one of the several million Americans earning minimum wage, here’s a sobering fact: Your grandpa had more spending power earning minimum wage four decades ago.
Adjusted for inflation, the minimum wage was worth $8.54 per hour in 1968, according to calculations by the Economic Policy Institute. The current minimum wage is $7.25 per hour.
The value of the minimum wage has risen in the last few years, following a three-year government effort to boost the lowest allowable hourly wage in the United States. The final stage, which took effect in July of 2009, brought the minimum wage up nearly 11 percent to its current rate.
In addition, some states have mandated that minimum wage be higher than the national rate.
Still, the data from EPI show that the value of minimum wage has not, in the long-term, kept up with rising inflation, which boosts what things cost and lowers the value of money.
Great. Lets raise the minimum wage and throw even more people out of work. Just what we need in the middle of a no-jobs recovery. Time to upgrade your skill set
Hey Will upgrade to WHAT?
Overqualified really means …We want to hire a MORON.
So what if you are not a Moron?
A chain of fools. India
“Hey Will upgrade to WHAT? ”
Basic economics. If you raise the wage, fewer workers will be employed.
Do you want a low wage jobs, or no jobs? Of course everybody would like higher pay, but it now looks like the minimum wage is too high, not too low.
“If you raise the wage, fewer workers will be employed.”
Says who?? YOU?
You don’t know what you’re talking about.
Exeter, so if the minimum wage is raised, how does that lead to higher employment? Regardless of which side ones comes down on concerning what the ‘right’ MW is, I don’t see how a higher MW equals more employment. I know that there are lots of studies on both sides of the issue - curious to know why you think higher labor costs would result in increased employment (at any level). Seems counterintuitive. And if increasing the MW would result in more jobs, would increasing the next level of wages do the same? Where would that end, and wouldn’t it rather quickly evolve into a cyclical pattern (raise MW to X, than those making X would presumably get raises to Y, than Y … increasing purchasing power across the board until MW is once again back to square one)? Moving MW jobs to the next wage level appears to simply push those already at that level up one I would think (presumably there is a reason there is a difference in pay b/w those at MW and those one level up, two levels up, yes?).
mags57/txchick/natalie,
I didn’t say raising MW would increase employment. “Will” said “fewer workers will be employed” if MW is raised and it’s a complete fallacy. I don’t care what level you raise from, it won’t “increase unemployment”. It’s long since past the time to put this one to rest too.
In a consumer driven economy like ours, if you don’t have consumers, you have no economy.
And consumers need, well… come on, think about it…
Did you even read the post, Will? Min wage, when adjusted for inflation, DID NOT KEEP PACE since it’s creation.
Neither did most people’s wages.
And no amount of skill enhancement is going to change 10% UE.
“Did you even read the post, Will? Min wage, when adjusted for inflation, DID NOT KEEP PACE since it’s creation.”
Yeah, after reading the article, and then reading “it now looks like the minimum wage is too high, not too low” my only thought was, “Huh?”
So let me get this straight: Since they haven’t given a cost of living raise to SS olsters for the last two years there should be less (more) of them! Anyone for the DEATH panels in Obamacare?
Angry, selfish, greedy crooked types seldom see anything “straight”. Especially wage slaves (like you) who vote against their own economic interests.
Time to upgrade your skill set
To what, pray tell? And if everyone suddenly upgrades to a shiny new profession, who will perform the more menial jobs? Robots? Illegals?
Yes. Take military combat, for instance. Would you rather conduct it yourself, or have a predator drone take on the job at many, many, many times the cost?
I’ll happily allow robots to perform all labor, when and if such a thing becomes possible. But then we’ll be faced with a problem- what to do with everybody? And since no one would be working, how will people earn money? And what would justify one person making more than another?
Sounds like the future may be kind of…commie. Just like heaven, I suppose.
I’m probably going to be hounded out of here for this comment but the goal shouldn’t be “full employment”. It should be “full productivity”.
If that means, forking out some “redistributive” money so that the losers don’t start a revolution then you can put a “socialist” tattoo on my forehead too.
Of course, I have a greater chance of being crowned Miss Teen USA than this ever coming to pass (in any country, I might add.)
Predator drones don’t operate by themselves.
Interestingly enough, the CIA drones are operated by civilians not wearing uniforms which is why a lot of criminal charges have been dropped against Gitmo detainees lest.
Yeah, cause McDonald’s is suddenly gonna close up shop because the minimum wage was upped by a dollar.
Australia Raises Minimum Wage;
The decision raises the wage rate paid to the country’s lowest paid workers to A$15 an hour
Now that’s a REAL min wage. In this country, it should be at least $12hr.
The whole upgrade your skill set makes no sense. If all minimum wage workers upgrade their skill sets, how would that work? Would they all get better-paying jobs? Then who would work in all the minimum wage jobs? Would the convenience store down the street shut down? Or would its owner give his workers a raise to go along with their upgraded skills?
“Who would work in all the minimum wage jobs?”
The illegals, of course.
Especially when all the high school kids (and their parents) start doing the math, and figure out that after they pay their costs (car/transportation, insurance, gas, loss of study/personal time, etc) they are making about two bucks an hour.
IOW, when you tell your high school kid to go out and get a job, you are subsidizing any business that uses minimum wage employees.
You gotta start paying more attention.
The whole upgrade your skill set makes no sense.
It’s like telling everyone in an auditorium to turn and introduce themselves to the people on their right.
How do we get minimum wages for the “bankers and the Washington D.C. gang? That will be the day when we get our country back again!
End the Fed. End it, end it, end it, please. Frick Bernanke.
And end the Fed’s collection agency. Free Wesley Snipes.
I don’t care what you think of the guy, like Willie Nelson, he had a problem with money managers. Now, I don’t see why Geithner gets a free pass AND a position as Treasury Secretary, while Snipes is hounded from pillar to post. Fair’s fair. It may not have been Turbo Tax that was the culprit, but they should work something out with Snipes. I contacted the CBC yesterday about the matter. Fat lot of good it did.
Charlie Rangel was censured in part due to not paying his income tax on rent collected from some vacation home he owned. That’s a slap on the wrist compared with what Snipes got.
Yes but you must understand he is a beloved “lying-lowlife” public “servant” and he did cry, so he gets away with it.
Yes - a public servant who gets paid what - 5X the average wage earner? A public servant who has vacations up the ying-yang and receives under-the-table freebies galore?
All for the Public Good, of course.
Charlie Rangel is also a decorated veteran Infantryman who received the Purple Heart and a Bronze Star with Valor; a white soldier likely would have earned the Silver Star.
I don’t care what you think of the guy, like Willie Nelson, he had a problem with money managers.
Should we grant tax immunity to those who have money managers (aka the rich)?
My understanding is that both Willie Nelson and Snipes made good on their tax liability, presumably with huge fees and penalties attached. IMO, that should be sufficient, and is in most cases, but not in others. This is a clear case of the IRS setting an example.
I couldn’t agree more, GH.
And I’d like to appeal to any HBBers, who may wish to do so, to please contact your congresscritter and bring the matter to their attention and ask WHY Timothy Geithner gets a free pass, and Snipes gets hounding and mental torture.
Willie seattled for for pennies on the dollar and made an album for the IRS - “The IRS Tapes: Who’ll Buy My Memories?”.
“My understanding is that both Willie Nelson and Snipes made good on their tax liability, presumably with huge fees and penalties attached. IMO, that should be sufficient”
Sorry, I don’t agree at all. This scenario - purely civil penalties - would encourage people to not pay their taxes by simply running %’s and odds as to whether they’d be able to avoid an audit/paying taxes - odds that likely work out in their favor from a pure #’s perspective, but then when you throw in the federal prison possibility…
That is OK by me, but in that case EVERY individual Geithner for example who cheats substantially should ALSO be in prison. Not that Snipes case was not quite egregious having earned tens of millions and not filed…
And future unionized workers will be earning less.
http://www.nytimes.com/2010/11/20/business/20wages.html?hp
“In years past, two-tiered systems were used to drive down costs in hard times, but mainly at companies already in trouble. And those arrangements, at the insistence of the unions, were designed, in most cases, to expire in a few years.”
“Now, the managers of some marquee companies are aiming to make this concession permanent. If they are successful, their contracts could become blueprints for other companies in other cities, extending a wage system that would be a startling retreat for labor.”
Got to get those pensions paid, for those older workers who get them. And higher bonuses for executives who think they demand them.
“This is absolutely a surrender for labor,” said Mike Masik Sr., the union leader at Harley-Davidson, the motorcycle maker, not even trying to paper over the defeat. His union recently accepted a new contract that freezes wages for existing workers for most of its seven years, lowers pay for new hires, dilutes benefits and brings temporary workers to the assembly line at even lower pay and no benefits whenever there is a rise in demand for Harley’s roaring bikes.”
Harley is opening a factory in India. First it will assemble bikes from US parts, later it plans to source parts locally.
The company has not stated whether it will eventually import the Indian-made bikes into the US.
Witte diesel engines are the standard for the oil industry for providing power from the arctic
to the Sahara. They have proudly proclaimed
their 100% USA heritage for decades, yet 10 years ago on one of my trips to India, I came across a factory out in the middle of no-where that was making authentic “Made in USA”
Witte engine parts.
Witte Diesel had no comment when questioned.
I have a customer who ships components from Taiwan to the US for assembly, so that the finished machines (high $) may be sold in China as Made in the USA.
I move that stickers that say “Made in the U.S.A.” be required to be made in the U.S.A. so that when these stickers are stuck on products made elsewhere there will be no deceit.
I seem to recall that shoes are shipped in without laces and tongues and assembled in the US in order to get the “made in USA” tag.
Not sure about shoes, but a company I worked for in the 1980’s had sweater pieces knitted in China and shipped to other Asian countries to be sewn together so that they could have the “made in” label of the sewing country.
This was to circumvent the import quotas in place at that time.
Suppose dodges like this are not uncommon.
I saw a story on broomsticks. They made the handle and broom part in China, and shipped the parts to the US where Americans spent all day screwing them together. They only did it because broomsticks are an awkward shape to ship overseas and it was much easier to box up the separate parts. But they also got that Made in the USA label.
Hon Hai.
They mfg 80% of ALL world wide consumer electronics and almost 100% of all PCs brand and enterprise servers made.
All over America older workers are throwing their children under the bus. Safeway, Kroger, GM, Harley etc.
Makes me ashamed to be old.
Of course this sort of contract creates an economic incentive for employers to get rid of older workers and replace them with cheaper, younger ones
Cheaper, younger - and part-time.
Two part-time workers is much cheaper to employ than one worker who is full-time.
It really gets cheaper if you can get the part-timers to fight over what little work is being offered.
Yup cheaper younger ones in China etc where they don’t have to pay minimum wage and all the OSHA nonsense etc.
and replace them with cheaper, younger ones
that’s what happened at my local safeway….sooo young.
I would give it not more than 10 years, and most checkout clerks will be replaced with RFID checkout units. Imagine millions more out of work!!!
That you have a conscious is somewhat rare, krazy bill. I don’t get the impression that many people over 55 actually give a rat’s ass what they’ve done.
I’d be great if I was wrong, but when you read reports that 40% of senior citizen’s are spending up credit cards with no intent of ever paying them back, one wonders.
It’s astonishing that today’s elders aren’t raising holy hell about what their own kids are facing. All over this country, they’re watching their kids freedoms and standards of living being significantly diminished. Where are they? Where’s the fury? Stuck in 1930s-era FDR propaganda and 1960s rose-colored glasses foolishness?
I’d be great if I was wrong
You are. We live basically debt free, and we
know many other couples in our age group that are “cash only”.
Here too. My kids understand one thing well, that their survival chances ahead are much greater if they avoid debt.
“but when you read reports that 40% of senior citizen’s are spending up credit cards with no intent of ever paying them back,”
Can you provide a link for this? I’m curious; I’ve never seen that statistic before..
I’m debt free as well but I find my anger increasing daily at what has become of our once great nation.
“Where’s the fury?”
My fury has morphed into resignation, as in It is what it is and it is time to fire up another batch of popcorn.
(In case anybody doesn’t get it: The Fourth Turning is upon us.)
Overtaxed -
Someone on this very board posted the link to the article. I believe this was on Tuesday. Maybe Wednesday of this week? I don’t have the link myself, sorry.
Perhaps the person that posted it can provide the link?
Thanks in advance if you do.
Resignation makes sense if you’re someone who’ll be working every year for the next 20 years (provided you can get or keep a job). You likely understand that you’ll experience the laws of diminishing returns firsthand for much of the rest of your life.
The younger people are being screwed ,no question about it . The entire work force is being screwed .
So,you have the Masters of the Universe attempting to choose
who will win and who will lose ,but certain special interest gets
protected .
Seniors running up credit with no intent on paying is shitty ,but
I read that 75% of that sort of spending is for medical bills .
Desperate people do desperate things . Desperate homeowners
resort to desperate measures also .
As I see it the Country is getting a entire breakdown of morals
because of the economic situations that many different groups
face .
They are doing away with Medicare Advantage (which is a plan
by private insurers handling a upgraded Medicare Plan ) . The
Government cannot afford to pay for this plan that is administered by Private insurance Companies .I believe those
policies should be cancelled because they are not sustainable
under the current health care system .
I believe Seniors are going to need to pay more for health care
than they have in the past .It is unrealistic to think that Medicare costs wouldn’t rise for seniors in light of how high
medical costs have risen to .I just object to Social Security being cut . Anything that can lower medical costs in general will help
all age groups and anything that will help do that is what is needed .
As far as it goes young average wage families can’t afford the cost of health insurance for a good policy anymore either .
For that matter there is a serious problem with the cost of living in general for the Majority of Americans . High housing costs ,
high health insurance costs ,high food costs ,high utility costs ,on and on ,add taxes to that .
I have never seen this degree of disconnect on the cost of things
verses wages . People talk about the younger people saving for retirement ,but I hate to tell you I suspect that the cost of living
will make that impossible for many groups .
Resignation makes sense if one realizes the battle he is trying to fight is unwinnable as long as the mindset of everyone around him is set in a way that radically differs from his own.
Resignation also makes sense when one realizes a current trend is not sustainable and thus the current trend will eventually change. And what we are now experiencing, IMHO, is a change of this trend.
Thus the popcorn. And a lawn chair.
“It’s astonishing that today’s elders aren’t raising holy hell about what their own kids are facing.”
Someone in our community posted on our web blog, moaning about no SS COLA again this year. I asked him just that question, “Do you really want your kids to pay you even more?”
Double double whisky. And a recording of Götterdämmerung.
These are the golden years, aren’t they?
And I’m not even 35 yet! What a mindtrip.
WHEEEEEEEEEEEEE!!! This is gonna be fun. I just Oly were around to share.
when you read reports that 40% of senior citizen’s are spending up credit cards with no intent of ever paying them back
Banks should take this into account when they extend the credit. I guess there are ways to get around the age discrimination.
“I’m debt free as well but I find my anger increasing daily at what has become of our once great nation.”
uh huh.
And where was all this sanctimonious outrage when KingGeorge was redistributing earnings from peons like us to the wealthy elite?
Talked with some high school kids yesterday.
They are all wondering why they should go to college, take on $50-100K worth of debt, and come out of school into an economy where the only work available is the $7-8/hour job at McDonalds, or the $8.50/hour job at Old Navy.
My daughter is a manager at Eddie Bauer. Half of her employees are college grads in their mid 20s.
Our so-called leadership had better come up with a plan fast, because things are going to get really ugly if these 20-somethings turn into 30-somethings making $8.50/hour.
X-GSfixr, we’re already there.
A consumer driven economy like ours cannot survive without…
“It’s astonishing that today’s elders aren’t raising holy hell about what their own kids are facing.”
They are, but guess who owns MSM? Why yes! It IS the very corporations that are throwing everyone under the bus and hypnotizing the rest to willfully throw themselves under as well!
What a surprise!
“And where was all this sanctimonious outrage when KingGeorge was redistributing earnings from peons like us to the wealthy elite?”
Ex,
If you were directing that comment in my direction let me clear up any misconceptions. I have always proclaimed W to be a village idiot. I voted for Gore, also a snake.
This downhill slide has been happening for decades.
I appreciate that and my apologies. I’m a bit over-sensitive to the self-righteous outrage expressed by some. They act as if we’ve just started deteriorating economically.
(In case anybody doesn’t get it: The Fourth Turning is upon us.)”
yea it sure is hopefully no world war 3
the big re-set blow 1/3 of the work force to hell
debt wars its going to get dicy the next 10 years or so.
The older workers are doing no such thing. The corporations are.
If you took away all the seniors somehow ,the Corps./Wall Street and the system would still be screwing the working
classes in the USA because of the outsourcing ,out-manufacturing ,high cost of living in part because of price fixing of monopolies .
Further ,the heist that the Fat Cats have pulled off in the last 15 or so years ,while wages have not risen accordingly to cost of living increases ,CEO’s making unheard of incomes ,etc.,greater
profits for the top 15%, has taken it toll . The heist has already
taken place and the Fat Cats just want it to continue that way .
When the Money Changers created the real estate Ponzi-scheme
they left borrowers in ruins. Corporations benefited from all
the debt spending that was going on during the boom years that
created jobs that have since gone away .
If you go back to the USA in the past when the balance of power
was more reasonable between the workers and the employers :
the Employers worked on a much smaller profit margin and CEO’s
didn’t get these outrageous incomes and profit sharing for themselves . Generally when inflation would take place workers
would get cost of living increases .
Now that you have a World wide low wage force your competition is with the World rather than just other people living in the USA .
If Corporations could pay a USA worker 75 cents a hour with no benefits they would ,simple as that . Min wage laws came into
play because otherwise employees would be exploited even more.
You would think that Employers /Big Corporations would think about the fact that if people don’t make decent wages they
can’t even afford the junk that industry peddles . In other words ,the whole money flow that results from paying live-able wages
goes back in the pockets of industry because they sell a lot more
volume because more people can afford to be a customer .This
creates more taxes for Government and on and on .
Now you have a situation where customers who are workers are tapped out .Wall Street is operating on a dis-connect from Main street USA and so is Industry and Health Care costs for
instance is in serious disconnect from Main Street .
One of the tricks of Wall Street/Bankers is wealth creation by
raising values in a Ponzi-scheme type manner ,or leverage games
that create high risk .Wall Streets function to allocate investment
funds according to sane long term goals and reasonable risk was
tossed in favor of these fake wealth creation type bubbles or
Ponzi schemes that were just short term ways to make profits
quicker and easier .
The Master of the Universe just like to keep the sheep fighting
with each other to keep the heat off their heist and betrayal
of the USA’s long term economic systems that were set up after
the Great Depression number one .
Hey Mike, how doyou think you’ll like India?’ Harley moves manufactoring to India’.
So is it safe to buy a house now? I am in Southwest Colorado (Cortez). The prices have dropped a little but not much. Not looking for an investment, just a place to call home.
I’m not sure if prices are still going to drop or if inflation will keep prices stable even while real value drops.
Perfect call your realatuuur today…….Make sure you overspend and your new mortgage is more then you can ever hope to get in rent, in case you have to move temporally..
This is the perfect scenario for it not to be an “investment”….good luck
A place to live is a great thing if it is within your means. Buying on credit is living beyond one’s means. Owing on a house in a falling market could result in arrested mobility down this road.
Update on 95050-05054;
Single family home inventory is down roughly 20% from approximately two months ago…Condo & townhome market has been hammered…Generally, sales prices are back to 2002-2004 levels…
How do you know prices are not still dropping, especially if you properly take foreclosure home prices into consideration in your measure of price change? I listened to this disturbing little piece last night that suggests the Case-Shiller/S&P500 index may be upwardly biased because of systematically excluding foreclosure homes from the sample.
The implicit presumption that foreclosure sales represent inferior quality housing seems quite suspect to me; perhaps Ben can weigh in on this. The last home (a condo) my wife and I owned, in the East SF Bay area, was a renovated foreclosure home; it was freshly painted, move-in ready, for under $100 sq-ft when we bought it in the mid-1990s, after the dust had settled on the early-1990s California housing bust. In particular, the quality was much better than the comparable rentals we looked at during the course of our housing search.
We also know people in our area of San Diego who recently bought beautiful, large foreclosure homes for hundreds of thousands of dollars below what they would have sold for in 2006.
My view as a housing consumer rather than seller or producer is that the fact that a high percentage sales these days are driven by seller desperation should not lead to systematically excluding such sales from the sample that is used to produce a local area housing price index. I am quite sure that foreclosure sales occur at lower price points than comparable housing for at least two reasons:
1) The former owner may have neglected or trashed the home;
2) The seller wants to unload quickly.
My hunch is that reason 1) results in a reduction in quality of foreclosure homes relative to comps of similar description in the sample, and the Case-Shiller methodology has no way to separate this effect on prices from that of 2). However, if homes that are sold in distress at lower prices but of otherwise comparable quality are systematically excluded from the sample, an upwardly-biased repeat sales index of local prices is a potential result.
PB,
Wasn’t that from a radio interview with Reggie Middleton ?
Yes. Don’t you love when people speak forthrightly and honestly about real estate.
Even if a forclosed home has a lower quality, it should not be exlcuded from the Case-Schiller index.
What is happening is that the average quality of homes is falling, as many owners care less (or nothing) about maintaining their value.
The other thing that is happening is that the few qualified buyers in the market are able to buy at a higher point on the quality distribution than they would have been able to buy a few years ago. The Case-Shiller index purports to correct for this effect by using repeat sales — i.e., comparing the sales price of the same home at different points it sold over the years, and weaving such own-price changes into a blended average measure of quality-adjusted price change.
But if foreclosure homes have gone down the most in price largely due to distress sale factors, rather than quality declines, then systematically excluding them from the sample will result in an upwardly-biased measure of the current market value of homes — i.e., representative of what the typical buyer is currently paying.
Perhaps this is the point? Widespread awareness that home prices are declining could exacerbate the deflationary psychology which the Fed is trying to drum out of the system. If most if not all prospective buyers knew they could buy a house for ten percent or more less next year, wouldn’t most of them be willing to rent for a little while longer in order to enjoy the home price deflation discount?
I know a couple of folks that bought homes in the PHX metro area in the last year or two using the tax credit. Those homes are now upside down, at the time of purchase they seemed to be getting a good deal. Two homes in my rental neighborhood are bank owned with no offers so far, last year the bank owned homes would go under contract in a few days. Imagine how grim the short sale activity is right now.
Prices in good neighborhoods are heading south of 100/sf for single level and 90/sf for two story, that is an overshoot of the 2002 prices where single level homes were selling for 110/sf or more. Looks like the bottom could be 1999 prices or lower. Plus, a lot of these frame and stucco homes out here are getting old and will need some substantial work to ensure they stand up to the elements for another 20 years.
Until more people start to feel secure in their jobs and financial lives, I think prices will continue to drop and then just stagnate for a number of years.
What part of PHX are you in? I live in South Scottsdale (the blue collar section of town). Houses are probably going for around $120/sq. ft, which is still too much. Some buyers are even paying a lot more for the houses with the fancy kitchens and bathrooms. At this point prices are falling very slowly, which, of course, causes some of my neighbors to think that they have stopped falling and will soon start rising again.
At this rate, prices may not bottom out until 2020.
Ahwatukee/Chandler
“Looks like the bottom could be 1999 prices or lower.”
FPSS — are you lurking today, pal? I would like to know if you are still predicting 1983 prices before this is over, particularly in light of QE2-driven dollar declines?
Seems an easy target to me.
It depends — remember that ‘all real estate is local.’ So it seems the target has already been hit in some rust belt locales (Detroit, Cleveland), but whatever bottom will eventually be reached is still years away in the more desirable areas formerly referred to as ‘a bit frothy’ (e.g. Coastal Cali).
I am seeing 1983 prices in central/west Phoenix AZ.
Phoenix is falling fast 2 years ago I lived in Ahwatukie AZ
I bet my boss Ahwatukie RE would fall 30% this was in 2006 when I moved there from CA
Made me real popular at work the guy from CA forcasting doom it’s different in AZ yea its worse.
Back in CA back at the old job try not to talk about RE too much anymore. I’m just a renter its nice I could move back to Ahwatukie pretty easy with no house to sell.
Anecdotal story from North Texas -
My mother was talking to a nurse she was friendly with at her doctor’s office. She told my mother that she and her husband (also in the medical field) were moving to another area of town. It turns out her house that was purchased for ~250k 5 years ago appraised for $120k when she tried to re-finance and they walked away.
The mystery is how she and her husband managed to buy another house.
easy its the Float…….they are up to date on the first house bought the second then stopped paying on the first
So is it safe to buy a house now ?
It depends how you define “Safe” sensei….
If you asking the board if safe means that prices will not decline further, I believe most on the board will tell you that yes, prices will decline further…With that said, I ask you if they are going to decline further, does that, should that effect your decision to buy ?? And, what if they don’t ??
There are a lot of headwinds that argue that the future of housing prices will be stagnant “at best”…But, there is also a strong “tailwind” that cannot be ignored…A tailwind, if viewed in a big picture, long term, can, by itself be sufficient impetus to cross the chasm into a home purchase…That tailwind is; long term mortgage interest rates…
Bottom line is if you are fairly sure that you will remain in the house long term, that your job security is in place as best you can estimate then, IMO, taking advantage of these interest rates makes sense and overcomes the “risk” that the property could go down further in price…
“I’m not sure if prices are still going to drop or if inflation will keep prices stable even while real value drops.”
I have a simple formula that has kept me safe. What does a four year college degree with five years experience earn in the locality of interest, and multiply that by 2.5 for your typical affordable home.
Realize though that for the past 15-years in a metro area this formula will place you in a marginal neighborhood unless you can count on a two income household.
If you want to buy a house, buy a house. Just follow the age old rules of shop carefully and research everything and… consider future loss of earnings. (that’s where everyone messes up, they all assume the gravy train will last forever)
So much for the old saw about “they’re not making any more land”. Here’s a story about towns giving away free land if you will build on it.
The Homestead Act of 1862 is no longer in effect, but free land is still available out there in the great wide open (often literally in the great wide open). In fact, the town of Beatrice, Nebraska has even enacted a Homestead Act of 2010.
As with the homesteaders of the 1800s, the new pioneers must not be the faint of heart—they can’t be the type to shy away from the trials of building a home from the ground up, or the lack of Starbucks on every corner, or unpaved roads…
http://finance.yahoo.com/real-estate/article/111360/7-towns-where-land-is-free
Dennis:
I think the worst part of this was they were making more land by clear cutting forests and of course fully profitable orange groves and agricultural land to build kondozes.
Free land isn’t worth a damn if you can’t get utilities nor have any type of civilization within reasonable distance.
Like medical. Or a job.
Which is why I can see a lot of the construction going on around here being valued at ZERO twenty years from now.
And what led me to here. I couldn’t figure out who was going to buy all the half-million dollar McMansions going up around here, when everyone who could actually afford one already had one. Which is how I found out about all the crazy mortgages being funded by Wall Street. Not because they were a efficient/intelligent use of capital. Because it was a scheme to generate cash they could get “up front”
Feinberg appears to be favoring BP. Gee, what a surprise, given who is paying his rather large salary.
Eff this basterd. Of course, there should be no doubt about who or what our gubmint really serves. The sheeple are “allowed” to vote in their fave corporate lackeys.
http://www.aolnews.com/gulf-oil-spill/article/attorneys-general-say-bps-proposed-fund-changes-hurt-oil-spill-victims/19726843
Buuuut, we need more government.
How would less government help in this situation? Do you think BP would be more generous in their compensation without any government pressure?
You do know it was LESS government that was the cause of this disaster, right?
First we had an Greek Tragedy, now an Irish Farce, next a Portuguese Drama followed by a Spanish Requiem. Where is Cervantes to record the folly of man.
ATHENS: The Greek economy shrank by 4.5 percent in the last 12 months, official data showed on Friday pointing to the trauma the country has undergone since an election and emergence of a debt crisis.
http://economictimes.indiatimes.com/news/international-business/Greek-economy-shrinks-45-percent-in-12-months-official/articleshow/6914249.cms
When Ireland’s economy was roaring ahead in 2006, some 93,419 new houses were built as the country sought to exploit the booming market. The building didn’t stop, but the good times have.
Indebted Ireland faces a grim future with its banks on the brink, vicious public sector cutbacks kicking in, unemployment on the rise and soup kitchens opening in the centre of Dublin.
Read more: http://www.dailymail.co.uk/news/article-1331380/The-ghost-estates-exactly-Ireland-went-boom-bust.html#ixzz15pK1CNdS
President Barack Obama said that Portugal is “working through” economic challenges and that the U.S. backs Portuguese and European efforts to improve the economy.
http://www.businessweek.com/news/2010-11-19/obama-says-u-s-backs-eu-efforts-to-help-portugal-s-economy.html
The private banking arm of of Santander, Banif has suggested that Spanish property prices have still not dropped enough.
Property prices need to fall by an additional 27% in order for the oversupply to be absorbed and in order to reactivate the property market again, says the private banking firm.
http://www.spanishnews.es/20101119-spanish-property-prices-need-to-drop-27-says-banif/id=3517/
If they open Guinness kitchens in Dublin I am so there.
I bet on a Dutch farce before a Spanish Requiem.
It has something to do with “per capita debt”. The Dutch are just behind the Irish in their love of leverage.
Guinness should be the sponsoring brew for the HBB, since they leased, rather than purchased, their brewery.
A long long long lease. Something like 1,000 years.
OMG I looked it up - it’s a 9,000 year lease.
I hear of and speak to a lot of people who have not paid their mortgage in 2 years. I wonder why?
Are you an idiot to keep paying your mortgage?
November 16, 2008|By Kathleen Pender
Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent.
Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.
President-elect Barack Obama says he “recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford.”
How to qualify
To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home’s value. It’s fine if you owe more than it’s worth.
Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.
“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”
Although the mortgage giants are under a government conservatorship, the housing agency official says that any losses under the program will not be paid for by taxpayers unless Fannie and Freddie exhaust their reserves.
http://articles.sfgate.com/2008-11-16/business/17126703_1_subprime-mortgage-crisis-freddie-mac-home-equity-loan - 42k -
I’ll see Peter on Monday and I will point out us renters need help too……this gets me so mad at the dumbo prez.
I see plenty of empty, foreclosed houses in my little burg. Some banks are foreclosing and evicting. In fact, I don’t know anyone who has gotten away without paying the mortgage for two years. Must be a California thing.
Same here and I live in a very mixed area with million dollar homes at one end and 90K starters on the other, all within a 5 mile radius.
Not to say there aren’t any, just that most of the foreclosures have been swift and legit.
It’s time to stop blaming the lenders
Posted by Duff McDonald, Contributing Editor
October 15, 2010 7:00 am
Before we take the entire banking industry to task on the foreclosure mess, it bears reminding that the source of the problem is people who bought homes they couldn’t afford. Let’s blame them, too.
Two: Like most rational folk, I take issue with outright fraud. If laws were broken, send the crooks to jail. That said, I’m amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can’t pay their debts. While I am much more inclined to believe that buyers of so-called securitized debt instruments might have been defrauded by their packagers, I am at a loss to understand how so many individual homeowners signing loan documents for debt they could ultimately not afford were somehow the victims of a crime. We used to say that there was no free lunch. Now, we’re demanding a refund when we didn’t even pay for it in the first place.
http://finance.fortune.cnn.com/2010/10/15/its-time-to-stop-blaming-the-lenders/ - 234k -
Yawn. More smoke blowing by the banksters. They just can’t understand it when they’re subject to the laws themselves. They think it must be indicative of some mass psychosis or societal breakdown- when in fact it’s just the opposite.
Like most rational folk, I take issue with outright fraud. If laws were broken, send the crooks to jail.
That’s precisely what’s being determined, in the process you are seeking to interrupt.
“Like most rational folk, I take issue with outright fraud. If laws were broken, send the crooks to jail.”
Does this mean that banksters who systemically marketed fraudulently underwritten loans to get millions of Americans into loans they would never possibly be able to repay will soon go to jail? I heartily welcome the prospect.
Let’s not forget the CDOs with the dog crap KNOWINGLY hidden within.
Banksters are part of the Political Class. That they imagine themselves above the fray shouldn’t surprise you.
That Rangel considers himself above the fray shouldn’t surprise you, either. He also is part of the Political Class.
The poor elite wealthy banks!!! Martha!!!! We NEEEEEEEED them…. we need the wealthy elite banks!!!
How soon everyone forgets the blizzard of propaganda/advertisements spewed out by the banks and mortgage industry, telling everyone how they could “help” you get into a house.
http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html?mod=WSJ_hp_LEFTTopStories
FBI investigating massive insider trading on Wall Street?! I am shocked; shocked!, I tell you. Of course the Fed’s POMO and front-running schemes with its primary dealers (the TBTF banks) will always be immune from any oversight or scrutiny, even though that’s the biggest fraud on the planet.
Hillary Clinton Futures Trades Detailed
By Charles R. Babcock
Washington Post Staff Writer
Friday, May 27, 1994
Hillary Rodham Clinton was allowed to order 10 cattle futures contracts, normally a $12,000 investment, in her first commodity trade in 1978 although she had only $1,000 in her account at the time, according to trade records the White House released yesterday.
The computerized records of her trades, which the White House obtained from the Chicago Mercantile Exchange, show for the first time how she was able to turn her initial investment into $6,300 overnight. In about 10 months of trading, she made nearly $100,000, relying heavily on advice from her friend James B. Blair, an experienced futures trader.
The new records also raise the possibility that some of her profits — as much as $40,000 – came from larger trades ordered by someone else and then shifted to her account, Leo Melamed, a former chairman of the Merc who reviewed the records for the White House, said in an interview. He said the discrepancies in Clinton’s records also could have been caused by human error
http://www.washingtonpost.com/wp-srv/politics/special/whitewater/stories/wwtr940527.htm - -
All eye witnesses have since committed suicide.
jeff saturday- Just out of curiosity, why on earth did you dig this up and post it?
You should thank him for posting this rather than criticizing him. We need to keep the memory of the Clinton years alive in the collective minds of Americans, just in case Hillary decides to run for the White House at some future point.
We ought to regularly post on topics like Monica Lewinsky as well. I can see a bunch of Wall Street banksters striking up deals with Hillary that would put her on a fast track into the WH, against the American Peoples’ collective will.
Well, I would say it was an ad hominem, except the hominem (Hillary) isn’t even involved in the situation being discussed. I was just trying to determine why it was posted at all. To see if there was some tie-in that I was missing, perhaps.
And do any rational people give a damn about the Monica thing? Talk about an absurd and hypocritical waste of a nation’s time.
Would any businessman consider hiring Monica Swallow Lewinsky after she caused such a flap?
Apparently, judging from the stain on that dress, she forgot to swallow.
“I would say it was an ad hominem…”
Wait a minute. Are you denying the Whitewater real estate scandal or Hillary’s miraculous success in futures trading or Monica Lewinsky’s relationship with Bill Clinton ever occurred? If they actually did occur, then merely reminding readers about them would not actually be an ad hominem attack, but rather a recounting of recent history, right?
I don’t know about the rest of y’all, but I have had my fill of the Clintons in the White House for one lifetime. Hopefully all the scandals that played out during the 1990s during their tenure will remain fresh enough in voters’ minds so that Hillary does not have any chance whatever of getting into the White House for gender-related reasons.
Wow. Nobody cared in 1994 and nobody cares now.
Hey, hey,
TSA.
How many kids
Will you grope today!
The above released into the public domain 11/20/2010, no permission required for any use.
Not sure why this showed up here. Was supposed to start a new thread.
Since this is the random thread:
Perry Suggests U.S. Should Consider Sending Military to Mexico
Texas Gov. Rick Perry, who was just elected the new head of the Republican Governor’s Association, said this week that President Obama should consider sending the military into Mexico to help fight the drug war.
During an interview on MSNBC on Thursday, Perry, a potential presidential 2012 presidential candidate, said the U.S. must “use every aspect of law enforcement that we have, including the military,” when asked whether he would support military involvement in Mexico to help the country battle drug lords.
Read more: http://www.foxnews.com/politics/2010/11/19/perry-suggests-consider-sending-military-mexico/#ixzz15qFP5mZX
http://www.foxnews.com/politics/2010/11/19/perry-suggests-consider-sending-military-mexico/#ixzz15qANj9Ph
While on the subject, I see this ending up with several high profile lawsuits for sexual assault and perhaps even a handful of criminal prosecutions before being rolled back to something more reasonable.
Market forces keep steak prices low!
During the Bush admin, the FBI was ORDERED BY THE DOJ to ignore the growing reports of FIRE sector fraud.
New government procurement policy in effect - share best and final offer price data with competitors!
WASHINGTON — The Air Force mistakenly gave rival companies sensitive information that contained each other’s confidential bids in a long-standing, multibillion dollar competition to build a new refueling tanker. …
Boeing received detailed proprietary information about the EADS bid; corresponding information was given to EADS North America concerning the Boeing bid.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/20/AR2010112000727.html
Sure. It was a “mistake.”
Yeah, that’s the ticket!
April bloodbath a near certainty.
Retired Sen. Alan Simpson (R-Wyo.), co-chair of President Obama’s deficit reduction commission, said yesterday Congress must raise the public debt ceiling in about six months to keep the nation solvent. That, he said, will produce political fireworks.
“I can’t wait for the bloodbath in April. When debt limit time comes, they’re going to look around and say, ‘What in the hell do we do now?’ We’ve got guys who will not approve the debt limit extension unless we give ‘em a piece of meat, real meat [in the form of spending cuts] and boy, the bloodbath will be extraordinary.” ~ Simpson ~
< As of Thursday the public debt was $13,788,455,142,118.05. The debt ceiling, set last January, is $14.3 trillion. Economists like Paul Krugman at the N.Y. Times will dash off commentaries on the necessity of digging ourselves deeper into the debt hole, but that will do nothing more than defer the hard choices and severe belt tightening we face. The only moral way out is to balance the federal budget and run surpluses. The eventual choice, however, will probably be the immoral solution - - repudiate the debt.
Thank you, wmbz, for the consistent, high-quality posts you take the time to make. I find your finds to be generally excellent.
You may not have realized that you are providing a valuable service to those of us short on time - but you are.
“Thank you, wmbz, for the consistent, high-quality posts you take the time to make. I find your finds to be generally excellent.”
Hear, hear
I’ll ditto that.
In fact I”ll ditto my ditto.
+1
wmbz & Pbear provide the board with a wealth of information…Thanks to both of you for spending the time to bring it to the board…
And, the biggest thanks to Ben, for starting it and maintaining it…
I’m a confessed robo-poster. Thanks to Google and the Joshua Tree Extension, plus a good nose for articles which expose systemic corruption in the U.S. banking sector, I am able to post links here to many spellbinding articles at reasonable time cost.
“Systemic Corruption”
Something I’ve been thinking about lately. Are we at a point where “Systemic Corruption” is uncontrollable, at least within the framework of the legal system that we currently operate under? Are too many people dependent on the system as currently configured for their livelihood for the changes that need to happen?
Can our economy support a prison system big enough to put everyone in jail that deserves to be there, or are we in a “Too big to Jail” situation?
Maybe I need to quit thinking, and get back on the treadmill with all the other hamsters.
Yes.
Now you get it.
Hamsters? Lemmings would be better.
‘Are we at a point where “Systemic Corruption” is uncontrollable, at least within the framework of the legal system that we currently operate under?’
Which legal system? The one that makes the “don’t ask-don’t tell” Fed the Supercop regulator of the banking system?
I predict that come April most of those new so-called Tea Party congresscitters are going to cave.
Tea Party congresscitters are going to cave ??
If that means compromise some I agree…
Now, just think if Angle had won…Do you think she would compromise ?? Not a inch IMO…Neither would Martin or O’Donnell….They would be more interested in making noise and trying to make themselves important rather than being pragmatic and getting things done…
I’ve met Al Simpson. His picture should be by the definition for “Sleazy Politician” in Webster’s. He’s spent his retirement from the Senate flying around the country as a paid shill.
When he starts talking about sacrifice, you’d better go buy some lube.
What will they do? They could try ending tax breaks for offshoring jobs for starters.
Oh wait! They did try that! And the Repubs blocked it.
The Bernake really,really pisses me off! Call it what it truly is you lying azzhole!
Bernanke: stop calling it QE!
There’s something about quantitative easing that bothers just about everyone - including, believe it or not, Fed chief Ben Bernanke.
But in contrast to his many critics, Bernanke’s problem lies not with the policy itself, in which the Federal Reserve has pledged to buy $600 billion worth of Treasury bonds over eight months in its latest bid to bring down interest rates and stimulate the economy.
What’s in a name?
No, Bernanke’s beef is that what the Fed is doing isn’t properly called quantitative easing, as he reminded everyone in his speech Friday.
Incidentally, in my view, the use of the term “quantitative easing” to refer to the Federal Reserve’s policies is inappropriate. Quantitative easing typically refers to policies that seek to have effects by changing the quantity of bank reserves, a channel which seems relatively weak, at least in the U.S. context. In contrast, securities purchases work by affecting the yields on the acquired securities and, via substitution effects in investors’ portfolios, on a wider range of assets.
So, what do you call papering over bank’s fetid reserves?
Bernanke knows he is running out of curtain.
The propaganda coming out of the Fed these days really starts to play with your brain after a while…
The irony is the quantitative easing is one of the things the Fed *normally* does to execute its monetary policy. It just does it at the short end of the yield curve.
Wasn’t Bernanke claiming just that earlier? That QE was just normal Fed open market operations, only now being executed further out the yield curve? I wonder why he’s switched his tune?
This is a troubling new statistic. The largest price drop in houses for the last 12 months occured not in FL nor in NV, but in Idaho!
Price drop of 12.8% for metro Boise was the worst in the nation from September 2009 through September 2010.
So much for my theory that the bubble states CA, NV, AZ, and FL would be hit the hardest.
http://media.idahostatesman.com/smedia/2010/11/20/00/1120biz.source.prod_affiliate.36.pdf
Dennis — this supports my “competitive fringe housing investment market” theory, which states that when the tide went out from the housing mania, the outlying secondary-quality residential investment (fringe market) prices would decline by larger percentages than primary quality markets, as a greater share of homes in the fringe markets were snapped up as investments rather than as place to live in.
So, for instance, San Jose prices will go down by less in percentage terms (though more in absolute levels) than Gilroy prices, because far more people would prefer to live in San Jose than in Gilroy. San Diego prices will similarly go down by less in percentage terms (though more in levels) than Murietta’s. At the interstate level, Idaho and Nevada prices will drop by larger percentages than California’s or Oregon’s.
Note that it is different this time, as the investment mania effect by far dominated the relocation effect (e.g. Californians relocating to less expensive markets), particularly since so many Californians got stucco far underwater with loans they cannot afford. No home equity cushion, no relocation.
As you mentioned the only mitigating factor here is that it’s better to lose 12% on a $200K house ($24K) than 8% on a $700K house ($56K). Individuals don’t lose percentages: they lose actual dollars.
I’m still convinced I did the right thing relocating in 2006 - when it was easy to do so. But I’d have behaved differently once I got here had I known what the future held.
No home equity cushion, no relocation.
Actually I’ve seen a lot of relocation from CA, but it’s due to walk-aways seeking jobs or cheap retirement costs.
Nice synopsis Pbear…I tend to agree…And, I think it extends even further than your “fringe” market…I believe what we are witnessing is the collapse of the 2nd home (vacation home) market…Idaho, Bend etc…
A lot of speculative housing has been built to go on top of the existing inventory in these 2nd home markets, or destination locations you might say…
They are going to get “pummeled” further IMO…I think its almost a lock that the mortgage interest deduction for 2nd homes will be eliminated very soon…And for everyone that will play the game of “well, I will just rent it part of the time”, my suspicion is the tax laws will be written that only allow you to deduct the interest “if” the rental income exceeds the amount of the interest that you pay…
“A lot of speculative housing has been built to go on top of the existing inventory in these 2nd home markets, or destination locations you might say…”
DennisN can attest that Boise is a nice place to live, but ‘destination location’ is clearly stretching it…
I moved to Boise because it’s NOT a tourist “destination location” like the resort towns of Ketchum and McCall. It’s the 3rd largest metro area in the pacific northwest (pop. 500K) behind only Seattle and Portland, with a diverse economy based on forest products, plant agriculture, diary, meat, mining, semiconductors, printers, RR locomotives, and many other industries. It’s not a place where people commute to jobs far away - the jobs are here in town.
People from out-of-state didn’t buy houses near Boise as “second homes”, but rather as pure speculation. My property manager when I rented here - also a realtor - told me he was shocked that out-of-state buyers never even visited the properties but just bought them sight unseen. Many had no intention of ever visiting their properties - how crazy is that?
I certainly agree that the risk involved in buying a place in a destination resort area like Bend, Coeur d’Alene, Vail, and the like makes it a crazy idea. There’s no “economy” there except for tourism.
“I certainly agree that the risk involved in buying a place in a destination resort area like Bend, Coeur d’Alene, Vail, and the like makes it a crazy idea.”
Those sound like good places to invest once everyone else who invested there at the wrong time has lost their shirts, and are complaining that real estate is a terrible investment.
Neat post DennisN…Thanks…I think if a vote were taken on the board Idaho would have been much farther down the list…You have a theory why ??
Well first of all it’s a statistical anomaly. Notice it’s not “percentage down from the peak”, but only for a particular one-year time slice. Most other places dropped way down prior to Sept. 2009-Sept. 2010. Merced CA may be down something like 60% from the peak, whereas Boise may be down only 30% from the peak.
The Boise metro area’s problem appears to be that speculators from out-of-state bought up an over-production of houses from say 2003 to 2006. Then when the bubble burst they slowly defaulted on these properties. There were more houses built here than families wanting to rent, so they couldn’t even rent them out.
The locals were priced out during the bubble and they are now happily “snapping up” the cheap short-sale and REO houses now available. To some degree they have schadenfreude about “them furriners” losing their shirts in property speculation.
‘To some degree they have schadenfreude about “them furriners” losing their shirts in property speculation.’
Sounds awesome! I am tempted to go back to my wife’s hairdresser, the one who told me about her Arkansas real estate investments the last time she cut my hair back in 2006 or so, just to hear about how badly her gambling activities turned out.
And why is falling housing prices in Idaho troubling?
Your post is disturbing. Why are you here again?
Stucco…. We’ve had much the same perspective for alot of years now. I’ve maintained that the further out from center of metro radius you go, the more dramatic the declines will be, however the metro areas needed to crack first. Once those with cash(metro dwellers) stopped spending, the far flung outer rings lock up tighter than an gnats ass. The deflationary effect will be deadly on the outer rings.
Right. I feel deep pity whenever I cross paths with families who moved out into the sticks circa 2006 to avoid unaffordable prices closer to the center of San Diego. One young lady recently lamented to me that I was right in my advice back before the housing bubble was common knowledge (which she and her husband blithely ignored), and that they now are down by a large sum of money on the condo they bought in an outlying area, and would probably never get the chance now to buy a stand-alone home.
Did you ever read a story that didn’t make any sense?
Window mfg. Jeld-Wen wanted to diversify out of just building products so they bought up some resort real estate.
When RE went down, wouldn’t you expect BOTH to tank?
The company has been affected by the housing market bust because its core window and door business is tied to residential construction and its resorts have relied on real estate sales to generate the bulk of their business.
http://www.idahostatesman.com/2010/11/20/1425486/ores-jeld-wen-sells-3-resorts.html
Wow. Now THAT’S drinking the kool aid.
I don’t understand “destination” resorts. (”I’m just a caveman.”)
You wanna be in the woods, go walk in the woods. These places are like camping for rich folks. They can’t hack it overnight in a tent since bigfoot might get ‘em, I guess.
Reposting Jeff Saturdays link. This is by far the best and most honest commentary I have heard to date on where the U.S. residential real estate situation currently stands.
“It’s Over” - A Realtor Finally Speaks the Truth About the U.S. Housing Market
I sincerely encourage anyone who reads here to take the time out of your busy lives to listen to what this man has to say. I guarantee you will not be disappointed you did so.
It was never not over.
I see people buying right now thinking the “worst has passed”, and I ask the same three basic questions that I have asked since time immemorial.
[1] Are rents in line with prices?
[2] Do rents track incomes?
[3] Are incomes dropping?
It’s not easy being rational. It’s like the curse of Cassandra.
“It’s not easy being rational.”
But it sure can be profitable.
Back of, buzzkill!!!
You’re right, of course!
“It’s not easy being rational.”
It takes a great deal of patience, and occasional tongue biting when you feel like pointing out to irrational but otherwise reasonable people that they are babbling like morons.
“Markets can remain irrational longer than you can remain solvent.”
That is a pleasant platitude, but I bet my little household’s rationally-driven solvency beats that of upwards of 90 percent of my fellow Californians’. People who, financially speaking, think and act for themselves are in the vast minority, even though it is a simple exercise which anyone with a decent high school education can undertake.
The Greatest Generation stole all the guaranteed pension money. The next generation gets a lump of 401(K) coal instead.
The idea that it was guaranteed pensions that led to angst over the past decade is pure bullshit, which ignores the quid-pro-quo deal earlier this decade to underfund the pension plan in exchange for benefit increases. It wasn’t the pension plan that led to angst, but the way it was mismanaged. I suppose it is expecting a bit much of the lame journalists at the SD Union-Tribune to question the Mayor’s rhetoric.
Sanders proposes no pensions for new city hires
New employees would get 401(k) accounts; current workers not affected
By Craig Gustafson
Originally published November 19, 2010 at 9:58 a.m., updated November 19, 2010 at 7:16 p.m.
If San Diego Mayor Jerry Sanders has his way, the pensions that city workers collect — and have led to so much public angst over the past decade — will no longer exist for most new hires.
Sanders said Friday he’ll gather signatures to put a measure before city voters that would eliminate guaranteed pensions for future employees and replace them with 401(k) accounts similar to what many private-sector workers receive. Only police officers and firefighters would continue to receive pensions under the proposed ballot initiative.
…
In retrospect defined pension plans don’t work if they are mismanaged or
underfunded . Further ,defined plans of Private industry should of
somehow been based on the yearly profits of a Company during a long
span of time . If a Company has a bad year the inflow to the retirement
fund should of been lower ,in good years a higher profit sharing would go
into the fund . By the time a retiree would retire than they would know
what the amount is .
“In retrospect defined pension plans don’t work if they are mismanaged or underfunded.”
In retrospect, defined benefit pension plans face systemic moral hazard of gambling on steroidally procyclical asset classes which relieve the company of its funding requirements during the boom and make it convenient to shed unfunded pension obligations during the bust. The best way to do this is to just declare bankruptcy during the lean years and dump the pension obligations on the PBGC. Rank-and-file employees get royally screwed, while top managers make out like bandits on outsized compensation and bonuses.
I’m looking forward to Grammy eating dogfood, and giving handjobs on the side of the highway.
I might be alone on that quasi-sadistic mindset but then I’ve always had a healthy admiration and love for schadenfreude.
Besides, look at the humor of it all.
Uninformed youth v/s Drooling geriatrics in a wheelchair.
There’s just unlimited comic potential in this one.
“I’m looking forward to Grammy eating dogfood, and giving handjobs on the side of the highway.”
LMAO……. you are hilarious.
But then again, that’s what the hateful minority wants….. until it’s their grandmother. No different than “keep your government hands off my medicare”.
What is the percentage of city workers are either police officers/firefighters?
One offspring and the spouse started a teaching career in the PNW over a decade ago. No retirement; the county just matches their contributions to their public employee equivalent of a 401k.
The trend is not new, it’s just gaining mass. When city/county/state BK’s start happening, the trend will become a VERY big snowball.
Pensions need to be based on the performance and funding available in the pension fund. Pension managers took BIG chances to get better returns, knowing that the tax payers would be on the hook if they were wrong, and they were wrong.
Even if all new hires don’t get a pension at all, there is not enough money in the known universe to fund those that are “entitled” to theirs. Practices like granting 1 week seniority bumps to management on the way out to bump pensions should result in criminal prosecution and jail time, but are instead rewarded with massive payment increases.
Bottom line, pensions MUST be funded! If the pension fund loses value, then the pension MUST also lose value or payments into the fund must substantially increase.
Unfortunately, a lot of state pensions are
guaranteed by state constitutions, so until those
are changed, look for a lot of tax increases to
pay for them.
So really it was a win win situation to gamble on higher returns, since the tax payer could have the money beaten out of the tax payer if the gamble did not pay off.
Here in California, tax increases are not panning out, in fact tax revenues are in the toilet. Not much sales tax revenue. Income taxes are in the toilet. Not much building going on. Businesses are fleeing or going out of business. So even if taxes were doubled or quadrupled I cannot see it making up the difference. I for one would just up and leave the state if they quadrupled my income or sales taxes…
Corporation flat out broke the law and did not fund their pensions as mandated.
Even though they had the money to do so.
Or they borrowed from the funds and never
paid it back.
As well. Exactly.
Also what about the Pension funds that thought they were getting
AAA grade paper(low risk ) and it was really a mis-rating on the securities .
Defined benefit plans don’t serve the drug addled disabled, so only those paying FICA taxes enjoy future risk.
” Only police officers and firefighters would continue to receive pensions under the proposed ballot initiative.”
This is what I have a problem with. They put their pants on one leg at a time like the rest of us, so why are they to be elevated to an exulted statist? Safety retirement is already the biggest farce in employment history.
Let me guess…you probably also don’t care for those huge “public safety” funerals that would make a pharaoh blush.
Certainly the people in the armed forces have a much higher risk of dying on the job than police and firemen, but we don’t give them lavish pensions. They get something after being booted out at 20 years, but are expected to work a
“second career” after the military. IIRC only general officers are permitted to stay active after 20 years duty.
The Greatest Generation stole nothing. The Wall St. and the corporations did.
And stop thinking CA and NY define how the rest of nation the acts and thinks.
The rest of the nation thinks of those 2 as the embarrassing aunt/uncle who’ve done prison time but didn’t learn a thing.
“…of the nation acts and thinks.”
Damned distractions.
In spite of the fact that the poor people pay sales taxes and a number of other taxes ,there is talk of taxing the poor people who don’t pay any
federal income taxes because it isn’t fair that the richer classes pay more
taxes .
I don’t see how any analysis can be made about fairness unless you address
the unfairness about price fixing monopolies ,the contrived costs of things that put more money in the richer classes pockets ,Government hand outs to richer classes,and all the other unequal treatments that manages to allow the richer classes to amass more money and assets.
Sorry, but the rich deserve tax breaks and laws that favor their wants and desires because to create a society that favors the average person is just damned socialeest/commynisim.
So there. Nani nani boo boo.
Marketwatch endorses MEW to buy rental property? WTF…… Are we in 2005 again?
http://www.marketwatch.com/story/buying-a-new-home-and-renting-out-the-old-one-2010-11-19
Maybe they are taking the serial bottom callers’ word for it that the U.S. housing market has bottomed out.
Foreclosure Foul-up: Tracking Down Those ‘Lost’ Mortgages
By Stephen Gandel Monday, Nov. 29, 2010
One of a million foreclosures this year.
Anthony Suau for TIME
Trevor Douglas, 54, may soon lose his Orlando house. Sure, Douglas hasn’t paid his mortgage in more than two years, which is what a Bank of America spokesperson tells me “is important to remember.” It is. Still, if it happens, I will feel partially responsible. I helped push Douglas closer to eviction.
…
Heh, finally the missing detail. I just knew these quick-and-dirty lost note affidavits were at the bottom of this. The banks have been using these like forever. Just too much work to find the actual document.
It took a journalist 4 hours to track down the note. A bank employee more familiar with “the system” could probably do it in far less time.
Had the banks used the normal county recordation system, a guy familiar with the grantor/grantee indexes could probably find it in 15 minutes. That MERS thing really is going to save the banks so much time and money.
“That MERS thing really is going to save the banks so much
time andmoney.”U.S. Census Bureau Report Finds Homeownership Rate at 66.9 Percent
Tue, 2010-11-02 15:08
The U.S. Census Bureau has reported that the homeownership rate in the second quarter of 2010 stands at 66.9 percent, and the number of vacant properties or homes for sale remained unchanged at 2.5 percent. The last time the rate was lower was in 1999, when the homeownership rate was 66.7 percent. According to RealtyTrac, banks have seized 816,000-plus homes through the September 2010 and are on pace to seize more than a million before the close of 2010.
…
Took a road trip yesterday, and visited some of my buddies at one of the Aerospace OEMs.
Seems the airframe and engine OEMs are having trouble with their vaunted “lean manufacturing” plans. Nobody wants to carry inventory, or already have enough to fill their needs for the next two years, since demand for GA aircraft has collapsed. So they have stopped buying from their subcontractors. And now, the subcontractors are disappearing.
Or, in the case that was related to me, they are dependent on a single vendor. Which is really bad, if said vendor (who makes a critical component, that is replaced every time the engine is disassembled) goes Tango-Uniform, due to (say) a flood/fire at their plant…….meaning, your airplane is unflyable, until and unless they get production back up.
But maybe there’s nothing to worry about. Chromalloy (owned by the Carlyle Group) has just announced that they are setting up a division to manufacture engine components in, you guessed it, China……..
Thank god there are still plenty of jobs for everyone in this country or one might think there is trend of offshoring jobs and that one can just run out and upgrade their skills from say, a retail clerk to the highly paid and lucrative field of aircraft technician.
Oh wait…
Okay, then maybe PC tech, network engineer, programmer.
Oh wait…
Well how about architect?
Oh wait…
Doctor?
Accountant?
Engineer of any kind?
Lawyer? (what am I saying?!)
Looks like the list getting short. Would you like some fries with that?
My SIL got his A&P two years ago. Still hasn’t found a A&P job. At least he’s still working in the aviation business.
Unlike the other 15 guys that he graduated with, who are all out of the industry.
Yet, we are still hearing and seeing radio and TV advertisements for A&P schools, talking about the “demand” for mechanics.
This is not going to turn out well. Most of the guys still working in the business are in their forties, at best. And nobody is coming online to pass down the “tribal knowledge” to.
So in about 10-15 years, we’re going to be repaying the price in money, airplanes, and blood when these guys start OJT, and nobody’s around to show them the ropes.
Multiply this by every business in the USA involved in manufacturing and maintaining any kind of complex device.
My Brother is a A&P now a manager for a large leasing company owned by a large insurance company forget the name
he spends alot of time in China
Regulators close 3 banks in Fla, Pa, Wis
By MARCY GORDON The Associated Press
Posted: 5:40 p.m. Friday, Nov. 19, 2010
Regulators on Friday shut down three banks in Florida, Pennsylvania and Wisconsin, lifting the number of U.S. banks that have failed this year to 149 as soured loans pile up and the economy limps forward.
The Federal Deposit Insurance Corp. took over the banks, the largest by far being First Banking Center, based in Burlington, Wis., with $750.7 million in assets.
First Michigan Bank, based in Troy, Mich., agreed to assume the assets and deposits of First Banking Center. In addition, the FDIC and First Michigan Bank agreed to share losses on $515.6 million of First Banking Center’s loans and other assets.
The failure of First Banking Center is expected to cost the deposit insurance fund $142.6 million.
Also seized were Gulf State Community Bank in Carrabelle, Fla., with $112.1 million in assets, and Allegiance Bank of North America in Bala Cynwyd, Pa., with $106.6 million in assets.
A chart on why it really went all wrong.
MUST SEE
http://i.huffpost.com/gen/220306/CHART.jpg
Where is the toxic mortgage asset Superfund site (aka Federal Reserve) on that diagram?
How many more wrist slaps can Gollum withstand before America gets to see a great vampire squid shed real tears?
Of course, it is merely the action of a few of those rogue low-level Gollum employees which is under scrutiny, as their executives operate above the rule of law.
U.S. in Late Stages of Trading Inquiry
By PETER LATTMAN
Published: November 20, 2010
Federal authorities are at an advanced stage of insider trading investigations that could result in criminal charges or significant civil fines against Wall Street traders and executives, a government official said Saturday.
“We are far along in investigations of insider trading,” said the official, who spoke on the condition of anonymity because the inquiry was incomplete.
It was unclear whether the government was conducting one sweeping investigation or looking into various smaller instances of what they suspected was insider trading.
One person briefed on the matter characterized the investigation as a “big case,” saying it would likely result in arrests before the end of the new year, with the defendants numbering in the double digits. The person said that the investigation had to some extent grown out of an inquiry into the Galleon Group.
News of the investigations’ advanced stages was reported Friday night on the Wall Street Journal Web site. The article said that federal authorities could bring insider trading charges that “could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation.”
The government official familiar with the matter confirmed the outlines of The Journal’s article, but would not say whether arrests were imminent or whether specific companies were targets.
Goldman Sachs is among the firms under scrutiny, according to a person briefed on the investigation who was not authorized to discuss the matter publicly. The person said the inquiry involved several low-level Goldman employees, not executives.
A Goldman spokesman, Michael DuVally, declined to comment.
Both the Justice Department and the Securities and Exchange Commission have taken an increasingly aggressive — and public — stance in pursuing insider trading on Wall Street. Among the government officials taking the hardest line is Preet Bharara, the United States attorney in Manhattan.
“Illegal insider trading is rampant and may even be on the rise,” said Mr. Bharara in a speech last month. “Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged and wealthy insiders in modern finance. But for them, material nonpublic information is akin to a performance-enhancing drug that provides the illegal ‘edge’ to outpace their rivals and make even more money.”
…
The sort of crime discussed in this article is the reason the French invented the guillotine.
Wall Street
Friday, Nov 19, 2010 07:01 ET
To deter crime, get tough on Wall Street
Deterrence is the idea behind “tough on crime” sentences for violent offenses. But what about economic homicide?
By David Sirota
Often, the most provocative ideas arise after swigs of whiskey. This is especially true when a Rolling Stone reporter is around — and, as I recently learned, it’s all but guaranteed when that Rolling Stoner is Matt Taibbi, aka the heir to the magazine’s gonzo throne.
I had the chance to hang with Taibbi last week after he spoke to a Denver audience about his new book, “Griftopia,” which argues that Wall Street’s bubble-bailout cycle has been one of the greatest — and least prosecuted — crimes in history. His presentation was serendipitously timed, coming the same week as a local Bonfire of the Vanities-esque scandal was underscoring the speculator class’s privilege. In Colorado’s own Bonfire of the Rockies, a local prosecutor had just reduced hit-and-run charges against a fund manager because the prosecutor said a felony would have “serious job implications” for the Sherman McCoy in question.
Over drinks in my living room, Taibbi and I pondered the financial Masters of the Universe and their maddening infallibility. I asked him why they never fear facing legal consequences. Do they believe they’re untouchable? Or do they know law enforcement won’t pursue them?
“They’re not afraid because other than Bernie Madoff, when was the last time someone on Wall Street faced any real punishment?” he responded. “Sure, a few go to jail once in a while, but they’re usually out in a few months and then on the speaking circuit. That’s not exactly a deterrent against bad behavior that’s making you millions.”
Deterrence — it’s the vaunted idea behind “tough on crime” sentences for violent offenses. Lock the door, throw away the key, and the theory says that heinous acts will be prevented.
…
ALL THE DEVILS ARE HERE
The Hidden History of the Financial Crisis
By Bethany McLean and Joe Nocera
Illustrated. 380 pp. Portfolio/Penguin. $32.95.
Excerpt: ‘All the Devils Are Here’ (Google Books)
Count me in as eagerly awaiting the incipient clash between investors and lenders. The only thing I object to in the title of this book is that ‘devils’ live in the spirit world, and hence are above the rule of law. I still remain steadfastly optimistic that many of the perpetrators of high financial crimes and felonies may eventually serve long prison sentences.
Meanwhile, got popcorn?
Welcome to the Casino
Mary Altaffer/Associated Press
By PAUL M. BARRETT
Published: November 19, 2010
Two of our finest business journalists have written a thorough account of the origins of the financial crisis of 2008. More than offering just a backward look, it helps explain the most troubling business headlines of the moment, as well as those that are certain to come. For starters, there is the unfolding foreclosure-paperwork fiasco. Next up will be a clash over whether big banks should be forced to take back billions of dollars in contaminated mortgages they sold. Down the road, we will no doubt confront the danger of the next asset bubble inflating as a result of the Federal Reserve’s use of extreme monetary policy to stimulate the economy. These continuing and future problems are all symptoms of a larger syndrome whose origins Bethany McLean and Joe Nocera ably chronicle in “All the Devils Are Here: The Hidden History of the Financial Crisis.”
The title alludes to a line in “The Tempest” (“Hell is empty, and all the devils are here”), and fiends surely abound: subprime sleaze kings; bonus-happy Wall Street plutocrats; and, of course, Alan Greenspan, the fallen maestro of the Federal Reserve, whose see-no-evil free-market ideology made a virtue of unchecked financial recklessness.
For those readers who have not immersed themselves in the murky tale of the way dubious housing finance became entangled with Wall Street’s casino culture, McLean and Nocera offer as legible an overview as exists. McLean, a former Goldman Sachs employee, writes for Vanity Fair and was the author, with Peter Elkind, of an insightful book about the Enron scandal called “The Smartest Guys in the Room.” Nocera is a business columnist for The New York Times and, like McLean, a former longtime staff member at Fortune.
Others have illuminated facets of the crisis in more depth. John Cassidy’s “How Markets Fail” explained the economic history and theory with greater sophistication. Gillian Tett’s “Fool’s Gold” offered a journey into one investment bank, J. P. Morgan, and a close look at how it helped create a financial instrument, the credit derivative, that amplified risk rather than minimizing it. “In Fed We Trust,” by David Wessel, took the reader behind the scenes in Washington, where politicians and regulators missed all the warning signs. For their part, McLean and Nocera concentrate on the basics and bring them together in brisk, well-organized chapters.
They are particularly strong in their examination of the American myth that every family deserves to own a home. This belief, they explain, provided camouflage for all manner of chicanery, putting people into houses they could not afford and erecting corrupt investment empires on the notion that unrealistic mortgage payments would somehow continue to flow. Democrats and Republicans, investment bankers, financial speculators and affordable-housing advocates — they all conspired, with varying motives, to prop up the delusion that real estate prices could not fall and that the refinancing merry-go-round would never stop turning. Hundred-billion-dollar bailouts and millions of family foreclosures have taught us otherwise.
And here is where “All the Devils Are Here” provides a service even for those who have tried diligently to keep up with the literature of the crisis. McLean and Nocera enable us to grasp the latest depressing news about lenders trying to take possession of suburban homes for which they cannot find the relevant paperwork or for which the paperwork seems fabricated.
The authors show that beginning back in the 1970s, the simple transaction of a bank collecting monthly mortgage payments got caught up in a far more complicated Wall Street invention known as securitization. Rather than keep mortgages on their books, lenders sold them to packagers who, for a fee, bundled individual loans into bonds that were carved into “tranches” and then sold to investors. Over time, the bonds became more intricate and riskier. So did the underlying mortgages, which proliferated as a result of low interest rates set by the Fed. No one worried much about the dangers of default because ownership of mortgage debt kept changing hands.
Demand exploded for more mortgages to keep the production line humming. Record keeping was an afterthought. When the forces of financial gravity inevitably came into play, and overextended homeowners stopped sending their monthly checks, the value of all those securities dropped, though no one could say by how much. Panic ensued, destroying Lehman Brothers and Bear Stearns. Credit froze, taking us to the precipice of a global depression.
Swift government intervention reduced the calamity to a severe recession but did not erase the unaffordable home loans or retroactively create an easily followed mortgage paper trail. As McLean and Nocera demonstrate, the dishevelment of the records that were kept during an era of frenzied securitization explains the present chaos over foreclosures.
“All the Devils Are Here” is similarly useful for deciphering what will surely become a high-stakes clash between powerful investors and the banks. The investors are already accusing the banks of knowing full well that they were larding mortgage-backed securities with loans very likely to go bad. According to testimony before the Financial Crisis Inquiry Commission, the banks commissioned research that revealed the toxicity of their products, but Wall Street kept silent. As this ugly revelation sinks in, hedge funds and other institutional investors that bought the securities are going to be calling their fiercest lawyers. This conflict could heat up as early as the end of the year.
…
“This conflict could heat up as early as the end of the year.”
These conflicts - these scandals - are what bear markets are made of. If anyone is interested if buying good quality stocks at very cheap prices then he/she should pay attention to what is about to unfold.
First, go here and examine what happens to P/E ratios in both good times and in bad times: http:www/.multpl.com/.
Note what the P/E was at about the year 2000 and recall the mood of the country toward stocks at around that time. Then go look at the P/E from the mid-Seventies up to Nineteen-eighty-two and remember what the mood of the country was then. The big difference in the moods during these two time periods was reflected in stock prices as measured by their P/Es.
Our country is about to experience a mood very similar to the mood of the Seventies. And along with this mood will be a decline of public interest in buying or even holding stocks.
FWIW IMHO the time to load up on stocks will be at hand in about a year or two with P/E ratios going below eight.
“Our country is about to experience a mood very similar to the mood of the Seventies. And along with this mood will be a decline of public interest in buying or even holding stocks.”
Thought we were already there, except for buyers of last resort?
the 1970’s with the commodity boom and price controls by Nixon and then you can’t find anything in the store? And Gas shortages. I remember the 1970’s. went off the Gold standard, I was about 13 when this happened all my dad’s friends were talking about it. Home prices were going up fast back then too. Interest rates way up. Hard to find jobs. But th epopulation was much younger I sure was.
I think its going to be like the 1930’s
I don’t see the shortages I don’t see the high interest rates
I don’t see people getting wage increases. yea Gold’s up probably investment Banks using the free money to buy commodities.
And we seem to be getting old a great big demographic wave of us. Thats not inflationary. thats like Japan.
Thanks for posting this and the other one in the past. I’m on board. It looks like P/E north of 20 marks a good time to check out.
Question…why were stocks out of favor in mid-70s? Everything else cost too much to be able to put toward stock investments?
Economy Lab
The new currency war: Greenspan v. Geithner
BRIAN MILNER
Posted on Thursday, November 11, 2010 1:20PM EST
There’s nothing better than a good old-fashioned currency war.
I’m not speaking here of the long-standing dispute over China’s refusal to free the yuan from its shackles or everyone else’s urgent efforts to devalue their way back to prosperity.
No, this is the war of words that has erupted between former Federal Reserve chief Alan Greenspan and U.S. Treasury Secretary Timothy Geithner. When he was serving as the world’s most powerful central banker, Mr. Greenspan’s pronouncements were often bathed in opacity. Trying to pin him down on a particular policy direction was as easy as nailing gelatin to a bulletin board.
But now, you can’t shut the guy up. In Thursday’s Financial Times, he observed that the U.S. government is deliberately “pursuing a policy of currency weakening.” This happens to be true, but it’s not exactly the right message for President Obama and Mr. Geithner to be carrying into a G20 meeting, where a bunch of countries are infuriated over the U.S. currency-depreciating measures, better known as monetary stimulus.
“We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy,” Mr. Geithner declared in response.
That’s the party line, and the Americans are sticking to it. Hey, if the greenback falls because the Fed intends to pump another $600-billion into the financial system, it’s just collateral damage.
What neither Mr. Greenspan nor Mr. Geithner noted is that whether or not there is a deliberate plan to depress the U.S. dollar, it’s not working very well.
…
America in numbers
One nation, divisible
As America undergoes dramatic, uneven changes, it may become harder to govern
Nov 18th 2010 | chicago
…
The first decade of the 21st century was not kind to America’s middle class—real median household income was 7% lower in 2009 than it was in 2000. The gap between rich and poor widened (see table). And the young are doing relatively badly in education.
All these trends are enough to shake a nation. Just as important, however, is that they are playing out very differently from one part of the country to another. Of course, some variation is inevitable; but as the fault lines that criss-cross the country widen, finding political consensus becomes ever more difficult.
…
That story inspired me to go get some of the data from the Census Bureau website. Their median state income data, averaged over the past three years in a list ranking states from highest to lowest, is instructive.
You might think that California is a “rich” state but is bracketed between Minnesota and Nevada at #13. Iowa and New York are tied at $50K.
The difference in median income between #1 NH ($66,654) and #50 MS ($36,650) is less than a factor of two. Using the old metric of 3x income for house prices, the difference between a MS house at $109,950 and a NH house at $199,962 is striking. I’d guess it’s easier to buy a house in MS at that price than it is in NH.
The vast majority of median incomes lies in a bracket between about $45K and $60K. Such small differences would make the observed differences in cost-of-living seem very odd indeed.
FHA Auditors Predict Further Home Price Declines
Published: Tuesday, 16 Nov 2010 | 9:46 AM ET
By: Diana Olick
CNBC Real Estate Reporter
The bad loans of the housing boom are still bad, but the new loans from today’s tighter mortgage market are so much better that they’re offsetting the trouble. That’s the message from the Federal Housing Administration in its annual report to Congress.
…
Summary Box: Prices tame while construction dips
The Associated Press
Wednesday, November 17, 2010; 5:20 PM
– INFLATION: Consumer prices rose a modest 0.2 percent in October, reflecting higher gasoline prices. Core inflation, which excludes energy and food, showed a gain of just 0.6 percent over the past 12 months, the smallest increase on record.
HOUSING: Construction of new homes and apartments sank 11.7 percent in October to a seasonally adjusted annual rate of 519,000 units, the weakest performance since a record low set in April 2009.
CENTRAL BANK: The new reports showing weakness in housing and the absence of inflation provide support for the Federal Reserve’s decision to pursue a new program to buy government bonds as a way to lower interest rates and boost economic growth.
What if the Fed is wrong, and deflation is in the bag no matter how much they print?
Off the Charts
After the Fed’s Action, Watching Inflation’s Trajectory
By FLOYD NORRIS
Published: November 19, 2010
Following Japan’s Path, So Far
THE core rate of inflation fell to a record low in the United States last month, rekindling fears of deflation and warnings that the Federal Reserve might have to take even more aggressive steps to keep inflation as high as it wants it to be.
“In the short run, disinflationary forces in Western economies, especially the U.S., appear too powerful to be overwhelmed by the recent loosening of monetary policy,” said Richard Batty, an investment strategist at Standard Life Investments, a Scottish firm.
Since the collapse of the housing market in the United States and the beginning of the global financial crisis, the Federal Reserve has made avoiding deflation a major priority, recalling the experience of Japan after its bubble burst in the early 1990s. The Fed has set an annual inflation target of 2 percent or a little lower, but is not getting it.
The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.
As the accompanying chart indicates, the core inflation figures are charting a path roughly similar to one shown in Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.
…
“What if the Fed is wrong, and deflation is in the bag no matter how much they print?”
I’m absolutely that they can produce inflation—inflation _somewhere_ that is.
Right now, our loose money is racing off to other countries and causing inflation there: India, China, etc.
Inflation may be truly out of control there before it starts to really register here at home.
I bet the Fed is wishing for the simple old days of more closed economies that were so much easier to manipulate…
“I’m absolutely that”
Meant to say:
“I’m absolutely SURE that”
Wonder what home sales and mortgage rates will look like in 2011?
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