The Downturn They Never Had
Readers suggested a topic on the state of the global housing bubble. “The way central banks all over the world are manipulating the markets, would it ever get real again. I spoke to someone and he said it is real because people are making real money. But my point is it is not organic and all rigged with printed money all borrowed money. Is it sustainable? The RE markets all over like Aussie, Canada, Singapore, HK, India etc. are taking forever to burst. So much intervention from Govts. and central banks. Would these countries be able to face austerity when shit hits the fan. And it will eventually. Why can’t they get it and prepare accordingly.”
A reply, “Well…. here’s the thing….. They own the media. They create their own reality however false it might be and pump it out to the public and they’re too stupid to know any better. Truth is obscured. Truth be damned.”
One asked, “To what extent is the weak economy we are in the result of the aftermath of the housing bubble? And to what extent is it merely the economy we would have had all along, absent soaring indebtedness? I’d say the latter, except that there would be more housing development going on without the excesses and overhand of the bubble years, and thus somewhat more normal unemployment.”
“You’d still have falling wages, a falling standards of living, and people moving into retirement or being pushed sans pensions. Those are 30-year trends.”
One had this, “Topic: the mythical Fed exit. There has been much discussion over the past 5yrs, by Fed Governors themselves, reassuring the markets that when it comes time to ‘exit,’ that they have the tools available to do so. Why would they ever exit, except perhaps to combat runaway inflation?”
“Historically, they have not exited in the past. Before the current crisis became common knowledge, the Fed had holdings on their balance sheet of just under $1T (IIRC–don’t have the data in front of me right now). Presumably that was the accumulation from all of their open-market activities previous to that. And no one complained much about it.”
“Why should we believe that they would ever return to historical numbers, given the above? Will the Fed balance sheet from here on out just be maintained at $4T? $6T? $10T? Did Volcker reduce the size of the Fed’s balance sheet when he was combating the last round of serious inflation in the late 70s?”
“What factors other than runaway inflation could cause the Fed to even want to reduce the balance sheet, much less follow through on doing so?”
A reply, “There is NO ‘exit strategy.’ There doesn’t need to be. Take a look at Japan. Over 20 years of Zero interest-rate policy, producing a period of the ‘Yen carry trade’ with printed paper. Their society hasn’t collapsed. They just have a general devaluation of Real Estate and markets, but they keep printing money and ‘investing’ in the infrastructure, as they call it. We will do the same.”
“After chastising the Japanese for their money-printing schemes more than a decade ago, the same people (Bernanke & co.) have done exactly the same thing: Used the Central Bank as a ‘wealth creation’ fraud, that prints up paper and allows people who control its distribution to ‘cream off’ the remnants of societal wealth, leaving the majority of the population all the poorer. Banksters, world-wide, have been living better than emperors with simple Paper Printing. And the American voters? Completely ignorant.”
From CNBC. “Entities such as the Federal Reserve and the European Central Bank in 2012 took control of global economies like never before. Based on current market and economic behavior it’s likely to be years before anything changes. After all, how can central banks take their foot off the stimulus pedal when there’s so much at stake?”
“In all, 13 other central banks in the world have followed the Fed’s lead and set interest rates at or near zero in an effort to keep the liquidity spigots open and prop up their ailing economies. Those 14 economies represent a staggering $65 trillion in combined equity and bond market capitalizations, according to Bank of America Merrill Lynch.”
“As for the bond-buying programs — aka quantitative easing — that dovetail with the low interest rates, the U.S. central bank alone shortly will eclipse $3 trillion on its balance sheet and is expected to end 2013 north of $4 trillion in electronically created money. ‘When you add up all the central banks in the world, it’s going to be over $9 trillion,’ said Marc Doss, regional chief investment officer for Wells Fargo Private Bank. ‘That’s like creating the second-largest economy in the world out of thin air.’”
From Stuff.co.nz. “The economy is going through its slowest recovery from a downturn in 80 years, and the biggest risk is a slowdown in Australia, according to economic forecasting group NZIER. In its latest Quarterly Predictions, NZIER says the trudge out of the gloom would take another two to three years. In a slow and patchy recovery, the New Zealand economy is expected to grow 2.1 per cent in 2013 and only slightly better at 2.6 per cent in the following year.”
“Many of New Zealand’s exports go to ‘non-mining’ Australian states. So the slowdown in exports was less about the knock-on impact of the Chinese demand for minerals, but more about a slower domestic economy in Australia. ‘It’s clear the eastern states are slowing, the housing market is cooling and domestic demand is coming back. That’s a pretty big risk for New Zealand traders,’ NZIER principal economist Shamubeel Eaqub said.”
“The eastern states of Australia had been in recession for about nine months, as the boost from extra government spending wore off. ‘It is the downturn they never had; during the global financial crisis, he said.”
“Meanwhile, New Zealand’s recovery from recession was unusual, in that it was the slowest in 80 years, with some indicators similar to the Great Depression of the 1930s, NZIER said. The economy now was almost 10 per cent smaller than in previous recoveries, four years after they began. The level of jobs was about 5 per cent lower than expected under a normal recovery. In more usual times there might be about 110,000 more jobs than there are at present. ‘That’s a sizeable chunk of jobs,’ Eaqub said.”
“The present recovery was different from others because it was such a big ‘debt bust,’ with the last one of this size during the Great Depression, he said. Rather than the economy snapping back to a normal recovery, it would take a long time to pay down debt. Households were gradually repaying debt, which reduced the risks for the economy, but there were signs of the housing market overheating, especially in Auckland.”
“‘If the housing market falls, perhaps because of deteriorating global growth, it could tailspin New Zealand back into recession,’ NZIER said.”
“After chastising the Japanese for their money-printing schemes more than a decade ago, the same people (Bernanke & co.) have done exactly the same thing:…”
Mr Black Pot, I’d like you to meet Mr Black Kettle.
When I was in college studying accounting, Japan’s actions got discussed a little. One thing that was said about off-shoring un-collectable debt and loses was that it couldn’t happen here. Our accounting regulations wouldn’t allow it. Just look at the GSE’s, and how FASB rules were modified.
IMO one important difference to the experiences in Japan is that there weren’t 14 other countries doing the same thing at the same time. I have no idea how this is going to play out, but it almost certainly won’t be exactly what happened with Japan.
And that Japan
is a nation of savers
has/had a massive positive balance of trade
most of its government debt is bought internally
actually used alot of that to build real infrastructure
We will be LUCKY if we end up like Japan…
We will be LUCKY if we end up like Japan.
That would take mass exporting of Blacks and Hispanics. Not gonna happen.
Oh that’s right cause congress and wall street are predominately black and hispanic…
Wow…
“That would take mass exporting of Blacks and Hispanics. Not gonna happen.”
Albert Einstein once said: “If the bee disappears from the surface of the earth, man would have no more than four years to live. No more bees, no more pollination … no more men!” These days agriculture in the U.S. would die without Mexicans to work in the fields. Politicians might talk tough about the border, but it’ll remain full of holes.
‘These days agriculture in the U.S. would die without Mexicans to work in the fields’
My question would be how many more field workers do we need? And don’t we have temporary visa programs for this?
“My question would be how many more field workers do we need? And don’t we have temporary visa programs for this?”
Good questions, but I’m not close enough to agriculture to answer honestly. However, this past year there were several stories in the TriCity Herald (Pasco, Kennewick and Richland in Washington state) about a lack of experienced field workers despite wage increases too. A huge problem up here is the seasonal problem with long winters; likely means some form of social welfare. Washington state accommodates this migrant workforce with free healthcare dispensed from large mall-like facilities that I’ve seen in Mattawa and Othello. Lots of fancy SUVs parked outside these places too. Add it all up though, and it spells farm subsidies. I’m not sure how much food prices would rise if they had to pay straight-up wages, taxes and insurance like a construction company, but they wouldn’t be competitive with world food commodity markets.
Oh, my, my. How did white europeans ever survive without mexicans to pick the vegetables? All these claims are completely ridiculous.
I’ve worked growing vegetables, and picked them, too. As a part-time job.
South Africa used to have a “white” farming population, that provided Food to the entire country before the end of “apartheid”. Now, they can’t grow enough food and depend on Food Aid. They got the White out, though.
White folks have managed for centuries to grow, pick and ship their own food.
It is however, a hard job, involving typically manual labor. Better opportunities lie elsewhere and most people who can will find other work.
I am sure America could survive the loss of illegal aliens for their work in the fields. And surely, we could get control over temporary workers if we want to play it that way.
There is just no political will to take sides on a sensitive issue. Better to ignore it. Maybe it will go away. Given current trends in illegal migration, the “latinos” will outnumber the rest of us soon, anyway.
Then we won’t have to worry about it. As I once heard said: “the future belongs to those who are there to have it”. Demographic shifts could be stopped, but there is little political support for it.
South Africa used to have a “white” farming population, that provided Food to the entire country before the end of “apartheid”
Say what? During apartheid the blacks still worked the fields for the white bosses. It wasn’t like the two races were totally separated. The blacks just had a lot fewer rights.
“These days agriculture in the U.S. would die without Mexicans to work in the fields.”
This is actually untrue. What would happen is farmers would have to raise wages in order to attract workers, and prices would have to go up. It would be a mess for a short time, but the market would quickly work it out. I think food is too cheap in this country already.
I remember a situation a few years back where some rich citrus grove owner lady was complaining on the news that her workers didn’t show up, and all the fruit was rotting. She was dressed like she was ready to go to a bridge get-together, and had a lot of jewelry on. My question to her would have been: Why are you wasting time and not picking the fruit yourself? People have lost touch in this country.
“This is actually untrue. What would happen is farmers would have to raise wages in order to attract workers, and prices would have to go up. It would be a mess for a short time, but the market would quickly work it out. I think food is too cheap in this country already.”
The U.S. already imports more food than we export. Like many other products of our economy the U.S. agri-business can’t compete in the global commodity markets unless low-cost labor is used. The only whites working around farms these days are self-employed contractors. Paddies need not apply as employees because Mexicans can out-work them, and paddies tend to “get hurt” on the job so they can leverage the disability gig; nothing but trouble.
We build over-priced stucco boxes w/ granite counter tops.
I still contend it’s pretty clear what’s going to (has to?) happen. Inflation. That’s the only way to clear the books of this noncollectable debt. I’m not talking 1000% a year or anything like that, but I think we’ll see a few years at 10%+ inflation and then, suddenly, the debt problem will subside.
Sorry, wrong. Inflation means price inflation will be matched with buyers. There’s no way to produce buyers, domestically or offshore. Domestically, wages are going down, for decades. And credit lines sure as heck aren’t going to make up the difference. No income, no credit = No increased buying power. No sales. No sales = Inventory sits. Businesses crash; their products are auctioned off (read: DEFLATION). Businesses that survive have to drop prices, and driving down wages themselves will help them do that.
The same forces that drove prices up for decades, will now drive them down.
People have prayed at the foot of the Inflation Goddess for many decades now. Her time is over, but her worshipers know nothing else.
inflation means price inflation will be matched with buyers. There’s no way to produce buyers, domestically or offshore. Domestically, wages are going down, for decades.
Widespread destitution instead of inflation. I think I get it now.
No sales. No sales = Inventory sits. Businesses crash;’
tuition, medical ??
Sorry, wrong. Inflation means price inflation will be matched with buyers. There’s no way to produce buyers, domestically or offshore. Domestically, wages are going down, for decades. And credit lines sure as heck aren’t going to make up the difference. No income, no credit = No increased buying power. No sales. No sales = Inventory sits. Businesses crash; their products are auctioned off (read: DEFLATION). Businesses that survive have to drop prices, and driving down wages themselves will help them do that.
The same forces that drove prices up for decades, will now drive them down.
People have prayed at the foot of the Inflation Goddess for many decades now. Her time is over, but her worshipers know nothing else.
Listen up you Debt Junkies and $50k/yr Millionaires….
You’re never going to read so much truth packed into so few words in your life than you will when you read what Better Renter wrote. You can run from it, deny it, disparage it but you won’t change it.
Deflation will be the rule of the land there will be some spillover from where all that created money is going to though.
Expect Manhattan real estate to remain expensive.
Art work, fancy cars, yachts will all increase in price.
Expect Manhattan real estate to remain expensive.
Getting less costly by the day.
Art work, fancy cars, yachts will all increase in price.
Selecting 0.00000001% of all art and cars (yachts prices continue to fall) is a bit disingenuous.
If you have to have wage inflation in order to have inflation, how do countries like Zimbabwe manage to pull it off?
tresho said: Widespread destitution instead of inflation.
Yes, that’s one way it will express itself. Say instead of a $9.95 radio becoming $29.95 during a period when your $35K salary becomes $55K, then under the deflationary paradigm the $9.95 radio becomes $6.95 while your $35K salary disappears entirely (forcing you into part-time work, scrounging maybe $17K that year). That cheaper item becomes totally unaffordable; it may as well be $695.00, hyperinflating.
“If you have to have wage inflation in order to have inflation, how do countries like Zimbabwe manage to pull it off?”
Pull what off? Demand cratered. You’ll have cherrypick another exception because Zimbabwe isn’t it.
Pull what off? Demand cratered. You’ll have cherrypick another exception because Zimbabwe isn’t it.
Demand for what cratered?
Bus tickets were 2 trillion dollars. How do you get that without wage inflation?
Gee wiz Martha…. I wonder how many bus tickets were sold?
Gee wiz Martha…. I wonder how many bus tickets were sold?
Apparently quite a few. This has been going on for years, over a decade, in fact. As usual, you have no idea what you’re talking about. Here’s someone who does:
So my question remains. If Zimbabwe can create wage inflation why can’t we?
As usual, you avoid the question.
How far has the demand for ____ fallen?
“If you have to have wage inflation in order to have inflation, how do countries like Zimbabwe manage to pull it off?”
Because when you have no real diversity in your economy, you’re run by warlords instead of a rule of law, and you’re really just a ducal fief of a few Western corporations, you can experience hyperinflation.
If the US lost its resource reserves, and lost its rule of law, and was basically a slave state to a greater power (the Chindia Axis?), then I’d agree that hyperinflation would be a significant risk.
Until then, however, hyperinflation is literally impossible to achieve here. Any attempt to expand prices like that will toss your stupid business into the auctionhouse.
when you have no real diversity in your economy, you’re run by warlords instead of a rule of law, and you’re really just a ducal fief of a few Western corporations…Until then, however, hyperinflation is literally impossible to achieve here.
Good! Then we can just monetize our debt and quit worrying about it.
Nobody is worrying about it. Except for you.
I still contend it’s pretty clear what’s going to (has to?) happen. Inflation. That’s the only way to clear the books of this noncollectable debt.
I see eventual inflation too, but I see it as a way to pay for all of the upcoming unfunded promises such as corporate and government pensions.
But I certainly do agree that asset prices have a long way to drop from thirty years worth of inflation.
‘I’m not talking 1000% a year or anything like that, but I think we’ll see a few years at 10%+ inflation and then, suddenly, the debt problem will subside’
This is funny, and is only possible in the context of a country that hasn’t experienced significant inflation in decades. The problem with inflation is you don’t pick the sweet spot that solves all your problems. It runs away and creates its own spiral. It’s also comical to hear people wish for inflation, forgetting how terrible it is. Yes prices and wages go up, but wages don’t keep up and the poor and middle class get hammered. Retired people get hammered. A handful of investors benefit and government gets to spend more (hurrah!) but all in all it’s a disaster.
Here’s what’s relevant to your point; if creating money created inflation (the Friedman theory), we would have had a lot of inflation since 1990, (the 80’s for Japan) and we haven’t. It used to work that way, but something has changed and the only economists that have come close to explaining it are the Austrians. (Pushing on a string and all that).
So here’s the problem; we have a govt/central bank operating on the old theory, that doesn’t work. They say, inflation is low, we are free to print money! This ignores the disconnect, and compounds the negatives of artificially low rates, money creation, etc. Then it doesn’t work again, and they say, print even MORE money! And so on.
I don’t see a way out of it. Almost nobody in govt or the media questions these outdated, destructive central banks policies. Heck, we can’t even get the Fed audited. I do know this, what’s gonna happen is something that no one can predict or probably imagine. Throw in a global housing bubble, insane debt levels and the chance of it ending well are next to zero. How’s that for some Sunday evening cynicism?
“…14 other countries doing the same thing at the same time.”
It’s quite reminiscent of the ‘beggar thy neighbor’ policies which were in play during the Great Depression.
The international banking community seems remarkably unified on this one. No OPEC gaming the system, no Japan lording it over the rest of the world, just a lock-step policy of critical bailouts for the powerful and credit contraction for the rest of us.
As the baby boomers pass, so will the recession.
Ahansen, that will take a long time to clear out, if indeed the Boomer generation’s passing would “fix” it.
We’re in for a long 30-year-long Lost Decade, just like Japan.
Agreed. But when it’s over, sometime in the 2030’s, those who follow will be sittin’ pretty.
If they are fortunate, they will be working with a more sustainable system than the one we have been living with.
“…sittin’ pretty.”
Yes, assuming some unforeseen highly destructive military conflict doesn’t unexpectedly blow it all to smithereens…
When we talk about japan’s ‘lost decades’, what are we talking about? It seems to me that they’re doing quite well (3rd largest economy in the world, high quality of life, very long life expectancies, low infant mortality, etc). They just haven’t returned to their bubblemania price levels in stocks and RE.
Is that a bad thing, or exactly what we would like to see?
“We” do not benefit from GROWTH as much as some.
You obviously are completely out of touch with Japan. They have a new youth brigade of worthless kids, unemployed, who have no sense of purpose in life, except to hang out at the mall.
It is a dying society, in many ways. We have that same ideology in the democrat takeover here: Healthcare on Parents insurance to age 26. The nanny state. You don’t have to “grow up” and get a job, you can live off the state, with food stamps.
I guess that’s not too bad. When they have no sense of community and begin a societal disintegration, then an agent of Goldman-sachs can take over the “money system” and guide them into debt slavery, like in Italy or Greece or Spain.
All Hail Goldman-Sachs!!
“After chastising the Japanese for their money-printing schemes more than a decade ago, the same people (Bernanke & co.) have done exactly the same thing: Used the Central Bank as a ‘wealth creation’ fraud, that prints up paper and allows people who control its distribution to ‘cream off’ the remnants of societal wealth, leaving the majority of the population all the poorer. Banksters, world-wide, have been living better than emperors with simple Paper Printing. And the American voters? Completely ignorant.”
Bravo!
Can anyone describe the present economic world order more clearly?
‘QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5%’
http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-here-bernanke-delivers-85b-a-month-until-unemployment-falls-below-6-5/
A lot of things could be said about this, but what interests me the most is the idea that a target unemployment rate is taken as a given. Meaning, all we have to do is create money, use it to buy treasuries and mortgage bonds and jobs will magically appear. What if, as more economists are suggesting, unemployment gets worse as a result of this? A basic concept in the business world is that any policy should be periodically reviewed for its effectiveness at points set when making the policy. Wouldn’t it be logical to say if jobs aren’t growing in 12 months or so, we’ll reconsider this policy? (Of course, that might lead to admitting it hasn’t worked for years now).
And note the complete lack of negatives mentioned. Like the damage from low rates to pension plans, fixed rate investors like seniors? Encouraging various governments to take on excessive debt? Commodity speculation that could drive up food costs in other parts for the world? This is just what’s outside the harmful effects of higher house prices.
What if I set up a counterfeiting operation and announced I was going to print money and give it to poor people until the unemployment rate got to 6.5%? I’m pretty sure the police would be at my door the same day. Maybe I’ll just announce I’m going to hold my breath until Bernanke is right about something. At least it wouldn’t hurt anyone but me.
The reality of the Federal REserve “system” is that it IS, in effect, a counterfeiting operation that steals from the working class Americans, and others with whom it has influence.
The “economic collapse” of 2008 is simply a matter of TOO much debt that cannot and will not be paid.
The masters of money at the FED believe they can hold the title to properties over the entire nation in limbo, long enough for their money-printing operations to get inflation working to revalue the properties at face value of the loan, or better.
It’s been a big gamble and it hasn’t been working.
The overall effects, as you have mentioned, HURT specific groups, particularly those entering retirement years. Those who Saved money for their retirement, and those who have a fixed income.
So, here’s another solution. A better and more equitable solution. It has been proposed by Steve Keen, an Australian economist that has a lot more brains than morons like Bernanke and Krugman. He proposes a “Debt Jubilee”, a concept of forgiving debts accrued and getting back in line with what people can afford, based on the current income basis.
His idea is unique in that he proposed that the government simply GIVE people, say, $100,000 each, for the use of whatever they want, with one Caveat: Those who have debts MUST use the money to pay off debts first.
This is a MUCH more fair process to people who tried to be frugal and NOT cause a housing bubble.
In other words, if you are $100,000 underwater on your mortgage, you are no longer underwater.
If you are debt-free and don’t owe any money, you get $100,000 added to your retirement account, or can use the money anyway you want.
This is how STIMULUS should have been done, from the bottom, up.
It is much fairer than giving BAnksters money to speculate with, as that scumbag, Paulsen tried to do, then succeeded in giving money to the very people who caused the crises.
This would also re-capitalize the Banks, because all the money for home-debtors would be ear-marked for bank deposit to clear their mortgages.
This solves the problem of all these mortgage “do-overs”, refinances, and mortgage lawsuits.
NO MORE suits. You WERE underwater, now you just have an overpriced asset, with a very affordable mortgage.
The idea is the Best I have heard when thinking about what to do with all the “FREE MONEY” the FED is giving to its buddies. It’s not fair, and its not “Fixing” the economy. It is simply making the rich, richer, and the poor, poorer.
That is why Congress and Wallstreet and the Banksters would OPPOSE any such plan to help working people.
Look up Steve Keen’s debtwatch. He talks a lot about Australia, being his country of origin, but has done presentations here in the US, and is recognized as a good economist by people with sound minds. That would exclude people like Paul Krugman and Barack Obama.
We can agree things haven’t been done well, but have you ever stopped to do the math on $100k per person?
300,000,000 people in US X $100,000 = $30,000,000,000,000
That’s a $30 trillion stimulus program. Our debt right now is 16t…way to overnight go to 46 trillion. Just rip the band aid off quickly.
The solution was, and still is, to let the bondholders (aka the rich lending money) take the hit for not safeguarding their investments. The basis of our system should be that people save money and then responsibly lend money as efficiently and productively as possible. When people misallocate money into the system, they should lose their money to the market. Without this fear of losing money, bad decisions will be made as there are no consequences.
“Meaning, all we have to do is create money, use it to buy treasuries and mortgage bonds and jobs will magically appear. What if, as more economists are suggesting, unemployment gets worse as a result of this?”
I guess in that case, QE4 morphs into QE-to-infinity-and-beyond!
“Maybe I’ll just announce I’m going to hold my breath until Bernanke is right about something.”
I advise you rather to keep breathing until the Fed admits they were wrong about something. This seems like a recipe for a long life…
“What if I set up a counterfeiting operation and announced I was going to print money and give it to poor people until the unemployment rate got to 6.5%? ”
That might actually work… but the money would be contaminated by the grubby poor people touching it on it’s way to the coffers of the rich.
Meaning, all we have to do is create money, use it to buy treasuries and mortgage bonds and jobs will magically appear.
This requires the “confidence” that seems to always be the central topic of the moneychangers.
Now I have some fairly accurate ideas and notions as to what they mean by “confidence”. We should be peeling back the layers of bull$hit and discussing “confidence”. We see the moneychangers minions and dumb people using it right here on this blog.
Bernake is the world’s biggest COUNTERFEITER!!! Nothing more.
He is more than that. He collects interest. He doesn’t give out the fiat money, he loans it. We’e all low rent now, but he still collects the rent.