The Centerpiece Of A Long-Running Debate
Reader suggested a topic on direction. “What is the answer and who has it? Are there any adults any longer in this country? You can say what you want about the Tea Party but at least they are trying to make a difference. For those of you who think the ACA will not add to the debt in this country you are just wrong.”
“Do we have a revenue problem? A spending problem? Both? Let’s hear your solutions. Yes, I’ve seen them before on the HBB. Let’s cut off all foreign aid. (works for me) Let’s bring our troops home and not be the world’s policeman. (check) Ok…..what happens when we bring the troops home? Who is going to employ them? There are no effin jobs!”
“Maybe we just inflate our way out of this. Is that going to work? I know there are many folks on the board who say the thing needs to be blown up……the sooner the better. But what does that really mean? You think our President, Congress or the Fed has the answer? These a-holes think that keeping housing prices propped up is the answer? Can they really be that effin stupid? Really? Is there any leader out there who has the balls or the brains to get on the national television shows and say this is the stupidest f’n idea we have had in ages?”
A reply, “I personally believe that the time for any solution to fix our present problems is now gone. We don’t get out of this. Nobody in Washington, including the tea party guys, are ever going to stop the continued entrenchment of government or stop the spending because too many Americans are now on the Government dole and our ‘leaders’ aren’t going to risk early retirement by rocking the boat.”
“Across this Country many people, including some on this site, are still trying to debate one side of the aisle against the other, like it matters, while the oligarchs steal what little wealth we have left. However, perhaps I am wrong in my pessimism. Google just blew through $1,000.00 a share today, so that is proof that things must be getting better, right?”
One said, “I think those with the money control our policy, so they don’t like the solution even though it might be best for the country. If we had to make our own stuff there would be plenty of jobs, even though it might mean less profit at the very top.”
And another, “There is no solution, but there is one guaranteed outcome: Permanent Democrat Supermajority. Another HBB poster countered that it would inevitably split into factions, which I correctly replied will be the Free Sh*t Army versus the More Free Sh*t Army.”
“The 0.1% will still own and control everything. 85% of this country will be poor or working poor, kept alive with just enough free sh*t in a manner structured to continue the enrichment of the 0.1% at the expense of the 14.9% that is the hollowed out carcass of what was once the American middle class.”
One suggested, “The other solution is outright armed revolt. Two different times in our history where this was the solution eventually taken, so precedent exists. Our history shows a 50/50 chance of success, not great odds if one were risking life and limb, but there it is. Of course, on a long enough time-line, the survival rate for everyone drops to zero, so maybe it’s not such terrible odds after all.”
And finally, “There is a solution. Call a general strike and let it last for at least 17 days beginning on Thanksgiving Black Friday. It’s the silver bullet of death to the vampire squid. If the nexus of our problem is the collusion between a bunch of morally corrupt capitalist and their political minions then a economic body blow of a general strike should work. The object is to seize control of our economic and political freedom.”
“The majority of us are afraid of freedom. Afraid to even limit what they can pay for. An army of Debt Zombies? Unlikely.”
The Wall Street Journal. “Alan Greenspan, the former chairman of the Federal Reserve, goes to a lot of parties. He and his wife ’sort of get invited everywhere,’ he says, sitting in front of the long bay window in his office in Washington, D.C. Lately, though, cocktails and dinners seem to have guest lists drawn almost exclusively from one political party or the other. ‘It used to be a ritualistic 50-50 at parties—the doyennes of culture and partying were very strict about bipartisanship,’ he adds. ‘That doesn’t exist anymore.’”
“In his new book, Mr. Greenspan, goes on a hunt for what has gone wrong in American politics and in the U.S. economy. He doesn’t blame the current administration for today’s partisan divide. The culprit? ‘It’s the benefits,’ he says, pointing to the disagreements between Republicans and Democrats over how to deal with the growth of entitlements.”
“In the book, he also ponders why the Fed failed to predict the financial crisis, where he himself went wrong and how that discovery has completely changed his worldview. Mr. Greenspan’s biggest revelation came one day about a year ago when he was playing with gross domestic savings numbers. What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country’s savings. ‘We had this extraordinary increase in benefits, with each party trying to outbid the other,’ he says. ‘That practice has been eroding the country’s flow of savings that’s so critical in financing our capital investment.’ The decline in savings has been partly offset by borrowing from abroad, which brings us to our current foreign debt: ‘$5 trillion and counting,’ he says.”
“He said he is baffled by all the blame that has been piled on him. Since the recession, critics have said the increased money supply and low interest rates during his tenure at the Fed from 1987 to 2006 led to bubble investments. Mr. Greenspan first heard that theory, he says, in 2007, when John Taylor, a professor of economics at Stanford University who has advised Republicans, made the connection between easy money and the housing bubble. ‘It had absolutely nothing to do with the housing bubble,’ he says. ‘That’s ridiculous.’”
“This disagreement is now the centerpiece of a long-running debate among economists, even inside the Fed today, that has yet to be resolved. After the Fed’s model failed to predict the financial crisis, he realized that there is more to forecasting than numbers. ‘It all fell apart, in the sense that not a single major forecaster of note or institution caught it,’ he says. ‘The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely.’”
“And as late as 2007, the International Monetary Fund also said that global risk was declining. ‘A few days [after the crisis hit], I run into an article, and it is titled, ‘Do we economists know anything?’ he says.”
“Mr. Greenspan set out to find his blind spot step by step. First he drew the conclusion that the nonfinancial sector of the economy had been healthy. The problem lay in finance, because of its vulnerability to spells of euphoria and irrational fear. Studying the results of herd behavior provided him with some surprises. ‘I was actually flabbergasted,’ he says. ‘It upended my view of how the world works.’ He concluded that fear has at least three times the effect of euphoria in producing market gyrations. ‘I wouldn’t have dared write anything like that before,’ he says.”
‘It all fell apart, in the sense that not a single major forecaster of note or institution caught it,’ he says. ‘The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely’
‘A few days [after the crisis hit], I run into an article, and it is titled, ‘Do we economists know anything?’ he says.’
See, in his mind, and the clueless media, the crisis happened on one day. Not the years and years of stock and housing price increases.
I’ve suggested more than once that when observing the actions of central bankers, we must consider that they are stupid. I’m not trying to to insult them, because they don’t read this blog. I’m simply making the point that there is this possibility that these penthouse economists are idiots, who can’t be trusted to walk a dog.
“See, in his mind, and the clueless media, the crisis happened on one day. Not the years and years of stock and housing price increases.”
From the first poster:
‘These a-holes think that keeping housing prices propped up is the answer’
In all of the recent drama out of DC, does anyone talk about how we get out of this mess? It’s just rearranging the chairs on the Titanic. And all the while, the media has ignored the only plan that Bernanke and the federal government have; higher house prices. We were even told recently that making illegal immigrants legal would boost the economy because they would drive house prices higher!
We’ve had higher house prices, and lo’ and behold, nothing has been fixed. Has there been any reconsideration of the housing policy? Heck no, it’s full steam ahead.
Here’s what bugs me; I read and post about debates on housing bubbles all over the world. Malaysia has a more honest discussion about it. Here in the US, where we think we’re so sophisticated, we hear nothing but derision of the idea of a housing bubble.
“Here in the US, where we think we’re so sophisticated, we hear nothing but derision of the idea of a housing bubble.”
A handful of economists admit to seeing the light. FIAT LUX!
Robert Shiller’s Devastating Takedown Of Housing As An Investment Will Have You Renting For The Rest Of Your Life
Sam Ro Oct. 14, 2013, 5:29 PM 49,919
Robert Shiller, one of three American scientists who won the 2013 economics Nobel prize, speaks on the phone at his home in New Haven, Connecticut October 14, 2013.
Yale professor Robert Shiller won the Nobel Prize in Economics this morning.
Among other things, Shiller correctly predicted the U.S. housing bubble when no one else would.
With prices still off of their all-time highs, many can’t help but ask the brilliant Professor if now’s the time to invest in housing.
And for years, he has responded with more or less the same answer: housing is not a great investment.
This was an idea that he pushed in his must-read book, Irrational Exuberance.
Here are quotes from one particularly memorable exchange with Bloomberg’s Trish Regan, when Shiller dismantles the idea of investing in a home:
Homeowners understand that you can’t sell a home with 30-year-old roofing, carpet, and kitchen appliances. Sure, the home price might go up, but investors must adjust prices for years of maintenance and renovations.
You can watch the video at Bloomberg.com.
SEE ALSO: 14 American Housing Markets Drowning In Foreclosures
‘The Latin phrase fiat lux, from the Latin Vulgate Bible, is typically translated as “let there be light” when relating to Genesis. The full phrase is “dixitque Deus fiat lux et facta est lux” (”And said God let there be light, and there was light”)
From one of my favorite movies:
‘Armed with artificially intelligent “Thermostellar Triggering Devices”, the scout ship Dark Star and its crew have been in space alone for twenty years on a mission to destroy “unstable planets” which might threaten future colonization.’
‘On arrival at their target planet, the bomb is armed in the usual way, but then the crew discovers they cannot activate the release mechanism and attempt to abort the drop. Bomb #20 becomes belligerent and refuses to disarm…Doolittle revives Commander Powell, who advises them to teach the bomb the rudiments of phenomenalism, resulting in a memorable philosophical conversation between Doolittle and the bomb. Bomb #20 aborts its countdown and retreats to the bomb bay for contemplation, and disaster appears to have been averted. Pinback addresses the bomb over the intercom in an attempt to finally disarm it.’
‘Doolittle has mistakenly taught the bomb Cartesian doubt, and as a result, later in the film, the bomb determines itself to be God, states “Let there be light,” and promptly detonates.’
‘Pinback: All right, bomb. Prepare to receive new orders.
Bomb#20: You are false data.
Pinback: Hmmm?
Bomb #20: Therefore I shall ignore you.
Pinback: Hello… bomb?
Bomb #20: False data can act only as a distraction. Therefore, I shall refuse to perceive.
Pinback: Hey, bomb?
Bomb #20: The only thing that exists is myself.
Pinback: Snap out of it, bomb.
Bomb#20: In the beginning, there was darkness. And the darkness was without form, and void.
Boiler: What the hell is he talking about?
Bomb#20: And in addition to the darkness there was also me. And I moved upon the face of the darkness. And I saw that I was alone. Let there be light.’
If only my roof would last 30 years…
Robert Shiller: “Absolutely! Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates,
But dammit! Housing doesn’t depreciate! It just doesn’t I declare!
Marriage, kids, houses, ugly minivans to take kids to soccer, and not knowing whether your neighbors are teetering on the edge of foreclosure but buy a house anyway! Itis a meme folks, a meme! “We need government.” Also a meme folks! There is an omniscient god who loves you (but will punish you to eternal suffering if you even sa his name in vain - google “George Carlin on Religion”). The concept of god is also a meme folks!
Home ownership, government, religion. All memes that, hmm, “conveniently” are to keep you tame.
Memes are concepts and phrases the gullible accept as truth or wisdom by virtue of the fact that most other people also were gullible to accept the memes.
“We were even told recently that making illegal immigrants legal would boost the economy because they would drive house prices higher!”
I don’t know how stupid you would have to be to actually believe this, but anyone with a modicum of common sense understands this is absolute bullsh!t. In an economy based upon 70% consumer spending, the lower the recurring monthly bills, the more discretionary funds available to support such a model. Furthermore, the idea that the lowest wage jobs in the country, which are obviously the ones illegal immigrants fill, will somehow boost home prices would be laughable if it weren’t so sickeningly twisted. Low wage jobs are the death knell for an economy, and society as a whole.
I couldn’t agree more. Excellent summary, Ben.
I’m in the no solution without pain camp. Saving builds character. Free sh!t destroys character. No one in authority has the balls to say no to the bankers or the free s$it army.
This will not end well.
“Saving builds character. Free sh!t destroys character. No one in authority has the balls to say no to the bankers or the free s$it army.”
You’re a poet in Truth.
I agree to most of what you say except the part about “years and years of stock and housing price increases”. Stock prices reflect the increase in earnings, productivity, intellectual property, dividends and the actual number of shares available to trade.
Houses are sinkholes for money. They depreciate, deteriorate, taxed to infinity and new building materials/technologies will eventually make the older homes functionally obsolete. One of the few reasons I can think of to own a house is the freedom you have to modify it to suit your life style and live in a desirable area.
tock prices reflect the increase in earnings, productivity, intellectual property, dividends and the actual number of shares available to trade.
I found someone to sell my enron shares.
Stock prices reflect the increase in earnings, productivity, intellectual property, dividends and the actual number of shares available to trade.
You forgot a couple of key tidbits: stock prices _also_ reflect the value of the currency, and the perceived _future_ value of the currency.
I have been flamed a lot for this, but I think no one should ever buy a house that is priced more than one sixth of his net worth. In fact, I am becoming more anti-loan as I get older. Of course, retirement age is getting too close for even a ten year loan for me. For now, most of the boxes that are one sixth my net worth, at least in Phoenix, are dull. I would be depressed in most of them. Better to enjoy financial responsibility and not worry about even a 50% haircut in stock prices.
I have been flamed a lot for this, but I think no one should ever buy a house that is priced more than one sixth of his net worth.
That’s hardly fair, how are people supposed to get any net worth without a house?
Shirley, you jest.
Well you are not Shirley but in case you are not jesting either, I did not say there should be a rule for it. I do say it makes more personal finance sense to rent in the meantime. In L.A. in the upscale coastal parts, renting is cheaper than owning. So people who rent can enjoy living upscale in a great all yer climate with great amenities and buy stock mutual funds in the meantime. The smart young ones are investing outside retirement accounts in stocks and stock mutual funds. Also incomes are higher in coastal cities than the red states. Young people get the lifestyle of L.A. And smartly save at the same time.
And stock investing over the long run has a 7 percent relative gain compared to inflation on an annual basis. Real estate is 1%. Hence stocks and renting combined are the best ways to build wealth. Not real estate.
Yeah, I jest :-).
Last night I checked out houses for sale in my neighborhood in Arizona and looked at what one sixth of my net worth would buy. Well i could cash buy just about any in my zip. But compared to 85266, my zip has mostly uninspiring houses. The base of South Mountain (the south-face) has a strip of monstrous $1 million dollar houses which are more than one sixth. But they are mostly grotesque. I like many of the places in North Scottsdale on the other hand. But my current zip is very conveniently located. Quicker access to Tucson and close to my favorite LA Fitness places. My pick would be a place to spend eight months of the year, while in summer I would either be renting a VRBO up in Flagstaff or be on the left coast.
looked at what one sixth of my net worth would buy.
Where did you come up with this “one sixth” of NW number, Bill?
It seems very arbitrary to me; wouldn’t it make more sense to say you can afford whatever you have in term so NW, over and above that portion of NW that you need in order to generate your required level of retirement income?
Here’s how I have the fixation on 1/6. All along I never considered one’s primary residence as an investment. That leaves me with a house that at time of purchase is equal to 20% of my net worth (after the purchase).
My own house value lost 20% over the course of six years when I was doing the mortgage payment thing. Also I was looking at having a net worth of at least $1,000,000 after a house purchase, so that was back when my N.W. was $1.2 million. I cannot imagine myself paying $750,000 for a nice Scottsdale home out of a net worth of $1.7 million 16% of my net worth is not a gamble.
If everyone had the same idea back in 2002 we would not have had the bubble or the financial crisis of 2008.
“One of the few reasons I can think of to own a house is the freedom you have to modify it to suit your life style and live in a desirable area.”
You can’t rent a house in “desirable area” and modify it?
How long are you guys going to make fools of yourselves with that one?
Great point HA. I am right now in my modified Phoenix apartment. My sister’s boyfriend did something to the electronic vent fans in the bathroom. That is modified. However in my OC place I looked into installing noise-dampening curtains, but mods are forbidden by my lease agreement.
All it takes is the right lease agreement then you can modify. My walls would all be Peter Max or Maxfield Parrish themes….
And your anti-borrowing principle has paid off handsomely.
As a landlord I have the right to enter my property at any time 24/7/365. Since you are a renter I consider you a second class citizen. You don’t the right of privacy. Also let me add that I can evict you (with notice) without cause.
As a landlord, if you choose to invade my space or privacy without proper notice, I have you by the balls…. and have no doubt in your mind….. I won’t let go until I’ve torted every last dime to your name.
Also let me add that if you so much at lay a finger on my possessions thinking you’re going to evict me, you’ll have a red-a$$… after I’m done emptying your pockets.
Blue star, I may be a second class citizen, but more likely if I rent from a typical landlord who is paying on two or three houses, my net worth is still higher than his net worth. I will just continue to be amused watching him smirk at my “second class” status, knowing I have the control. I can leave at the end of a lease and he has to worry about finding another tenant, hopefully no worse than me.
Just like me being in line at the airport and wearing blue jeans. Some huffy middle aged couple cut in front of me yesterday. Because they feel they are more important than me. Probably not. I only look like a wage slave.
You seem to want to take this personally but I’m just pointing out the downside of being a tenant.
I had my lease drawn up by a attorney so I know what my rights (and yours) are in my state. In most cases I can only enter without notice when my property is threaten but in all other cases just a simple phone call is all that’s required. If they refuse I have to send a registered letter but by that time I’m probably filing eviction papers too. Fact is renters don’t have the same right of privacy as home owners. If you signed my lease you agreed to my terms and conditions. My advise is don’t rent from smart landlords like me.
You know there are still some conservative politicians that would like to go back to the good old days when you had to own property to vote or hold office. The logic goes something like this; property owners are more responsible by nature and are better qualified to participate in the affairs of governing the community and state. I’m guessing you wouldn’t like that would you.
Bill, just South of Irvine, CA,
The second class citizen remark was a veiled reference to the original founding fathers and the constitution. There was a general agreement that only property owners should have the right to vote and hold office. There are some people that think many of our fiscal and social problems began when they lowered the standards. Philosophically I don’t agree but that’s they way it was for most of history.
Never judge a book by it’s cover. Just look at Stephen Hawking.
Nothing personal. Most tenants can and will outspend clueless landlords until they cry uncle.
I would agree about the voting thing as long as those forbidden to vote are permanently excused fri. Any draft, military or other.
Also, as a person forbidden to vote I would not regard myself as having any obligation to pay taxes and honor victimless crime laws.
I had my lease drawn up by a attorney so I know what my rights (and yours) are in my state…If you signed my lease you agreed to my terms and conditions ??
So, the lease no matter how written and signed by tenant relieves you of unlawful rules or conduct…
In most cases I can only enter without notice when my property is threaten ??
Most ?? Try all
My advise is don’t rent from smart landlords like me ??
LOL…I love it when I see “bad a$$” landlords like you..It reminds me of Eddie in Atlanta…Smart ?? You are a plaintiffs tenants rights lawyers dream come true…Besides, your “smart” conclusion implies that your smarter than the tenant…Again, setting yourself up for a a$$ whipping…
My assumption, based on your post is your easy to anger regarding your property…That sets the table for you stepping on your pee-pee….
“As a landlord I have the right to enter my property at any time 24/7/365.”
No you don’t. But, nice try narcissist.
scdave
I also have a section in my lease that says the tenant can’t keep firearms on my property. From my point of view firearms are a added risk that could cost me money. I do allow pets though (with a refundable deposit).
I’ve been in the landlord business since 1978, my whole family has been in residential rentals since the 60s. What’s your experience?
30 years of putting these places together and offloading them on suckers who think they’re going to “make money”.
I read every lease agreement before I sign. In Arizona I have yet to see a lease where some statist landlord tries to dictate my exercising my individual rights including bearing arms. If you are in California you don’t really have to worry. California law does not allow one to own the firearms of the magazine capacity to fend off those with large magazine capacities or higher firepower. So I leave my guns in Arizona.
In Colorado a few months back an apartment complex suddenly installed a new rule - no firearms. A veteran who lived in that same apartment was in danger of being evicted. RKBA types ran to his defense and made the apartment complex back down.
As a landlord and property owner, you have a right to demand on your lease what type of people live there. Pilgrims, Muslims, nudists, smokers, non-smokers, gays, transgenders, lesbians, and their opposites. You do have a right to forbid me to have firearms. Or deny me because I am an atheist or libertarian. But you cannot all of a sudden change your lease agreement through the lease and force everyone to renew. That is a violation of contract law.
By discriminating against people of color, sex, sexual orientation, age, etc, you have to understand you are reducing the potential set of good quality loyal renters who will pay on the first of every month.
I know an anti-gun guy who you would love to rent to. He’s a notorious heavy drinker. But I betcha you prefer to have your walls bust in than to rent against a gun owner who most likely passed government background checks, while your drunk tenant did not.
When I started renting houses my lease was 2 pages, now it’s six. The firearms clause was added back in the late 90s along with a extensive list of other stuff like illegal drugs, dangerous chemicals, certain types of businesses, noise levels, etc.
I have four hard rules on renting my property and it works pretty well (avg. tenant stays 5 yrs.). Can you guess what my #1 criteria is for renting to somebody is?
Certainly: That he votes only for Demobcraps.
Can you guess what my #1 criteria is for renting to somebody is?
Stable income sufficient to easily cover the rent?
Thanks for asking Prime,
There are 12 questions/criteria on my applications.
I give extra weight to this question:
What did the last two landlords have to say about the tenant? I Interview the former landlords by phone or in person. I can’t tell you how many bad tenants I have avoided by just getting a good recommendation from the former landlord.
After the mandatory job and credit history checks this can be a tie breaker when choosing between a good tenant and a great tenant:
I do a inspection of their car. It should be clean inside and out, well maintained, no dents with current inspection and insurance. How you treat your car is a good tip off to how you treat property.
I’ve rented to all ethnic types, religions and I assume political persuasions since I don’t ask I don’t know.
But, you see, Greenspun and a hand full of ego’s know more about what interest rates, as the price of Capital, should be, than all the World’s players in all the World’s markets.
The idiocy that created the mess, now writes in amazement, of the consequences it’s own actions.
But, of course, this waste of trees will be filed in the Library of Congress forever, as an attempted legacy savior of one of the most ill advised monetary experiments in all of human history.
Dick Nixon said it best; “We’re all Keynesians now,” as he ended the last remnants of the Gold Standard. Wow, did that action not pave the way for psychopathic Central Bankers, or what?
But, we are so far into a hybrid State run economic system now, the only alternative is to play along and move those dollars through your hands as rapidly as possible, while they will still buy something. This is all by design, to get Velocity fired up.
The only solution here, will occur naturally, when Leviathan becomes so top heavy it topples over, leaving all it’s dependents sitting on the curb, hands outstretched, in bewilderment. That won’t happen until all the existing wealth is consumed. 60 years? Who knows?
‘It all fell apart, in the sense that not a single major forecaster of note or institution caught it,’ he says. ‘The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works—and it missed it completely.’”
BUT WAIT, wasn’t I just told Janet Yellen predicted it all as a lone voice in the wilderness?
housing is just part of a long list of things gov/pols offer to make FREE-er
hc
college
wages (CA)
“What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country’s savings.”
Good grief. My grandpa saw this coming back in 1935 with the passage of the Federal Insurance Contributions Act.
And those old enough to remember it will note that in the 80’s a commission headed up by Greenspan to “fix” social security quadrupled the SS tax, including the employer match. This did nothing to address the actuarial facts that showed the baby boom would cause social security to result in one retired person for every two paying in.
It was one of the biggest mistakes in government, because not only did it not fix anything, it provided the false sense that all was well until the maximum number of people would rely on it.
I was just about to hunt down a reference when I saw your post.
When you are old and wondering how all the money you earned over the years seems to have mysteriously disappeared, look no further than Alan Greenspan’s 1983 F.I.C.A. payroll tax hike to 15.3% (employer + employee) for the answer.
REPORT OF THE NATIONAL COMMISSION ON SOCIAL SECURITY REFORM
JANUARY 1983
The National Commission on Social Security Reform (informally known as the Greenspan Commission after its Chairman) was appointed by the Congress and the President in 1981 to study and make recommendations regarding the short-term financing crisis that Social Security faced at that time. Estimates were that the Old-Age and Survivors Insurance Trust Fund would run out of money possibly as early as August 1983. This bipartisan Commission was to make recommendations to Congress on how to solve the problems facing Social Security. Their report, issued in January 1983, became the basis for the 1983 Social Security Amendments which resolved the short-term financing problem and made many other significant changes in Social Security law.
…
The commission did raise the retirement age for full SS benefits.
Raise taxes, cut benefits = PROBLEM SOLVED!
Perhaps it is purely coincidental, but the beginning of the end of the U.S. middle class was roughly concurrent with the Greenspan Commission’s move to hike the F.I.C.A. tax rate to 15.3%.
It was one of the biggest mistakes in government, because not only did it not fix anything, it provided the false sense that all was well until the maximum number of people would rely on it ??
I agree…And, the people that were involved are no longer around to lay claim to the fact that they lied to everyone…Same thing happens in State & Local governments…
We need more of the governments. Obama said so.
” it provided the false sense that all was well until the maximum number of people would rely on it.”
Mission accomplished. This is what politicians specialize in. Take credit for the positive, pass the negative on to the next watch. Same-same reason the Soviet Union Collapsed, no one wanted to be the messenger of bad news when it could’ve made a difference.
That, and the fact that something that belongs to everyone, belongs to no one in particular, so no one gives a damn.
why save?
FRD was warned ,but said”the people love it so”
“… an increase in entitlements has closely corresponded to a decline in the country’s savings.”
An increase in UNFUNDED entitlements, you really mean, coupled with a decline in savings means …
I GOTCHA!
Now you need me, your banker, your newest best friend.
The coup de grâce will be the moment when myriad hapless Baby Boomers hear the announcement that Social Security, Medicare and Medicaid benefits will need to be reduced as there are not enough gainfully employed young workers to provide financing for promised benefits.
Wait for it.
The very same bloc will merely use their agents, Harry Reid, Nancy Pelosi, and Hitlary and the Supreme Court to confiscate a percentage of your 401k and IRA to keep social security “solvent” at least long enough for same agents to finish their political careers.
Accumulate movable, hidable wealth.
Consficating 401ks? Never happen.
Can you imagine the effect on the DOW? Wall Street would never let that happen.
Consficating 401ks? Never happen.
This is what you believe, but it does and can happen. Here’s the most recent example:
Russia to grab pension money, temporarily
In my opinion saying something will never happen is naive. Things that “will never happen” happen all the time in the world. With billions of people there’s a lot of six-sigma weird stuff that goes on. Also see my other post below about some at the IMF who recommend a capital levy on people with positive net worth. That can also happen.
Not only that, but it’s the most obvious way to put off the day of reckoning a decade or two, to steal 10% of everyone’s electronic assets.
Raising taxes through conventional legislation is tough. We will get another Demobcrap majority of both houses of Congress and the Oval office within the next six years. Maybe as early as next year.
The Dow would not necessarily take a nose dive. The government may just decide to take all bank account assets or 5% cash and 5% stocks.
Pelosi, Howard Dean, Hitlary (”we’re going to take things away from you and give to the common good - Newsweek, 2001), and Obummer “You didn’t earn it” and “we are going to spread the wealth around” don’t seem to give you any signs eh Skroodle? Use your noodle skroodle.
401ks have already been stolen recently in portugal,argentinia and hungary
democracies were everyone votes !
“401ks have already been stolen recently in portugal,argentinia and hungary
democracies were everyone votes! “
But “oh not here though” - the libs say, without providing any evidence why this won’t happen in the USA. The very same libs are proud that we have as many people here voting as possible. Majority of voters are wolves.
OMG, does this mean he no longer gets to be called “The Maestro”?
I think this was the driving force behind this guy - being invited to parties every night so as he could hold forth with rapt attention, being referred to as The Maestro, etc.
Now he’s playing defense.
A bit of Karma at work, IMO.
‘That practice has been eroding the country’s flow of savings that’s so critical in financing our capital investment…He said he is baffled by all the blame that has been piled on him. Since the recession, critics have said the increased money supply and low interest rates during his tenure at the Fed…’
So did the artificially low rates have anything to do with less savings? It’s baffling.
Look at a larger chunk of the article
What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country’s savings. ‘We had this extraordinary increase in benefits, with each party trying to outbid the other,’ he says. ‘That practice has been eroding the country’s flow of savings that’s so critical in financing our capital investment.’
Now look at this graph.
http://commons.wikimedia.org/wiki/File:US_personal_saving_rate_1960-2010.jpg
The US savings rate actually increased quite a bit between 1960 and the early ’80s. That period included the Johnson administration, which introduced many social programs.
Regarding Greenspan’s concern that we don’t have enough savings to fund investment, consider what’s been going on during the past few years. There are Wall Street hedge funds who have so much money to invest that they don’t know what to do with it. So they’re out there buying houses in Phoenix and farmland in Iowa.
I think that real problem with low savings rate will become clear in a few years when we find that a very large portion of our senior citizens have almost nothing in the bank to supplement their Social Security checks.
‘There are Wall Street hedge funds who have so much money to invest that they don’t know what to do with it.’
Why then do the borrow money and go to the markets with IPO’s?
‘Blackstone Group reported strong third-quarter earnings amid a somewhat cooler exit market and still lethargic deal environment. Despite sitting on $14.17 billion of dry powder in its core buyout funds, Blackstone’s private equity unit has been biding its time deal making during the first three quarters, committing just $548 million during the quarter and $2.1 billion year-to-date.
Citing concerns of an “epic credit bubble” in the US, Blackstone’s global head of private equity Joseph Baratta said in September that the firm had slowed its investment pace, seeing easy credit as added risk for the buyers of companies.
The firm is somewhat well-positioned should that bubble burst. During the third quarter its credit arm, GSO Capital Partners, closed its second rescue financing fund with $5 billion, earmarked for financing distressed companies in North America and Europe.
In the meantime, Blackstone aims to take advantage of the IPO window to move a number of portfolio companies out the door. It has a host of initial public offerings on deck, including shopping centre operator Brixmor Property Group Inc., and the jewel in its boom-era crown, Hilton Hotels, which filed in September to raise up to $1.25 billion in a listing.’
I think that supports my point. There’s no shortage of capital available. If the savings rate were higher there might just be more money available for Blackstone to borrow.
Borrowing for depreciating assets at inflated prices doesn’t work for Joe 6 Pack… Nor does it work for Blackstone.
Remember….Financing a house results in tremendous losses.
‘There’s no shortage of capital available’
First, this was Greenspan’s assertion. Second, when we talk about capital, it is probably exclusive of central bank money floating around, because that is somebody’s debt. For years, 14 central banks have been running a QE type of operation. Of course there’s money all over the place. But what happens if this money has been invested foolishly?
Leverage is ugly when it unwinds. From the article above:
‘The problem lay in finance, because of its vulnerability to spells of euphoria and irrational fear. Studying the results of herd behavior provided him with some surprises…He concluded that fear has at least three times the effect of euphoria in producing market gyrations’
From my local paper:
‘Overall, homeowners are wealthier than renters. This fact has been known for many years, and the key difference is equity. Homeowners have equity and renters do not. Home equity is the difference between the value of a home and the liens secured against it. One of the benefits of buying real estate is that you can buy a home with a relatively small amount of your own cash. This is called leverage and is defined as “the use of borrowed money to purchase investments.” As your home increases in value over time, called “appreciation,” you earn appreciation on the entire property, not just on your down payment amount.’
‘If you buy a $300,000 home using a 20 percent down payment, you will have a $240,000 mortgage and $60,000 equity in the property. If the property were to increase 5 percent in one year, the property value would rise to $315,000. However, your equity would increase 25 percent from $60,000 to $75,000. Where else can you get that kind of return on your money?’
‘This is the beauty of leverage and is the reason why you should buy a home if you are able.’
‘However, leverage can backfire if property values drop significantly as they did back in the recession. If the value of your home in the example above falls 5 percent, you will be lucky to break even when you sell.’
“So they’re out there buying houses in Phoenix and farmland in Iowa.”
Apparently not considering housing demand in Phoenix has all but collapsed. Don’t believe me? See for yourself.
http://picpaste.com/pics/2c77ce32b5ed6cf3044d1035e5ace819.1382228637.png
They better hope they didn’t buy too many of them. The interest in owning a house in Phoenix has collapsed like the WTC.
As i posted in bits this morning, its the people they surround themselves with, 4.0 1600 sat Yale ivy league pedigree types who dont have a critical thinking bone in their body.
you never heard of anyone even a lowly intern say Greenie was reading this blog in 06 and poo- pooed it….
Simpson-Bowles (or something like) is the solution.
Broaden the tax base, reduce/eliminate deductions, reform entitlement programs (including making them means tested to some extent), etc.
Just like addicts, we need to first admit that we have a problem, and unfortunately, with the recent reduction in the deficit (in part BECAUSE OF deficit reduction forced upon the addict by Republican opposition), our fearless leader has put such efforts on the back burner.
I still have a hard time convincing my left-leaning friends that we HAVE a major problem bearing down on us. They seem to listen too much to Maddow, and refuse to (or can’t) do the math themselves.
Hey Pimp…
Does housing depreciate?
Houses, like all buildings, require maintenance on a regular basis, because they deteriorate with time. If you do NOT maintain them, their value will go down relative to an identical houses that WERE maintained.
Whether their price of a house (maintained, or not) goes up or down in the near term depends on a number of factors, including (but not limited to) local job markets, supply added via new construction, interest rates/availability of debt, and inflation.
Generally speaking, while on a short-term basis, home prices can go up or down faster than the rate of inflation, on a long-term basis, home prices generally track inflation.
You’re ducking, weaving and shucking again.
Does housing depreciate?
Excellent analysis and commentary RW!
The largest and worst of the “entitlements” is the vampire squid of the so-called Defense Industry, which is a humongous welfare program for already very wealthy people and their war-mongering companies and cohorts.
Think Dick Cheney and Halliburton who multiply like rabbits in Australia. And overrun our country.
We need someone like you in Congress to offset the noise generated by bloviating jackass discussion of strawman versions of the national debt problem.
Halliburton saw the writing on the wall and moved to Dubai although it’s technically incorporated in the United States. Transocean Ltd., one of the world’s largest offshore drilling contractors moved to Switzerland in 2008.
During the Bush years the major defense companies branched out into government IT support and now manage a growing percentage of state functions like tax collections, medical records, transportation services and law enforcement.
We need a major BRAC. We need to cut government spending by at least 50% immediately. For every $2 cut in militar spending, cut all welfare by $1. then yearly cut real spending by 5% per year and eventually eliminate all welfare.
And do what with the unemployable that would starve without welfare?
Since you seem to be concerned with them, you and others will donate to charity to subsidize them.
Force or allow them to work at one of the jobs that there will be when we impose trade barriers to importing crap from countries that employ slave labor like China?
Before that would ever happen there would be another war, or a worldwide epidemic. Something to get the population down.
Simpson-Bowles (or something like) is the solution ??
Well I would agree with some reservations…
We have 48 million on Welfare….What does the state get back in return for that assistance ?? As the saying goes, you don’t get something for nothing…Same goes for SSD…Sec#8 housing….Free medical care…Etc…
As far as means testing, lets take SS for example…It takes I believe 40 quarters of employment to qualify for a SS check at 62…Thats roughly 8 years of work…So, would you think it would be reasonable or fair for that matter, to give the person with 8 years of contributions a SS check starting at 62 for the remainder of their lives but “means test” someone who contributed into the system for 40+ years ??
It may take only 40 quarters, but the SS benefits are computed over 35 years of work history.
The amount of money you will get from Social Security is based on your highest 35 years of inflation adjusted income. If you do not have 35 years of income then zeros will be inserted in place of the missing years when the calculation is performed.
Not saying you will not get money for just 8 years of work, just saying you will not get a lot of it.
http://www.ssa.gov/pubs/EN-05-10070.pdf
Because the SS benefit calculation has “bend points”, the first several years of work have a much greater impact on the final benefit than all the rest. For example, someone retiring today at normal retirement age would get the following benefit for so many years of work (inflation-adjusted wages):
10 yrs paid in on $30k/yr wages = $642/mo benefit
35 yrs paid in on $30k/yr wages = $1,258/mo benefit
http://www.ssa.gov/oact/cola/piaformula.html
(Also, 40 quarters is 10 years. Not sure where 8 came from.)
…do the math. 5 x 8 = 40. HA, HA.
‘California home sales declined for the second straight month in September after rising interest rates and economic uncertainty that put housing demand on hold for buyers. Meanwhile, housing supply conditions continued to loosen up as the housing market entered its off-season, the California Association of Realtors reported.’
‘Closed escrow sales of existing, single-family detached homes in San Diego County were down 20.5 percent in September from August, and down 6.2 percent from September 2012.’
‘The available supply of existing, single-family detached homes for sale in San Diego County increased to 4.2 months in September, up from 3.4 months in August and down from 4.3 months in September 2012.’
As has been said, in a bubble, potential sellers generally don’t go to market when prices start to rise. They wait to sell at what they see as the peak.
What Shiller and so many other refuse to see is that house prices should never rise in double digits. Yet this has gone on for a long time. All of this is why I still contend that the housing bubble never ended: it’s a set of perceptions that exists in the minds of a vast number of people.
‘Home shopping? Be ready to move fast By Jay Fitzgerald / Globe Correspondent / September 21, 2013.
Stephen Hussey, a Boston-area home inspector and real estate agent, sees it too often: home buyers blowing deals because they simply weren’t ready to compete in today’s fiercely competitive housing market. ‘When it comes time to pull the trigger, you have to know what to do and move fast,’ said Hussey, a home inspector at JMC Associates in South Boston and a real estate agent.’
‘At a time when sellers are gladly fielding multiple bids, real estate specialists say the edge usually goes to those who have done their homework, nailed down financing, screened and hired a trusted real estate agent and home inspector, written advance purchase-offer letters, and mapped out a clear, disciplined bidding strategy.’
‘See how fast homes are selling in your target market — and how much above asking price. Then once you get over the shell shock, think about expanding outward to other communities — and do your homework there, too. Sarno said he has seen people with their hearts set on living in trendy Cambridge, Somerville, or Arlington, only to be overwhelmed by the mass of buyers at open houses and the high bids offered right away.’
California real estate always goes up!
Southland Median Sale Price Dips Month-to-Month, Still Up Sharply From Yr Ago
October 16, 2013
Southern California home sales in September fell more than usual from August but rose modestly above a year earlier as sales gains for mid- to high-priced properties compensated for declines in sub-$300,000 activity. The median sale price remained 21 percent higher than a year earlier, but after holding steady for three months the median dipped month-to-month in September for the first time since February, a real estate information service reported.
A total of 19,112 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 17.1 percent from 23,057 sales in August, and up 7.0 percent from 17,859 sales in September 2012, according to San Diego-based DataQuick.
On average, Southland sales have declined 9.3 percent between August and September since 1988, when DataQuick’s statistics begin.
Last month’s sales were 19.9 percent below the average number of sales – 23,862 – in the month of September. Southland sales haven’t been above average for any particular month in more than seven years. September sales have ranged from a low of 12,455 in September 2007 to high of 37,771 in September 2003.
The median price paid for all new and resale houses and condos sold in the six-county region last month was $382,000, down 0.8 percent from $385,000 in August and up 21.3 percent from $315,000 in September 2012. The $385,000 median in June, July and August was the highest in more than five years.
The median price has risen on a year-over-year basis for 18 consecutive months. Those gains have been double-digit – between 10.8 percent and 28.3 percent – over the past 14 months, and they have been greater than 20 percent for the last nine months.
…
‘Orange County home prices dipped slightly in September, but still held close to post-recession highs despite headwinds from rising interest rates and more homes on the market, new housing data shows. Sales also declined from August – typical for the end-of-summer market slowdown.’
‘In the last two or three months, it’s started to settle down a little bit. We’ve definitely seen a cooling down,” Keller Williams agent Jordan Bennett said. “The days of five offers in five hours are gone. We have quite a bit more inventory.’
See Mr Shiller, there should never be ‘five offers in five hours.’ Do you suppose someone might over pay in such an environment?
‘Home-flipping may be losing some of its luster. According to RealtyTrac, between July and September of this year, 32,993 homes around the country were flipped. That figure marks a 13 percent decline from the 37,871 house flips recorded for the same three months in 2012.’
‘All told, 240 (Texas) homes were flipped during the third quarter of 2013 — marking a 45 percent decline from the 437 homes that were flipped over the same three months in 2012.’
‘RealtyTrac reports that a total of 968 homes priced at $750,000 and above were flipped during the third quarter of 2013 — marking a 34 percent jump from the number of homes in this price range that were flipped a year ago.’
‘Flips on homes priced between $1 million and $2 million increased 42 percent on a year-over-year basis. Flips on homes priced between $2 million and $5 million was up 350 percent, RealtyTrac states.’
‘Five cities accounted for more than 75 percent of the home flips in the U.S. during the third quarter — the New York metro area, Los Angeles, San Francisco, San Jose and San Diego.’
‘Meanwhile, the rate of flipping declined in former hot spots like Phoenix, where activity declined 37 percent between third quarter 2012 and third quarter 2013. Tampa was down 47 percent and Orlando was down 28 percent.’
‘It was interesting in Stockton where we’d seen a lot of flipping in the past, it’s been a hot spot as the market recovers there, is that flipping is actually down quite a bit from a year ago,’ (said) Daren Blomquist with the research firm RealtyTrac. Down 37%, one of the biggest drops in the country. Sacramento had a 13% year-over-year drop, and California as a whole saw a 9% drop.’
Most of the people at my company live in Orange County. Anytime I expect to be asked why I don’t get married or buy a house (small company, and only three singles including me and a divorced colleague. Was four until a week ago when one ran off and got married).
But I avoid discussion. I don’t want to be asked. They partly fear my answer. When appropriate I do say I was close to getting married but it did not work out.
Dreaded holiday part in January but I have to go. It is one where I am going to be like the man from Mars of course. I have very little in common with married folk. Most of them are into iPhones while I am into Droids. If I do not go it will be a “sin” against my company though.
House buying is a common topic too. Like my earlier post, these people are caught up in the brain swindles - the memes. It is safer not to question. Safer to do what everyone else does. I go to lunch with these people sometimes and the dish out their memes at lunch. I am a threat to their hypnosis. So they feel uncomfortable.
Is this a real pattern? Do married people prefer iPhones and single people Droids?
I don’t know, but perhaps! The CEO is so gung ho on iPhones. his yes men of course have them too
What? No love for the Windows phones?
What are Windows phones?
“All of this is why I still contend that the housing bubble never ended: it’s a set of perceptions”
Has the Printing ever ended? Do we expect it to anytime soon?
Any guesses what happens to asset prices when QE goes from $85 B a month, to $150 B? Then, $300B?
Cut entitlement spending? In this environment? That would most likely spell instant implosion. At this point, entitlement spending is a form of re-inflation. Redistribution (churning) of money to maintain Velocity, as it were. Without it, main street evaporates.
Aside from the fact neither the Socialist R’s nor the Fascist D’s are going to step forward and announce that mass starvation is good for the general welfare of the people.
The Fed, with bi-partisan support, chose Moral Hazard, they now own it. Watch them sweat, with quivering voices, as their creation excruciatingly turns on them.
ps. cornered animals can be dangerous, so keep the fingers away from the cage.
Ah, the virtues of Centrally Planned Economies.
‘Has the Printing ever ended?’
It doesn’t have to end for the bubbles to end.
‘A new study, as reported in The Kathmandu Post, shows that the average price (in Kathmandu, Lalitpur and Bhaktapur) of a housing unit is Rs 12.3 million and an apartment unit Rs 9.2 million.’
‘This is beyond the reach of most of the Nepalese people. The existing demand and price is likely fueled by easy bank credits to developers and prospective buyers. The prices are unsustainable and a further downward correction is warranted to ensure that the prices set during the ‘bubble’ time are not persistently sticky at a high level even during the slowdown in this particular sector. Hopes of rebounding of the real estate and housing prices, which are still high even after about 30% reduction from its peak level around 2010, are not reasonable as this point of time. A majority of Nepalese still cannot afford housing and apartment units prices beyond their lifetime income.’
These things grow out of control, to the point where collapse is unavoidable. Think of the junk bond market, which is loaning out hundreds of billion$ every quarter. They call it junk for a reason. Eventually, one of these corporations will default, and panic will ensue as bondholders think, ‘could this happen to me?’
Many posters here over the years have fallen back on the ‘Fed can print forever’ concept, as if that means bubbles can continue indefinitely. Even recent history suggests that isn’t the case.
Many posters here over the years have fallen back on the ‘Fed can print forever’ concept, as if that means bubbles can continue indefinitely. Even recent history suggests that isn’t the case.
My thought is that the Fed can print forever, and therefore the bubble can continue indefinitely, but only in nominal non-inflation adjusted terms. Are they willing to destroy the dollar to make the bubble go forever? It appears the answer is yes. When the dollar goes then the bubble is no longer helpful to anyone, though. It will no longer result in additional production.
Babbling nonsense, I know. Just the way my head wraps around it at the moment.
Here’s an example of what I’m saying:
‘A majority of Nepalese still cannot afford housing and apartment units prices beyond their lifetime income’
They can print all they want, but if it takes a lifetimes income, people will eventually stop buying (or lending). Bubbles have to keep moving up, or the whole thing is pointless. Then you add the fact that building will continue until prices fall and you have the dead end. It runs for a long enough period of time, and something will become unstable and crash.
They can print all they want, but if it takes a lifetimes income, people will eventually stop buying (or lending).
Agreed, which is why I think price and wage inflation will make an appearance. It will be the only way to kick the can a while longer. It will of course make saving money (cash) undesirable.
I saw this firsthand in Mexico in the 70’s. Cash was trash, and if you got some, you would quickly try to convert it into something else. Gold coins were next to impossible to buy, as few would sell them. I knew people who would buy stuff like rebar or bags of cement as a store of value.
‘Now however the value of Las Vegas homes is outpacing the rest of the country. And most investors have begun to look elsewhere.’
‘Aside from rising house prices, the Las Vegas rental market has been tapering off due to increasing inventory…Reportedly, many rental homes in the valley are still vacant.’
‘A year ago at least 50 institutional investors were buying houses in Las Vegas, says Steve Hawks, an agent for Platinum Real Estate. Now, he says, there are only three main buyers in the area.’
‘That however will not mean that the big investors will entirely forget Las Vegas. Hawks added, “As soon as the prices drop again, they’ll start buying again.”
Hmm:
‘As soon as the prices drop again’
Heard on local (Vegas) RE radio show today that only one large investor remains active. The hosts said they met with them two weeks ago and they said they are about to stop buying.
‘they said they are about to stop buying’
Oh dear.
every Tea P I know has an advanced degree and can quote you the const /bill of rights etc.
they are fiscal conservatives otherwise libertarian to religious right
go to the car wash and you get the other group
If any libertarians were like me, they would have stayed away from the Tea Party after the infamous rally by Sara Palin and Glenn Beck made their imaginary friend central t the Tea Party. They am as well call it the Republican Party.
What do Tea-P edumacations have to do with this thread?
“What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country’s savings.”
That’s interesting. I remember reading 20 or 30 years ago that Italy had the second highest household savings rate among the G7 countries after Japan. This was at a time when the Italian government had some of the highest budget deficits in the world. At the time there were people there was relationship between those two things, as if Italian families felt that they needed to make up for their ineffectual political arrangements.
Then I read more recently that it had to with home mortgages of all things. Apparently, it wasn’t possible to get a mortgage to buy a house with a big down payment - 25% or 30% or more. As a result, Italian families had to save a lot to buy a house. Also, a quite portion of them now own their home outright with the mortgage paid off.
I mean to post this above in the discussion of the Greenspan article.
“Also, a quite portion of them now own their home outright with the mortgage paid off.”
In other words, they’re locked into those losses.
How do you know that someone is a Tea Party fan? Do people identify themselves as such?
The chants of “keep the government out of my Medicare” give them away.
Yeah, those people can quote the constitution. Right.
Fun anecdote. My son got a summer job doing grounds work at the his State U. Minimum wage, but it was full time.
So, the rest of the crew are year round, full time, benefited (with pensions) and decently paid. None of them have anything more than a HS diploma. Of course, they hate the government and complain that it overspends. Of course, they waste doesn’t include them, because what they do is necessary and they aren’t lazy like other government workers (not true, according to my son).
Every single one of them is Tea Party and they want NW Colorado to secede, because the people in Denver are parasites. I wonder if they stop to think where the majority of tuition money and state taxes that cover their cover their paychecks comes from. Here’s a hint: It doesn’t come from places like Limon or Sterling.
Jeebus provides for their hard earned salaries.
every Tea P I know has an advanced degree and can quote you the const /bill of rights etc.
You’re joking, right? Most of the ones I encounter have nothing more than high school educations.
They just want to keep the government out of their medicare!
‘The debate over whether tighter policies should be used to battle asset-price bubbles has simmered under the surface as the Fed has taken unprecedented steps to boost economic growth. Chicago Fed President Charles Evans said raising rates to tamp down risk-taking, when what the economy needs is support from low rates, is a “poor choice.” He said there are more effective tools, such as supervision, and said they are better choices.’
“If more restrictive monetary policies were pursued to generate higher interest rates, they would likely result in higher unemployment and a sharp decline in asset prices, choking the moderate recovery,” Evans, a dovish Fed policymaker, told the Financial Management Association’s annual meeting in Chicago. ‘Such an adverse economic outcome is unlikely to set a favorable foundation for financial stability.”
‘Some Fed officials are worried about whether easy policies are fueling unseen asset bubbles, and have cited financial stability concerns as one reason the Fed should pare its bond-buying program.’
‘Esther George, president of the Kansas City Fed, who has dissented at every Fed policy-setting meeting this year, has warned that keeping rates too low for too long could fuel excessive risk-taking. Richard Fisher of the Dallas Fed, an equally hawkish policy maker, on Thursday said he was increasingly concerned that low rates were contributing to a nascent housing bubble.’
Is it financial stable to have house prices back at peaks in many cities? Using 0 to 3% down loans backed by the government?
You’re going to see this ‘a sharp decline in asset prices’, and I bet Evans won’t own up to the blame.
“You’re going to see this ‘a sharp decline in asset prices’”
Very few understand this reality. And even fewer are prepared for it.
Denver Housing Demand Collapsed A Whopping 34% QoQ
http://picpaste.com/pics/fe2d91aaa0f1f412a846cf807c3c857a.1382232932.png
If you bought a house in Denver 1998-current, you’re going to have some serious problems.
Are they willing to destroy the dollar to make the bubble go forever?
You need to see at least a few years of data on a graph like that to know how much of it is the typical seasonal pattern…
Well J.P. Morgan is going to pay 13 billion to the U.S. Government.
Is that the same as Clyde giving Bonnie a tip?
So what do you think about the price of gold. I’m in about 4000, but if it goes any lower I’ll put more money in.
It’s the hardest thing to call a bottom.
The last gold bottom lasted 7 years.
So other strategies have to come into place.
Gold is only one parameter in valid investing.
I took a risk and bought beleaguered J.C. Penney two weeks ago.
But the big play is home equity, retirement 401 and of course
stock placement in contrast to cash allocation.
Regarding what one poster asked:
‘What is the answer and who has it? Are there any adults any longer in this country?’
I’ve mentioned before that we’ve seen a shift in mentality in the US. Consider this:
‘Affluent home buyers attempting to get back into real estate after defaulting on their home loan are finding that few lenders are willing to work with them. Since spring, lenders say they have increasingly been hearing from would-be buyers who went through foreclosure. “We get the calls routinely,” says Al Engel, executive vice president at Valley National Bank, based in Wayne, N.J.
Callers include self-employed borrowers whose income dropped during the recession, causing them to fall behind on their mortgages, but who have since financially recovered. Also affected are borrowers who walked away from their homes after their values plummeted and owed more on their mortgage than the house was worth. Now that home values have stopped falling in most housing markets, they want back in.’
‘Terri Conrad and her husband saw their 4,500-square-foot, five-bedroom home in Carbondale, Colo., foreclosed on last year. They purchased the home for $1.25 million in 2007, but its value had dropped to roughly $700,000 by 2012. Ms. Conrad, who manages finances of affluent families, says the couple tried refinancing but was denied. Although they could afford the payments, they decided to walk away because they didn’t want to keep paying for a home that was worth significantly less than the loan. They are now renting in Houston and plan to wait at least a couple of years before applying for a home loan again. “I’m worried about who’s going to give me a mortgage,” she says.’
I’m sure you are worried Terri, considering you just stiffed a lender for hundreds of thousands within the past year, and that ‘they could afford the payments’. After all, you want back in. This lady advises people on finances?
Rich and poor, what we’ve seen since this all hit the fan is an entitlement mentality to borrow, stay as long as you please, walk away when it suits you. And by golly, you better not have to pay tax on the forgiven loan or have debt collectors come after you.
I’ve said before, this doesn’t look good for these Chinese US bond holders. People in this country don’t give a damn about obligations. Heck, they stamp their feet and cry victim if the housing lottery doesn’t ring up every time they gamble.
This lady advises people on finances?
I’m thinking that “manages finances of affluent families” is code for “bookkeeping” and not “financial advice”. More like she made sure the lawns got mowed and the maids were paid for very rich absentee owners in nearby Aspen.
Interesting that they when they bailed they moved to Houston.
“Rich and poor, what we’ve seen since this all hit the fan is an entitlement mentality to borrow, stay as long as you please, walk away when it suits you. And by golly, you better not have to pay tax on the forgiven loan or have debt collectors come after you.”
“I’ve said before, this doesn’t look good for these Chinese US bond holders. People in this country don’t give a damn about obligations. Heck, they stamp their feet and cry victim if the housing lottery doesn’t ring up every time they gamble.”
Probably the best comment ever outlining the current U.S. consumer/debtor “attitude”. So sad.
Lets play the scenario out. The government pulls out completely from the housing market. (No more Fannie, Freddie, FHA, MID etc.)
What exactly happens? Obviously millions of more folks immediately under water. Banks insolvent? (Maybe, maybe not..still no need to Mark to Market)
Will millions of folks get to live “rent free” since it would take years for the banks to move these houses.
Would the banks try to trickle all this additional inventory onto the market like they are doing now? Or would the flood of homes be too much?
Thoughts?
The government will probably have to be dragged kicking and screaming out of the housing market. They are too afraid to implement all the “tough” standards they set up in Dodd-Frank.
‘The regulatory agencies have set an Oct. 30 deadline for public comments on a 505-page proposal that creates new rules for bond financing of loans for homes, autos and other assets. Among the housing proposals is something known as “QRM-Plus.” It would require 30 percent down or more for purchasers, tough credit standards and a ban against second liens on properties at closing.’
‘Two years ago, the same regulators proposed a 20 percent minimum down payment plan for “qualified residential mortgages” (QRMs), a designation for the lowest-risk, highest-quality home loans for inclusion in mortgage bonds marketed by Wall Street…The 20 percent down idea triggered such a vehement response from the public and Capitol Hill lobbies that the agencies backed off and didn’t return with a revised plan until late this past summer.’
‘In a floor speech last week, Sen. Johnny Isakson, R-Ga., who is active on housing issues and was one of the legislators who crafted the risk-retention provisions in the Dodd-Frank financial reform law that authorizes QRMs, called on regulators to reject the 30 percent alternative “because (it) would be even worse” than their original 20 percent plan. “It would prevent even more Americans from being homeowners.”
The pressure that will come to close the GSE’s will probably come from groups like seniors when they are facing social security cuts. We’re already seeing constant debt limit ‘crisis’, etc, which suggests a banana republic situation ahead. (You already see it in states and cities). Recall that what got Greece into trouble was the new ability to borrow as much as it wanted at low rates, because of EU membership. So when some say, ‘the US can borrow unlimited amounts at low rates’, I see that as a problem, not a strength.
Oh, forgot:
‘because (it) would be even worse’ than their original 20 percent plan. ‘It would prevent even more Americans from being homeowners’
Squeal like a pig Johnny!
And don’t forget, Johnny Isaakson is a licensed Realtor, therefore a known Liar.
‘The metro Phoenix housing market is shifting away from investors for the first time since the market crash. Thousands of prospective sellers, once worried about losing money on their houses, have listed their properties after seeing prices skyrocket over the past two years.’
‘A 30 percent increase in the number of houses for sale during the past year has helped cut the competition a bit. More than 20,000 homes are now for sale in Maricopa and Pinal counties, according to the Arizona Regional Multiple Listing Service.’
‘Joan said they feel very lucky that they were able to purchase in the north-central Phoenix neighborhood, where houses are rarely for sale. “We made other offers on homes in the area during the spring, but were outbid or the appraisals weren’t high enough,” she said. “We’re glad we didn’t buy those homes.”
They aren’t going to give them away! It’ll be interesting to see the prices play out over the next 6 months and to see if supply and demand has any effect. There are many new houses coming on line now and in the next 6 months.
‘Phoenix: Investor purchases fell to 20% of sales in September, down from 29% a year earlier, and purchases by nine major institutional investors dropped to 110 sales, down 72% from 398 sales one year ago. Just four of the nine investors bought homes in September, compared with all nine one year ago. Second home purchases dropped by 23%, but purchases by owner-occupants increased by 21%, according to the Arizona Multiple Listing Service.’
‘Sacramento: The number of homes that sold in September fell by 6.8% from a year earlier, and the number that went under contract fell by 3.6%. Listings jumped by 40.3%, according to TrendGraphix Inc. Median prices rose by 1.2% from August and by 36.1% from one year earlier.’
‘Las Vegas: The share of homes that sold in cash last month stood at 47.2%, down from 54.8% in August and one year ago, and down from a high of 59.5% in February, according to the Greater Las Vegas Association of Realtors. Many cash buyers tend to be investors.’
‘Home sales were down 1.2% from a year earlier, even though there were more homes for buyers to choose from. The number of single-family homes listed for sale, at 14,659, stood 12.6% below last year’s levels, but the inventory of “non-contigent” listings—homes that don’t have any offers and aren’t under contract—was 60.5% above year-earlier levels. The median sales price in September fell for the first time in 19 months.’
‘In Las Vegas, buyers earlier this year found themselves regularly losing out to investors amid tight supplies of homes for sale. Now, “the market is softening tremendously,” said Bryan Lebo, a local real-estate agent. “Buyers are becoming a lot pickier. They’re more patient.”
‘In some neighborhoods, he says, homes are now selling for 10% less than they were just a few months earlier, and builders are beginning to offer generous incentives, such as home upgrades to buyers and commissions to real-estate agents, in order to stay competitive.’
’some neighborhoods, he says, homes are now selling for 10% less than they were just a few months earlier’
Oh Dear.
The suckers were “investors”….. and few donkeys.
Look out below.
‘Miami: Where Luxury Real Estate Meets Dirty Money’
‘The buyers come from all over the globe, bearing cash and complicated pasts.’
‘I interviewed a Siberian-born realtor in the lobby of Beach Club, a luxury condominium on South Ocean Drive in Hallandale, just north of Sunny Isles. “Miami is a brand,” she told me as we sat on a sofa in the building’s huge foyer. “People from all over the world want property here.” Developers were only putting up luxury properties because they “know that the crisis has not affected people with money,” she added. By way of example she pointed to the Regalia, a new Sunny Isles condo with only thirty-nine units, one per floor, with prices starting at $6 million.’
‘Most of her clients are Russian—there are now three direct flights per week between Moscow and Miami—and increasing numbers are moving to Florida after spending a few years in London first. “It’s a money center, and it’s a lot easier to get your money there than directly to the US, because of laws and tax issues,” she said. “But after your money has been in London for a while, you can move it to other places more easily.”
‘After months of quickly rising home sales and prices, the Treasure Valley housing market’s growth may be slowing, according to the September report from the Intermountain Multiple Listings Service. Renewed building coming with the recovery from the recession added some much-needed inventory to the thirsty market. However, a recent influx of used homes listings has been the greater factor. There are 1,889 used listings in Ada County, a 29 percent increase over Sept. 2012. The 943 used listings in Canyon County represent a 32 percent year-over-year increase.’
‘The Ada County median price has dropped about 8 percent since June’s post-recession high of $212,000, falling to $194,500 in September. Canyon County’s median price is down marginally in that time, falling from $131,550 in June to $130,000 in September.’
“median price has dropped about 8 percent since June”
Falling median prices through out the “peak selling season” tells us what?
Housing prices are grossly inflated.
Housing demand at 14 year lows tells us what?
Housing prices are grossly inflated.
Borrowing costs at 50 year lows while demand sinks tells us what?
Housing prices are grossly inflated.
Considering new construction costs are $55/sq ft (material, labor and profit), the current median asking price has a long way to fall…. a very long way to fall.
It seems at the IMF they believe it’s a revenue problem. There’s not one word about cutting any spending. I read the whole IMF document and think Forbes is misstating things a little by taking them out of context, but in general these academics are sitting around in a clinical manner trying to figure out how to get more money from people.
IMF lays ground work for global wealth confiscation.
The International Monetary Fund (IMF) quietly dropped a bomb in its October Fiscal Monitor Report. Titled “Taxing Times,” the report paints a dire picture for advanced economies with high debts that fail to aggressively “mobilize domestic revenue.” It goes on to build a case for drastic measures and recommends a series of escalating income and consumption tax increases culminating in the direct confiscation of assets.
wow - worth repeating
Closed escrow sales of existing, single-family detached homes in San Diego County were down 20.5 percent in September from August, and down 6.2 percent from September 2012.’
SD is the best CA has to offer
California is ground zero for the current housing collapse.
I am rooting for Vegas. I know we can do it.
Just wait until you see the furlough-struck October numbers for SD and other locales that are heavily dependent on federal government employment. You ain’t seen nothin’ yet.
ft dot com
Earnings and QE support stocks
By Jamie Chisholm, Global Markets Commentator
Monday 08.00 BST. Global stocks are starting the week at fresh five-year highs as investors remain optimistic that the “sweet spot” of steady economic growth and supportive central banks will continue to underpin asset prices.
Moves are fairly mild, however, with some traders adopting a cautious stance ahead of a large batch of delayed US data that will colour the market’s view of when the Federal Reserve may begin tapering its $85bn-a-month bond-buying programme.
“Growing expectations of a delay in Fed tapering and better than expected US earnings are supporting global equity prices,” said analysts at Barclays.
The FTSE All-World equity index is up fractionally to 261.1, its best level since January 2008, as Europe’s Stoxx 600 adds 0.1 per cent and the FTSE Asia Pacific index climbed 0.2 per cent.
US index futures suggest the S&P 500 will be barely changed when the opening bell rings in New York. That would leave the benchmark at its record of 1,744, with some investors arguing that the ongoing corporate reporting season, by-and-large, is underpinning valuations. The S&P 500 is sporting a 12-month forward price/earnings ratio of 13.9, similar to its 10-year average of 14, according to Thomson Reuters.
Stocks in the US and across many parts of the world have pushed higher in the last several sessions as investors also welcomed the budget deal in Washington that removed the imminent threat of a technical default by the world’s biggest economy.
The government shutdown that accompanied the fiscal debate is seen compromising the country’s growth and thus encouraging the Fed to stay looser for longer, in other words extending the quantitative easing strategy that is so beloved by bulls.
“It looks more and more likely that tapering [of QE] could be pushed into 2014,” Frederic Neumann, economist at HSBC, wrote in a note.
…