Investors Counting On A Rising Market
The Sylva Herald reports from North Carolina. “Modern safety features; extra beds Western Carolina University can’t afford; investor money flowing into the local economy – there’s a punch list of benefits from the student-housing boom that added half again as many beds in a three-year frenzy. Some fear another real estate bubble, however, as developers – many new to the student-housing niche – make decisions that seem based on the amount of capital they can secure, not on market needs. The specter of urban blight in rural Jackson County grows as fields and forests give way to apartment complexes that look more like Charlotte than Cullowhee. ‘It is too much,’ said Rick Bennett, a longtime Cullowhee real estate agent who rents to WCU students. ‘At some point, the law of supply and demand will weigh out. I don’t know when. But it will happen.’”
From Lehigh Valley Business in Pennsylvania. “Residential home sales in 2014 rose by 4.4 percent throughout the Greater Lehigh Valley. Carbon County saw a 10.5 percent increase in homes sold, jumping to 621 last year. At the same time, average sales prices fell 4 percent to $97,167. ‘When I looked at these numbers [closed sales], … a lot of this was foreclosed sales,’ said Cass Chies, broker with Diamond 1st Realty, Palmerton. ‘That’s what really spiked these numbers. There have been a lot of foreclosures that have sold, which is a good thing because the banks are moving their inventory.’”
The Washington Post. “Half the loans on newly constructed homes in Fairwood during the housing boom in 2006 and 2007 wound up in foreclosure — 723 of 1,441 so far, according to a Washington Post analysis. In Fairwood, one of the nation’s most aspirational black communities, houses once valued at $700,000 are going for $350,000. Legions of homeowners who bought high have seen their equity evaporate, and still labor under hundreds of thousands of dollars in debt.”
“In August 2006, Edith Garner, who taught special education at Benjamin Tasker Middle School in Bowie, was one of those who fell in love with Fairwood. She bought a townhouse for $427,213. She signed an agreement for an adjustable-rate mortgage with an interest rate of 8.875 percent. She was counting on a rising house market. ‘Everything was going up and up and higher,’ Garner, 58, said of the housing market. ‘I wanted to make money, too.’”
From Vegas Inc in Nevada. “Builders sold 611 new homes in Southern Nevada last month, ending 2014 with a tally of 6,007 sales, down 18 percent from 2013, according to Home Builders Research. The median sales price of last month’s closings was $291,785, down 2 percent from a year earlier. Overall, the results ‘are less than anyone projected,’ Home Builders Research President Dennis Smith said in the report. ‘The annual totals leave us disappointed but with an ‘it could have been worse’ feeling,’ he wrote.”
“Perhaps in a sign of weak finances and tougher lending requirements, buyers at one point were increasingly canceling purchases. In October, they backed out of 21 percent of new-home sales contracts in Henderson, up from 12 percent in April, according to Home Builders Research. In North Las Vegas, cancellation rates jumped to 34 percent from 25 percent in that period.”
The Miami Herald in Florida. “Miami’s housing market continues to outperform the nation, but its growth still lags behind the faster pace of recent years. Developers and market analysts said the slowdown was expected, and healthy. The growth in prices began to lessen last spring, and home sales have also slowed in Miami-Dade recently as the number of units on the market returns to pre-recession levels. ‘The party can’t go on forever,’ said Kwame Donaldson, an economist at Moody’s Analytics.”
“Demand for houses over the past two years has largely been driven by investors with a nose for a deal and Latin American buyers looking to purchase second homes, according to Donaldson. ‘But as prices go up, the bargains aren’t there like they used to be,’ he said.”
Bloomberg on New York. “Lower Manhattan’s Trump Soho, the five-year-old tower that was seized in a foreclosure amid slow sales of its condominiums, may drop its focus on part-time residences and operate most of the property solely as a hotel. The building’s new owner, Los Angeles-based CIM Group, is ’stepping away’ from marketing the roughly two-thirds of condos that remain unsold, said Gary Schweikert, the building’s managing director. The company is considering converting the unsold units at the tower permanently into hotel rooms, he said.”
“Seventeen condo units at Trump Soho are currently listed for sale, with prices ranging from $825,000 for a studio to $50 million for a 10,000-square-foot (930-square-meter) presidential suite, according to property-listings website StreetEasy.”
From China Daily USA. “A Chinese real estate developer plans to put up a 95-story residential tower but not in the city. It will be across the Hudson River in New Jersey’s waterfront. China Overseas Inc is building the tower at 99 Hudson Street. It will have 760 condominium units and be the ‘most significant condo project ever’ in New Jersey, according to the Jersey City mayor’s office. At 950 feet, it will be the tallest building in New Jersey when it is completed. An apartment in the 104-unit building starts at $16.95 million.”
‘The specter of urban blight in rural Jackson County grows as fields and forests give way to apartment complexes that look more like Charlotte than Cullowhee. ‘It is too much,’ said Rick Bennett, a longtime Cullowhee real estate agent who rents to WCU students. ‘At some point, the law of supply and demand will weigh out. I don’t know when. But it will happen.’’
Jackson County, NC Sale Prices Plummet 19% In 2014
http://www.zillow.com/jackson-county-nc/home-values/
How many more places now went negative Year over Year now that the December data is included at Zillow? I look forward to more and more of your links shredding the shills in 2015.
It will happen when the Millenial pig exits out the back end of the college python. 6-7 years tops. After that the apartments will be occupied by illegals who earn a living wiping retirement butt in Asheville.
So poetic these days Oxy. Are you exiting bed on the other side??
How are you losses stacking up J._Fraud?
And on a side note, $200-$300K are outrageous prices for houses in the middle of bumblefoop. Those places should be Oil City.
$200k-300k is massively inflated for any area.
“…fields and forests give way to apartment complexes…”
“Keep building!” –Sarah Winchester
Bethesda(DC metro), MD Sale Prices Turn Negative In 2014 As Inventory Stacks Up
http://www.zillow.com/bethesda-md/home-values/
Alexandria, VA(DC Metro) Sale Prices Plummet 9% YoY
http://www.zillow.com/alexandria-va/home-values/
‘The annual totals leave us disappointed but with an ‘it could have been worse’ feeling,’
In due time.
I am hoping so, people did not learn the last time Vegas took a 50% haircut and it will happen again. Smart folks would get out now while they can but you know they wont until it is far too late.
Las Vegas Review Journal - Report: Foreclosed-on homeowners may return to market
I have been truly amazed listening to local (Vegas) real estate radio shows; the ink isn’t even dry on the short sale or bankruptcy papers and they want to know when they can buy again.
“At 950 feet, it will be the tallest building in New Jersey when it is completed. An apartment in the 104-unit building starts at $16.95 million.”
Just what a city of immigrants with median HH income around $50,000 needs.
Yes…with a market value of $1 Billion! LOL. The Time Warner Columbus Circle complex is maybe worth $1 billion, but a NJ residential tower? Have another bong hit…..
You’re no more knowledgeable on Manhattan than you are on the land of fruits and nuts J._Fraud.
“Fitch Expects Wave Of Defaults For Brazilian Construction Cos.”
http://www.law360.com/articles/610087/fitch-expects-wave-of-defaults-for-brazilian-construction-cos
Oil, construction, housing and fraud. Get Lola’ed or get J_Fraud’ed. It’s your choice.
“Defaults Reached Record in 2014″
http://www.bondbuyer.com/news/markets-buy-side/defaults-reached-record-in-2014-1069491-1.html
I thought muni’s were ’safe’? Merideth Whitney was onto something as this is just the beginning. How long before CA cities drowning in debt implode?
Buckle your seatbelts.
When California finally wakes up to reality and realizes it was all a smoke and mirrors dream it is going to be very ugly.
Of course Munis are safe!
Cities and States can always just keep raising taxes (to infinity) to keep their insane public unions happy and voting democrat. Because and promise is a promise and it is for the children.
And if that doesn’t work - there are bailouts! Because and promise is a promise and it is for the children.
And if that doesn’t work - destroy the bond holders and keep the union contracts. Because and promise is a promise and it is for the children.
And if that doesn’t work - well, you just follow what Detroit did. Raze half the town and solve 10% of your murders. Because and promise is a promise and it is for the children.
FYI - Camden, NJ fired their entire union goon police force. They now pay for the county to do police work in their city. Crime is down about 50% and the cost are less than half. And NO pension liabilities to boot.
So it can be done.
Dreams forced into reality=nightmare. That’s why dreams should be left that way.
The ‘American dream’ fully executed—-> http://goo.gl/A9po1A
‘Everyone is scared: Nobel Prize winner Shiller’
‘The human race has deep underlying fears about technology and the lives their children will lead and this can be seen - in all places — in the negative yields in bond markets, Nobel Prize-winning economist Robert Shiller told CNBC. “I think fears have been growing for years that represent the willingness of people to bid up bond prices,” he told CNBC. “They are worried about their future. They are worried not just about next year, they are worried about the next twenty years, the next forty years. So they are desperately trying to provide for that, they’ll even accept negative yields.”
Uh, aren’t central banks printing/spending a lot of money to keep rates low? Aren’t years of QE sloshing around the world, looking for yield? But let’s go back to what we used to say; that negative rates mean recession or depression ahead. The safety of the bond was more valuable than doing anything else with your money. I don’t know about this “people are afraid of robots” stuff.
He also said this:
‘Shiller added that Davos had taught him that people are trying to make sure they are in the top 1 percent of global earners. “This is desperation for many people,” he said.
It is nice to see the 1 percenters gathering in Phoenix for the Super Bowl. As a group they are nicer looking than the rest of us rabble and they must be morally superior also because they can afford $1000 for a ticket.
I know lots of people that go to the Superbowl and put it all on credit cards.
Then they pay for it for the next couple of years.
It must be fun to “play rich” for a weekend.
You can see the game better on your TV. I read they were paying 40 bucks for a hotdog at Davos.
Maybe people don’t know what things should cost anymore.
It doesn’t matter when it goes on a credit card.
Ever wonder why a pair of Nikes sale for $150?
But let’s go back to what we used to say; that negative rates mean recession or depression ahead ??
Exactly Ben…Thats what to fear….
Falling prices is nothing to fear. Falling prices to dramatically lower and more affordable levels is the cure and very bullish for the economy.
Remember we are dealing with a public that will line up at a WalMart at midnight, and fight over shoes, when they can go into a WalMart any dang time. Most businesses aren’t any smarter. Around here there are grocery stores every two blocks. Same with gas stations and mechanics, fast food. I understand the convenience and all, but it seems kinda redundant. Trying to get that little sliver, that 5%. So sure, borrow a couple or ten million and build that hardware store when there is another one just half a mile away. And if the almighty growth slows the teeniest bit, the place is empty. There’s a Safeway a couple miles from me. It’s the anchor for a big strip-mall L shaped thing. They never have more than one cashier. I can almost always walk up to this cashier with no wait. In this complex, there are karate studios, burger places, the SW gas station of course, a tax prep place, lots of little odd ways of spending your money. If that anchor tenant goes, what then? This area has a commercial vacancy rate over 40%.
If that anchor tenant goes, what then? This area has a commercial vacancy rate over 40% ??
And the picture that you offer can be extrapolated across the country….
Had a nice conversation with my son last night…Discussing his generation (30 somethings) and some of my nephews/nieces (his cousins) and how they differ…Bottom line…Neither are going to do it the way their parents did it…From marriage, to kids, to mortgages, to travel….
And they say 10,000 boomers are going to retire every day soon. Who’s going to buy their houses?
Ben, “retiring in place” has been a meme pushed through into popular consciousness by real-t-whores trying desperately for a cover story.
Quite a few deferred boob job refreshes, judging from the looks.
Take it a step further considering they’re already starting to die off;
“And they say ___ boomers are going to die every day soon. Who’s going to buy their houses?”
That’s what I was getting at.
I’m not sure why realtors would be promoting aging in place. Realtors make a living off of churn, not off of old ladies staying put for decades.
Universal design remodelers have an big incentive, as do reverse mortgages, and — to a lesser extent — futures in repair and remodeling services. The agers in place can’t afford to do anything except replace something that breaks. Hence my Year Of Wallpaper Removal.
‘Shiller added that Davos had taught him that people are trying to make sure they are in the top 1 percent of global earners. “This is desperation for many people,” he said.
I can either be in the 1%, and be given money because I have money, or I can be in the 99%, where everything is too expensive to buy without borrowing.
Hell yeah I’m desperate to stay in the 1%. Everybody else is going to get f**ked long and hard.
Taxes on labor income are set high enough to ensure the 99% have little chance of climbing up to the 1% trust fund baby wealth level.
2banana’s #1 rule on investing:
Never, ever, invest in anything with the TRUMP name on it.
“Lower Manhattan’s Trump Soho, the five-year-old tower that was seized in a foreclosure amid slow sales of its condominiums, may drop its focus on part-time residences and operate most of the property solely as a hotel.
“Debt That Once Boosted Its Cities Now Burdens China”
http://www.wsj.com/articles/debt-that-once-boosted-its-cities-now-burdens-china-1422415981
Would you lend these fools money? US pension funds did.
We wonder who is financing the Chinese Jersey City luxury condo sky needle.
“Some fear another real estate bubble, however, as developers – many new to the student-housing niche – make decisions that seem based on the amount of capital they can secure, not on market needs.”
“… decisions that seem based on the amount of capital they can secure, not on market needs.”
A nation of dummys.
“‘At some point, the law of supply and demand will weigh out. I don’t know when. But it will happen.’”
Until then … they’ll keep right on dancin’. And that’s because …
… people are smart.
(and I am so glad)
Grubered again.
‘Everything was going up and up and higher,’ Garner, 58, said of the housing market. ‘I wanted to make money, too.’
Gosh, I want to feel bad for this woman, but somehow, I just don’t.
‘I wanted to make money, too.’
Instead you lost your ass because that’s was the desired outcome, by design.
The article says that neighborhood has a median household income of more than $170,000. Probably secure govt jobs. I’m sure most of those who lost out have already moved on and bought something new and cheaper since the crash.
Another stupid person sold the american dream by shysters. One of them you can feel sorry for…. a vast mob of them is a threat to civilization.
‘I wanted to make money, too.’
Yeah, Ponch. It’s called a steady job.
“She bought a townhouse for $427,213.”
Talk about being, S-U-C-K-E-R-E-D.
‘In October, they backed out of 21 percent of new-home sales contracts in Henderson, up from 12 percent in April, according to Home Builders Research. In North Las Vegas, cancellation rates jumped to 34 percent from 25 percent in that period.’
IMO, it’s the builders who are to be watched here. When they start to lower prices, even if it’s via incentives, the bottom is dropping out. Why? Because they are minting FB’s left and right. And they don’t care. So they make a little less or lose a bit; it’s better than holding on to an empty house. Plus, they’ve got bonds to pay. And if a subdivision folds, they just roll up that LLC and head for the beach. Even DR Horton said the other day they were giving out incentives, which are price reductions.
‘M.D.C. Holdings, Inc. announced results for the quarter ended December 31, 2014.’
‘Larry A. Mizel, MDC’s Chairman and Chief Executive Officer, stated, “We are pleased to announce a successful 2014 fourth quarter, capping a third consecutive year of profitability for our Company. Although we have made significant progress with our business since the end of the downturn, in 2014 the homebuilding industry experienced weaker demand, following a brief surge in sales velocity and home prices during the first half of 2013. This environment led us to increase our use of incentives during 2014 to stimulate demand for new homes in certain markets. Combined with rising construction and land costs, the increased incentives placed pressure on our homebuilding gross margins for both the fourth quarter and full year.”
“”The outlook for 2015 is somewhat clouded by uncertainty surrounding global and domestic economic conditions, with the full impact of issues such as falling oil prices yet to be fully understood. Nonetheless, primarily as a result of our land acquisition efforts over the past two years, we have set the stage for our Company’s growth in 2015 by expanding both our active communities and our backlog year-over-year.”
‘Tanking petroleum prices are starting to hit Texas’ housing market hard. The real estate and building company LGIH has over 53% of its portfolio in Texas; LGIH stock has started to quickly slide , perhaps suggesting investors are worried about oil.’
‘LGI Homes, Inc. has at least 53% of its portfolio in Texas. Texas represents 16% of all United States building permits for new, single-family homes for most of 2014. Moreover, three Texan metropolitan areas fall into the top 10 regions responsible for residential construction permits. Houston produced 57,210; Dallas produced 36,342; and Austin produced 18,952.’
‘LGI Homes specializes in converting renters of single-family homes and apartments into homeowners by focusing on building affordable housing in affordable areas in Texas, Arizona, Florida, and Georgia. Their business model focuses on high quality, entry level homes that appeal to renters. These homes range in prices from $115,000 to $260,000, and the majority are 1,200 to 3,000 square feet.’
Ben - look up Mizel in the Denver County and Arapahoe Co. Colorado court records - this guy is a piece of work.
And they don’t care. So they make a little less or lose a bit; it’s better than holding on to an empty house ??
Yep…And they will keep building to keep a skeleton crew employed…
I would like to know the number of new addresses the post office added.
I’m going to bet that those 35% of DEFAULTERS were counted as a sale, and then counted again when the newer defaulted said yes, then again when it actually closed.
How many new addresses is the tale….
^ RIGHT.THERE.
Just got a email the other day from Toll Bros in Vegas offering incentives until mid Feb. We are coming around again. The only question is how long until the masses figure it out.
“We are coming around again.”
+1 Waiting on the pretty shills debut, Act 2.
‘Let’s say Fed Chair Yellen made an error and printed me up a trillion dollars. Why, I’d use those dollars to buy all — and I do mean all — the beach-front property. I would have the most galactic beach-front party in history. Thing is, Yellen just gave me bidding tickets. She didn’t give me the booze, the DJ’s, the concrete, or the wood.’
‘So how do I put this party on? Why, I use Yellen’s dollars to bid it all away from you. Yep, you. Building a factory? Too bad: I’ve outbid you for the concrete. Building a back deck? Too bad: it’s my lumber. There’s a party on, didn’t you hear? A Keynesian party.’
‘So is my resource-sucking mega-party making the economy grow? Nope. When it’s all over, when the hangovers along with the ear-ringing subsides are gone, we’ve used real resources. We’ve got no factories. No decks. We’re all poorer. But the politicians did get re-elected, right?’
‘This, in a nutshell, is Keynesian “stimulus.” Whether it comes from government spending (“fiscal stimulus”) or from Federal Reserve money-printing (monetary stimulus). In either case, real resources were bid away from the rest of us and handed out to others.’
In either case, real resources were bid away from the rest of us and handed out to others ??
+1 Ben….Post of the year so far…
“There’s a party on”
Which leaves me wondering why the central bank would do this. What is the simplest explanation? Getting to that might help me understand where the limit is to this party and what will make it stop.
I think it is about debt, about willfully pushing debt onto everyone, so as to further concentrate power.
I don’t know if they really believe these theories or not. But we’ve quietly gone from “unprecedented” QE to address a “crisis”, to perpetual QE. Remember when we would half-joke about a plunge protection team? Now Japan openly admits they are printing money and buying stocks.
The conclusion to me more and more is that combined with globalism, it’s deflationary. Right now, the financial sector is hyping a new burger IPO. Are hamburgers really some big new deal? Is it the chocolate shakes? I can remember similar hype about a doughnut chain. Up it goes, and slowly or quickly it recedes. Over capacity; now some jobs are leaving China to go to lower cost countries. The factories in Mexico, where those jobs went first, sit empty. And true sustainable economies are not developed because the resources are drained off into flash in the pan IPO’s, redundant oil sands or student housing, M&A, etc.
that combined with globalism, it’s deflationary ??
And if it becomes a spiral, IMO, it could be the precursor for a serious war….Only person on earth that will be happy will be HA…
dave, we can’t afford a serious war. What we can afford is serious rebellion. Perhaps the Greeks are about to inspire the world yet again.
Dave,
Falling prices aren’t going to cause WW3. Your financial condition might implode but the world will be a better place.
Ben Jones: Right now, the financial sector is hyping a new burger IPO.
What’s the value to the average joe, in a stock? That some chump will buy it for more, yielding them some currency?
Value. Usefulness in some fashion, to let one feel good somehow. When the only value is hoping a greater fool will buy it for more - well, the value is going to be volatile. Granted there is a “market” out there for this sort of thing and obviously some people do generate currency from it.
In a world of greater fools, the key is to avoid being the greatest fool.
Farewell QE, you have been a magnificent success
The moral contours of QE depend on your angle of vision. But would you rather be surrounded by mass unemployment?
A worker inspects newly redesigned $100 notes during the printing process at the Bureau of Engraving and Printing on May 20, 2013 in Washington, DC
The Fed’s $3.2 trillion bond spree since 2009 has fuelled asset bubbles - not by mistake, but by design Photo: Getty Images
Ambrose Evans-Pritchard
By Ambrose Evans-Pritchard
10:47PM GMT 18 Dec 2013
As the US Federal Reserve starts to drain dollar liquidity from the global system at long last, let us celebrate success. Quantitative easing has worked marvellously well. Monetary policy has been vindicated.
The US, UK and Japan are all recovering, moving closer to “escape velocity”. The Swiss National Bank - that bastion of orthodoxy - has kept its economy on an even keel by quietly amassing a bond portfolio equal to 85pc of GDP.
The crippled eurozone alone has chosen to stagger on defiantly without monetary crutches. The result has been a double-dip recession of nine quarters, the longest since the Second World War. The austerity regime has been self-defeating even on its own crude terms. Debt ratios have ratcheted up even faster.
There is no safe recovery yet. France already has one foot back in recession. The OECD expects growth of 1pc for the eurozone in 2014, with unemployment stuck above 12pc into the middle of the decade. Such is the price of EMU ideology.
The diverging fortunes of the QE bloc and the EMU bloc prove beyond doubt that monetary stimulus packs a powerful punch. Without becoming entangled in the vendetta between Friedmanites and Keynesians - I value the insights both in the post-bubble phase, as well as “Austrian” insights before the bubble builds - the central bank experiment of 2008-2013 shows that blasts of money can greatly offset the pain of budget cuts, even when interest rates are zero.
This should come as no surprise. There is nothing new about QE. The Bank of England conducted variants of it in Napoleonic times, watching the weather vane for easterly winds up the Thames. It would calibrate liquidity needs by buying Gilts as the ships came in. The Venetian Grain Office did much the same in the 14th Century. The Genoese and the Flemish had their own variants.
The QE policies now seen as dangerously novel were plain vanilla in the inter-war years, then known as open-market operations. John Maynard Keynes wrote in his Tract on Monetary Reform in 1923 that such policies should be used “a outrance” to battle the two evils of inflation and deflation. The US Federal Reserve launched a bond-buying blitz in 1932, after the US Congress ordered it to do so.
The Fed’s $3.2 trillion bond spree since 2009 has certainly been imperfect. It has fuelled asset bubbles, not by mistake, but by design. Fed chairman Ben Bernanke puts much faith in the wealth effect, the trickle down theory that understandably disgusts Pope Francis in his latest apostolic exhortation. If it were done again, at least some of the stimulus should go straight into the veins of the economy through public works projects. But let us not quibble.
America has this year weathered the most drastic austerity cuts since demobilisation at the end of the Korean War in the 1950s. Net fiscal tightening has been 2.5pc of GDP, yet the economy has muddled through. The Fed’s $85bn monthly bond purchases - soon to be $75bn - have blunted the shock.
The US has not spiralled into inflation as so many feared. The Fed’s measure of core PCE inflation (without food and energy) has dropped to 1.1pc, close to the post-Lehman trough, and too low for comfort. Mr Bernanke has surely taken a risk tapering into this deflation downdraft, and may live to regret it. The Fed may be underestimating the sheer force of the deflationary wave spreading through the global economy from China as the country invests $4 trillion each year, much of it in factories and industrial plant.
Be that as it may, the US budget turnaround is impressive. The deficit is running at 3pc of GDP on a quarterly basis, a remarkable fall from the 12pc peak in 2009. The debt ratio has stablilised and even begun to fall as recovery causes a delayed surge in tax revenues. The federal debt has dropped from 101.5pc to 99pc of GDP in the past six months.
…
Party on Garth!!!
There is a special club of beach-front property owners, and you aren’t a member.
sub prime is coming back under a different name - and look out for an outfit called Macquarie….read on friends…..
http://www.bloomberg.com/news/articles/2015-01-28/get-ready-for-the-return-of-risky-mortgage-bonds-credit-markets
http://usa.streetsblog.org/2014/11/19/how-macquarie-makes-money-by-losing-money-on-toll-roads/
Oil Craters Through $45 Floor
http://www.marketwatch.com/
Next up; $40
I find this letter to the German people very interesting.
http://syriza.net.gr/index.php/en/pressroom/253-open-letter-to-the-german-readers-that-which-you-were-never-told-about-greece
‘In 2010, the Greek state ceased to be able to service its debt. Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.’
‘In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the ‘extend and pretend’ tactic would lead my country to a tragic state.’
‘Indeed, even before a full year had gone by, from 2011 onwards, our predictions were confirmed. The combination of gigantic new loans and stringent government spending cuts that depressed incomes not only failed to rein the debt in but, also, punished the weakest of citizens turning people who had hitherto been living a measured, modest life into paupers and beggars, denying them above all else their dignity. The collapse of incomes pushed thousands of firms into bankruptcy boosting the oligopolistic power of surviving large firms. Thus, prices have been falling but more slowly than wages and salaries, pushing down overall demand for goods and services and crushing nominal incomes while debts continue their inexorable rise. In this setting, the deficit of hope accelerated uncontrollably and, before we knew it, the ’serpent’s egg’ hatched – the result being neo-Nazis patrolling our neighbourhoods, spreading their message of hatred.
Despite the evident failure of the ‘extend and pretend’ logic, it is still being implemented to this day. The second Greek ‘bailout’, enacted in the Spring of 2012, added another huge loan on the weakened shoulders of the Greek taxpayers, “haircut” our social security funds, and financed a ruthless new cleptocracy.’
‘Respected commentators have been referring of recent to Greece’s stabilization, even of signs of growth. Alas, ‘Greek-covery’ is but a mirage which we must put to rest as soon as possible. The recent modest rise of real GDP, to the tune of 0.7%, signals not the end of recession (as has been proclaimed) but, rather, its continuation. Think about it: The same official sources report, for the same quarter, an inflation rate of -1.80%, i.e. deflation. Which means that the 0.7% rise in real GDP was due to a negative growth rate of nominal GDP! In other words, all that happened is that prices declined faster than nominal national income.’
‘So, let me be frank: Greece’s debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding.’
This gets to your question earlier, how does it end? One way is the debts become insurmountable. Look at the surprise of the technocrats that millennial’s aren’t buying houses. Here, borrow a ton of money to go to college. Credit cards, cars. What do you mean you don’t want more debt?
For all the talk by central bankers about helicopter dropping money, they never do it. They make cheap loans to their banker buddies who then use arbitrage and carry trades and bonds to skim the cream of the top, QE runs all over the globe creating bubbles. Meanwhile, people with cash have been robbed by some accounts of $ 1 trillion in the US alone. Free money indeed. This weekends post from Hodges is right on; you have to be able to repay the principle. These low rates and thin-air liquidity have only made everything worse.
“So, let me be frank: Greece’s debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding.”
It doesn’t look good. A cursory glance around my place I can’t think of one thing that was, “Made in Greece.” What ever Greece can produce odds are that China can (and does) do it better for ten times less.