‘Will The Real Ben Bernanke Please Stand Up’!
One wide ranging topic thread went roughly like this. “Will the real Ben Bernanke please stand up! Does anyone have read on what Ben Bernanke is all about? Is he really serious about fighting inflation and loose credit or is he in reality a cagey poker player?”
“Based on my read of the FOMC statement, the Fed is starting to get nervous about further rate increases. Am I mis-interpreting? How will all this affect housing? Are (short term) rates high enough to deflate the bubble?”
One reader said, “Rates are and have been high enough for a while to burst this bubble. People cannot afford the houses they’re in, and you won’t believe the calls we’ve been recieving lately from stressed out borrowers. Last week I suggested the topic of reviewing the ‘basics’ that show the evidence is overwhelming that we are in for historic correction. Let’s break this thing down this weekend, folks. I think that most of us could use a little refresher, and for those that might find this blog over the weekend, perhaps an eye-opener.”
Another had this, “Obviously, the international community has no respect for the Fed’s ability to control inflation. The dollar is tanking, gold is up over 3% and will continue to rise. The Fed is well aware that inflation is currently running at 7%.”
“Inflationary pressures have been ignored for a very long time because they did not make it through to the government’s ‘core inflation’ statistics. The Fed relied on globalization to contain inflation.”
“And just to refresh all you youngsters memories: ‘We have seen security prices soar out of sight of earnings, brokers’ loans swell till they absorb a third of the banking resources of the country, and the blind pools of ancient days return and multiply by endless crossing and pyramiding as the investment trusts of today. Banks merge and emerge in chains, trailing trusts and holding companies, while industrial corporations pay dividends not by producing goods but by buying each others’ stocks and by borrowing and lending everybody’s money in the market.’”
“‘But of all these things can anyone say with surety what they signify, whether they are safe and sound, or what they are leading to? We do not even know, or cannot agree, whether inflation exists, what it means, or how it shall be measured.’”
“‘In face of the ignorance, uncertainty, and irrationality that surround every aspect of the ‘new era,’ it were wisdom for business to keep its feet firmly on the ground and assume for the present that the principles that prevailed through the long business past still govern the stability and success of business today.’”
Business Week - September 7, 1929
“IMHO this is the beginning of the World Wide Asset Bubble collapse. In fact the more interesting action will be next week with the quarterly redemption numbers from the Hedge funds released. Yesterdays and todays stock market action is quarterly adjustment of portfolios.”
Another added, “IMHO the World Wide Asset Bubble collapse began on October 19, 1987, but capitulation was successfully forestalled for 19 years by the world’s greatest bubble blower.”
To which was replied, “1987 was just the beginning. Many things developed since then not due to AG, but because of other macroeconomic, regulatory, and geopolitical reasons.”
“Don’t blame everything on AG. AG didn’t create derivative explosion, nor the dot-coms, he didn’t open sweatshops in Asia and Latin America, he didn’t destroy the USSR, didn’t deregulate the S&L and junk bonds, didn’t drop dollar.”
“He is a product of the Friedman’s monetarism, actually we all are, since we put so much naive faith in the Fed’s ability to govern the ecomony with one crude hammer of interest rates. We are all to blame.”
Well, since the subject of Friedman has been broached, I suggest everyone familiarize themselves with the “Permanent Income Hypothesis” — I think more than monetarism, this is Friedman’s legacy to understanding this current bubble: From ARMs to pre-spending future gains.
Totally agreed — in fact, I was independently thinking about the relationaship between the permanent income hypothesis and affordability earlier today, before seeing your post just now. The related problems, as I see them, are:
1) The standard traditional rule-of-thumb, that mortgage payments should not exceed 30% of income, does not hold up very well for Option ARMs at the minimum monthly payment.
2) The problem is exacerbated when the lending industry waves the standard rule-of-thumb to qualify low-doc, subprime buyers for loans at more than 30% of monthly income, on the basis of “affordability” concerns.
3) For the past several years, the above concerns posed no apparent problem, due to double-digit YOY home equity gains, which either facilitated cashout financing to cover up for a lack of wage income, enabled anyone who got into trouble to sell at a profit.
4) In the new rising rate / falling price environment, it is no longer possible to refinance or sell one’s way out of an unaffordable, unsustainable mortgage contract. At this point, those whose permanent incomes are insufficient to withstand ARMs resets will turn out to be the skinny dippers at the party.
I believe there will be **lots** of skinny dippers at the end of this party.
In my opinion the FED rates are only going to impact housing by making treasury bills more attractive than mortgage-backed securities. It’s going to take a real meltdown in confidence in MBS to really stop the loose lending by banks to homedebtors. The MBS are freeing up all the banks’ portfolios, so until they stop doing that, banks have no incentive to stop. Making a quarter point rise makes treasury bills slightly more attactive, perhaps taking some of the demand away from MBS. But I’m waiting for the event in MBS…that’ll be the trigger for the whole collapse.
Agree 100% with this.
I have lived through every asset bubble since the late 50’s. Without exception, most corrections have been in the 30-35% area for normal markets, 35-50% for the really overpriced markets, and as much as 75-90% for the rediculously priced assets that have no justification for their price rise except the greater fool.
I do not pretend to know exactly how this will all play out, but if history is any indication ( and it usually is ) then we can reasonably expect the 30-40% corrections to the mean that have usually prevailed.
The Law of Cycles has never been repealed.
We could REASONABLY expect 30-40% corrections, BUT there is nothing reasonable about what has occurred in residential real estate. The pool of borrowers was at least DOUBLED through loose lending and home equity extraction. Suppose that 20% of the homes built over the past four years no longer have prospective owners due to the destruction of personal credit and credit contraction. I submit that housing values will go beneath the mean and farther due to a glut of homes.
I think I used to sound crazy when I’d submit these types of comments a few months ago, but I think I sound less so with each passing month…
I have observed that the price of homes in my area have tripled in the last ten ten years. This is completely unreasonable.
So IMHO a 40-50% correction would not be unreasonable on that basis alone. Forget about bogus loans and everything else, and you can still make a case for a major correction.
IMO homes are overpriced by 10 years and it will be 2016 before current prices are justified in most markets.
Please tell me if, in California, we are not building enough product that we can have a GLUT?
I think using the scale of historical corrections to gauge how the present correction might play out could be flawed.
The scale of liquidity and insane lending practices - including the nature of the lending products and lack of any standards - are all without precedent.
Affordability has never been lower.
COnsumer debt has never been higher.
The creditworthiness of many buyers is atrocious.
Our economy is fundamentally weaker than it has ever been, the balance of trade abysmal and the deficit, well, astonomical in its proportions.
Fuel costs are approaching an all-time high and our dependence on fuel has never been greater.
Our economy’s reliance on the RE business and housing related industries are almost certainly underestimated by any economists.
Don’t bet on a simple correction in residential RE this time around. I see 60%-70% declines as very plausible and the havoc that will create in the credit markets along with the effect of depressed spending on RE development and tangential housing related industries will plunge our economy into a full blown recession. Credit will dry up as lenders fall victim to government regulator’ screw tightening due to the loan-loss-reserve crunch.
This house of cards economy Greenspan invented will come crashing down so hard the 30’s may be the only comparison as we drag China’s fragile economy down with us since they rely heavily on American one-way trade. It’ll be a globalization working in reverse where dominos fall at light speed…
I think you are overly optimistic.
Maybe it’s a global economic correction.
What the top of an asset bubble sounds like:
I had occasion this weekend to dig up my edition of Barron’s from Mrch 13, 2000. Here is the lead and excerpts from “The Trader” column:
“New economy boosters enjoyed further vindication last week as the Nasdaq cracked the historic 5000 barrier and as the DJIA fell 4/2%, dropping below 10,000….
….
“It was fitting in a week in which the Nasdaq craced the 5000 barrier that the company controlled by Warren Buffett, the most famous advocate of Old Economy investing, continued its slide and hit a new 52 week low. ….
“Just a few years ago, the publication of Berkshire’s annual [report]…used to be an eagerly awaited event.
“These days, it seems that few outside the cadre of loyal Buffett fans care about what the Great One is thinking….”
I’d say we are way past that point in the housing bubble cycle; as to the debt (”deficits don’t matter”) cycle, I don’t know if we are there yet.
“we can reasonably expect the 30-40% corrections to the mean that have usually prevailed.”
What scares me about this round, Johnnftworth, is that since the last dip we have become a debtor nation. In “The Glory and the Dream” William Manchester states that the US held 70% of the World’s wealth after WWII. The well read economists here can probably state it better than I but I believe that proportion has been declining ever since. We’re not making all the decisions any more. Add to that the strains of the global economy and the allegedly huge amounts of fraud in the system….(held breath) I am scared.
BB is just a front-man to show the world that Uncle Sam cares about the value of the dollar. It is all a ruse to buy time. They have lost control of the money supply. Even if BB keeps raising rates he won’t be able to stop the bleeding from the Treasury or take the heat from the FBs who now outnumber the prudent people 2-1. No, they will raise rates just a little and then stop & lower, then the hyperinflationary policies that the guvmint adopted long ago will continue unabated. Believe me, I wish it weren’t so, but there is no way the US can put it’s financial house back in order. I might as well start buying gold like everybody else. I really wish this weren’t the case, believe me, but the once arrogant, now whiney, walkaway from their responsibilities bottle baby FBs (who can’t lose) will have their way and runaway inflation is coming. If I am wrong, I am glad, because I would rather see all the flippers hanging by their yayas in front of the courthouse but they have the bulge on us and BB doesn’t have the intestinal fortitude required to give all of them the a$$ kicking they so richly deserve.
Raise, stand, or fold; whatever BB does won’t change things. Rates are going up. You are right about money supply being beyond our control. For the first time since the Great Depression we are facing a financial crisis over which the Fed has no control. Imaginary ’support’ lines for the USD, Nasdaq, etc. will not hold. Watch as the USD plummets through the magic 80 level. Now suppose you are China or Japan…or just try to figure out as a person who is paid in dollars; what do you do? The world is awash in money that is RAPIDLY losing value. Fools who fled to the ’safety’ of the USD from emerging markets are going to get crushed. How high will rates go? Who knows? The overnight rate in Turkey is something like 18% TODAY, and I think people in Zimbabwae have stopped asking what rates are. Things can get so bad, so fast, that the least of our problems is the real estate bubble. We are in for a very wild ride.
See, here’s the problem with an uneducated democracy. Assume the FB’s do, in fact, outnumber the prudent folk by a margin of 2-1 (or even 51%-49%, whatever). What will the FB majority do when last call is heard, when the ticket-taker comes to the door, when the foreclosure ads run? They will scream that they have been treated unfairly, that they have been mislead, that it is their representatives’ duty to DO SOMETHING about it. Since we get the politicians we deserve, they will try to DO SOMETHING about it. They will pass laws, print money, close banks, permit defaults on debt, whatever they can think of they will do, for the FBs have become the majority, who defines what is right and what is wrong, and who keeps the politicians in office. Whatever the politicians do will thus be equally ignorant and uneducated, with no regard for the consequences, then behold, you will see the seventh seal broken and the four horsemen riding against a crimson sky.
Okay, didn’t mean to get all biblical there, but seriously, how can one predict what will happen when the majority has become insane?
Dogs and cats sleeping together, people flying out of their graves, yeah, it’s going to get ugly.
Good points KIA and Mort . I forgot about the fact that the majority might be nuts . You really can’t predict what will happen . Trapped borrowers will also be very angry ,and you will get alot of road rage .
Are the majority nuts? Or just too busy to actually “listen” to the media. Our culture hates negativity, and whistle blowers. Keeping a positive attitude has worked out for most since 1929. Things always get better. And really things have pretty been pretty darn good for Americans for a long time. They just don’t have a frame of reference.
The flaws in many news stories are obvious causing many of us to dig deeper, search harder, double check with our own numbers, cross reference, find a blog to consider with others.
I think instead of being too stupid, others just trust the system too much. (Sheople) Let’s face it we sound like conspiracy theorist to many. I believe we’re right…otherwise I wouldn’t be spending 3 hours/day here and picking up economy handbooks to decipher some of the posts.
I just feel this is going to hit some like Watergate or 9/11….a watershed moment when they realize all the misleading information the “system” fed to them or that they convinced themselves of. Like any culture who has experienced great heights, Americans’ skills at recognizing danger are not so honed.
I should have said things have always gotten better since the end of WWII, not 1929 which was only the beginning.
This all assumes the voting majority is in control, which I doubt.
Who do you vote for? Republican or Democrat? Both parties ultimately serve those in power who fund their elections. It is the wealthy few who are running the show, not the democratic majority. Or so I believe. Power is an unrecognized commodity, or and underrecognized one in most economic models. But it is real, and it is to its benefit that economic winds blow.
“Both parties ultimately serve those in power who fund their elections. It is the wealthy few who are running the show, not the democratic majority.”
I’m with you on that one, SF Mechanist, and the elite were able to convince us the masses were along for the ride while all the masses were doing was taking loans from themselves. I wonder what will happen when that punch bowl is taken away.
The Freemasons maybe.
how can one predict what will happen when the majority has become insane?
The majority has been, is, and always will be insane.
Invest accordingly.
Hmm… I’m very concerned about hyperinflation. Hyperinflation is very bad - during hyperinflation times a lot of bad things can happen. Not really because money becomes worthless, but because of side-affects it has on society, political system, etc.
However, since politicians are looking for short term gains (4 years max), I think we should prepare ourself for some hyperinflation.
The seven Federal Reserve Board members are not elected, and serve fourteen year terms. Since there are 12 FOMC members who vote on monetary policy issues, seven of which are on the Board of Governors, there is a guaranteed majority of FOMC members who are independent of the political election cycle. Hopefully this offers some leeway for independence from the political cycle, although the past 18 years have left me doubtful…
I lived through a great deal of hyperinflation in Russia from 1992 though 2002 especially the the years from 1992 through 1996. Inflation for the past four years in Russia has been running at around 12% or so and life and business goes on. Business adapts and people adjust their behavior.
The primary risk and opportunities are in the transition from a low inflation to high/hyper inflation environment and from a high/hyper inflation to low inflation environment. The transition is when fortunes are made and destroyed.
IMO living in an inflationary environment is preferable than a deflationary environment. An inflationary environment is more vibrant. A deflationary environment is depressing.
Russia did survived hyperinflation without major problems because that was actually transition time from socializam to capitalism. I believe Hungary and other ex-socialist countries had similar periods.
I don’t think that US which is relatively nicely ordered capitalist system can handle hyperinflation very well.
Russia repudiated its debt. What would happen if we did that?
We would all be learning Chinese - chop chop!
I think not. If the USA repudiates its debts, there will be war. We are ill-positioned for a real war against an enemy which can hurt us. We much prefer to swagger around the block taking smaller countries’ lunch money.
Let me offer a contrary persepctive, to the Armageddon-like predictions here: what if the unwinding of the worldwide debt bubble takes another 30 or 40 years to unwind, like a behemoth version of Chinese water torture? Remember Abby Joseph Cohen’s version of the US economy as a “supertanker” that takes miles and miles to change course?
Take stocks. By some accounts, (18 or higher p/e, 3% or less divident) they’ve been in extreme territory for over a decade. Remember the book “Bankruptcy 1995″ about the budget deficit. Who ever thought we’d make it to the point where we have $9T in debt??? What if housing prices slowly deflate for years and years? What if the printing presses run just slowly enough to take decades to erase the deficit? What if wages (continue to) slowly deflate in real terms? What if interest rates bottom shortly near the 30 year point (2010) of the 60 year Kondratieff cycle, and then slowly increase for 30 more years, till in one final, baby-boomer retirement binge, there is one last fling at uncontrolled inflation?
The more I am amazed at how long “imbalances” are going on, the more I think it will end with the slow motion torture I’ve described above.
I think a slow, relatively controlled unwinding would be the best thing which could happen. Unfortunately, I think it is also the least likely to happen. It would require a degree of restraint and patience which western markets lack.
Ochen interesnaya.
“IMO living in an inflationary environment is preferable than a deflationary environment. An inflationary environment is more vibrant. A deflationary environment is depressing.”
Depressing, sure, unless you are wealthy. Inflation benefits those who are in debt, and is neutral for those who have no savings. It erases wealth, as it does debt. Not gonna happen here in America.
Check out this gem:
http://www.mccorkleplace.com/
The interesting thing about that 70 year old building is that it’s directly across the street from UNC Chapel Hill. It has been student apartments for the last 50 years- I myself lived there 6 years ago and rented a two bedroom for 700 bucks a month. Plaster/chickenwire walls, old ruined hardwood floors, electrical wiring from the 1930s, no central air or heat, broke tons of fire codes, etc etc.
So, now someone is taking this building and converting these rat-assed student apartments into ONE MILLION DOLLAR CONDOS.
How does the math work out on that? I used to pay 800 dollars a month to live there, and now the same place will have a mortgage of SIX THOUSAND a month if i want to own it? And that doesn’t include taxes or HOA dues!
There is a homeless shelter two blocks away from that building, and it is bordered by a 4 lane highway. It is right next to several dive bars and drunk college students are passed or vomiting all around that area.
They list the units sold on the front page- and already one person has backed out. I suspect that 100% of the “buyers” are flippers.
“He is a product of the Friedman’s monetarism, actually we all are, since we put so much naive faith in the Fed’s ability to govern the ecomony with one crude hammer of interest rates. We are all to blame.”
We are also all products of Keynes’ remedies for the deflationary spiral of the 1930s — electroshock therapy in the form of fiscal and monetary stimulus to create a chimera of ever-expanding debt and inflation over a fiat currency base. The big question, IMO, is whether such a regime of ongoing stimulative policies can result in a permanent “fooling game” where investors are always happy to go increasingly long into financial and real assets on the faith that their prices will go up forever, or if there is an eventual tipping point when too many irrationally exuberant investors have piled in to conundrumishly overvalued stocks and houses which requires a salutary correction to lower (deflated) price levels. So far, the trend in asset prices since 1945 has always been “up”, unlike during the 18th century, when periods of increasing prices were interspersed with periods of falling prices. Can this go on forever, or does the situation under the rubric of Herbert Stein’s caveat: “Anything that cannot go on forever must stop?”
http://www.forbes.com/columnists/global/1999/0222/0204077a.html
GetStucco et al -
I’ve been meaning to ask you about your thoughs on gold for a while now, I guess this is as good a thread as any.
I am in agreement with your thoughts on the housing and debt bubble, but you have hinted in previous posts that you feel gold is also in a bubble.
As the housing and debt bubbles burst, and inflation runs rampant while the dollar falls off a cliff and the equities markets fall, it seems to me that gold is an absolute necessity in any bear’s portfolio.
Can real estate, the stock market, the dollar, and metals ALL fall together? I can’t comprehend how that would be possible. If the dollar falls along with RE and equities, doesn’t gold HAVE to soar?
I appreciate all thoughts and opinions here. Not trying to start a debate, just looking for information and ideas.
I believe gold prices are likely to move by a large amount over the next year, but I cannot say whether they are headed up or down. It all depends on the actual intentions of the Bernanke Fed: Backing up their anti-inflation rhetoric in a world where the US is regularly racking up new record-level trade deficits would require a stronger dollar, as a weak dollar would make imports (e.g., oil) go up in price. A strong dollar would lead to a continuation of the recent unraveling of speculation in gold, whereas a weak dollar would lead to a resumption of the secular bull market.
If May was any indication, that is what will happen, but the last meeting suggests they are running scared of going too far on tightening, and may soon pause. I suppose you noticed that gold shot up through the roof right after the Fed meeting:
http://tinyurl.com/l5kp2
On the basis of the May crash (after the Fed’s tough anti-inflation talk) and the big spike after last week’s weak meeting announcement, I suspect that the gold market is currently at a record level of sensitivity to the uncertain future direction of monetary policy, as the market tries to reconcile the Bernanke Fed’s rhetoric with its true intentions. Perhaps this is part of Bernanke’s strategy to end the conundrum, as uncertainty tends to foster higher risk premiums.
Thank you for your opinion GS!
“I suspect that the gold market is currently at a record level of sensitivity to the uncertain future direction of monetary policy”
Dont’ know if this can be measured, but I agree 100% here.
As illustrated by the May correction and last week’s runup, it is pretty clear that the price of gold moves converse to the dollar. The question that remains is what you touched on: Will the fed do what is necessary to keep the dollar strong?
I don’t know nearly enough about economics, but history seems to support the notion that the Fed prefers to bleed slowly. Meaning we are headed for a significant recession either way, but a strong dollar (Fed rate continues to rise) is the faster way to get it over with, so we can count on them doing it the other way…a slowly weakening dollar. In the throes of a recession, wouldn’t a weakening dollar attract less blame from MSM as opposed to a strong dollar that comes with the high interest rates that would devastate a large portion of the homeowners?
FWIW, I’m not going to make too big of a bet either way…rather, just trying to find the right balance.
The two main drivers of the gold price are:
1. Continual depreciation of the dollar
2. Massive short positions requiring eventual massive purchases of gold to repay the borrowed gold.
Gold is continually manipulated by our government and others, suppressing the price in order to not signal to the public the massive inflation that we are actually experiencing. The official inflation statistics are hugely understated as most daily purchases tell us.
The price of gold will continue to be highly volatile but will rise substantially over time. It is not a bubble. The drivers are real and powerful.
Understanding the gold market is an imperative as we fall into whatever economic morass that is coming. It will be wise to find
information sources that you can trust and pay careful attention to what they provide. Fortunes will be made in gold.
Highly recommended is a free trial to:
http://www.lemetropolecafe.com/
Some other stuff is that it currently requires a fair amount of energy to produce gold. And that the very long bear market in gold discouraged exploration for a very long time and encouraged digging out the hi-grade deposits.
“The price of gold will continue to be highly volatile but will rise substantially over time. It is not a bubble. The drivers are real and powerful.”
And unlike just about any other investment, there really are no underlying “fundamentals” to which one can refer. Ultimately, the price of gold is the “correct” price only by reference to how many people want to own it.
There is one scenario in which all markets can fall, but it’s pretty catastrophic. When a serious market problem is compounded by a famine or drought (i.e. USA dustbowl 1930’s) then people don’t want to hold gold stocks. They want food. If market disruptions reach a certain point, even the most wealthy will disengage some or all of their wealth from the financial markets and invest locally in those farms and produce centers which are still effective. This eventuality would require a balkanization of the USA, which is conceivable only in combined circumstances of extreme oil crisis, political unrest or infrastructure disruption, widespread famine or drought, and loss of foreign credit for importing oil or food. Individually, any one of these issues could be overcome. In combination, they could be devastating.
I think GetStucco brought this up a few threads ago, but the price of one ounce of gold has historically been equivalent to the price of a good quality business suit. I think gold is not priced high, but good quality business suits are priced low!
You can just grab a bit of gold as a hedge.
I am still surprised by the anti-gold bias. If I mentioned gold as a decent alternative I have gotten lots of derision.
It’s not like you have to have 80% of your money in it to be long gold…
Question? What year would be the best year for a qualified buyer to buy their first real estate property. I am thinking any time after January of 2009 and before 2015. Would it be worth it to just put life on hold until then and try to save as much money as possible up until purchasing a house is no longer a risk.
William,
What do you mean, “putting your life on hold?” You enjoy the journey each day, not just the destination.
You have the timeframe correct. You would probably not want to buy until at the minimum 2009. When that time comes and homes are in a bear market, offer 30-40% lower than the already lowered prices. Look at your first home as an investment, not looking for your “dream home.” If you make 20 lowball offers, someone will take your 30-40% lowball offer or counter pretty close to that.
“Would it be worth it to just put life on hold until then and try to save as much money as possible up until purchasing a house is no longer a risk.”
————————-
Adding to SD renter’s post, this idea that not buying a house equates to “putting one’s life on hold” shows how the BULLISH bias has permeated even the most bearish of minds.
Buying a home is just one part of life. Get married, have children, eat, sing, dance, **live** in a rental house. It is still your HOME.
Definitely save your money. Saving is a good idea, no matter what. As I’ve been researching this bubble over the past few years, I’ve become more and more averse to debt. I’m really starting to question the whole reasoning behind “consumer” debt. It just seems like a very effective way for rich people to extract more money from the poor/middle classes.
Very sorry for the “morality” lecture!!! You’re not the only one who thinks not buying a house means that life is somehow incomplete (thinking about my husband and other bloggers here). Just wanted to point out how ingrained this “housing as life” mentality has gotten over the past few years. Look at all of us spending many hours, every single day, on a blog about housing. And we’re the bears! This is the psychological reason prices haven’t dropped yet, IMHO. We’re all still too bullish.
“It just seems like a very effective way for rich people to extract more money from the poor/middle classes.”
Just because the truth has a sting to it doesn’t diminish its basis in fact. The money is not lent to others in kindness or even community building with a few exceptions. Loans are made to create profit for others. MHO, of course. Buyers need to make their decisions while considering these realities.
I think william saying “putting life on hold” wasn’t meant quite as literal as it seems. I know what he means. Yes, I live, breathe, dance, learn, experience, etc. each and every day. But things I can’t do are paint a mural on my son’s bedroom walls. Or paint any of my rooms in any color for that matter! I have no where to plant a garden. My son has no backyard to put a clubhouse in. Etc. So, for me, those things have to be “put on hold” until we can buy our own place.
But I remain ever optimistic - thanks largely to this blog!
IMHO……the housing bubble is but one part of the much bigger bubble…..”THE DEBT BUBBLE”
How I laugh when I read of the government becoming concerned about lending standards and personal debt.
Double standards at it best!!!!!!!!
What is the debt of the good old US of A………?
There may come a time in the not to distant future when the American people may have start regulating the government.
” What is the debt of the good old US of A………? ”
8.4 Trillion ,but who’s counting…..
http://www.brillig.com/debt_clock/
—-
OT ,but just watching “sell this house” and the couple are selling their NY flat for 900k plus ,and for the open house they didn’t put the cover on the heater, vacuum the floor ,or paint over the patch job on the ceiling they repaired….Audacity at it’s best. Just makes you mad the extent this craziness has expanded, and what’s more, expected…….
Thanks for that……..$8,400,000,000,000. eh?
Found this little chart
Number of zeros–U.S. & scientific community–Other countries
3 thousand thousand
6 million million
9 billion 1000 million
12 trillion billion
15 quadrillion 1000 billion
18 quintillion trillion
21 sextillion 1000 trillion
24 septillion quadrillion
27 octillion 1000 quadrillion
30 nonillion quintillion
33 decillion 1000 quintillion
36 undecillion sextillion
39 duodecillion 1000 sextillion
42 tredecillion septillion
45 quattuordecillion 1000 septillion
48 quindecillion octillion
51 sexdecillion 1000 octillion
54 septendecillion nonillion
57 octodecillion 1000 nonillion
60 novemdecillion decillion
63 vigintillion 1000 decillion
66 - 120 undecillion - vigintillion
And I thought the US was running out of names for numbers LOL
$8.4Tril is the “official” national debt. Total debts and obligations range from $55Tril-$75Tril.
I can’t wait to see the pundits explain accelerating interest rates AFTER the Fed announces a ‘pause’. When the public finally figures out the Fed doesn’t control rates (the market does), all bets are off and there will be blood in the streets as the USD collapses.
They’ll bring back the “bond vigilante” strawman and hang him in the public square. Actually, if bond prices go up fast enough, there remains some hope of saving the dollar from the worst-case outcome. Slim hope, but some.
It’s interesting and counter-intuitive, but the real fun will begin only AFTER the Fed has stopped raising rates (which looks imminent.) This is when rates will get very high, especially at the long end of the curve. Most people have no idea that this can and will happen.
“When a central bank expands the money stock, it does not enlarge the (real) pool of funds. It gives rise to the consumption of goods, which is not preceded by production (and savings). It leads to less means of sustenance. As long as the pool of funding continues to expand, loose monetary policies give the impression that economic activity is being boosted. That this is not the case becomes apparent as soon as the pool of funding begins to stagnate or shrink. Once this happens, the economy begins its downwards plunge. The most aggressive loosening of money will not reverse the plunge…” 38
Frank Shostak
I would highly recommend this article (and follow on article that can be linked at the end of this one) for all who are really interested in a comprehensive look at what shaped our current system and what we can look forward to. As I keep trying to get across to the folks at this blog, there are many unseen hands and agenda’s hidden from view in our monetary system. It isn’t just about a mistake in the management of the monetary system that we are going to face shortly.
http://www.safehaven.com/article-3276.htm
And further to the above, I would draw your attention to a paragraph contained within the article linked.
There is third scenario which is unlikely. However, the loss of personal privacy and freedoms in the US and Canada since the 9/11 “War on Terror” was initiated makes what would have seemed absolutely impossible a decade ago now at least a considered, although remote, possibility. That would be to declare the free market too “dangerous” and the imposition of tighter government control over the economy and individuals (a scenario suggested by Jim Sinclair “Mr. Gold” of http://www.jsmineset.com). It would be an irony indeed that an economic emergency caused by the failed paradigm of central planning in turn applied by central banks to a mal-designed monetary system should be deemed a failure of the free market.
Donning my tin foil hat I will give you a reading of my forecast.
I believe an unrelated exogenous event (perhaps “false flag” operation) starts the ball rolling with the dollar/economic crisis. This immediately leads to capital controls and other lock downs on personal freedoms, constitution be damned. All of this is readied via recently signed presidential orders. Several of which are in direct violation of constitutional rights (think martial law).
Secondly, there is evidence of an effort by the executive branch to combine all of North America into one country (think you have an immigration problem now?). http://www.humaneventsonline.com/article.php?id=15809
http://www.eagleforum.org/column/2005/july05/05-07-13.html
This plan, if true, essentially erases the constitution and our sovereignty.
It is my opinion that this can only be accomplished under extreme duress by the American people. What the source of that duress is speculative at this time but the set up is the state of the monetary crisis we are staring at. Why the treasonous actions by our elected officials? Why the lack of coverage by the MSM? The rumors of a combined currency (the Amero) abound as well. Perhaps this all has an innocent explanation but don’t be surprised to see many of the rights and freedoms we take for granted whisked away shortly. Everything will be blamed on the exogenous event, of course, and most americans will readily accept whatever these assholes tell them. Just offered for the amusement value.
Some great points in that article:
“However, few retail investors do understand when a bubble is underway and the top usually occurs after the flow of new credit or increases in the money stock starts to slow - a visible signal within the financial system but not to the average investor.”
…..As you well know Japan started pulling liquidity from the market causing a worldwide stock collapse. Seems it was too much too fast as they just flooded it again with 50T Yen …
———-
” Yet, like today, while the 1920’s economy roared ahead, consumer price inflation was apparently tame while the stock market appeared “reasonably” priced. Rothbard notes “The fact that general prices were more or less stable during the 1920’s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware.”
The Fed stopped publishing M3 numbers a few months back. Does anyone know why? No conspiracy theories please; I’ve heard them. I was just wondering if they ever came up with a serious explanation for this. I can’t believe the markets would give them a pass on this.
I don’t believe the markets would have given them a pass. That is why I believe the government is in the asset price manipulation business.
A nice fellow named “bart” has come up with a way to compute M3 using available data and a little estimation. He claims his technique is within five nines of matching the historical data back to 1980.
Check it out here.
Actually, Here is a better link that looks to be updated. The same page also contains a lot of other interesting charts…
The official explanation was that M3 provided no more analytical relevance than M2, and that the cost of collecting the additional data needed to compile M3 was no longer warranted.
I loved it when I read the “cost of collecting data” explanation! Exactly how expensive was it for the Fed –with vast amounts of computing power/expertise at its disposal– to compute an index that some dude with a home PC & Excel was virtually able to replicate by himself?
Yeah, typing in all that quarterly economic data and hitting the “recalculate” button was REAL expensive (LMFAO)!
Seems to me that it is in the survival-level self-interest of virtually every elected politician in Washington to pressure anyone and everyone to keep the housing market from appearing to be in freefall before the elections — both sides of the aisle (neither of which represent me). After election day, they might quietly step back and watch the inevitable happen.
Chip,
I think you’re right. Fed paused and wants to keep things together long enough to just get through this November’s election. Afterwards look out!
Ben Bernanke has been totally transparent from the beginning. He believes in raising interest rates high to aggressively deal with inflation, but he thinks this needs to be done in small increments and not all at once. Nothing he has done is inconsistent with this, so all the second guessing and so on is kind of silly.
Interesting article on turbo-consumerism as a factor in modern crime:
Turbo-consumerism is the driving force behind crime
Failed consumers will lie, cheat and steal to gain the trappings of success so that they can be regarded as normal
Neal Lawson
Thursday June 29, 2006
The Guardian
Last week my son got mugged for his iPod. He wasn’t hurt, just a bit embarrassed about some of the songs his assailants will find on it. This week I had my mobile stolen while sitting on a park bench. This is low-level stuff that is now commonplace. But there is a vital link between these ever-upgradable gadgets and the prime minister’s call for a rebalancing of the relationship between the victims of crime and the perpetrators.
In “my day” it was different. No one got mugged, perhaps because we didn’t have anything worth taking. A home-made catapult was about as hi-tech as it got. Today a kid’s trainers, iPod and mobile can easily cost £400 to replace - and can be gone as quickly as it takes a hooded youth to claim there’s a knife in their pocket. I’m glad my son didn’t take the risk of calling his robber’s bluff.
http://p088.ezboard.com/fdownstreamventuresfrm5.showMessage?topicID=6.topic
It’s not the only driving force. There is an enabling force in the disarmament of English citizens. Criminals are now well aware that law-abiding citizens cannot carry any weapons or they will be prosecuted. As a result, the criminals operate with relative impunity. Look at the statistics: http://www.crimestatistics.org.uk/tool/
These are the “official” numbers from the home office. With a total population (England and Wales) of 52,793,731 and a crime rate of 25 per 1000, there were some 1,319,825 crimes in England in 2005. A different page, however, http://www.crimestatistics.org.uk/output/page6.asp indicates that some 5,562,691 offences were recorded in England and Wales in 2004-05. By comparison, the violent crime rate in the USA, that land of cowboys and violence, was 465.5 per 100,000 in 2004. That would be a violent crime rate of .465 per 1,000 peope using the same standard as England. http://www.fbi.gov/ucr/cius_04/offenses_reported/offense_tabulations/table_01-01a.html . Breaking it down into the English “Violence against the person” category here http://www.crimestatistics.org.uk/tool/Default.asp?region=0&force=0&cdrp=0&l1=6&l2=0&l3=0&sub=0&v=27 we see about 250,000 offenses every quarter in England, or close to 5 offenses per 1,000 population. That’s every single quarter - every three months! It’s FAR above the violence rate in the US. Even when you add in the 11,102,590 property crimes in the US every year, that is a rate of 4,666.4 per 100,000 or 4.6 per 1,000 using the English standards. By any measure, crime in England has skyrocketed and is approximately six times more frequent than it is in the US.
My only wish is that the misguided people in the U.S., who believe in disarming the citizenry, would show their strength of character by placing a sign in their own yards: “We are proud that there are no firearms in this house.” Now that I could respect. But they don’t, they won’t and they will not give you a straight reason why — they’ll just try to slough with,”That’s a silly idea” or some other pap.
The whole gun ctrl thing in America has a lot to due with the idealism of law enforcement. The idea is that if guns are illegal, then the police would have an easier job of retrieving the illegal sources of weapons transfer but as we all know, the police are either too busy catching normal crooks or at a donut shop staying clear of danger. There’s not enough of a vice squad to catch the underground movement of guns so we’ll never have to worry about criminals not getting weapons but regular citizens, not being able to arm themselves.
“Rates are and have been high enough for a while to burst this bubble.”
Newsweek’s May 22nd issue had an article in its Business section that I felt paralleled housing: Griping About Gas Prices…in a New SUV.
It spoke of “Detroit” thinking that $3 was the “ultimate pain threshold” that would force us to give up the keys to the big rigs. Instead, a year after Katrina and the $3 gallon, “some of the best selling rides on the road today are GM’s trio of beefy new SUV’s-the Chevey Tahoe, the GMC Yukon and that blingy ‘Slade, which saw its sales surge 127 percent last month.”
Another quote from the article I think my fellow posters will appreciate: “Brian Dalby just traded in an SUV-for an even bigger one. “I like to look down on traffic”, say the Grosse Pointe, Mich. real estate developer who swapped a 16mpg BMW X5 for a 15 mpg Chevy Tahoe. “Besides, gas won’t stay abouve $3 a gallon all summer”.”
From this I garner that the (average) American consumer is in total denial (or ignorance) of the state of this economy and is acting on the belief no sacrifice on their part is required.
BTW, the new CW in Detroit is that gas may have to hit $4 and maybe more, and stay there for a length of time before people react with different purchasing behavior. Perhaps the same delay in housing as far as reaching the bottom?
I won’t rise to the bait that Brian Dalby is a real estate developer, but his “I like to look down on traffic” has the smug up-yoursmanship of an advertising slogan.