Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 30 members and 170 guests online.
Recent Recommendations
August is one of the times of year when expenditures cannot be avoided. People may also spend while times are good if the perceive they may get bad or if they believe that dollars will be worth less and prices will go up.
Is it possible that the next recession could also be caused, in part, by the crackdown on illegal immigration, and the economic disruptions that will ensue? The Arizona Chamber of Commerce is already scared silly. Sorry if this is too far OT.
CR, The Economist recently posted an overview article on the banking system and blocked up money markets. They seem to imply that the credit crunch could get worse if the markets don't unfreeze. If this is the case, I could see the drop off in non-RI investment happening at a much faster rate as funding dries up.
Premium content | Economist.com
Regarding PE buyout funding and Conduits/SIVs . . . "Banks are now finding that these risks are coming racing back onto their balance-sheets. It is an ugly prospect since Tim Bond of Barclays Capital estimates that $1.4 trillion-worth of conduits are out there. Either the banks will have to lend money directly to them, or they will end up owning a ragbag of securitiesincluding some dreaded mortgage-linked bonds.
What seemed a clever wheeze to avoid the scrutiny of the regulators and auditors now looks foolish, since no bank knows the exposure of any other. Worse, none knows the extent to which it will end up on the hook itself. As a result, banks are hoarding their capital rather than lending it in the money markets.
If banks have to borrow at penal rates for some time, the poison will spread. Investment banks, for instance, do not rely on consumer deposits for funding, but on borrowing from commercial banks and others. If the cost of their finance goes up, they will have either to cut the supply, or raise the cost, of finance to important investors such as hedge funds. Those hedge funds will then have to sell assets, which might give the whole system another downward lurch." . . .
The desert cools off rapidly when the suns goes down. Sure, it might have been sunny a few months ago, but today it isn't. I imagine that it is already twilight for the US economic cycle and it is going to get cold fast. You better buy a warm coat now.
CR,
You are a BS artist. Just tell us what to do with our investments for the remainder of the year. S*** or get off the pot.
Consumer spending seems to be the key. I think that today's ECB "move" pausing rate hikes has much to do with fear about US consumer spending. Less exports to te US would be a drag for German economy.
"You are a BS artist. Just tell us what to do with our investments for the remainder of the year. S*** or get off the pot."
Moose, I hope you are trying to be funny. Otherwise, you should change your screen name from Moose to JackAss.
CR,
This graph goes back a loooong time. I notice a distinct decline in volatility (swings and velocity) in the early 1980s. Has the formula changed over the years? Is it "better?"
CR,
Why do you feel that MEW is necessary for the consumer to spend when Real Disposable Income is growing at a faster rate than Real PCE?
Moose,
you are increadibly rude. CR does this on his own and without pay other than the tip jar and produces some of the best analysis of the economy (esp housing and mortgage related side) out there. He does NOT give specific investment ideas, but you can use the info he presents to make your own decisions. Learn some manners sometime, your dad should have taught you that growing up. Seems to me that you are a spoiled lil brat who needs a good pants down spanking.
Moose,
Tanta is the one you need to ask about which companies to short.
Sounds like Moose is counting on a rate cut!
Moose,
This was not funny.
Headline on Yahoo Finance:
"Stocks Overcome Worries..."
Hey why worry; it's all just a lot of hooey, this recession talk.
Right?
Robert Coté,
That decreased volatility in residential is definitely there. On the other hand, it appears to have increased in non-residential.
Steve,
What if that "extra" disposable income is concentrated in very few hands?
just stop
I'm happy to tell Moose which stocks to short. I just won't tell the rest of you guys, because I like you. (Well, most of you.)
OK, I thought Moose was kidding.
If Moose is a troll, I retract my comment.
The St. Louis Fed compiles two interesting data data series measuring "Debt Service Payments as a Percentage of Disposable Income" and "Household Financial Obligations as a percent of Disposable Personal Income".
They both indicate a long-term rising debt burden for the consumer, which could eventually put a dampener on spending growth. However, they have not been reported for more than 27 years and during during this time they do not seem to have predicted recessions well.
Nonetheless, I hope they are at least food for thought.
redstateblues:
Where I live will be the place to watch: a 10-week summer resort at the end of Cape Cod, whose off-season population plunges by 90%.
The need to make hay while the sun shines long ago led local businesses to migrant employees, mostly from Jamaica and Eastern Europe. This work force is more willing to be underpaid for "the jobs Americans won't do," and then some.
I hope your fear is unfounded. If not, my chagrin at their fate, and my own financial pain, may be mitigated somewhat as I watch the more abusive businesspeople in town squirm in a trap of their own making.
The number of house "For Sale" signs that have erupted over the past month suggest that it is time for me to make popcorn as I figure out Plan B for surviving in my historic and beautiful corner of the world.
Don't worry the ticking time bomb for recession will go off in 2009 when way too many Americans exhaust their MEW, are heavily in debt because they continue to spend with reckless abandon, and real estate dips another 30 - 40%.
Hmmm...
Did you see this before you wrote?
Sept. 5 (Bloomberg) -- U.S. commercial real estate prices may fall as much as 15 percent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales.
People aren't willing to do deals right now,'' said Howard Michaels, the New York-based chairman of Carlton Advisory Services Inc., which has arranged financing for real estate purchases including the Lipstick Building in midtown Manhattan.The expectation is that prices will come down.
Commercial Real Estate in U.S. Poised for Price Drop (Update3) - Bloomberg.com
omfg, i just saw cr down at pop tate's getting cozy with midge behind moose's back! time to get out of riverdale!
CR, the one question I see in looking at the charts is where the economy is growing sufficiently to overcome the loss of a full percentage point in GDP based on losses already showing on the Residential/%GDP. That steep decline of over one percent is most likely reflected through Q1 of 07(BEA : Page Not Found, but how could last quarter manage such a GDP increase unless we are actually importing inflation through higher prices for imported goods? Otherwise, a real loss of one percent should still be fully reflected in the GDP numbers, something that does not seem to be manifest in the data.
Strange. A+B=C is usually how it works. I think we have adjusted our GDP numbers out of alignment with reality. Same goes for inflation.
And employment. I suspect we have begun a drift from reality that will make arguments based on statistics, well statistically invalid.
Someday this war's gonna end...
Absolutely sensational post, which is directly in the center of the bullseye of what will drive the economy over the next 12 months.
And, as usual, the comments are superb too.
Well, okay, there was some trouble with Moose. I was once driving a Ford Pinto in Maine at night and a moose walked in front of the car. Phew. It had no shorts so this must be some kind of genetic problem.
This business about low oil levels in the banking engine and MEW fading...well, it makes you wonder why Amazon continues to go through the roof.
I do recommend to Moose and other market players to take a look at the yen before investing each day.
Saw something yesterday that high level of public construction for schools, etc was helping cushion the slump in residential and potential drop in commercial construction.
CR, fantastic analysis as usual. Just wanted to offer my thanks. It's simply amazing to me that a blogger has the power to bring all this information to light with well reasoned, data-driven interpretation and forecasts while so much of MSM prints whatever grabs the most attention on a daily basis. It's no wonder the general public is so confused. Thank you!
As always, a thorough and thoughtful analysis CR. Nice graphs - the MEW chart clearly shows a bubble pattern with a double top formation and possible head and shoulders (bearish) developing.
I like to use technical analysis because it takes some of the emotion out of the equation. Looking at that MEW chart, I can't help but notice that we could see a rebound in MEW starting next year, assuming that the textbook right shoulder develops. A forcing function for this might be the Fed throwing in the towel and cutting rates down to 4% or so.
What might that mean? The Fed succeeds in staving off a recession short term, but longer term they set us up for a much nastier one sometime in the 2010/11 timeframe. This might doubly suck because that would be right about the time the first wave of boomer retirements really hits.
Of course this is an extrapolation on my part and dangerous at best.
I am (definitely) no economist, and read this site to learn from the experts--but it does seem to me that the 450 Billion or so we've spent on Iraq in the last several years has got to have some stimulus effect, cushioning the impact of the collapse in real estate. CR mentions the way the Vietnam buildup ameliorated the 60s real estate decline, and I think the same has been going on 2006-2007. My part of the country, San Diego, is the center of the housing investment collapse, but military spending in the area (and the number of associated jobs) remains high. Remove the wartime defense spending stimulus from SD,in my opinion, and the full impact of what's been going on in real estate would devastate the area. (Not that it still won't.)
RE: why we have yet to enter into recession, I agree that the lingering effects of the surge in MEW will take some time to wear off. I'll also add that Leamer's chart misses one thing: it plots YoY change in RI, essentially a derivative rather than absolute value. The current plunge in RI we are in the midst of comes off a significantly high level of RI. Judging from the Leamer graph alone, the recent peak in RI may not be as sharp as previous boom times, but the duration has been longer than most previous booms, especially if the essentially uninterrupted (less minor dips in 1995-6 and 2001)positive RI since the early 1990's.
There's more of a buffer before getting into "recession territory." On the other hand, if you take the crack away from the junkie in the middle of a massive binge, it's still gonna hurt...
in re: that school construction. Some of this may be fallout from the housing boom in fact. Aren't there all sorts of school districts where enrollment they where expecting isn't showing up and playing merry with their budgets? If they're using housing starts in their prediction models (something they aspire to -- I helped one school district with this and with managing school attendance areas), they may be constructing a lot of about to be empty buildings.
Where I live will be the place to watch: a 10-week summer resort at the end of Cape Cod, whose off-season population plunges by 90%.
...
The number of house "For Sale" signs that have erupted over the past month suggest that it is time for me to make popcorn as I figure out Plan B for surviving in my historic and beautiful corner of the world.
Freddy,
P'town does not vary 90%. That's just hyperbole. If you are correct about the "For Sale" market this represents a massive and sudden shift in sentiment and market. While there visiting in June I observed that the RE market was still stratospheric. For but one instance of my familiarity; an aunt owns the yellow house at the entrance to the monument. Other relatives own other various properties.
P'Town, like other special places like East Egg, Santa Barbara and Coronado are not useful signposts.
CR,
Great post, and probably your best title yet!
Thanks.
The title of the post reflects my thoughts.
HOV says everything is OK. NO!
Hovnanian Swings To 3rd Quarter Loss, Revenue Drops 27% - MarketWatch
Hovnanian's cancellation rate rose to 35% during the third quarter, up from 32% in the second quarter.
Dude, don't turn around, because there is, like, one right behind you man. There may not be any hard number basis for it, but it feels like one of those times when they adjust backwards and say 'well looky there, we wuz recessed afore we knowed it'.
Look at all the areas that are on a knife edge. We could get up tomorrow and see bankruptcy for major players, and NOT be shocked. That speaks to a very fragile time where just a 'few' doctored numbers, that are going to be adjusted 'anyway', are all that's needed to keep up the facade.
It's not rocket science. Some of the biggest spending categories in a typical household budget are for: 1) housing; 2) energy (including utilities); 3) healthcare; 4) education; 5)property taxes; and 6) food. These costs have been going up much faster than after-tax wages. If you want to add a seventh category, it is interest on personal debt.
In all income strata except the wealthies, Americans are tapped out. A giant era of mega-consumption is over. We don't need all those vast freeways full of restaurants, bars, malls and movie theaters. The over-capacity in "consumption providers" is staggering and will take many years to work off. All retailers are vulnerable and you will definitely see it this Christmas. I promise -- you will not have trouble getting a seat in your favorite restaurant and you will not have to push people out of the way at the mall.
Moose: Definitely Short LI
.com exploded March 2000, the recession came 9 month later.
probably 6-9 month delay between the end of easy money and the onset of recession.
Your timing IMHO is off.
It will be The Crisis of the Summer of 2008.
Yeesh...this thing just keeps getting pushed back.
2 conferences coming up in 2 weeks that should shed some light on how the banks are doing. One is sponsored by Lehman Brothers the other is BofA. If they have Q&A at the end of the presentations it should prove entertaining. If it is presentation only these type of conferences aren't nearly as interesting.
Countrywide is presenting at the BofA one, not sure about the Lehman Brothers conference:
CNNMoney.com: 404 Page Not Found
Robert Coté, we need a long chart to cover a number of recessions. And yes, there has been less volatility lately.
Steve, real DPI almost always grows faster than real PCE. That is something of a red herring. The question isn't if the saving rate is negative, but what happens when the savings rate increases? Is it so low because of MEW?
Best Wishes.
I never would have thought that a blog about economics would not only fascinate me but even make me laugh! So is the consensus that there is still a lot of MEW to be spent - people who have HELOCS, etc. and have not yet exhausted them? Also a lot of people have not lost their jobs yet, but will.
On Bloomberg: Four Fed Bank Presidents Decline to Endorse Rate Cut
Today's data definitely would make it easier not to cut, but I still think Bernanke will offer signals if that were to be the case.
So, here's my prediction: jobs less than 50K tomorrow, they cut. Else, they don't. Not that I'd bet on it....
I did read somewhere (may have been here) that the Fed Funds future could be bid down for reasons other than a general prediction of a Fed rate cut, but the reasoning was over my head.
Ceilingfan
There always seems to be an unanticipated source of liquidity out there preventing "The Recession(Depression)"
The last one involving housing debt seems to have dried up, but the $ in the pipeline(so to speak) are still pumping the economy, now the credit card liquidity is being watched. Still, at some point, the liquidity from debt has to stop.
Income is a wild card, since in theory, income can support a multiple of itself in debt. That is a $ increase in income creates an opportunity to borrow some debt greater than that $. That debt can then support consumption greater than the income increase.
IMHO, when income drops consumption will drop a multiple of the drop of income, either to deferral of consumption or the withdrawal of credit.
August retail sales probably impacted substantially by foreign tourists in U.S. taking advantage of cheap dollars. September will probably be lower.
Excellent job CR.
I think the numbers to watch are CC delinquencies. My sense is that's where to look for clues about the consumer.
Moose, Ask Sebastian for investment tips. He's the go-to guy.
August retail sales probably impacted substantially by foreign tourists in U.S. taking advantage of cheap dollars. September will probably be lower.
Yeah, bus-loads of Germans at the local WalMart, and then the French and Japanese at Target... who would have thunk?
I think we are already in recession. Check my blog.
Hoping that this is not too far off topic, I see another possible cause for a coming recession in stricter lending standards for bank C&I Loans.
The net percentage of domestic banks reporting having tightened their C&I loan standards is on the rise. It has just barely crossed into positive territory, but a look at the past trend shows a regular cyclical pattern. This could indicate that there is more tightening to come in this market as ponzi borrowers are revealed and default rates rise.
For the graph of this data see:
FRB: Senior Loan Officer Opinion Survey: July 2007
August sales are up but what about profits?
Bob_in_MA, rc has a point, if you travel to FL AZ or CA. I've stayed at a specific hotel on business travel in LA over the past 4 years. That hotel has been FULL of euros this summer, a lot more than in past years. They are all carrying stuffed shopping bags and spending the cheap dollars like crazy.
Recession over the next few quarters will need to overcome the political liquidity injection associated with a Presidential election cycle. Not impossible, but tough.
More liquidity injections.
Fed Injects $31 Billion in Reserves - WSJ.com
The stock market is being held together with spit, chewing gum, bailing wire and daily infusions by the Fed. I am sorry but I don't believe any stat that comes out of the District of Corruption. Some people need to open their eyes to what is happening in this economy, it is not good.
Calculated Risk
I beg you to explain to me why the Fed feels the need to infuse money into the stock market if everything is AOK.
President Bush by his very nature is the kind of person who will not be held accountable for anything, ever, and the people that surround him understand this. The corrupt stats that these hacks put out for the mouth breathers in our society are written because no matter what the truth is those facts will be the recorded history of our economy. Someone or something will have to found to take the blame for Mr. Bush, and until that something is revealed the lies will continue. My bet is on war or terror.
Quoting Steve: "Why do you feel that MEW is necessary for the consumer to spend when Real Disposable Income is growing at a faster rate than Real PCE?"
Yes, all else being equal, but this isn't a complete picture. First the Real Disposable Income has been supplemented by MEW, which looks to disappear, or even go negative, so subtract this off (average ~3% of GDP over the last few years). Second, the cost of servicing increased debt load needs to be considered (now up to record levels). Back of the envelope (i.e. I only know enough to be dangerous), if the rest of the economy continues with this years averages, I'd estimate we need to see income growth in the 5-6% range this year to offset negatives from housing.
Well, if the Korean War prevented a recession and the Vietnam War prevented a recession, why won't the Iraq War prevent a recession?
The cost in human lives may not be as horrid as Vietnam and Korea, but what about the monetary cost? How expensive is our involvement in Iraq relative to Korea and Vietnam?
CR-
"Steve, real DPI almost always grows faster than real PCE. That is something of a red herring. The question isn't if the saving rate is negative, but what happens when the savings rate increases? Is it so low because of MEW?"
Article from the LA Times:
"There's a lot at stake. Savers have more than $5 trillion in bank savings accounts and CDs nationwide, up from $2.7 trillion at the start of the decade. Many older Americans, in particular, live partly off the interest they earn on bank deposits."
Don't know where they come up with a negative saving rate, considering the amount in bank savings/CDs practically doubled in the past seven years according to this article.
Savers bound to feel fallout from a Fed cut - Los Angeles Times
Financial Times
Why financiers have missed the new monster SIVs
FT.com / Columnists / GillianTett - Why financiers have missed the new monster
A suggestion.. every time you use the words: probably...likely... maybe... often times...usually... just in parenthesis to be in good Bayesian order... substitute [I just don't know]..
Don't be shy bout this.. as you well know there are only two opinions that are certainly wrong...
Certainty on either side of the sprectrum..
For recall as Wittgenstein aptly said.. Certainty is just the inability to imagine the alternatives...
"I think we are already in recession. Check my blog."
theroxylandr,
IM IN UR RECEZZIUN..
LOSIN UR JOBZ
<forgive my brief foray into internet subculturizmo>
Another great post by CR. However, the charts (and this blog in general) focus on housing, MEW and housing-bubble related things. Perhaps if this bubble was simply a housing bubble, you could predict the coming recession based mostly on those things.
But this was a CREDIT bubble that involved massive malinvestment in lots of areas (RE, CRE, equities, services and manufacturing capacity, etc..) some of which are sustaining the economy even as housing suffers a depression. Their ability to do so will end as the credit bubble pops.
And it sure looks like that credit bubble is poppping. When illusory financial profits disappear, assets of all kinds will decline and the economy will slow quickly and deeply.
At that point, the savings-starved, MEW-deprived consumer will exacerbate the problem and make it a very severe recession. (No matter what the monetary and fiscal authorities try to do about it, dryfly!)
IMHO.
Moose:
short the US stock mkt and go long Ecuador. consumption of bananas has no where to go but up, it's one of the cheapest sources of calories around. much healthier than radem noodles.
It appears Mr. D over at Market Ticker read CR yesterday and toned it way down for our audience.
Thanks, CR, for the very cogent analysis. It's disturbing treading the realms of reason, but at least we have an enjoyable guide.
btw, CR, your title is funny but if i was your teenage child i imagine i would be looking around to make sure none of my friends heard that.
'Geez dad, you are like SO uncool
Following IM's perceptive (IMO) reply to Steve's note about Disposable incomes growing faster than Personal Consumption Expenditures: Does it matter if the aggregate incomes increase is due to a sizable increase in high income earners who might spend their $ in Europe? Similarly, if PCE is not growing (constituting lower official inflation) as fast due to sizable decreases in low end consumption, does it matter?
The importance of recognizing the disparity of wealth/income esp now as we enter the foreclosure twilight zone.
Excellent encapsulating post CR, although I must say, Dude, the title shifted my impressions about you.
CR said: "...Look at the economic data today: weekly unemployment claims were mild, the ISM non-manufacturing index was a solid 55.8 (see Bloomberg: Services Expand More Than Forecast), retail was decent (see the WSJ Retailers Post Generally Strong Sales), and auto sales rebounded in August (see Econbrowser: August auto sales)...."
But the fall in residential investment is a significant indicator of economic weakness, and non-residential investment is going to follow it down?!?!
CR, you're killing me, just killing me.
If residential investment was truly as weak as your charts make it appear and as important in its effect on the economy, those economic numbers you quoted at the top of your blog would not be that strong. They would reflect the weakness in residential investment, it's unavoidable.
You should really re-think this, and take the business cycle for the entire economy into account.
Sebastia
gng,
I think it has to this point. What will happen to unemployment when men and women begin coming home?
HOV reported AH. Funny comments.
["The company also said it would slash prices on homes across the country beginning late next week to try to sell off excess inventory...."
Alex Barron, senior research analyst at Agency Trading Group in Wayzata, Minn., said slashing prices to reduce high inventory should help the company improve its cash flow.
"Right now the game is who can cut the prices the most," he said. "They have a lot of debt that they need to service and in order to service that debt they need to have some cash coming in the door."]
That should give the competition some grief. And should make those future customers step right up ahead of next month's even bigger sale. Those that bought last month might suffer a little indigestion.
Once the hand is tipped and your opponent has seen it, it's hard to bluff 'em.
UP AH!
EZrider said: "Don't know where they come up with a negative saving rate, considering the amount in bank savings/CDs practically doubled in the past seven years according to this article."
And that doesn't count mutual funds.
404 : Page Not Found
MEW is supposedly a significant factor in spending and future potential spending, but $11.3 trillion in mutual funds aren't even a part of the discussion?
Sebastia
How can you tell we're heading into a recession?
"Aftermarket Movers: Smith & Wesson Rises"
Good long position. One of only a few. Thinking about beer/booze...
The number I was wondering about: what is the YOY comparison?
"According to the International Council of Shopping Centers, a trade group, sales at the 47 stores it tracks reached $55.2 billion in August. That amounted to a 2.9 percent increase, which is a relatively weak showing compared with August 2006, when sales rose 3.8 percent."
Retail Sales Rise, but Figures May Mask Troubles - NY Times
I believe theroxylandr is the smartest person on the Internet, and when he says we are already in a recession, you have to take it serious. If he is off by more than a couple of months, I'd be amazed.
Theroxylandr doesn't miss much and lately he's hitting like A-Rod.
CR - Excellent post ...thanks!
I often thought that MEW probably had a lag, but never saw it expressed anywhere until now.
Also, with credit really only tightening in the past month or so, it will be VERY interesting to see how this impact RI going forward.
"...the next several quarters are probably the most vulnerable to an economic recession...."
1- Am I really sensing a subtle bet hedging here???? What kind of catch all, vague conclusion is that?
2- ha ha ha ... everybody knows that in the next "several quarters" we will "probably" have a recession .... like everybody knows that in the long run, we are all dead
Bottom line:
So far, the credit crunch seems to be perfectly under control...
The calculated savings rate is just the residual difference between income and spending - really a gross and inaccurate number.
Rather than taking differences off income and spending FLOWS (which do NOT account for realized capital gains!), a better method for calculating savings is to take the difference from year-to-year off the consumers' BALANCE SHEET - that is, the increase in wealth year-to-year is the net savings for that year, and a much better and healthier estimate than the residual flow method favored by traditional economists.
Great post CR, very succinct comments Andrew. One other point. The present complacence is based on the scenario that none of the numerous plausible nasty things happen - chinese treasury sales, oil spiking hurricane, oil spiking crisis w. Iran, big bank failure, big bank related vehicle failure etc. There's a lot that could throw the consumer spending trolley off the tracks.
The question is Moute:
ABN Amro's Moute Cuts Stock Holdings on `Tip of Iceberg' Fears - Bloomberg.com
Turmoil could take months to resolve, Paulson says
Turmoil could take months to resolve, Paulson says - MarketWatch
"There have been real strains in the capital markets and across some of the credit markets," Paulson told the Nightly Business Report on PBS. "And I think this will take a while to play out, and almost certainly over time this will have an impact on our economy."
Paulson said estimates of 2 million foreclosures are exaggerated. He said the Bush administration is not seeking to bail out "speculators."
"No doubt there will be some bitter recriminations about this in the future. I would bet, for example, that regulators may start rethinking the wisdom of letting banks construct all these vehicles that are off their balance sheets (and thus partly hidden) but still deeply affiliated to a bank."
I think this one belongs to the FASB to answer. Recourse, in my opinion, should have immediately brought these vehicles onto the balance sheet, to construct otherwise is really nothing more than legal deception.
"The stock market is being held together with spit, chewing gum, bailing wire and daily infusions by the Fed. I am sorry but I don't believe any stat that comes out of the District of Corruption. Some people need to open their eyes to what is happening in this economy, it is not good."
I laughed my ass off for 2 mins at that first line. That was funny as hell.
MEW and free credit card offers makes every property holder or credit card swiper a tiny decentralized member of the Global Central Bankers fiat creators network.
Bernanke is an MIT Phd economic whiz, he knows the task of increasing the money supply at the rate of real output is both imperative to achieve and impossible to assess because there isnt sufficient transparent information to know with high confidence and probability. In hindsight we see more clearly that Mr. Greenspan's 1% target was a bullseye painted on all of us.
As the competent completion of the task is inarguably beyond the capability of Dr. B, why would one think that you or I or any other average person knows the optimum amount of credit to create or not create daily?
Yet, while most have their eye on the 12%+ creation rate at the headwaters of M1 through Mteen, and oohs and aahs over the heady global output rates, in the locomotive of consumption, the steam is leaking out of the unpayable-debt boiler.
Sadly, the deflationary snowball is growing on down hill. It doesnt have a rock at its center, but consumers entering a deep freeze.
Even in Monopoly, after you've mortgaged all you own to stay in the game, when you collect no rent, you lose.
; )
BTW I saw the title of this and before I read I said out loud "NO SH!T"
Small Biz Owners Feeling a Squeeze
Optimism about the business environment falls among owners of smaller firms, and less than half now say credit is easy to obtain.
"Economic fundamentals remain solid but the chill of tighter credit is curbing small business owner optimism at a time when the vibrancy of consumer demand is in doubt," said Dr. Scott Anderson, Wells Fargo senior economist. "Small businesses depend on strong consumer demand for their sales. Declining home prices, high consumer debt levels, and rising food and energy prices have reduced the consumers' willingness and ability to spend in other areas."
Small Biz Owners Feeling a Squeeze - - CFO.com
BTW, CR, I never answered your question. It's started. First in slo-mo and gaining speed as we go, like the aforementioned snowball.
CR-
thanks for the excellent piece.
Although, I must say I am quite surprised by the all-clear comments from your commenters now that it looks like the recession will not have started in Q3. I cannot wait to view the revovling debt figures for August, should prove interesting.
I find myself wondering on a daily basis now how the banking and IB confessional period will go, seeing that lately, it has been a daily event having regulators and analysts publically urge them to pony-up!
I can hear the phone calls going out to the regulators for the last two days----
IB- "Mr. Regulator, I heard your call for adequate disclosure, (whispering) How much do you rreallly want to know?"
although, it does seem some is beginning-
""The reason for the 2007 write-off in the mortgage division is that the bank has been unable to sell the subprime mortgages that it has put up for sale some months ago," wrote Punk Ziegel & Co. analyst Richard Bove, in a research note Thursday.
"Consequently, these loans had to be placed back on the bank's balance sheet and written down," he said. "
National City Corp. shares hit by mortgage-related charge - MarketWatch
"It's not rocket science. Some of the biggest spending categories in a typical household budget are for: 1) housing; 2) energy (including utilities); 3) healthcare; 4) education; 5)property taxes; and 6) food. These costs have been going up much faster than after-tax wages."
You might want to substantiate that with data.
1) Housing: The mortgage payment on the median home at the median interest rate is 11% lower in real terms than it was in 1982.
2)Energy: Gasoline is less expensive in terms of PPP than it was ten years ago, e.g.
The recession is happening in the off-balance sheet economy, as a
result of the run on the shadow banking
system? Don't worry man, it ain't real money. Hey, can have some of that man, let me have a sip.
CR nice post. Question to the contirbutors. It appears to me that banks will have to the rescue of many of the special purpose entities that they provided credit support to in recent history. Not willingly. The Basil Accord requires additional capital be put up in support of the higher risks by the banks. (lower capital needed if bank provides credit support for commercial papaer programs...but if they have to move the risk on balance sheet.....who knows?) Do any of you think this is contributor to why LIBOR rates have gone up?
Above data needs more qualifications.
1) The mortgage payment on the median home at the median interest rate is 11% lower in real terms than it was in 1982. Assumes 80% LTV on 30 year mortgage. Compared 2005 to 1982.
2) Oops that one. Gasoline is MORE expensive in terms of PPP than it was ten years ago, but LESS than it was in 1971 to 1973.
did paulson happen to say the bottom he saw a few months ago was exaggerated too? Or did he spot another one, out in the hazy distance?
The (ARM/IO/PO) payment, pre-reset, maybe.
The 30yr fixed conforming 10% down payment, post-reset, not so much.
Paulson may in fact be bent into the crash position, watching his own bottom, for all we know.
What is Iraq costing?
In real dollars, ie inflation adjusted dollars we are spending about as much on the military as during 1968.
The difference is hedonic inflation, we spend the same amount of "real money" on a smaller force which is also a smaller percent of GDP than during 1968.
In 1968 war cost 6.8% of GDP, now same real spending is 3.9% of the larger economy.
In proportion to the economy the war is good for business only relatively less impact than in 1968.
IIRC 1953 was 11.9% of GDP.
Dear CR, Tanta, and everybody:
Am I the only one who has noticed this: 1997 is THE Inflection point in recent economic history.
This chart on MEW shows a significant acceleration in 1997. MEW was basically flat until 1997, then ramped up. Many house price charts also show a marked, even sharp, inflection point in 1997 as well. If you look at the chart for money supply growth, there is the same inflection point in 1997.
Of course, correlation is not causation. But the interesting thing is that many of us see the start of the housing/credit bubble in 2002/2003 as a result of the Fed's drastic lowering of the funds rate, when it appears that something very significant happened in 1997.
The question is, what? I'm not sure. But Money Supply growth might be the answer.
Any thoughts, CR? Tanta? Anyone?
1) Housing: The mortgage payment on the median home at the median interest rate is 11% lower in real terms than it was in 1982.
The (ARM/IO/PO) payment, pre-reset, maybe.
The 30yr fixed conforming 10% down payment, post-reset, not so much.
Not to mention 1982 was a "Black Swan" year for interest rates --a historical high-water mark not seen before or since. One hell of a data point to cherry-pick.
"You might want to substantiate that with data.
1) Housing: The mortgage payment on the median home at the median interest rate is 11% lower in real terms than it was in 1982.
2)Energy: Gasoline is less expensive in terms of PPP than it was ten years ago, e.g."
The Princess And The P/E?"
For most Americans, it's not about academic data. It's about looking at the checkbook and seeing less money.
If you think housing costs are measured by medians, I feel sorry for you.
Since you're so into academics, why don't you check out the annual increase in tuitions at Harvard since 1982 against the PPP?
Who out there will read this and explain it to me?
Iraq withdrawals off the table: Republicans
| Reuters
Unbelievable spin, and for the last four decades it has been getting better.
(only a fool tries to separate global economics from global politics)
The cost of the Iraq War will be devastating, far greater than the cost of any comparable U.S. war.
First, recognize that 100% of the Iraq War cost was borrowed.
As a debtor, a nation is no different than a household. As long as you borrow in proportion to your future income (GDP) growth, no problem. The bonds that financed World War and Vietnam were tolerable because the U.S. was entering an era of sustained 3-4% average long-term GDP growth. The interest and principal of those war bonds was paid by 45 million women entering the U.S. labor force from 1950 through 1990 and increasing productivity among all U.S. workers.
Now, we are facing the opposite, sluggish productivity and declining civilian labor force participation. It is about 66% now and will drop below 60% by 2025. A trillion dollar war is a ball-and-chain for an economy that will probably only grow by 2% per year over the next 2-3 decades. It becomes even more burdensome considering the enormous liabilities of Social Security and Medicare. Your children will have to pay for it with higher taxes.
risk capital "I think this one belongs to the FASB to answer." Why, the FASB already sold out in allowing these vehicles to be off balance sheet.
Are there any opinions on why the gold price is making another run at $700?
"Who out there will read this and explain it to me?"
I will be happy to try. The people who now control the Republican Party have a political deaf ear and unconscious death wish. They are in the process of killing a once-vibrant political party for a generation.
The Democrats, in somewhat stunned silence, are sitting back and letting them implode.
RT-
I should have been more clear, meaning "called on the carpet" over this.
by the way, can anyone here attest to the whereabouts of either ben bernake or hank paulsen last night, although would be a strange way to solicit a bail-out!!!!!? -
WSJ Error Page - WSJ.com
Actually, I need to clarify. CR, the analysis is great, but Dude, that title sucks a--!
And risk capital, if the complacency implies that the economy is super-fantastic, and that translates into 'no way should rates be cut', and that only increases the chances of my true desire, than I say go with it.
Rah, rah, go economy. Way too strong to cut rates. Didn't you see that ISM?
(That random laugh you're hearing is just that I'm thinking about a joke I heard earlier.)
Moose, load up on DNDN, back up the truck dude. They found the cure for cancer last spring. Shh! Don't tell anyone, okay?
+10 Alex.
As you have keenly observed, something went haywire in '97. This chart exemplifies classic bubble behaviour; compare to the Nikkei circa 1980's or Nasdaq late '90s or any homebuilders index (HGX, XHB) since 2002. You'll notice the same recurring pattern.
We'll eventually revert to the mean, which is going to be somewhere in the $0-$50 range on the Y-axis of CR's chart. It's never "different this time", that is the classic trap all the bulls fall into.
dotcom-
I would like nothing more than to avoid recession, my opinion is that the headwinds are far too immense.
At that point, the savings-starved, MEW-deprived consumer will exacerbate the problem and make it a very severe recession. (No matter what the monetary and fiscal authorities try to do about it, dryfly!)
Oh I think we'll still have recessions (negative GDP) - just not deflation (drop in money supply & resultant decline in price levels).
There is a big difference between recession & deflation. The fed can influence but not control the first but it can surely control the money supply - that is a lock.
risk capital, Fazbee doesn't just have some splainin' about the SIV's, but the SFAS 140 seems to have the same odour. What can exempt the liabilities of the SIV's? That's the next Q? No?
And seeing as the garbage exempted from SFAS140 is the same that is smelling up the SIV's, doesn't this just seem like pouring perfume on shit and hiding the stench for a brief period, until you just end up with foul perfume?
Sorry to wax so poetic.
And for you Fed members reading, this is all hypothetical. The economy is sound. Didn't you see that ISM?
dotcomm-
don't get me started on fasbee.
as the the ism, I know you are being sarcastic, but, just in case, I thought the service employment portion was interesting.
but, only CR knows ahead of time what the payroll numbers tommorrow will look like.
I would like nothing more than to avoid recession - risk capital
I don't think good-tasting medicine produces the optimal psychological imprinting required to promote beneficial proactive behavioral modifications.
Wait, what was I saying about moral hazard?
but, only CR knows ahead of time what the payroll numbers tommorrow will look like.
Agreed!
Reuters
Lehman, National City slash 2,150 jobs
Lehman, National City slash 2,150 mortgage jobs
| Reuters
Nelnet cutting 400 jobs
Nelnet cutting 400 jobs before loan law change
| Reuters
LA Times
Countrywide cuts 900 jobs may cut 7 to 10 thousand jobs - even 20,000
Countrywide announces 900 additional job cuts - Los Angeles Times
The Kansas City Star
NovaStar cuts 275 jobs
KansasCity.com | 404
NYTimes
First American cuts 1,300 jobs on top of 600 job cuts in 2nd qtr
LandAmerica Financial Group announced 1,100 job reductions last Tuesday
Housing Woes Hurt NovaStar and Insurer - NY Times
NY Times
Citi eliminates 50 jobs in Tribeca hedge fund
A Citigroup Investment Chief Is Shutting a Hedge Fund - NY Times
MarketWatch
CSK cut 160 jobs
CSK Auto to cut jobs, close more and open fewer stores - MarketWatch
in case you missed it-
ISM - ISM Report - November 2009 Non-Manufacturing ISM Report On Business®
alex norman
"Am I the only one who has noticed this: 1997 is THE Inflection point in recent economic history."
Taxpayer Relief Act of 1997 allow married, joint-filing home sellers to pocket up to $500,000 in sale profits ($250,000 for single filers) tax-free, provided that they owned and used the house as their principal residence for an aggregate two years out of the five years preceding the sale of the property.
Tax free money is part of the answer.
FFDIC - back in dotbomb there was a guy on Monster Job 'Technology' Forum who kept a running tally of reported lay offs & downsizings all across IT... from something like early 2000 until 2002(?)... or until Monster took the forum down (it is back up now but not the same).
It really made an impact... month after month of relentless lay offs. Many companies were repeat offenders... 1000 this month, 500 next month, 1200 month after that... so on. If the financial industry goes through that it will be hell.
This guy kept a running tally & would cut-n-paste weekly updates. Very sobering.
But the difference between now and then is total jobs in the economy were also declining & UE was increasing. So far the lay offs have not been 'confirmed' by job loss in the general economic stats. I guess until it does those lay offs don't really 'exist'... do they?
Ya I know - tell those families that.
OT, but I found this as sad commentary on civic planning.
Which comes first - city growth or fire safety? |
KOMO News
- Seattle, Washington
| News
Winlock WA appears to be on a housing treadmill. The Fire Dept (volunteer, singular) warns that it cannot support a new 300 home subdivision, but the mayor says new homes is the only way to raise revenue in sort of a "if we build it, they will come, and some will join fire department" fantasy. eek.
Winlock is in the middle of NOWHERE. I have no idea who they think will buy these proposed 300 homes. There are developments much closer to Portland that are stopped.
short the US stock mkt and go long Ecuador. consumption of bananas has no where to go but up, it's one of the cheapest sources of calories around. much healthier than radem noodles.
julia | 09.06.07 - 6:37 pm |
cheapest source of calories i've found is Sunflower seeds
CR,
Let me start by stating my bias . . . I personally am positioned to take advantage of a recession. I've moved move of my personal assets out of equities into cash/cash-equivilents, etc. in order to buy distressed real estate during this downturn. In addition, I have some long-dated puts I purchased in February (including CFC). But, I have to admit, something is not sitting right with me. I think it's your paragraph that says
"The first graph shows the YoY change in real residential investment (RI) since 1948. The general rule is that RI is falling before a recession, usually by more than 10% YoY in real terms."
You start your argument with a correlation that implies a causal relationship between residential real estate investment and recessions. But is this correlation really causality? Isn't residential RE only 5% of GDP? So what if residential investment declines even by 50% . . is that enough to take the leap from correlation to causality?
Okay - I have an offbeat question about foreclosures and consumer spending - what will be the ultimate effect? Will all of the extra money freed up from debt servicing after foreclosures offset reduced MEW?
Let's say your typical J6P bought too much house, used some MEW and is now paying $2000/month for his mortgage but falling behind. Well let's say he then gets foreclosed on. Where does he go? He goes to an apartment and pays maybe $1000/month in rent and a whole lot less in utilities every month. He can afford $1000.00/month and now actually has extra money to blow on useless consumer goods like iphones and even bigger screen tvs.
So doesn't every foreclosure actually prop up consumer spending after some initial shock? Certainly Home Depot and related business will suffer, but Starbucks and Best Buy might make out okay?
Isn't there a lag in the data? If we were in recession now, wouldn't we only know for sure in at least a quarter?
"Lehman, National City slash 2,150 jobs
Nelnet cutting 400 jobs
Countrywide cuts 900 jobs may cut 7 to 10 thousand jobs - even 20,000
NovaStar cuts 275 jobs"
All these mortgage job cuts aren't just bodies hitting the pavement.
This is a new era in American employment. From now on, if your service industry or company implodes, you just have to go into the auditorium and take your licks.
Forget about company loyalty, employee benefits, generous severance, and vested matching contributions. The service economy is different. Rightsizing is good. Highly skilled people are valuable, but only in up cycles. When liquidity dries up, hit the road.
"So doesn't every foreclosure actually prop up consumer spending after some initial shock? Certainly Home Depot and related business will suffer, but Starbucks and Best Buy might make out okay?"
No. After foreclosure, your credit is cut off for awhile. Without credit, how are you going to afford Starbucks and Best Buy?
i went to a major commercial real estate network drinking thing tonight. everyone was getting sloshy on the roof of a new hot building downtown that exemplifies cool urban infill.
well, i asked the CBRE guys if they've talked to the Melody guys about the capital markets (CBRE owns LJ Melody, their captive commercial finance group).
and they said, NO.
WTF?
how the hell can they not be having weekly seminars for one of if not the largest global real estate company in the world - to get educated by its own capital market people - i just don't get it.
99% of the people there either had no clue or believed we in DC were insulated, even though capital markets are global not local.
of course there was my one favorite brooklyn jew there who knew what was up. we're having coffee this week.
on an opposite note, each and every architect, builder, broker or the like said they were busier than ever and were having trouble recruiting new talent.
now talking book is one thing, but this was outright uncontained giddiness regarding Q3 and Q4 2007. granted, i'm with them, we're trying to hire righ now too - but i was shocked that every one from every firm said the same thing -
mucho business
and this was the real deal CRE get together.
confusion reigns in my mind.
Forget about company loyalty, employee benefits, generous severance, and vested matching contributions. The service economy is different. Rightsizing is good. Highly skilled people are valuable, but only in up cycles. When liquidity dries up, hit the road.
My dad saw massive layoffs in the late 60s - 70s 'rust belt'... I saw them again in the 80s during farm crisis and S&L... we saw them again during dotbomb and undoubtedly will again in this ongoing 'subprime-a-thon'.
There never was loyalty - never will be. Its a marriage of convenience at best bordering on codependent abuse at times...
So doesn't every foreclosure actually prop up consumer spending after some initial shock?
It certainly does. At this point, foreclosures are good.
Robert C:
I know nothing of East Egg, Santa Barbara or Coronado. As a member of Provincetown's finance committee, I know that 36,000 is the summer number we use for municipal plans. Our year-round population is 3,431.
I wrote that "For Sale" signs have "erupted." By Labor Day, I could not drive a few hundred feet along the entirety of Bradford St. without seeing one. More signs have gone up all over town in the past month.
I cannot possibly comment on what you said about our "stratospheric" housing, because the difference between wishing and closing prices here is no less a mystery than what I read about elsewhere. A celebrated 19th-century octagonal house in the low numbers of Commercial St. recently listed for $1.9M, even as two-bedroom granite-countertop condos linger month after month for half a million.
Perhaps P'town is not a useful signpost, as you say. Your glib and mistaken remarks about where you don't live, and I do, certainly are of no use, except to cast doubt on your credibility in lumping us with places I don't know about.
LOL dryfly - welcome to my world of management. one thing i've learned, i'm a crap manager.
coddling i call it.
experienced (jaded) workers are all we are interested in these days. please understand the dynamic before you get here.
i've hired and fired a score or two. loyalty goes as far as the bottom line. hell, it can even go farther than i guess - it goes so far as:
the will to succeed.
otherwise we're in the wrong market
on an opposite note, each and every architect, builder, broker or the like said they were busier than ever and were having trouble recruiting new talent.
My daughter is dating a graduating architect... he is currently finishing up and doing some kind of co-op/intern thing in Soho or GV (chic Manhattan somewhere). His focus is commercial stuff. He says the firm he's working for does high end like you described and he said its nutz - they can't keep up with demand.
I've been telling him it will get real interesting next year if the bonuses on Wall Street don't come through. I said they might, they might not - who knows with this crunch. He agreed - the credit market jobs & resultant bonuses are obviously driving the boom there.
I suggested they (he & my daughter) ought to be thinking about moving to DC if they are 'still together' after my daughter gets done with school - she wants to go back to grad school, something to go with her bio-med engineering degree but more 'clinical'... like PT, or Sports Med Rehab.
I told him Wall Street bonuses come and go but the capital of the Galactic Empire 'lives forever'... might be a good career move for them.
Peter is my hero.
He has the integrity to speak the truth.
Euro Pacific Capital | Peter Schiff September 2007 CNN The Glenn Beck Show: Windows Media Player : Broadband
i've hired and fired a score or two. loyalty goes as far as the bottom line.
I recently told a guy I work for (under contract, not a 'real' employee) to do us both a favor and fire me. That of course 'forced' him to extend & renegotiate my contract (enough so I'd be a fool to walk away). I should have known better.
We drive each other crazy - good thing I'm half a continent away from his office. It would be better if he was in Shanghai though - either that or I was (time zones AND distance separating us that way).
He is the kind of guy voice mail was designed for. Whoever invented voice mail should either burn in hell or be canonized into sainthood - I can never decide.
So when I said employees & employers were 'codependent' I was only half joking.
Robert Cote,
I saw a list of real estate markets last week and was amazed to see that Santa Barbara-Goleta was the second worst drop on it. I believe it was YOY. I believe SB-Goleta even peaked a year before the rest of SoCal. I know that when I was looking at it maybe 18 months in past in the LA Times that the median house had dropped like a 100k in SB-Goleta while it was still rising in the adjacent areas. Prices were just too high and were pushing buyers to commute.
Kevin--
Thanks for the heads-up about the tax incentive in 1997. Obviously there was the internet/tmt bubble, but it's hard for me to see how directly that affected home prices on a national level. If anything, it made people invest money they didn't have on stocks, rather than spend money they didn't have on houses...
The Atlanta Journal Constitution
Community banks weather credit crunch (things are just peachy in Georgia)
Metro Atlanta Business News | ajc.com
The fed can influence but not control the first but it can surely control the money supply - that is a lock.
Yeah, so you say.
More than half the USD physical currency and a monster amount of US debt resides in foreign hands, and the dollar's already on the verge of breaking below long term support at 80 on the index. The moment the world catches a whiff of monetization all that money will come flooding home.
What happens next? The dollar dives, prices of imports (especially energy) skyrocket, and foreign financing of our debt vaporizes overnight. Foreigners will immediately rush in to replace all their USD-denominated paper with hard assets, thereby driving further price inflation. Instant hyperinflation.
There's no middle ground. Expecting the Fed to fight deflation with a little forced inflation is like trying to save a relationship through a little forced pregnancy -- there's no such thing as "little".
Isn't residential RE only 5% of GDP?
That's total GDP, not GDP growth. When you're talking expansion vs. recession, growth is what matters. RE has been a huge component of GDP growth these past five years.
dc1000--
I work in CRE Finance, and all I can say is, if where you are is isolated from what is going on the capital markets,I wish I worked in your neighborhood!
I was placing the capital stack on a very solid infill development deal and was in advanced stages with a multi-billion dollar RE Hedge Fund to invest the Equity. Three weeks ago they sent me an email saying that they had shut down all the new deals in their pipeline. Poof! $1 Billion of transactions gone. Like that.
Another deal I had been working on for the last four months blew up last week because of an intransigent seller who is still looking in the rear-view mirror and can't accept that cap rates have gone up.
I spoke to one banker regarding that deal who told me, "6 months ago I would have loved to do that deal. Today I don't even know how to price it."
"So doesn't every foreclosure actually prop up consumer spending after some initial shock?
Although there are some folks with little or no conscience that can BK or FC without skipping a beat, most people and their finances are quite traumatized by such an event.
freddy
well said.
i agree completely with your assessment of r. cote, who can be relied on to be consistently fatuous in all the tangential droppings he so liberally fires into the housing blogs. Most of these attempts at sage witticism come off as merely crude, vacuous rant.
.
one leading indicator I like most is the relative performance of tech stocks with a leading time of one quarter.
recently their performance has been very good and fits well with the idea the for now we will see growth below trend, not a recession.
however the bust in residential followed immediately by the tightening of credit standards and the widening of corporate spreads, add to that the reasons mentioned by CR, the probability of a at least mild recession is high next year
When Adam Smith wrote " Wealth of Nations", house and rent were at the bottom of the economic chain: now they are the driving force. The world does change.. All the gloomy predicitons are predicated on that US consumers is bedrock of economy, maybe this time US economy has too many international elements to be so narrowly judged.
Business Week 10/30/2006
Gluttons At The Gate
Private equity are using slick new tricks to gorge on corporate assets. A story of excess.
Gluttons At The Gate
CR, Just wanted to find out where did you get the updated data for mortgage equity withdrawal. I had seen the original Kennedy-Greenspan paper in 2005 but can't find the data updates. Thanks a ton.
There's a variable lag time between the onset of tighter money and the onset of spiking unemployment. The Fed inverted interest rates last June and it usually takes 16 to 20 months for the recession to show up. So, look for it to begin sometime between October and February.
Be patient
I know it is difficult waiting for the signals to turn into reality, and each time a different combination of signals occurs, and sometimes there are false signals. But every time the business cycle peaks the Fed has a choice between higher inflation and higher unemployment. This Fed has seemed determined to choose higher unemployment. They will get what they want eventually.
gambogi,
nasdaq will do well until the capital "crunch" if it is anything more than hedges and IB's dumping bad paper dries funding up investments.
There are all kinds of worthwhile new tech stuff to be invested in.
All we gotta do is keep the credit markets for good stuff running.
They do not need a rate cut these (new techy) things will pay for themselves.
"Gasoline is MORE expensive in terms of PPP than it was ten years ago, but LESS than it was in 1971 to 1973."
This is nonsense. According to the EIA (Total Energy - Data - U.S. Energy Information Administration (EIA) the average price of regular unleaded in 2006 was $2.231/gallon, in 2000 dollars.
A gallon of regular in 1972 was $1.197 in 2000 dollars.
It is true that gasoline prices from 1949 to 2003 didn't vary much, in constant dollars. However, that relation has broken down markedly in the last few years. Furthermore, the historical price in constant dollars is hardly relevant to a current household that has watched the nominal price of gas nearly triple in the last few years.
A few years ago, we were going "are we there yet?" about the burst of the housing bubble. Now we're saying it about the upcomming recession. Patience my friends, all in due time.
I think the blogging communities should come together on this "SUBPRIME
slg,
Please see:
The Commons Blog: Price versus Affordability for Gasoline, 1949-1st Quarter, 2006
It is not my blog, just the first one that came up on Google when I went to fact check.
And if the guy who doesn't like using medians to judge data, what is your preference? Should we sort by the color of the houses?
OK, so this person is claiming that gasoline is more "affordable" now, despite the fact that it is demonstrably more expensive in real terms? Sorry, but I don't buy it. That gets into all the issues surrounding savings rate, MEW extraction, and so on; i.e., where is the in"come" coming from to buy the gasoline, not to mention everything else? It also doesn't address that awkward fact that the "constant dollar" price of gasoline has seriously broken down in the last few years. The real price of gasoline has nearly tripled, and that does affect household budgets seriously for a great many people, particularly in the context of resetting ARMs and such.
It would be well to give links to your sources, too, when you make assertions such as this.
US avg 20 mpg for passenger car milage, 12k miles travelled = 600 gallons at $3/gallon.
Using medians and averages, gas for a car costs less than 5% of household income.
Median buyers who got a fixed rate morgage 2000-2005 are no more squeezed than earlier generations of median buyers.