I think we also see the end of the mentality "Real Estate is the best investment ever, so I should get the absolute biggest loan possible to buy the most expensive loan possible."
The 4.5% mortgage rate subsidy needs to get resolved soon. NAR is lobbying Lockhart (chairman of oversight board at FHA) today, but until something gets resolved the list of people waiting instead of buying will grow larger.
IMO announcing the possibility of this federal mortgage interest buy-down program was the worst thing the Treasury could do.
Also, anyone who gets Money magazine check out page 16 of the Jan2009 issue for David Lereah article "A Former Real Estate Bull Admits, 'I Spun'" (not online yet).
"Many first-time homebuyers are, understandably, cheering as foreclosures dominate sales, tugging down prices and raising affordability," he continued.
Were we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept?
Days like this I wonder if the US deserves what it will be getting shortly. sigh
ere we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept? Mostly Lurker | 12.16.08 - 4:29 pm | # It was a hard concept to understand for a while but I think people are figuring it out now. Now that it's too late.
Big surprise there. This number doesn't represent the areas where the foreclosure sales are even higher. A buddy of mine told me that the illegals are piling into houses and converting garages into rooms, bathrooms, livable space, which violates building codes in California. Hey- but we need more. Give them amnesty. Pay them welfare for their kids. Pay for their pregnancies. Give them food stamps. All so that their corporate employers can save a buck. Illegal immigration is not sustainable.
I came to find this blog via the Irvine Housing Blog.
CR's point was well documented on IHB, specifically : the chain is broken - there is no move-up buyer. Dave's not here !
The concept of a "starter home," always baffled me personally. Something you could afford on an average salary was denigrated by the RE Agents as a "starter home," as if the assumption would be, of course, you'd be out of there just as soon as you "made it." Starter neighborhood. The move up chain was further encourged by ARMs in the refrain that there was no point in taking out a 30 year loan if you weren't gonna be in the home more than 7 years. And who would stay in a shabby starter home for 7 years except a nincompoop, saver or communist. Or all three
Move up. BuyMore. Refinance. It's the road to Wealth.
I am not surprised this all came crashing down, only at the ugly systemic-wide effects and simultaneous shameful begging for taxpayer money from various and sundry Wall Street firms, auto execs, state and local govt. pension plans, and Madoff scheme victims.
The jobs will never return because the US cannot compete with the turd world, which grows by 100 million per year. The pressure to employ cheaper and cheaper labor will destroy the US forever.
This should have been posted on last thread, but it went stale as I was writing. So, off topic:
A week ago I was nervous because the EUR was pushing against 1.30, the Continuous Commod. Index's technicals were threatening a bottom, monetary policy was a tail trying to wag a very skinny dog, and the long bond was 3%.
Thursday the CCI bottomed, EUR broke 1.30 firmly, long bonds get 2 handles. Friday, grains started to move, today gold took out the 830 and is above 850, and CCI is beginning to get a little curvature to the upside. And after Fed's announcement that it is just going to go with the dog, the EUR is now over 1.41, now closer to it's July high than its recent low.
The state has changed, almost as certainly as it changed in mid July. "Changed to what" and/or "and for the better?" are open questions. Until and if energy responds, though, I'm fairly clueless.
Once again bumbling Ben is at it again. Cutting interest rates in the middle of a solvency crisis is like treating a viral infection with antibiotics. Not only doesn't it work but it actually causes harm.
By cutting interest rates Bernanke has deprived the one segment of the population that could spend through a down turn savers to cut back on their spending without creating any offsets. This I believe was Japan's problem in the 1990's and will become us ours now. There is such a thing as too low interest rates.
Considering that inflation may occur, here's what I would tell a median buyer:
Wait until inventory is declining and starts are increasing. Might want to wait on price/rent and/or affordability numbers, too, but you might wait forever in some areas. Then, buy as much house as you can. If there is a lot of inflation you will do well.
I think that inflation was baked-in, even before the recent shenanigans, because of the deficit spending and Iraq war spending. Added to that, now, to combat deflation, the FED may print like there's no tomorrow. Only problem is, economics being such an inexact science, they're bound to overshoot. That overshoot, which may occur as they try to cancel deflation with a corresponding amount of inflation -- bound to fail in my opinion -- is what will produce an inflation that could make the 80s look easy. The 80s: that, too, was a good time to have a lot of debt.
This is quite interesting. Been hearing about how the bubble would collapse at the bottom and slowly move to higher priced housing but it sounded so theoretical. Now we are seeing it in action.
People driving this market are called "bargain hunters": isn't "knife catchers" a better term?
Why do I feel trapped in an episode of "House"? The doctors have misdiagnosed, mistreated and misunderstood. They've cut off may hands and my legs are next unless the addicted jerk can make the stick save. Thanks for saving my legs Gregory.
I'm only half-joking when I say the IRS will soon take the Fed's place in rescuing the economy. We have locked up a lot of potentially productive capital thanks to the tax code, and just relaxing some of the rules about prohibited transactions in IRA accounts, for example, could bring fresh equity to housing and small business. At this point we need targeted action, like the IRS agreeing to take a second lien, and not just blanket sprays of fiscal birdshot like stimulus "rebate" checks.
what's the best way to say "no way" to bernanke? scary deficits | 12.16.08 - 4:33 pm | #
I'm going to start by removing my remaining cash deposits from bank accounts. I'm thinking of taking my emergency fund out in cash and putting it into a safe deposit box. Doesn't make sense letting them use the money for free.
Depatriating some money to a place where the central bankers are not suicidal might be an option, although I'm not sure where that is.
Drive rates to zero, trash the dollar, and you will definitely see fewer foreclosures, higher property values, and more home sales. rich | 12.16.08 - 4:40 pm | #
Rich - When it didn't work in Japan - why would it work here?
I would like to coin a new term, "leapfrog buyer". This is a person who saved money for years with a target home in mind. For example, a $550,000 median LA home, 3 br 2ba, ok neighborhood. The prices went down so fast that they decided to still spend about $500k, but in a much better neighborhood, in a slightly larger house.
At the peak, a decent house in Woodland Hills, 3br 2ba, LA Unified Schools, was about $850k. By 2009, you'll be able to get a similar house in Santa Monica or Brentwood for that price.
$270m versus $245m gross volume. And trust me, real estate agents are getting a smaller cut. Don't even bother to do gross volumes when medians topped $600k two years ago.
Drive rates to zero, trash the dollar, and you will definitely see fewer foreclosures, higher property values, and more home sales.
rich | 12.16.08 - 4:40 pm | #
Rich - When it didn't work in Japan - why would it work here?
So, for anybody out there more intelligent and better-researched than me. What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
Prices in Sacramento in good neighborhoods with good schools are still unaffordable for median incomes. Throw some state-government related layoffs on the fire and prices are still way too high here.
I still think there's 10-15% more to the downside for US median home prices, but a heavily discounted foreclosure financed with a sub 5% 30 year traditional mortgage may not be a bad call.
some investor guy writes: I would like to coin a new term, "leapfrog buyer".
Guy, that sort of describes Mrs. Cthulhu and me, but the market decline has moved our goalposts. We were priced out on the way up, and as we're watching the market fall, we're thinking, why buy in R'lyeh when, with a little patience, we can do better.
It has all the hallmarks of deflation too; i.e., 'why purchase today when tomorrow they'll be two-for-one?' Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly.
What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
Ponyless in NJ
Interesting question. I don't know the answer. On a related note, does anyone know the magnitude of this flood of liquidty relative to the magnitude of the cliff we're diving off of?
And since we produce most of the things we use, it'll be... wait a minute..
~~~~
I said ceterus paribus ... There will be heavy leakage due to our trade deficit. There will be higher interest rates due to foreigners abandoning dollar denominated assets.
Inflation means everything goes up ... currency devaluation means only imports go up : ceterus paribus. (hat tip monta's ankle)
Only imports? What about commodities in general, or real assets in general? A bushel of USA produced wheat is one price but a bushel of imported wheat is another?
j marston - I'm trying to wrap my noggin around the implications, and am curious to see guidelines. LTV? $$ amount? Principal residence only? I'd say income doc but presumably they have that already. Credit profile?
ac - IMO, as revenues fall, enforcement action will be increased, not decreased. Then, will Robin Hoods appear to battle the Sheriff of Nottingham?
cd - yeah, it's good to be the king. Where's that video?
The BoJ waited for 9 years after the bubble imploded and deflation was already firmly entrenched to go zirp, and waited another 5 years after that before quantitative easing. The Fed is going zirp + quantitative within two years, and inflation, while falling, is still positive, and by their own core measure, only just now back to the top of their preferred band. I used to believe quite strongly we were going Japan in the 90's for a while, now I think US in the 70's is closer to the mark.
Ponyless in NJ said:
What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
Uncle Ben is convinced he can do better than Japan:
"In short, Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States. " - Ben Bernanke 2002
ac - IMO, as revenues fall, enforcement action will be increased, not decreased. Then, will Robin Hoods appear to battle the Sheriff of Nottingham?
I agree that enforcement action will increase. So will non-filing and non-payment, both out of anger and out of necessity. Hard to pay when broke. Easier to evade taxes when your W-2 job is gone.
I just realized something. I am a fairly well educated, affluent, world traveled kind of guy. Yet, Werner, who only shows up when there is bad news, makes an appearance - I go off.
I am going off over a combination of things but he is no worse than others. My point is that if my buttons can be so easily pushed over old history. What are the odds in a "Rainbow Nation" like America that when the going gets tough that bad things happen?
I am, I hope, not a racist. Yet, I know for many racism, nationalism, and outright craziness has been papered over with MEW and jobs that paid for awhile.
when will builders go bankrupt? Who's buying their shares? \t cd | \t \t \t \t12.16.08 - 5:06 pm | # I have to wonder if the photo evidence from the junkets the homebuilders held, and of which legislators and regulators partook, are damning enough to have required significant member(s) of said 'overseer's' to tell the builders - you WILL be defended.
Only imports? What about commodities in general, or real assets in general? A bushel of USA produced wheat is one price but a bushel of imported wheat is another?
~~~~~
This part of the leakage due to trade ... but you are correct, commodities will go up ...
What is the difference between inflation and currency devaluation? citizen energyecon | Homepage | 12.16.08 - 4:56 pm | #
That is the key. Any smart individual with a hang to a deflationary scenario has to shake in their boots while watching the dollar the past two weeks. Add in the Bernanke 2002 speech regarding devaluation and I would be on red alert.
This system is built on inflation expectations and deflation cannot be tolerated otherwise the system will fail. I don't think the system will fail, at least not in the short term.
Therefore bet on your paper dollars losing considerable value to reduce nominal debt obligations whatever the mechanism may be that is used to achieve this aim.
I wasn't saying the commenters depress me, its the opening scenes of Road Warrior type economic news that bring me down. Not as much fun talking about it.
"It has all the hallmarks of deflation too; i.e., 'why purchase today when tomorrow they'll be two-for-one?' Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly.
Margin Call of Cthulhu"
The leapfrog buyers are one of the few groups making offers and getting approved for more expensive homes. They have no existing home they need to sell. They have a bigger than expected % down.
In LA, prices have somewhat further to go, like another 30-40% drop from current prices (taking you back to 2001 prices). Elsewhere, it's typically more like 10-15% left to drop.
In expensive places like LA, the reduction in the jumbo conforming limit is the next shoe to drop. No more Fannie/Freddie loans over $625,500 after Jan 1. Unless a deal is already done and about to close escrow, there are virtually no more $729,750 jumbo conforming loans. Based on current interest rates, in 2009 a $729k mortgage will have a monthly payment 38% higher than a $625k mortgage. That's a ton of pressure to either put more money down, get a price reduction, or buy a slightly less expensive house nearby.
"RE : Therefore bet on your paper dollars losing considerable value to reduce nominal debt obligations whatever the mechanism may be that is used to achieve this aim."
Come again? Are you saying pay down debt now while you have the best opportunity to lock in the effective gain?
Why couldn't we have a currency based on a basket of metals? Copper, silver, aluminum, molybdenum, even gold. Each metal would be weighted on its practical, industrial usage.
Well, a mattress and a dog are not exactly canned goods and ammo. I was hoping for something less grounded in a "Mad Max" scenario and more about where we are likely headed...
Come again? Are you saying pay down debt now while you have the best opportunity to lock in the effective gain? Sports Guy Lafleur | 12.16.08 - 5:27 pm | #
No, I am saying that devaluation via currency and/or devaluation via inflation will be used to reduce debt obligations. If the current actions don't work as desired, I expect that within a year or two it will be coupled with an official announcement (like China's or the U.S. 1934) that the money supply has been increased by x% and bolstered with an official encouragement to increase wages by a similar percentage.
Why couldn't we have a currency based on a basket of metals? Copper, silver, aluminum, molybdenum, even gold. Each metal would be weighted on its practical, industrial usage.
reptillian
Have you every tracked the commodity market for metals? That would be a f-ing nightmare. Big macs would have a hundred+ dollar range in price over the course of the more volatile months.
Windowdog wrote: Have you every tracked the commodity market for metals? That would be a f-ing nightmare. Big macs would have a hundred+ dollar range in price over the course of the more volatile months.
Couldn't governments fix the prices, so that they would remain stable? All they have to do is say, "We stand ready to buy or sell."
"At some point the government HAS to stop. They are disincentivizing the work force."
Exact comments overheard from a recent physicians meeting I attended. The law of diminishing returns was discussed, and this group decided to aim/reduce their top end salary right at the tax-bump up threshold. Further spouses who are highly reimbursed professionals (MD/JD etc.) are bailing on the workforce. Nannies and daycare no longer necessary. No point in working harder to net less, and pay somebody else making further less so you can not see your children grow up.
Priorities of the less rich and not famous at all.
I posted a few months ago that expected Russia to get involved in "commodity OPEC's" to combat falling commodity prices. It now seems to have become official policy:
... Russiaâs economy, built on energy and commodities, is slowing faster than other emerging markets like China and India. Russian President Dmitry Medvedev on Dec. 11 said that the country may cut oil output and participate in new and existing âsuppliers organizations.â He called for Russia to âdefend ourselvesâ in the face of a diminishing ârevenue base.â
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
I suppose the biggest challenge is figuring out if we are indeed merely in a "deflationary period" and about to head into big time inflation or whether we think deflation is here to stay.
I get why conditions in the financial markets seem to dictate inflation following the deflation, but the one thing that I think is critical for real inflation is higher wages, and that doesn't seem anymore likely to me than higher wages were in the post 1933 period. It just won't happen, for years, maybe a decade (when some new industry boosts economic prospects.)
Stagdeflation, yes. Stagflation, no. Economic growth, very low or non-existent.
Margin Call of Cthulhu wrote: "Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly."
Hmm, another case where each person acting to maximize their individual outcome produces an undesirable effect for the whole group. I'm beginning to worry that the theoretical basis of our capitalist system has a small flaw.
"They think higher tax rates will outlaw wanting to get ahead and greed ..."
I asked CR for demographic consumer spending..can you guys provide it to prove that pullback by TENS OF MILLIONS of boomers will not affect your theory?
"Bargains and bargain hunters have kept this market alive through some of the bleakest financial news in memory. There's this renewed sense that you can score a 'deal' - something that had been missing for many years.
Just to do the rest of the math, almost all of these bargain hunters have paid more than their house is worth today, have thrown away most or all of their hard-earned 20% down-payment, are or soon will be underwater with millions of others, and had they postponed buying could look forward to lower loan payments with 10-20-30% of their down-payment cash still in the bank.
A buyer last summer putting 20% down on a $400K house has lost $80K to secure that deal. Some bargain.
Leave CA means less frothy RE, less chance of collapse of state services, and best of all, the punitive 10% goes away. Unless you relocate to loop Chicago.
Not only was there Wage and Price inflation in the early 1970s, the republican president also had federal Wage & Salary Boards filled by private sector CEO luminaries as well as admin staffers.
Read Time Magazines archived Dec. 25, 1972, analysis of wage controls, price controls and inflationary and deflationary impacts. CONTROLS: Phase III Shapes Up - TIME
Read the Presidents January 11, 1973 Economic Stabilization Plan Address to Congress; you'll swear it was written in January 2009 by Obama.
Then read Time Magazines archived June 18, 1973, mid-year economic recap for 1973, Heres an excerpt in real-time, not written as a historical artifact (e.g. folks had NO IDEA in 1973 that it was the beginning of 9 years of economic turmoil lasting until August 1982 and the dual births of the 1. 25-year Secular Bull Cycle on Wall Street; plus 2. Structural Transformation of the Economy into one where 70% of GDP is Consumer Spending:
Throughout the U.S. economy's ups and downs of the past four years, President Nixon has never managed to rid it of the debilitating fever of inflation. Prices kept rising rapidly through the 1970 recession, in defiance of all economic nostrums. The increases subsided in part because of the wage-price freeze and Phase II controls, but in the five months of voluntaristic Phase III the economy's inflationary temperature has climbed to its highest point in two decades. The situation has helped create near chaos in stock and dollar-exchange markets POLICY: Nixon's Other Crisis: The Shrinking Dollar - TIME
It's all about houses. This will not end until houses are a good investment and no one wants to take the chance on them anyway. Ben has no say in the matter. The banks are walking dead and the Fed just joined the march. Next up: Market crash in January/February.
I think you are both mistaken. Naturally I can only speak for my family, but I would most certainly cut back if taxes increase.
The thinking that $250k makes someon rich is laughable. Do you know what houses cost in California? A decent 3/2 house in a typcial neighborhood is 650k and that is nothing fancy.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
I suppose the biggest challenge is figuring out if we are indeed merely in a "deflationary period" and about to head into big time inflation or whether we think deflation is here to stay.
Any thoughts or recommended reading?
Stretch002 | 12.16.08 - 5:38 pm | #
So we have people buying REOs at the low end of the market; and we have some leapfrog guys with serious cash buying in a bit above the absolute low-end.
So no one's buying the higher end.
Which, do you think, might make the high end eventually come crashing down on the leapfrog buyers and the absolute low-end REO buyers and bring about yet another dogleg down for everybody.
A rock and a hard place: TPTB can't "allow" deflation to take hold, but they also can't allow serious wage inflation.
Anything that forces companies to raise wages for the proles will be fiercly opposed by TPTB. If the union movement revives in the coming years (unlikely), it will be forcefully suppressed.
The only semi-acceptable response in TPTB eyes is to pump money out through the govt in the form of tax rebates, temporary govt jobs (O's stimulus), and extension of unempolyment and other benefits.
I doubt this alone will be sufficient in generating the wage pressure needed to get us out of this mess.
You guys should actually watch a little bit old movie called Pretty Woman with Julia Roberts and Richard Gere Seriously, see it through now your rapidly evolving Greater Depression Eyes.
The main male character (=baby boomer generation) does nothing but buy and split companies, makes nothing, produces nothing but makes big bucks! Just sells the work of previous generations to the highest bidder.
The economic class hierarchy is appalling and the rich elite in the movie is exactly the "let them eat cake"-type. The elite is totally unconnected to the reality of even middle class with their countless servants and privileges.
They just go happily from another horse race to special dinners to opera. And of course all those workers nervously bow to them and almost beg for mercy (and money). Or are separated by army of security guards.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Stretch002
But it's only the marginal amount above the $250k that's going to be taxed higher, isn't it? I mean, it's not like you pay much more at $255k as a percentage of your total income. Still, living in a high-cost area is disadvantageous thanks to our tax code.
JimPortlandOR writes:
I get why conditions in the financial markets seem to dictate inflation following the deflation, but the one thing that I think is critical for real inflation is higher wages, and that doesn't seem anymore likely to me than higher wages were in the post 1933 period. It just won't happen, for years, maybe a decade (when some new industry boosts economic prospects.)
Stagdeflation, yes. Stagflation, no. Economic growth, very low or non-existent.
Now THAT makes sense. I've been scratching my head on this whole US 1970s vs. Japan 1990s conundrum, as it has an obvious and immediate impact on where we want to park our cash. Of course, the Government could just do an end run around cash-conscious employers and give every w-2 employee a raise via a stimulus check or other pony... scratches head
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
~~~~
Why should you pay any taxes ? To support the system that supports you ...
I love people who think everything they take home was produced by them and not an economic system that everyone has a stake in.
"Do you think boomers after having seen their portfolios dive are cutting back ?"
Are you reading what Conjure is saying? There won't be no excess tax revenue for nobody. Got it?
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Tax rates are marginal. Absent some roll-off of tax credits at certain thresholds you are only hurting yourself by limiting your income.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Democracy is just a polite way of saying mob rule. You have to pay for it b/c your friends and neighbors want you to.
ZIRP never left Japan, but managed to find its way here too. Be prepared for all sorts of perversity. ZIRP turns financial common sense on its head. The gas to pay for the drive to the bank becomes worth more than you would earn on interest in a year. Might as well keep the money in the mattress. Cash comes out of the system, and stops moving. Nobody lending except shady unsecured lenders. The salaryman-loan places in Japan; probably would be some derivative of payday loaners here. Small businesses can't get loans, so they turn to these shady outfits. Not a beneficial situation for economic activity.
It seems to me that ZIRP, in its perversity, feeds right into a deflationary spiral with its liquidity-trapping effects. Once you lower interest rates below a certain threshold, it becomes very difficult to ever come back to a situation in which you can "normalize" the rates.
Nobody answer my qn on previous thread about 1 year T bill index.
Thanks to the poster with the Bernie M, got screwed by, story.
My secy said the recession hadn't done anything to her yet. She didn't have any money and still doesn't. Actually there is long story there, which I ain't tellin'.
Had some little old ladies come in with a condo question. Their condo is full of paid up old people and has only 1 foreclosure out of about 50-55 units.
But that one tells a story. Foreclosure filed late August. Foreclosee not defending, not delaying. The foreclosure firm has done NOTHING since August to advance the case. She hasn't paid since February, and hasn't paid maintenance for 4 months. So how many people are not paying maintenance in how many condos, because the foreclosure firms,
that were never very good, are now totally swamped.
They need to charge more.
Also, fees need to be raised on foreclosure filings so that judges can be hired to handle them.
I think you are both mistaken. Naturally I can only speak for my family, but I would most certainly cut back if taxes increase.
The thinking that $250k makes someon rich is laughable. Do you know what houses cost in California? A decent 3/2 house in a typcial neighborhood is 650k and that is nothing fancy.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it? \t Stretch002 | \t \t \t \t12.16.08 - 5:48 pm | #
Do you have a link to support your claim? This is the DQ News site that CR references for this post. If you'll note, the median price is substantially below your $650k, in any county you choose to search.
How many over $250's are there for every retired person? --Anonymous Enough for marginal immprovement along with the other taxes on capital gains, dividends, estate I mentioned. --mmckinl
Only 1.5% of the households in the U.S. make $250,000 or more! The top 1% of households already pay 40% of the taxes! I do not think that you will capture enough income by increasing taxes on just 1.5% of the households.
Now if you say that the wealthy people are those who make $100,000 or more, then you are talking about 15.7% of the households in the United States, and they pay 70% of the taxes. Now you have a larger base of people to tax to get more income from.
In other words, do research to prove your point. Google is your friend.
(Personally, I disagree with you, if you can't tell.)
Someone wrote: "Which, do you think, might make the high end eventually come crashing down on the leapfrog buyers and the absolute low-end REO buyers and bring about yet another dogleg down for everybody"
Back in the day -- 70s. The high end was occupied by high-end earners. There weren't a lot of them, so there were not as many high-end houses as there are now. Then, median lived in a 3/2 (or 1 1/2 or 1 3/4) of about 1100-1500 sq. ft., and they were happy to do so. Is there any reason why we don't/cannot go back to that. There is no shame in doing so. It seems to be a more realistic approach to people's housing needs.
Are you reading what Conjure is saying? There won't be no excess tax revenue for nobody. Got it?
~~~~
That depends on how they restructure the economy ...
First raise taxes on the rich , second nationalize all the banks including the Fed and run them for the profit of the American people ... If the public takes the hit, the public should get the reward.
one_timmy writes:
You guys should actually watch a little bit old movie called Pretty Woman with Julia Roberts and Richard Gere Seriously, see it through now your rapidly evolving Greater Depression Eyes.
The main male character (=baby boomer generation) does nothing but buy and split companies, makes nothing, produces nothing but makes big bucks! Just sells the work of previous generations to the highest bidder.
That is the one where his soul is saved by a hooker with a heart of gold, right? There is the solution, hookers for all CEO's and Fed chairmen.
Ticker Tape of Doom writes:
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
Those with the most wealth benefit the most from the stability of our society. That's a basic fact.
Those making over $250K can stand to pay more at the margin on their income . . . and by historical measures are UNDERTAXED right now. Reagan and Bush II have raped this country to the benefit of the rich.
But I don't consider people making (especially in major metro areas) $250K a year to be rich. That is upper middle class.
The real big boys make out by tricking a boob like Stretch here into thinking he's in the same boat with them.
Don't be a pawn.
Why should you pay any taxes ? To support the system that supports you ...
I love people who think everything they take home was produced by them and not an economic system that everyone has a stake in.
mmckinl | 12.16.08 - 5:53 pm | #
And they think auto-workewrs do not work hard enough, pay them shit, and are scared shitless of revolution. And then they are seen mumbling why aren't we as happy as the Danes.
The ingrained sense of privilege that the most of the really wealthy (over $500K/yr) have will take a generation to abate. All those types never adjusted fully to the 30's depression - they just bitched about the commie FDR and hated him until their deaths (well beyond FDR's demise).
These types (the norm of their class, not all them, obviously) have no sense of social connectedness or realization that their wealth can't be sustained without a prosperous working and middle class. They don't get it, and they never will.
They must be ignored in the reworking of our economy that is necessary for future generations. The alternative is economic collapse or revolution.
They didn't understand that FDR saved capitalism, not undermined it. And they still don't.
comrade swan writes:
Ticker Tape of Doom writes:
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
A: Saran wrap and a map.
comrade swan | Homepage | 12.16.08 - 6:00 pm | #
hahaha.
Some other dude wrote that. I was responding to him.
Forbes. By 2006, it was clear the Phoenix real estate bubble had burst. Yet those who jumped back in during 2007 badly mistimed the bottom. Phoenix prices are down 20 percent this year, according to the National Association of Realtors. The result? That second wave of speculation has resulted in scads of newly trapped homeowners.
The same speculators that were partly responsible for the housing bubble and its subsequent popping are the same ones that are trying to replicate the 2003 [through] 2006 period, says Anthony Sanders, a professor of finance at Arizona State University. As the housing market seeks a bottom, speculators and some well-funded hedge funds are jumping in the market but finding that the bottom hasnt been hit yet. Hence, they jump back out again.
This type of scenario is playing out nationwide. Homeowners selling their properties after less than a year now represent 17.3 percent of total sales in the U.S., reports Zillow. This is higher than at any point during the housing boom.
Las Vegas and Yuba City, Ariz., are leading the way for these sellers who mistimed the bottom. Respectively, 34.1 percent and 34 percent of these homeowners sold their homes in the third quarter of 2008, despite having owned the homes for less than a year.
People buying and then selling after only a year? You'd lose money on that just on the realtor commission. Insane...
"Back in the day -- 70s. The high end was occupied by high-end earners. There weren't a lot of them, so there were not as many high-end houses as there are now. Then, median lived in a 3/2 (or 1 1/2 or 1 3/4) of about 1100-1500 sq. ft., and they were happy to do so. Is there any reason why we don't/cannot go back to that. There is no shame in doing so. It seems to be a more realistic approach to people's housing needs.
reptillian | 12.16.08 - 5:59 pm | # "
That was me. In some ways, the only reason people have bigger houses now, and want them, is that they think/thought they could afford them. And they couldn't. Expectations can drop to meet reality.
Of course in California, it often made more sense for developers to build bigger, more expensive houses instead of small, modest ones, and part of that is tax policy. Many cities, constrained in how much they could raise future property taxes, saddled developers with massive development fees to get some of their money up front. In the face of such high fees, where they occured, it made no sense for developers to build modest houses. They built bigger houses to make more profit. And where the cost of land was high -- same dynamic.
Hence lots of big houses. Duplex conversion, anyone?
I don't see how devaluation gets us out of this. It'll stimulate manufacturing to an extent, but we've already shipped so much overseas. And it seems to me the world is awash in excess capacity.
I dunno. Maybe a new consumer class in the BRIC countries will save us...
I am, I hope, not a racist. Yet, I know for many racism, nationalism, and outright craziness has been papered over with MEW and jobs that paid for awhile.
nova | Homepage | 12.16.08 - 5:14 pm | #
It is not craziness, it is manipulation. Conditioned to respond like Pavel's dogs to certain phrases and images. History shows this to be a human condition and not just an American phenomena.
JimPortlandOR , I think anyone who make more than me is rich and should share, don't you? I mean they have the money and I have the need.
As for the folks who worry and complain that Bill Gates or a Steve Jobs doesn't pay their fair share, how many people do you proved jobs for and retirement and, etc., etc. What we need is a hundred more Bill Gates and/or Steve Jobs.
@lawyerliz:
"Nobody answer my qn on previous thread about 1 year T bill index."
I'm running out the door, and don't have the proper windows up to get you the symbols, but the CBOT has 3mo, 1yr, 2yr, etc indices on which they base chains of options. Those indices are of the "on the run:- most recently issued market prices.
And there are also symbols for Bloomberg that work on the .com, I believe.
tranches of lint | 12.16.08 - 6:05 pm | #
Oh with you there tol, I don't think devaluation gets us out of this - it just gets you there with respect to the conditions you had described in your previous post - without wage inflation.
I just think the d!ckheads that got us here will cointinue down that path, as they think by jiggering the dashboard lights they can make the engine work...
Bob Dodds- when I lived in San Fran 20 years ago, many apartment buildings were converted row houses (Noe Valley, Mission, Castro) that had at one time been living quarters for individual families, then split into multiple units.
Thing is, SF had and has an economy. Out in the exurb nation, I don't see how splitting a row of mcmansions into multi-plexes is going to work.
"First raise taxes on the rich , second nationalize all the banks including the Fed "
~
First, the current price levels of everything are based on fraud.
Second,that will not happen, esp since the Fed perpetrated the fraud.
Third, no amount of tax can support the going fraud.
~
The revenue from higher taxes on the rich and a banking system run for the profit of the public will produce enough revenue to restructure the economy ...
Bob Dobbs,
Thanks for pointing out the incentivization of oversizing houses due to tax/planning policy. I agree 100% with your conclusion. I think in general, many problems with the housing stock in the US can be traced to poor tax and planning/zoning policies.
OPEN MEMO FROM MR. CONJURE BAG TO PRESIDENT-ELECT HON. BARACK OBAMA
SUBJECT: Conjure Causality
Dear Barack:
The next time one of your senior economic advisers tells you a depression can be averted by simply flooding the banking system--hoping that some of it will "trickle down"--think again.
Think about Keynes' equation. You must get money into the hands of C=Consumer=Consumption=Joe Sixpack. You must do it NOW.
You have the mechanism to do this. It's called the state unemployment office and it can act as a hiring hall. Offer a job to anyone who comes in and asks for one. Pay them based on their previous work experience.
They can pound salt, scrub sidewalks, whatever you wish, but do it NOW. Forget about "shovel ready" construction projects. There's not enough time for that.
In fact, the economy is very close to grinding to a halt and a depression may already be baked in. If that happens, your $1 trillion stimulus package will not overcome the inertia required to re-start it.
Oh, and by the way, Laura Tyson is cute but full of it.
Regarding the swing-back inflation scenario. It seems to me that's exactly what happened after the dot com bust. Business investment tanked, the Fed panicked and lowered rates to 1% (might as well have been zero). This caused the formation of another bubble in the real estate sector, which subsequently crashed. We didn't get all the way to hyperinflation, did we? Was the commodities run-up an attempt at the same kind of thing too? Dunno. Either way, there is no further bubble to form. Asset deflation in the most basic of property, real estate, seems to me only to lead to deflation.
I really don't think people grasp the magnitude of this decision, to embrace ZIRP officially. It is one that has been proven to be empirically wrong and perverse, creating distortions that throw entire generations into disenfranchisement. Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
~~~~~
Easy, the whole system is crashing but instead of auditing the banks and restoring trust I'm throwing money at everything. As Fed Chairman my first duty is to my shareholders, the Member Banks.
This sounds like another 10% on top of the 4,300 number mentioned below...
Bristol-Myers to cut 10 percent of workforce
Tuesday December 16, 5:36 pm ET
Bristol-Myers to pare work force by 10 percent through 2010; 800 jobs to go by end of year
NEW YORK (AP) -- Drugmaker Bristol-Myers Squibb said Tuesday it will eliminate another 10 percent of its work force through 2010 as it works to pare costs before it loses patent protection on key drugs.
The New York-based company says it will eliminate 800 positions by the end of 2008, including filled and vacant jobs worldwide. Bristol-Myers Squibb estimates it will save $1 billion by 2012 as a result of the moves, which come on top of $1.5 billion in cost cuts announced in December 2007. Those cuts will eliminate about 4,300 jobs through 2010. Expired
Were we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept?
"The revenue from higher taxes on the rich and a banking system run for the profit of the public will produce enough revenue to restructure the economy ..."
Banks and rich are bleeding last time I checked. WAKE THE $&*# UP!!
Conjure, speaking for America, to BO: 'We gotta eat, man.
Yes, The feds should boost unemployment payments. That will get money into the hands of those most likely to spend. Anyone who has ever collected unemployment must know that the payments don't cover expenses. If the payments were doubled, even tripled, the economy would be better. Some may think that raising the payments would dis-incentivize job seekers. I don't think so, as long as someone on unemployment could make more than what he/she takes in on the dole. Hard times may necessitate innovative thinking.
What are Madoff's $50 Billion Ponzi in comparison to Rubin's $122 Billion?
Apologies if this has already been posted:
'PONZI SCHEME' AT CITI SUIT SLAMS RUBIN
A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.
Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.
Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.
The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value.
There are many places to live in CA that have very good schools where you can pick up a 3/2 in the sub-400K range.
Claremont (in LA) and Poway (in San Diego) come to mind. I adore Claremont in particular - cute little downtown, warm in winter yet 20 min to skiing!
However, neither has the cachet of Carmel Valley or La Jolla, so you probably wouldn't impress a lot of people with your zip code -- if that is your goal.
ille_vir writes:
...I really don't think people grasp the magnitude of this decision, to embrace ZIRP officially. It is one that has been proven to be empirically wrong and perverse, creating distortions that throw entire generations into disenfranchisement. Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
ille_vir
I bought into SDS, SRS and SKF at the close. I will buy more in the morning. The question isn't is this a house of cards, the question is when will it collapse and to what degree
Long CDs (under FDIC limit) and corporate bonds in SAFE companies are the way to go in a deflation scenario, IMHO. Which companies are safe? Who knows. Of course, I'm down quite a bit on my SRS position and stuff, so maybe don't listen to me. Have put in a sizable portion of my short gains from last year into corporate bonds, however, and think those will be good investments.
He thinks he's smarter than the Japanese... \t rcc | \t \t \t \t12.16.08 - 6:28 pm | #
And he's doing the exact same thing. Oh, the idiocy.
Hear it from Ben himself about how he thinks the Japanese messed it up:
"In short, Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States. "
Richard Oliphant, a longtime Coachella Valley developer who postponed construction on the billion-dollar Avanterra mixed-use project said he remains optimistic. The Coachella Valley population is only at 425,000, he said. At build-out, it will hold over 1.25 million, so were only one-third built-out.
Oliphant voiced confidence the nations top economists will get it right. Otherwise were making a horrible mistake throwing $1 trillion at the problem, he said. If it doesnt make it right, I dont know how we can.
"Thing is, SF had and has an economy. Out in the exurb nation, I don't see how splitting a row of mcmansions into multi-plexes is going to work.
Exit | Homepage | 12.16.08 - 6:12 pm | # "
In the case of exurbs, probably true. However, at least some McMansions have been shoe-horned into existing communities, or onto the edges of them. Those would be worth converting.
There's are a couple of neighborhoods of 3000+ sq foot "executive" homes at the edge of our town adjacent to the university. Naturals for student coop housing, or duplexes for low-paid professors.
Claremont is an area we LOVE! If we could find what you just decscribe I would have already bought it. Check Redfin for listings under 400k and you find a bunch of 1200 Sqft houses built in 1963 right on the border of Montclair. There is nicer home for sale right but it is right on the 210 freeway.
Housing prices have fallen but do not delude yourself into thinking I am some snob looking for an impressive zip code. I am not rich and that is WHY I fight against people who say I should be paying more in taxes.
I say let's employ the unemployed to demolish all suburbia tracts built post 2003 and recycle the materials towards revitalizing the "ghost downtowns" common all across America. Build walkable communities with nice apartment buildings and local shops.
Now that's an infrastructure program I would buy into. And with eminent domain, it would be legal to do something like this.
I think mmckinl's idea of nationalizing the banking system to be a terrific idea. A functioning financial system is every bit as important to our society as electricity, postal delivery, and national defense.
I suppose the Federal banking cartel would be against it though...
No he's not doing the same thing. He's doing more of it and much faster. Mass triage. \t Igor | \t \t \t \t12.16.08 - 6:35 pm | # Hm. Do you think that will that make it more effective?
rcc, he does have a point in that the PERCEIVED independence of the Japanese central bank is lesser than that of the FED. It's arguable about the actual independence, however, especially with Bernanke. Also, it seems to me that political forces in a recession would push towards earlier ZIRP, and would do little to encourage monetary restraint. Thus, political forces act as enablers for drastic monetary policy. So, what then is his point?
Gary writes: Those with the most wealth benefit the most from the stability of our society. That's a basic fact.
No, Gary, that is a fiction. Go to Zimbabwe to see who suffers most under an unstable society, and infer who benefits most in our stable one.
DialM |
~~~
Gary is exactly right ... I think you should check your logic ... the wealthy survive therefore it is the wealthy that benefit most. Therefore it is incumbent on the wealthy to pay more in taxes.
Bob Dodds - a consequence of doubling up (or more if student housing) begs the question - what about all the rest of the inventory that sits, unoccupied?
Either population needs to increase, or, the inventory will rot.
For population to increase requires economy AND in California, water. I grew up across the bay from you in PG and remember the water conservation in the late 70's. A substantial increase in population is insupportable, really, in coastal California due in large part to it being a functional desert existing on imported (stolen) water.
That's another baked-in problem, btw - fresh water availability.
I think mmckinl's idea of nationalizing the banking system to be a terrific idea. A functioning financial system is every bit as important to our society as electricity, postal delivery, and national defense.
I suppose the Federal banking cartel would be against it though...
This guy has made a carrer out of studying the Great Depression, and he's convinced that he can prevent one. He'll use all kinds of completely unproven and dangerous tactics to try to prevent a repeat.
Didn't think it could happen, did you?
mp | 12.16.08 - 6:07 pm | #
mp, when I first showed up here (under a different name at first) I wondered aloud about this being another depression and massive asset deflation.
I think this extension of Shiller's graph paints the picture, and I believe Conjure's 50% off sale estimate. CR is honest and he is great, but he is more optimistic than I am.
mmckinl writes: Gary is exactly right ... I think you should check your logic ... the wealthy survive therefore it is the wealthy that benefit most. Therefore it is incumbent on the wealthy to pay more in taxes.
Um, no. The wealthy survive under both the stable and unstable system, the poor do not. The poor benefit the most from a stable system.
well, mp and cb, I think he helped speed the dissolution of faith in the banking system, and also enshrined his visage on the inverse mt. rushmore along with hank, greenie, and shrub.
This guy has made a carrer out of studying the Great Depression, and he's convinced that he can prevent one. He'll use all kinds of completely unproven and dangerous tactics to try to prevent a repeat. \t rcc | \t \t \t \t12.16.08 - 6:48 pm | #
Yeah, I know what you're saying, and I guess he kind of has to go this route due in part to his background. However, it just gets to me because this particular policy has been proven to be utterly wrong. The #2 economy in the world is still in a rut due in part to the conditions created by ZIRP. The other dangerous tactic that he's going to try, quantitative easing, has also been proven to not work. We've already seen a manifestation of this perversity in negative treasury bill returns. Why in the world would loaning money to someone cause you to lose money? It makes no sense, because it shouldn't happen except in extraordinary circumstances.
Volcker, when asked about the Fed's program in England late last month said,
"It isn't working."
Is anyone here silly enough, or stupid enough, to ask what Volcker means by that?
It means that Bernanke is very close to being out of ammo. He'll soon be throwing the kitchen sink and the toilet from the Fed's executive bathroom at this thing.
I think they are doing this on purpose so the banks can hold the money and earn interest on the reserves. This way the banks can slowly become solvent again. Once solvent they can begin loaning money and the Fed can stop paying interest.
At the rates the banks will now pay for CDs, etc, who would keep their money in banks? Seems like a flow of money will be leaving the banks soon, or will have to eventually. I don't see the banks problems being solved by lower interest rates.
mp, the Fed has been out of ammo since they went to effective funds rate 0. They've already thrown in the kitchen sink, and it's done nothing. They've made themselves irrelevant, much like the credit rating agencies.
Um, no. The wealthy survive under both the stable and unstable system, the poor do not. The poor benefit the most from a stable system. DialM | 12.16.08 - 6:50 pm | #
Umm, ever heard about revolutions? Didn't think so.
"Exit writes:
Bob Dodds - a consequence of doubling up (or more if student housing) begs the question - what about all the rest of the inventory that sits, unoccupied?
Either population needs to increase, or, the inventory will rot."
I must admit I'm thinking largely about the California coast, where you and I both live and there isn't really a glut of inventory -- not when the price becomes right.
There is a lot of housing-sharing in this environment where melded households could and would fission into two or more separate households with the right rent or purchase price -- thus soaking up much of the excess.
As far as water constraints are concerned, I will only say that Santa Cruz County is completely "off the grid" water-wise from the rest of the state and always has been. Development is possible under these circumstances if cities are willing to do the necessary: strongly incentivise conservation, develop higher-density housing with smaller yards or xeriscaping, develop water sources creatively, recycle water, and work cooperatively between districts.
We're a strong 10 on conservation, a 7 on housing innovations, a 5 on water sources or recycling and creativity, and about a 1 on cooperation.
But we actually know what to do if push comes to shove. It's just the politics in the way.
mmckinl writes: Ummm very NO ... the rich benefit from not being poor ... imbecile ...
While I find it fitting that you now sign your post, "imbecile," it doesn't help your argument any. The poor suffer and die due to an unstable system, the rich do not. If the system is then stabilized, the poor stop suffering and dying untimely deaths, whereas the rich remain rich. I think you have a tough row to hoe if you expect to convince anyone that if you took a rich Zimbabwean and a rich Zimbabwean and moved them to the U.S., that the the rich Zimbabwean would benefit more from our stability.
mmckinl writes:
who would keep their money in banks?
~~~~
those who think liquidity is better than bets ...
mmckinl | 12.16.08 - 7:05 pm | #
+1
I keep my savings in FDIC insured CD's because I am not convinced that PM's are not in a bubble or that oil is "about to take off". Unless we think the government will make our currency is absolutely worthless I cannot envision changing this strategy in the short term.
mp, the Fed has been out of ammo since they went to effective funds rate 0. They've already thrown in the kitchen sink, and it's done nothing. They've made themselves irrelevant, much like the credit rating agencies. ille_vir | 12.16.08 - 7:02 pm | #
If you read Bernanke's 2002 speech then you know that he has quite a few options left. He WILL use them if necessary and in a few months we will know.
Obviously it's a great time to buy or sell. ZIRP interest rate FTW!
`14th... ithink my work must be delaying my CR
I think we also see the end of the mentality "Real Estate is the best investment ever, so I should get the absolute biggest loan possible to buy the most expensive loan possible."
$125K-$250K is where most sales need to occur, given average household incomes in the US are.
can zirp create move up buyers plz
I should get the absolute biggest loan possible to buy the most expensive loan possible...
Greg Weston | Homepage | 12.16.08 - 4:20 pm | #
I know, and use that loan to get yet another loan. That, my friend is the secret of Madoff's genius.
88 bottles of ye
speechless
Second worst Novemeber on record, sales are pretty bad. Only look good compared to last year at this time but not compared to history.
Throw in population growth and sales look even worse.
We are all move down buyers now.
Paulson smart now only speak after hours on up day
there is no move-up buyer
No, but there are lots of move-in-with-mom sellers.
The whole question is ...
Will Bernanke's printing money actually get into the economy ? Then it's inflation ... homes will rise ...
I don't see money getting into the economy. I see further job loss, jobs that won't come back even in an upturn.
The 4.5% mortgage rate subsidy needs to get resolved soon. NAR is lobbying Lockhart (chairman of oversight board at FHA) today, but until something gets resolved the list of people waiting instead of buying will grow larger.
IMO announcing the possibility of this federal mortgage interest buy-down program was the worst thing the Treasury could do.
Also, anyone who gets Money magazine check out page 16 of the Jan2009 issue for David Lereah article "A Former Real Estate Bull Admits, 'I Spun'" (not online yet).
"Many first-time homebuyers are, understandably, cheering as foreclosures dominate sales, tugging down prices and raising affordability," he continued.
exactly! why is BB ruining our party?
Houston year over year SFH sales down 31.7% for November...
yep Will, finally, David Lereah said it clearly "my job was PROMOTING housing, I see things very differently now".
Were we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept?
Days like this I wonder if the US deserves what it will be getting shortly. sigh
Guess you guys saw the buck, right?
ere we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept?
Mostly Lurker | 12.16.08 - 4:29 pm | #
It was a hard concept to understand for a while but I think people are figuring it out now. Now that it's too late.
late to previous thread
@ Bruce,
"...as the three headed dog approaches..."
Thanks for the misty glimpse of Tanta.
Tanta Vive !
will the stock mkt rally till new year?
just got back from testifying to NYC council all afternoon to find all this craziness, holy f$ing Zirp!
saw conjure's clock update, yikes.
lovin' glod up and dollar down for my profits, but sad for the outcome.
heading fast for the hoarding aspect of all things, money, gold, food, all deflationary.
ac,
So with the 200 DMA around 78, we should get there...tomorrow?
ac,
So with the 200 DMA around 78, we should get there...tomorrow?
citizen energyecon
I'm not trading it, but it's encouraging to see that there's still one rational market out there.
Big surprise there. This number doesn't represent the areas where the foreclosure sales are even higher. A buddy of mine told me that the illegals are piling into houses and converting garages into rooms, bathrooms, livable space, which violates building codes in California. Hey- but we need more. Give them amnesty. Pay them welfare for their kids. Pay for their pregnancies. Give them food stamps. All so that their corporate employers can save a buck. Illegal immigration is not sustainable.
the dollar ?
Ben will flood the market with cash ...
The banks are still insolvent ...
Millions of jobs will go away, never to return.
I came to find this blog via the Irvine Housing Blog.
CR's point was well documented on IHB, specifically : the chain is broken - there is no move-up buyer. Dave's not here !
The concept of a "starter home," always baffled me personally. Something you could afford on an average salary was denigrated by the RE Agents as a "starter home," as if the assumption would be, of course, you'd be out of there just as soon as you "made it." Starter neighborhood. The move up chain was further encourged by ARMs in the refrain that there was no point in taking out a 30 year loan if you weren't gonna be in the home more than 7 years. And who would stay in a shabby starter home for 7 years except a nincompoop, saver or communist. Or all three
Move up. BuyMore. Refinance. It's the road to Wealth.
I am not surprised this all came crashing down, only at the ugly systemic-wide effects and simultaneous shameful begging for taxpayer money from various and sundry Wall Street firms, auto execs, state and local govt. pension plans, and Madoff scheme victims.
My country has become nearly unrecognizeable YOY.
Here's to a better 2009. By default
pun intended
what's the best way to say "no way" to bernanke?
i mean, the best way to both prevent him from succeeding re-inflating asset prices and as a saver avoid paying this implicit tax?
100% agree with you mmckinl.
The jobs will never return because the US cannot compete with the turd world, which grows by 100 million per year. The pressure to employ cheaper and cheaper labor will destroy the US forever.
and for thread music, going out Cali-
YouTube - Gorillaz El Mañana
This should have been posted on last thread, but it went stale as I was writing. So, off topic:
A week ago I was nervous because the EUR was pushing against 1.30, the Continuous Commod. Index's technicals were threatening a bottom, monetary policy was a tail trying to wag a very skinny dog, and the long bond was 3%.
Thursday the CCI bottomed, EUR broke 1.30 firmly, long bonds get 2 handles. Friday, grains started to move, today gold took out the 830 and is above 850, and CCI is beginning to get a little curvature to the upside. And after Fed's announcement that it is just going to go with the dog, the EUR is now over 1.41, now closer to it's July high than its recent low.
The state has changed, almost as certainly as it changed in mid July. "Changed to what" and/or "and for the better?" are open questions. Until and if energy responds, though, I'm fairly clueless.
So how does CR get a 0 to.25 target rate on a graph?
Once again bumbling Ben is at it again. Cutting interest rates in the middle of a solvency crisis is like treating a viral infection with antibiotics. Not only doesn't it work but it actually causes harm.
By cutting interest rates Bernanke has deprived the one segment of the population that could spend through a down turn savers to cut back on their spending without creating any offsets. This I believe was Japan's problem in the 1990's and will become us ours now. There is such a thing as too low interest rates.
Until and if energy responds, though, I'm fairly clueless.
~~~~
It's all a monetary gambit ... It will soon be undermined by the reality of the economy ...
cardboard box cartoons
Cardboard Box Cartoons
And of course, "hack a solar oven from a carboard box and tinfoil" - two of the most favorite ingredients on the board.
love rick santelli - now time to turn it all off
Considering that inflation may occur, here's what I would tell a median buyer:
Wait until inventory is declining and starts are increasing. Might want to wait on price/rent and/or affordability numbers, too, but you might wait forever in some areas. Then, buy as much house as you can. If there is a lot of inflation you will do well.
I think that inflation was baked-in, even before the recent shenanigans, because of the deficit spending and Iraq war spending. Added to that, now, to combat deflation, the FED may print like there's no tomorrow. Only problem is, economics being such an inexact science, they're bound to overshoot. That overshoot, which may occur as they try to cancel deflation with a corresponding amount of inflation -- bound to fail in my opinion -- is what will produce an inflation that could make the 80s look easy. The 80s: that, too, was a good time to have a lot of debt.
Drive rates to zero, trash the dollar, and you will definitely see fewer foreclosures, higher property values, and more home sales.
You also will pay $9 for a loaf of bread.
buy now or be priced out forever.
10y bond 2.30% -0.22 (-8.73%)
Folks. I just don't have the words.
More types of harm than anybody knows.
"So how does CR get a 0 to.25 target rate on a graph?"
Error bars.
A very fitting image, IMO.
"So how does CR get a 0 to.25 target rate on a graph?"
Fat tail distribution ...
You also will pay $9 for a loaf of bread.
buy now or be priced out forever.
rich | 12.16.08 - 4:40 pm | #
rich, are you seeing any inflationary indicators?
This is quite interesting. Been hearing about how the bubble would collapse at the bottom and slowly move to higher priced housing but it sounded so theoretical. Now we are seeing it in action.
People driving this market are called "bargain hunters": isn't "knife catchers" a better term?
you will definitely see fewer foreclosures,
~~~
Not with millions fewer jobs ...
rich - with total respect, we're not at price inflation yet...
When we get there, your oil picks will do fine, just stay away from the dollar.
Why do I feel trapped in an episode of "House"? The doctors have misdiagnosed, mistreated and misunderstood. They've cut off may hands and my legs are next unless the addicted jerk can make the stick save. Thanks for saving my legs Gregory.
You also will pay $9 for a loaf of bread.
buy now or be priced out forever.
rich | 12.16.08 - 4:40 pm |
not without a job... a govvie handout sure, but wages must follow..and that ain't happeni
@mmckinl
"It's all a monetary gambit"
By "all", do you believe the price dynamics are all a speculative head fake, and that the deflationary dynamics are all still in place?
138.156250 +2.953125 +2.18%
nice dollar chart , btw.
those foreign holders must be close to a trigger point.
"IRS speeds lien relief for homeowners trying to refinance, sell"
http://www.irs.gov/newsroom/article/0,,id=201343,00.html
LOL
From MarketWatch:
4:27 p.m. Paulson: We didn't float plan to offer 4.5% new mortgages
By "all", do you believe the price dynamics are all a speculative head fake, and that the deflationary dynamics are all still in place?
~~~~
Yep ... there is till no way to stop millions of jobs going away and with that the debts become uncollectable, foreclosures once again skyrocket.
The banks are still frozen and the Wall Street banks are insolvent...
There is no way this will liquidify the economy. This is just to pump the markets.
CR, can you find and post consumer spending data by demographic?
ten year 2.37
30 year 2.87
seems like a perfect time to roll out a
1000 year (= 5.87 ?)
I think it is a mistake to assume a return of inflation (i.e. winning a deflation fight) means hyper-inflation.
Isn't this nice:
Goldman tax rate drops to 1% or $14 million for 2008, compared to $6 billion for 2007
Wow... bucky keeps going into the gutter.
Exit:
I'm only half-joking when I say the IRS will soon take the Fed's place in rescuing the economy. We have locked up a lot of potentially productive capital thanks to the tax code, and just relaxing some of the rules about prohibited transactions in IRA accounts, for example, could bring fresh equity to housing and small business. At this point we need targeted action, like the IRS agreeing to take a second lien, and not just blanket sprays of fiscal birdshot like stimulus "rebate" checks.
"move-up" buying requires "move-up" income. Right now we have "move-out" incomes
We need a SoCal Czar!!
what's the best way to say "no way" to bernanke?
scary deficits | 12.16.08 - 4:33 pm | #
I'm going to start by removing my remaining cash deposits from bank accounts. I'm thinking of taking my emergency fund out in cash and putting it into a safe deposit box. Doesn't make sense letting them use the money for free.
Depatriating some money to a place where the central bankers are not suicidal might be an option, although I'm not sure where that is.
cd
The concept of a "starter home," always baffled me personally.
I think Ben and George have created the concept of a starter country.
What's a republic?
Exit-
It's great to be gs...
Drive rates to zero, trash the dollar, and you will definitely see fewer foreclosures, higher property values, and more home sales.
rich | 12.16.08 - 4:40 pm | #
Rich - When it didn't work in Japan - why would it work here?
What is the difference between inflation and currency devaluation?
Well we're movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.
I would like to coin a new term, "leapfrog buyer". This is a person who saved money for years with a target home in mind. For example, a $550,000 median LA home, 3 br 2ba, ok neighborhood. The prices went down so fast that they decided to still spend about $500k, but in a much better neighborhood, in a slightly larger house.
At the peak, a decent house in Woodland Hills, 3br 2ba, LA Unified Schools, was about $850k. By 2009, you'll be able to get a similar house in Santa Monica or Brentwood for that price.
Starter homes, cars, degrees...,I guess there are other big ticket items that are aspirational in the same way as real estate.
Some aspire to a BMW 7 series.
Some aspire to a Ivy League education (with Ivy League cost).
Some aspire to a vacation home in paradise.
Some aspire to having a trophy wife
But it's all over now, baby blue.
"Depatriating some money to a place where the central bankers are not suicidal might be an option, although I'm not sure where that is.
cd
Circling the Drain"
Had you considered Linden Dollars?
Ventura\t516\t729\t41.30%\t$521,250\t$355,000\t-31.90%
Wow, 516 @ $521,250 versus 729 @ $335,000.
$270m versus $245m gross volume. And trust me, real estate agents are getting a smaller cut. Don't even bother to do gross volumes when medians topped $600k two years ago.
Exit:
I'm only half-joking when I say the IRS will soon take the Fed's place in rescuing the economy...
I was arguing a while back that we would simply flip the IRS into reverse when the Fed ran out of "ammo".
Of course not collecting taxes is simply an extension of the insanity that's been going on for decades now.
The fact that we can't "afford" to collect taxes is simply a restatement of the fact that we have a ponzi finance based economy.
Those are medians so you can't quite do the math like that, but the gist is the same.
Good question. I don't know the answer.
Buying a house ...?
Find a neighborhood where people will be keeping their jobs ...
uh, how about the price of gold or food?
Find a neighborhood where people will be keeping their jobs ...
Which neighborhoods are those? Do bankruptcy lawyers tend to congregate in one location?
So, for anybody out there more intelligent and better-researched than me. What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
uh, how about the price of gold or food?
Those aren't measured in CPI, hence no inflation. Hoozah!!
What is the difference between inflation and currency devaluation?
~~~~
Inflation means everything goes up ... currency devaluation means only imports go up : ceterus parabus.
Prices in Sacramento in good neighborhoods with good schools are still unaffordable for median incomes. Throw some state-government related layoffs on the fire and prices are still way too high here.
paribus
Inflation means everything goes up ... currency devaluation means only imports go up : ceterus parabus.
And since we produce most of the things we use, it'll be... wait a minute..
Which neighborhoods are those?
~~~
haven't found one ... bankruptcy lawyers live in vampire caves ...
I still think there's 10-15% more to the downside for US median home prices, but a heavily discounted foreclosure financed with a sub 5% 30 year traditional mortgage may not be a bad call.
hey look bottom is in
Hovnanian quarterly loss narrows to $5.79 a share
when will builders go bankrupt? Who's buying their shares?
some investor guy writes:
I would like to coin a new term, "leapfrog buyer".
Guy, that sort of describes Mrs. Cthulhu and me, but the market decline has moved our goalposts. We were priced out on the way up, and as we're watching the market fall, we're thinking, why buy in R'lyeh when, with a little patience, we can do better.
It has all the hallmarks of deflation too; i.e., 'why purchase today when tomorrow they'll be two-for-one?' Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly.
Can I haz ZIRP CZAR?
Maddoff for economic czar! He's got a plan!
What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
Ponyless in NJ
Interesting question. I don't know the answer. On a related note, does anyone know the magnitude of this flood of liquidty relative to the magnitude of the cliff we're diving off of?
And since we produce most of the things we use, it'll be... wait a minute..
~~~~
I said ceterus paribus ... There will be heavy leakage due to our trade deficit. There will be higher interest rates due to foreigners abandoning dollar denominated assets.
ceteris paribis
Inflation means everything goes up ... currency devaluation means only imports go up : ceterus paribus. (hat tip monta's ankle)
Only imports? What about commodities in general, or real assets in general? A bushel of USA produced wheat is one price but a bushel of imported wheat is another?
j marston - I'm trying to wrap my noggin around the implications, and am curious to see guidelines. LTV? $$ amount? Principal residence only? I'd say income doc but presumably they have that already. Credit profile?
ac - IMO, as revenues fall, enforcement action will be increased, not decreased. Then, will Robin Hoods appear to battle the Sheriff of Nottingham?
cd - yeah, it's good to be the king. Where's that video?
So what do we call deflation and a currency devaluation concurrently...deep in the sh!t?
I said ceterus paribus ...
Wops.. got spanked there. I knew I should've learned my Latin.
Can you use "czar" in scrabble? Is it now now longer considered a proper noun?
These are the important questions.
infernus! ceteris paribus
reptillian writes:
ceteris paribis
~~~
all other things being equal
what reptillian said...
The BoJ waited for 9 years after the bubble imploded and deflation was already firmly entrenched to go zirp, and waited another 5 years after that before quantitative easing. The Fed is going zirp + quantitative within two years, and inflation, while falling, is still positive, and by their own core measure, only just now back to the top of their preferred band. I used to believe quite strongly we were going Japan in the 90's for a while, now I think US in the 70's is closer to the mark.
Ponyless in NJ said:
What steps is the Fed taking that the Japanese Central Bank did not take to try to cause inflation?
Uncle Ben is convinced he can do better than Japan:
"In short, Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States. " - Ben Bernanke 2002
ac - IMO, as revenues fall, enforcement action will be increased, not decreased. Then, will Robin Hoods appear to battle the Sheriff of Nottingham?
I agree that enforcement action will increase. So will non-filing and non-payment, both out of anger and out of necessity. Hard to pay when broke. Easier to evade taxes when your W-2 job is gone.
I just realized something. I am a fairly well educated, affluent, world traveled kind of guy. Yet, Werner, who only shows up when there is bad news, makes an appearance - I go off.
I am going off over a combination of things but he is no worse than others. My point is that if my buttons can be so easily pushed over old history. What are the odds in a "Rainbow Nation" like America that when the going gets tough that bad things happen?
I am, I hope, not a racist. Yet, I know for many racism, nationalism, and outright craziness has been papered over with MEW and jobs that paid for awhile.
When they list foreclosure sales, does that include banks buying their own property at auction?
cd(Unrated) writes:
\they look bottom is in
Hovnanian quarterly loss narrows to $5.79 a share
when will builders go bankrupt? Who's buying their shares?
\t cd | \t \t \t \t12.16.08 - 5:06 pm | #
I have to wonder if the photo evidence from the junkets the homebuilders held, and of which legislators and regulators partook, are damning enough to have required significant member(s) of said 'overseer's' to tell the builders - you WILL be defended.
That, or the CDS exposure is being TARPED over.
In the 70's there was wage inflation, no?
"When they list foreclosure sales, does that include banks buying their own property at auction?"
No.
And yes I am 100% sure.
It gets asked every time.
I have to imagine Cramer is going to view the 0% interest combined with lots of foreclosures as clear proof that it's time to buy buy BUY! baby!
Only imports? What about commodities in general, or real assets in general? A bushel of USA produced wheat is one price but a bushel of imported wheat is another?
~~~~~
This part of the leakage due to trade ... but you are correct, commodities will go up ...
Heh, sorry I usually don't drill down to the comments anymore, it's too depressing.
windowdog-
Cramer practically wet himself after today
How can take home wages rise when entitlements rise faster?
~~~~~
Tax the rich ...
I'm hoping Congress will pass a law making a recession/depression illegal. That should take care of things.
Windowdog writes:
Heh, sorry I usually don't drill down to the comments anymore, it's too depressing.
I'd like to add that I consider the comments a huge part of this site.
Sometimes the banter may get a little too political, but it seems nowadays in the US that politics and economics are intertwined.
Don't change a thing CR, I love your blog
I'm hoping Congress will pass a law making a recession/depression illegal.
~~~~
The Republican Congress changed daylight Savings Time and LOOK ! it worked !
lol
USC Lusk Center forecast continued commercial slump
A couple of days old, but worth repeating.
BTW, the Baltic big-bulk ships (capesize) has a bottom as well.
What is the difference between inflation and currency devaluation?
citizen energyecon | Homepage | 12.16.08 - 4:56 pm | #
That is the key. Any smart individual with a hang to a deflationary scenario has to shake in their boots while watching the dollar the past two weeks. Add in the Bernanke 2002 speech regarding devaluation and I would be on red alert.
This system is built on inflation expectations and deflation cannot be tolerated otherwise the system will fail. I don't think the system will fail, at least not in the short term.
Therefore bet on your paper dollars losing considerable value to reduce nominal debt obligations whatever the mechanism may be that is used to achieve this aim.
I wasn't saying the commenters depress me, its the opening scenes of Road Warrior type economic news that bring me down. Not as much fun talking about it.
So what is the strategy to protect wealth in this environment? Will typical inflation hedges work this time around?
Does paying cash for a primary home sounds reasonable. How about buying gold or oil?
Stocking up on canned food and ammo is not the type of advice I am looking for...
How would you protect several hundred thousand dollars in cash?
The clear solution to deflation is bimetallism.
Until rates start going up, Rate resets won't be a problem..
The economy and affordability will be the issue.
"It has all the hallmarks of deflation too; i.e., 'why purchase today when tomorrow they'll be two-for-one?' Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly.
Margin Call of Cthulhu"
The leapfrog buyers are one of the few groups making offers and getting approved for more expensive homes. They have no existing home they need to sell. They have a bigger than expected % down.
In LA, prices have somewhat further to go, like another 30-40% drop from current prices (taking you back to 2001 prices). Elsewhere, it's typically more like 10-15% left to drop.
In expensive places like LA, the reduction in the jumbo conforming limit is the next shoe to drop. No more Fannie/Freddie loans over $625,500 after Jan 1. Unless a deal is already done and about to close escrow, there are virtually no more $729,750 jumbo conforming loans. Based on current interest rates, in 2009 a $729k mortgage will have a monthly payment 38% higher than a $625k mortgage. That's a ton of pressure to either put more money down, get a price reduction, or buy a slightly less expensive house nearby.
Wages stagnant for years. Jobs slashed daily. 70% consumer economy.
How does inflation make this better?
"Taxes should all be raised as well as income above 250k."
How many over $250's are there for every retired person?
The low rates do seem as if they will help stem the tide of foreclosures. Key is employment...
In the 70s there was Nixon's WIN. Whip Inflation Now. I know. I could not get a raise, because it would have been inflationary to give me one.
"RE : Therefore bet on your paper dollars losing considerable value to reduce nominal debt obligations whatever the mechanism may be that is used to achieve this aim."
Come again? Are you saying pay down debt now while you have the best opportunity to lock in the effective gain?
How would you protect several hundred thousand dollars in cash?
Stretch002
I would give the same advice as to how to protect several million dollars in cash.
I will stop working if they decdie to tax my income more than the 43% I am paying today...
Fed takes: 33%
California takes: 10%
Total: 43%
Why oh why should I continue to work if they take more? As a salaried worker it is tempting to take a MUCH easier job and keep more of my pay.
At some point the government HAS to stop. They are disincentivizing the work force.
"I would give the same advice as to how to protect several million dollars in cash.
syvanen"
Very big mattress, several doberman's, and a shotgun.
It's positively recession proof.
Why couldn't we have a currency based on a basket of metals? Copper, silver, aluminum, molybdenum, even gold. Each metal would be weighted on its practical, industrial usage.
Well, a mattress and a dog are not exactly canned goods and ammo. I was hoping for something less grounded in a "Mad Max" scenario and more about where we are likely headed...
Why oh why should I continue to work if they take more? As a salaried worker it is tempting to take a MUCH easier job and keep more of my pay.
At some point the government HAS to stop. They are disincentivizing the work force.
Stretch002 |
As someone who has lived in Denmark, that scream point is much higher than you'd imagine.
Paulson: No Plans to Seek Rest of TARP
For Now Treasury Secretary Paulson told CNBC he doesn't plan to seek the rest of the $700 billion bailout fund unless there is an emergency.
UAW = non-emergency
"why buy in R'lyeh when, with a little patience, we can do better."
I can get you a great deal on some prime beachfront in Innsmouth.
UAW = non-emergency
Of course not. Unless it's GS related, everything else is non-emergency.
Come again? Are you saying pay down debt now while you have the best opportunity to lock in the effective gain?
Sports Guy Lafleur | 12.16.08 - 5:27 pm | #
No, I am saying that devaluation via currency and/or devaluation via inflation will be used to reduce debt obligations. If the current actions don't work as desired, I expect that within a year or two it will be coupled with an official announcement (like China's or the U.S. 1934) that the money supply has been increased by x% and bolstered with an official encouragement to increase wages by a similar percentage.
How would you protect several hundred thousand dollars in cash?
With a ginormous mattress and a big fucking gun.
CONJURE'S CORNER
Conjure says, "I expect the Case-Shiller index to overshoot by a substantial margin."
"Have a nice day."
Why couldn't we have a currency based on a basket of metals? Copper, silver, aluminum, molybdenum, even gold. Each metal would be weighted on its practical, industrial usage.
reptillian
Have you every tracked the commodity market for metals? That would be a f-ing nightmare. Big macs would have a hundred+ dollar range in price over the course of the more volatile months.
The clear solution to deflation is bimetallism.
Windowdog
Sapporo comes in bimetal cans.
"Alcohol, the cause of, and solution to, all of life's problems." I think this was Homer
How many over $250's are there for every retired person?
~~~~
Enough for marginal immprovement along with the other taxes on capital gains, dividends, estate I mentioned.
The propensity to spend is much higher at the bottom of the income distribution.
I will stop working if they decdie to tax my income more than the 43% I am paying today...
~~~~
Good , that will open a job for someone else ...
Windowdog wrote: Have you every tracked the commodity market for metals? That would be a f-ing nightmare. Big macs would have a hundred+ dollar range in price over the course of the more volatile months.
Couldn't governments fix the prices, so that they would remain stable? All they have to do is say, "We stand ready to buy or sell."
mp,
Why?
"At some point the government HAS to stop. They are disincentivizing the work force."
Exact comments overheard from a recent physicians meeting I attended. The law of diminishing returns was discussed, and this group decided to aim/reduce their top end salary right at the tax-bump up threshold. Further spouses who are highly reimbursed professionals (MD/JD etc.) are bailing on the workforce. Nannies and daycare no longer necessary. No point in working harder to net less, and pay somebody else making further less so you can not see your children grow up.
Priorities of the less rich and not famous at all.
I posted a few months ago that expected Russia to get involved in "commodity OPEC's" to combat falling commodity prices. It now seems to have become official policy:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMAjeSAdqJw4&refer=home
... Russiaâs economy, built on energy and commodities, is slowing faster than other emerging markets like China and India. Russian President Dmitry Medvedev on Dec. 11 said that the country may cut oil output and participate in new and existing âsuppliers organizations.â He called for Russia to âdefend ourselvesâ in the face of a diminishing ârevenue base.â
At some point the government HAS to stop. They are disincentivizing the work force.
Stretch002 | 12.16.08 - 5:29 pm | #
I call bullshit.
I am with mmckinl, income tax cuts under Reagan and Bush have gutted the core of this country.
I'll take a northern European style tax schedule and universal healty care any day of the week. And you will STILL try to maximize your income.
Your argument is an idle threat, and we both know it. Well maybe you do not . . . but let me assure you, your threat is idle.
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
I suppose the biggest challenge is figuring out if we are indeed merely in a "deflationary period" and about to head into big time inflation or whether we think deflation is here to stay.
Any thoughts or recommended reading?
RE : Thanks, I see you were talking macro and I was thinking micro.
@R
Foreclosures. There are going to be more. A lot more.
Any thoughts or recommended reading?
Stretch002
Hear Hear! I second the request.
Thanks, Stretch
I get why conditions in the financial markets seem to dictate inflation following the deflation, but the one thing that I think is critical for real inflation is higher wages, and that doesn't seem anymore likely to me than higher wages were in the post 1933 period. It just won't happen, for years, maybe a decade (when some new industry boosts economic prospects.)
Stagdeflation, yes. Stagflation, no. Economic growth, very low or non-existent.
Stretch 002.
Simpler solution is to leave California.
I mean, before everybody else.
I'll take a northern European style tax schedule and universal healty care any day of the week. And you will STILL try to maximize your income.
Exactly Gary ...
They think higher tax rates will outlaw wanting to get ahead and greed ...
The propensity to spend is much higher at the bottom of the income distribution.
mmckinl, the elitist.
Margin Call of Cthulhu wrote: "Enough 'leapfrog' buyers and prices will cliff-dive. Which is nice as a buyer, but in a macro sense, this would be economically ugly."
Hmm, another case where each person acting to maximize their individual outcome produces an undesirable effect for the whole group. I'm beginning to worry that the theoretical basis of our capitalist system has a small flaw.
mmckinl, the elitist.
No mmckinl the pragmatist ...
"They think higher tax rates will outlaw wanting to get ahead and greed ..."
I asked CR for demographic consumer spending..can you guys provide it to prove that pullback by TENS OF MILLIONS of boomers will not affect your theory?
"Bargains and bargain hunters have kept this market alive through some of the bleakest financial news in memory. There's this renewed sense that you can score a 'deal' - something that had been missing for many years.
Just to do the rest of the math, almost all of these bargain hunters have paid more than their house is worth today, have thrown away most or all of their hard-earned 20% down-payment, are or soon will be underwater with millions of others, and had they postponed buying could look forward to lower loan payments with 10-20-30% of their down-payment cash still in the bank.
A buyer last summer putting 20% down on a $400K house has lost $80K to secure that deal. Some bargain.
Clarify:
Leave CA means less frothy RE, less chance of collapse of state services, and best of all, the punitive 10% goes away. Unless you relocate to loop Chicago.
I'm thinking Arby's.
"propensity to spend"
the bottom of the income distribution does not have a "propensity to spend"
They have an absolute and total consumption of the funds for basic survival....jackass.
Gary writes:
"why buy in R'lyeh when, with a little patience, we can do better."
I can get you a great deal on some prime beachfront in Innsmouth.
Gary | 12.16.08 - 5:32 pm | #
+1!
prove that pullback by TENS OF MILLIONS of boomers will not affect your theory?
~~~~
Boomers aren't pulling back on work ... they are getting laid off ...
Not only was there Wage and Price inflation in the early 1970s, the republican president also had federal Wage & Salary Boards filled by private sector CEO luminaries as well as admin staffers.
Read Time Magazines archived Dec. 25, 1972, analysis of wage controls, price controls and inflationary and deflationary impacts.
CONTROLS: Phase III Shapes Up - TIME
Read the Presidents January 11, 1973 Economic Stabilization Plan Address to Congress; you'll swear it was written in January 2009 by Obama.
Richard Nixon: Special Message to the Congress Announcing Phase III of the Economic Stabilization Program and Requesting Extension of Authorizing Legislation
Then read Time Magazines archived June 18, 1973, mid-year economic recap for 1973, Heres an excerpt in real-time, not written as a historical artifact (e.g. folks had NO IDEA in 1973 that it was the beginning of 9 years of economic turmoil lasting until August 1982 and the dual births of the 1. 25-year Secular Bull Cycle on Wall Street; plus 2. Structural Transformation of the Economy into one where 70% of GDP is Consumer Spending:
Throughout the U.S. economy's ups and downs of the past four years, President Nixon has never managed to rid it of the debilitating fever of inflation. Prices kept rising rapidly through the 1970 recession, in defiance of all economic nostrums. The increases subsided in part because of the wage-price freeze and Phase II controls, but in the five months of voluntaristic Phase III the economy's inflationary temperature has climbed to its highest point in two decades. The situation has helped create near chaos in stock and dollar-exchange markets
POLICY: Nixon's Other Crisis: The Shrinking Dollar - TIME
It's all about houses. This will not end until houses are a good investment and no one wants to take the chance on them anyway. Ben has no say in the matter. The banks are walking dead and the Fed just joined the march. Next up: Market crash in January/February.
mp,
Ic, I thought "Case-Shiller index to overshoot" meant that it would represent a larger decline than actually was going on in the marketplace.
I misunderstood.
The White House said on Tuesday it would not be rushed into giving a lifeline to U.S. automakers.
Spokeswoman Dana Perino said the administration was
"moving with all deliberate speed in order to try to do this in an orderly fashion, but we're not going to be rushed into it."
Glad to hear it's not all that bad anymore in Detroit. Can get some sleep again.
They have an absolute and total consumption of the funds for basic survival....jackass.
18kayear
~~~~
HEY ! I'm with you. I just have to use language all these Neanderthals understand.
Gary & Mmckinl:
I think you are both mistaken. Naturally I can only speak for my family, but I would most certainly cut back if taxes increase.
The thinking that $250k makes someon rich is laughable. Do you know what houses cost in California? A decent 3/2 house in a typcial neighborhood is 650k and that is nothing fancy.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
I don't know who is at fault, but personally I blame Time Magazine's Person of the Year for 2006
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
I suppose the biggest challenge is figuring out if we are indeed merely in a "deflationary period" and about to head into big time inflation or whether we think deflation is here to stay.
Any thoughts or recommended reading?
Stretch002 | 12.16.08 - 5:38 pm | #
Maybe 2, 3 year and 5 year treasuries?
and TIPS for inflation?
So we have people buying REOs at the low end of the market; and we have some leapfrog guys with serious cash buying in a bit above the absolute low-end.
So no one's buying the higher end.
Which, do you think, might make the high end eventually come crashing down on the leapfrog buyers and the absolute low-end REO buyers and bring about yet another dogleg down for everybody.
A rock and a hard place: TPTB can't "allow" deflation to take hold, but they also can't allow serious wage inflation.
Anything that forces companies to raise wages for the proles will be fiercly opposed by TPTB. If the union movement revives in the coming years (unlikely), it will be forcefully suppressed.
The only semi-acceptable response in TPTB eyes is to pump money out through the govt in the form of tax rebates, temporary govt jobs (O's stimulus), and extension of unempolyment and other benefits.
I doubt this alone will be sufficient in generating the wage pressure needed to get us out of this mess.
Capitalism destroying itself.
CONJURE'S ALTERNATE FUTURE
The year is 2014.
The place is a freeway overpass on I70 in Kansas.
The sign reads:
"If you're from Cali or Florida, keep going.
We can't help our own."
You guys should actually watch a little bit old movie called Pretty Woman with Julia Roberts and Richard Gere
Seriously, see it through now your rapidly evolving Greater Depression Eyes.
The main male character (=baby boomer generation) does nothing but buy and split companies, makes nothing, produces nothing but makes big bucks! Just sells the work of previous generations to the highest bidder.
The economic class hierarchy is appalling and the rich elite in the movie is exactly the "let them eat cake"-type. The elite is totally unconnected to the reality of even middle class with their countless servants and privileges.
They just go happily from another horse race to special dinners to opera. And of course all those workers nervously bow to them and almost beg for mercy (and money). Or are separated by army of security guards.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Stretch002
But it's only the marginal amount above the $250k that's going to be taxed higher, isn't it? I mean, it's not like you pay much more at $255k as a percentage of your total income. Still, living in a high-cost area is disadvantageous thanks to our tax code.
My comment about using a shotgun to protect wealth was a joke. I humbly apologize for offending anyone and/or whatever doberman's they may own.
"We can't help our own."
'We gotta eat, pa"
JimPortlandOR writes:
I get why conditions in the financial markets seem to dictate inflation following the deflation, but the one thing that I think is critical for real inflation is higher wages, and that doesn't seem anymore likely to me than higher wages were in the post 1933 period. It just won't happen, for years, maybe a decade (when some new industry boosts economic prospects.)
Stagdeflation, yes. Stagflation, no. Economic growth, very low or non-existent.
Now THAT makes sense. I've been scratching my head on this whole US 1970s vs. Japan 1990s conundrum, as it has an obvious and immediate impact on where we want to park our cash. Of course, the Government could just do an end run around cash-conscious employers and give every w-2 employee a raise via a stimulus check or other pony... scratches head
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
~~~~
Why should you pay any taxes ? To support the system that supports you ...
I love people who think everything they take home was produced by them and not an economic system that everyone has a stake in.
"Do you think boomers after having seen their portfolios dive are cutting back ?"
Are you reading what Conjure is saying? There won't be no excess tax revenue for nobody. Got it?
tranches of lint | 12.16.08 - 5:50 pm | #
devaluation gets you there...
"I will stop working if they decdie to tax my income more than the 43% I am paying today..."
And you have only a couple of hundred you're trying to protect? Good luck.........
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Tax rates are marginal. Absent some roll-off of tax credits at certain thresholds you are only hurting yourself by limiting your income.
I love people who think everything they take home was produced by them and not an economic system that everyone has a stake in.
mmckinl
Kind of like folks that don't want to pay school taxes because they don't have children. Burn the bridge, I'm across.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
Democracy is just a polite way of saying mob rule. You have to pay for it b/c your friends and neighbors want you to.
ZIRP never left Japan, but managed to find its way here too. Be prepared for all sorts of perversity. ZIRP turns financial common sense on its head. The gas to pay for the drive to the bank becomes worth more than you would earn on interest in a year. Might as well keep the money in the mattress. Cash comes out of the system, and stops moving. Nobody lending except shady unsecured lenders. The salaryman-loan places in Japan; probably would be some derivative of payday loaners here. Small businesses can't get loans, so they turn to these shady outfits. Not a beneficial situation for economic activity.
It seems to me that ZIRP, in its perversity, feeds right into a deflationary spiral with its liquidity-trapping effects. Once you lower interest rates below a certain threshold, it becomes very difficult to ever come back to a situation in which you can "normalize" the rates.
Yes, Jane, there was wage inflation in the 70s.
Nobody answer my qn on previous thread about 1 year T bill index.
Thanks to the poster with the Bernie M, got screwed by, story.
My secy said the recession hadn't done anything to her yet. She didn't have any money and still doesn't. Actually there is long story there, which I ain't tellin'.
Had some little old ladies come in with a condo question. Their condo is full of paid up old people and has only 1 foreclosure out of about 50-55 units.
But that one tells a story. Foreclosure filed late August. Foreclosee not defending, not delaying. The foreclosure firm has done NOTHING since August to advance the case. She hasn't paid since February, and hasn't paid maintenance for 4 months. So how many people are not paying maintenance in how many condos, because the foreclosure firms,
that were never very good, are now totally swamped.
They need to charge more.
Also, fees need to be raised on foreclosure filings so that judges can be hired to handle them.
Don't know if either thing will happen.
Stretch002(Unrated) writes:
\tGary & Mmckinl:
I think you are both mistaken. Naturally I can only speak for my family, but I would most certainly cut back if taxes increase.
The thinking that $250k makes someon rich is laughable. Do you know what houses cost in California? A decent 3/2 house in a typcial neighborhood is 650k and that is nothing fancy.
As a family sitting on the cusp of 250 let me assure I will come in under that figure to avoid a bump up in taxes. It's nice that you think the "under class" will spend more than I do, but why should I pay for it?
\t Stretch002 | \t \t \t \t12.16.08 - 5:48 pm | #
Do you have a link to support your claim? This is the DQ News site that CR references for this post. If you'll note, the median price is substantially below your $650k, in any county you choose to search.
http://www.dqnews.com/News/California/RRCA081120.aspx
citizen energyecon writes:
What is the difference between inflation and currency devaluation?
A: with inflation the price of milk goes up. With currency devaluation, some dude with an accent buys the milk factory.
With deflation, you are the cow.
How many over $250's are there for every retired person?
--Anonymous
Enough for marginal immprovement along with the other taxes on capital gains, dividends, estate I mentioned.
--mmckinl
Only 1.5% of the households in the U.S. make $250,000 or more! The top 1% of households already pay 40% of the taxes! I do not think that you will capture enough income by increasing taxes on just 1.5% of the households.
Now if you say that the wealthy people are those who make $100,000 or more, then you are talking about 15.7% of the households in the United States, and they pay 70% of the taxes. Now you have a larger base of people to tax to get more income from.
In other words, do research to prove your point. Google is your friend.
(Personally, I disagree with you, if you can't tell.)
God Shammgod; is that in reference to the basketball player?
Someone wrote: "Which, do you think, might make the high end eventually come crashing down on the leapfrog buyers and the absolute low-end REO buyers and bring about yet another dogleg down for everybody"
Back in the day -- 70s. The high end was occupied by high-end earners. There weren't a lot of them, so there were not as many high-end houses as there are now. Then, median lived in a 3/2 (or 1 1/2 or 1 3/4) of about 1100-1500 sq. ft., and they were happy to do so. Is there any reason why we don't/cannot go back to that. There is no shame in doing so. It seems to be a more realistic approach to people's housing needs.
Are you reading what Conjure is saying? There won't be no excess tax revenue for nobody. Got it?
~~~~
That depends on how they restructure the economy ...
First raise taxes on the rich , second nationalize all the banks including the Fed and run them for the profit of the American people ... If the public takes the hit, the public should get the reward.
one_timmy writes:
Seriously, see it through now your rapidly evolving Greater Depression Eyes.
You guys should actually watch a little bit old movie called Pretty Woman with Julia Roberts and Richard Gere
The main male character (=baby boomer generation) does nothing but buy and split companies, makes nothing, produces nothing but makes big bucks! Just sells the work of previous generations to the highest bidder.
That is the one where his soul is saved by a hooker with a heart of gold, right? There is the solution, hookers for all CEO's and Fed chairmen.
Ticker Tape of Doom writes:
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
A: Saran wrap and a map.
Size 10 - that's a funny homepage video
Those with the most wealth benefit the most from the stability of our society. That's a basic fact.
Those making over $250K can stand to pay more at the margin on their income . . . and by historical measures are UNDERTAXED right now. Reagan and Bush II have raped this country to the benefit of the rich.
But I don't consider people making (especially in major metro areas) $250K a year to be rich. That is upper middle class.
The real big boys make out by tricking a boob like Stretch here into thinking he's in the same boat with them.
Don't be a pawn.
Anonymous | 12.16.08 - 5:59 pm
When the Income Tax was first introduced only the rich paid it ... 100% of it ...
Why should you pay any taxes ? To support the system that supports you ...
I love people who think everything they take home was produced by them and not an economic system that everyone has a stake in.
mmckinl | 12.16.08 - 5:53 pm | #
And they think auto-workewrs do not work hard enough, pay them shit, and are scared shitless of revolution. And then they are seen mumbling why aren't we as happy as the Danes.
The ingrained sense of privilege that the most of the really wealthy (over $500K/yr) have will take a generation to abate. All those types never adjusted fully to the 30's depression - they just bitched about the commie FDR and hated him until their deaths (well beyond FDR's demise).
These types (the norm of their class, not all them, obviously) have no sense of social connectedness or realization that their wealth can't be sustained without a prosperous working and middle class. They don't get it, and they never will.
They must be ignored in the reworking of our economy that is necessary for future generations. The alternative is economic collapse or revolution.
They didn't understand that FDR saved capitalism, not undermined it. And they still don't.
Sorry mp, I don't understand your statement. You mean house prices will drop more than expected perhaps?
comrade swan writes:
Ticker Tape of Doom writes:
Stretch002 writes:
What is with all the "protect the cash with a gun" junk? Anyone have some actual advice to protect wealth in this environment?
A: Saran wrap and a map.
comrade swan | Homepage | 12.16.08 - 6:00 pm | #
hahaha.
Some other dude wrote that. I was responding to him.
They didn't understand that FDR saved capitalism, not undermined it. And they still don't.
JimPortlandOR | 12.16.08 - 6:02 pm | #
One of the best comments I've ever read here.
Knifecatchers everywhere:
Forbes. By 2006, it was clear the Phoenix real estate bubble had burst. Yet those who jumped back in during 2007 badly mistimed the bottom. Phoenix prices are down 20 percent this year, according to the National Association of Realtors. The result? That second wave of speculation has resulted in scads of newly trapped homeowners.
The same speculators that were partly responsible for the housing bubble and its subsequent popping are the same ones that are trying to replicate the 2003 [through] 2006 period, says Anthony Sanders, a professor of finance at Arizona State University. As the housing market seeks a bottom, speculators and some well-funded hedge funds are jumping in the market but finding that the bottom hasnt been hit yet. Hence, they jump back out again.
This type of scenario is playing out nationwide. Homeowners selling their properties after less than a year now represent 17.3 percent of total sales in the U.S., reports Zillow. This is higher than at any point during the housing boom.
Las Vegas and Yuba City, Ariz., are leading the way for these sellers who mistimed the bottom. Respectively, 34.1 percent and 34 percent of these homeowners sold their homes in the third quarter of 2008, despite having owned the homes for less than a year.
People buying and then selling after only a year? You'd lose money on that just on the realtor commission. Insane...
"Back in the day -- 70s. The high end was occupied by high-end earners. There weren't a lot of them, so there were not as many high-end houses as there are now. Then, median lived in a 3/2 (or 1 1/2 or 1 3/4) of about 1100-1500 sq. ft., and they were happy to do so. Is there any reason why we don't/cannot go back to that. There is no shame in doing so. It seems to be a more realistic approach to people's housing needs.
reptillian | 12.16.08 - 5:59 pm | # "
That was me. In some ways, the only reason people have bigger houses now, and want them, is that they think/thought they could afford them. And they couldn't. Expectations can drop to meet reality.
Of course in California, it often made more sense for developers to build bigger, more expensive houses instead of small, modest ones, and part of that is tax policy. Many cities, constrained in how much they could raise future property taxes, saddled developers with massive development fees to get some of their money up front. In the face of such high fees, where they occured, it made no sense for developers to build modest houses. They built bigger houses to make more profit. And where the cost of land was high -- same dynamic.
Hence lots of big houses. Duplex conversion, anyone?
ZIRP makes me want to go shopping!
citizen energyecon:
I don't see how devaluation gets us out of this. It'll stimulate manufacturing to an extent, but we've already shipped so much overseas. And it seems to me the world is awash in excess capacity.
I dunno. Maybe a new consumer class in the BRIC countries will save us...
"First raise taxes on the rich , second nationalize all the banks including the Fed "
First, the current price levels of everything are based on fraud.
Second,that will not happen, esp since the Fed perpetrated the fraud.
Third, no amount of tax can support the going fraud.
I am, I hope, not a racist. Yet, I know for many racism, nationalism, and outright craziness has been papered over with MEW and jobs that paid for awhile.
nova | Homepage | 12.16.08 - 5:14 pm | #
It is not craziness, it is manipulation. Conditioned to respond like Pavel's dogs to certain phrases and images. History shows this to be a human condition and not just an American phenomena.
"You mean house prices will drop more than expected perhaps?"
LawyerLiz, Conjure thinks 50% off peak Case-Shiller is reasonable.
@CR
Didn't think it could happen, did you?
I look forward to the dollar carry trade.
JimPortlandOR , I think anyone who make more than me is rich and should share, don't you? I mean they have the money and I have the need.
As for the folks who worry and complain that Bill Gates or a Steve Jobs doesn't pay their fair share, how many people do you proved jobs for and retirement and, etc., etc. What we need is a hundred more Bill Gates and/or Steve Jobs.
"@CR, Didn't think it could happen, did you?"
He didn't consider the situation as mass fraud.
@lawyerliz:
"Nobody answer my qn on previous thread about 1 year T bill index."
I'm running out the door, and don't have the proper windows up to get you the symbols, but the CBOT has 3mo, 1yr, 2yr, etc indices on which they base chains of options. Those indices are of the "on the run:- most recently issued market prices.
And there are also symbols for Bloomberg that work on the .com, I believe.
I'll get them and post it later.
tranches of lint | 12.16.08 - 6:05 pm | #
Oh with you there tol, I don't think devaluation gets us out of this - it just gets you there with respect to the conditions you had described in your previous post - without wage inflation.
I just think the d!ckheads that got us here will cointinue down that path, as they think by jiggering the dashboard lights they can make the engine work...
Trade UBS stock for a suit
Bob Dodds- when I lived in San Fran 20 years ago, many apartment buildings were converted row houses (Noe Valley, Mission, Castro) that had at one time been living quarters for individual families, then split into multiple units.
Thing is, SF had and has an economy. Out in the exurb nation, I don't see how splitting a row of mcmansions into multi-plexes is going to work.
Why yes, I thought it would happen in Miami, and we are, in fact almost there.
Another 10-15%.
Except for the towers, which I repeat will be 80-90% off. Yep.
So you think this will be the whole country, not just the bubble areas, errr, I mean conjure thinks it will be. . .
"First raise taxes on the rich , second nationalize all the banks including the Fed "
~
First, the current price levels of everything are based on fraud.
Second,that will not happen, esp since the Fed perpetrated the fraud.
Third, no amount of tax can support the going fraud.
~
The revenue from higher taxes on the rich and a banking system run for the profit of the public will produce enough revenue to restructure the economy ...
Bob Dobbs,
Thanks for pointing out the incentivization of oversizing houses due to tax/planning policy. I agree 100% with your conclusion. I think in general, many problems with the housing stock in the US can be traced to poor tax and planning/zoning policies.
@lawyerliz:
Bloomberg.com:
Personal Finance
(Wife is on the phone; slight delay).
CONJURE ON CAUSALITY
OPEN MEMO FROM MR. CONJURE BAG TO PRESIDENT-ELECT HON. BARACK OBAMA
SUBJECT: Conjure Causality
Dear Barack:
The next time one of your senior economic advisers tells you a depression can be averted by simply flooding the banking system--hoping that some of it will "trickle down"--think again.
Think about Keynes' equation. You must get money into the hands of C=Consumer=Consumption=Joe Sixpack. You must do it NOW.
You have the mechanism to do this. It's called the state unemployment office and it can act as a hiring hall. Offer a job to anyone who comes in and asks for one. Pay them based on their previous work experience.
They can pound salt, scrub sidewalks, whatever you wish, but do it NOW. Forget about "shovel ready" construction projects. There's not enough time for that.
In fact, the economy is very close to grinding to a halt and a depression may already be baked in. If that happens, your $1 trillion stimulus package will not overcome the inertia required to re-start it.
Oh, and by the way, Laura Tyson is cute but full of it.
Have a nice day.
Conjure
Regarding the swing-back inflation scenario. It seems to me that's exactly what happened after the dot com bust. Business investment tanked, the Fed panicked and lowered rates to 1% (might as well have been zero). This caused the formation of another bubble in the real estate sector, which subsequently crashed. We didn't get all the way to hyperinflation, did we? Was the commodities run-up an attempt at the same kind of thing too? Dunno. Either way, there is no further bubble to form. Asset deflation in the most basic of property, real estate, seems to me only to lead to deflation.
I really don't think people grasp the magnitude of this decision, to embrace ZIRP officially. It is one that has been proven to be empirically wrong and perverse, creating distortions that throw entire generations into disenfranchisement. Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
~~~~~
Easy, the whole system is crashing but instead of auditing the banks and restoring trust I'm throwing money at everything. As Fed Chairman my first duty is to my shareholders, the Member Banks.
"There is no further bubble to form."
Obama and Al Gore will do everything in their power to create a green bubble. Because, after all, our world depends on it. Gag
This sounds like another 10% on top of the 4,300 number mentioned below...
Bristol-Myers to cut 10 percent of workforce
Tuesday December 16, 5:36 pm ET
Bristol-Myers to pare work force by 10 percent through 2010; 800 jobs to go by end of year
NEW YORK (AP) -- Drugmaker Bristol-Myers Squibb said Tuesday it will eliminate another 10 percent of its work force through 2010 as it works to pare costs before it loses patent protection on key drugs.
The New York-based company says it will eliminate 800 positions by the end of 2008, including filled and vacant jobs worldwide. Bristol-Myers Squibb estimates it will save $1 billion by 2012 as a result of the moves, which come on top of $1.5 billion in cost cuts announced in December 2007. Those cuts will eliminate about 4,300 jobs through 2010.
Expired
Were we the only people on the planet in the last 5 years to buy a house with 20% down that cost less than 2x our combined annual gross salary? Is living below your means/delayed gratification such a hard concept?
No, you're not.
"The revenue from higher taxes on the rich and a banking system run for the profit of the public will produce enough revenue to restructure the economy ..."
Banks and rich are bleeding last time I checked. WAKE THE $&*# UP!!
Conjure, speaking for America, to BO: 'We gotta eat, man.
Conjure -- mp? -- wrote ...
Yes, The feds should boost unemployment payments. That will get money into the hands of those most likely to spend. Anyone who has ever collected unemployment must know that the payments don't cover expenses. If the payments were doubled, even tripled, the economy would be better. Some may think that raising the payments would dis-incentivize job seekers. I don't think so, as long as someone on unemployment could make more than what he/she takes in on the dole. Hard times may necessitate innovative thinking.
What are Madoff's $50 Billion Ponzi in comparison to Rubin's $122 Billion?
Apologies if this has already been posted:
'PONZI SCHEME' AT CITI SUIT SLAMS RUBIN
A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.
Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.
Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.
The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value.
cont.
'PONZI SCHEME' AT CITI - NYPOST.com
Talking heads on CNBC are saying corporate bonds are the way to go for now.
I was thinking about using ETF's like LQD, HYG, CFT, but did not know if it is a good idea to trade in and out of them like stock ETFs.
Any thoughts on this as a short term strategy?
All this talk of "too big to fail," argues that the financial industry should be treated like a utility.
Stretch002 -
There are many places to live in CA that have very good schools where you can pick up a 3/2 in the sub-400K range.
Claremont (in LA) and Poway (in San Diego) come to mind. I adore Claremont in particular - cute little downtown, warm in winter yet 20 min to skiing!
However, neither has the cachet of Carmel Valley or La Jolla, so you probably wouldn't impress a lot of people with your zip code -- if that is your goal.
ille_vir writes:
...I really don't think people grasp the magnitude of this decision, to embrace ZIRP officially. It is one that has been proven to be empirically wrong and perverse, creating distortions that throw entire generations into disenfranchisement. Bernanke, I know you're a scholar of the GD, but have also studied monetary phenomena in post-bubble Japan. How could you do this?
ille_vir
He thinks he's smarter than the Japanese...
auditing the banks and restoring trust
^VIX doesn't accurately measure trust. Bernanke is missing this in his equations - so is Paulson.
I bought into SDS, SRS and SKF at the close. I will buy more in the morning. The question isn't is this a house of cards, the question is when will it collapse and to what degree
Thanks Tex, but I just got libor.
The index used is one year T bills adjusted to a constant maturity.
I will ness around with the site.
Banks and rich are bleeding last time I checked. WAKE THE $&*# UP!!
~~~~~
Banks are bleeding because of their greed ...
There's plenty of money to be made in the banking sector going forward without trying to resurrect toxic assets. Screw Them ...!
"The question isn't is this a house of cards, the question is when will it collapse and to what degree"
You'll find out, won't you?
Will Igor be a bagholder?
Stay tuned for the next episode of CR and find out.
That's "mess".
I feel like we are all walking zombies.
Like the "phony war". Nothing terrible happening to anyone I know--yet, and yet I feel that we are just waiting for the tsunami.
Long CDs (under FDIC limit) and corporate bonds in SAFE companies are the way to go in a deflation scenario, IMHO. Which companies are safe? Who knows. Of course, I'm down quite a bit on my SRS position and stuff, so maybe don't listen to me. Have put in a sizable portion of my short gains from last year into corporate bonds, however, and think those will be good investments.
He thinks he's smarter than the Japanese...
\t rcc | \t \t \t \t12.16.08 - 6:28 pm | #
And he's doing the exact same thing. Oh, the idiocy.
I got a big bag and 10% of it in that clusterf#ck market. We will see, won't we.
He thinks he's smarter than the Japanese...
rcc | 12.16.08 - 6:28 pm | #
And he's doing the exact same thing. Oh, the idiocy.
ille_vir
No he's not doing the same thing. He's doing more of it and much faster. Mass triage.
Jobs, Jobs, Jobs ....
That's what this economy runs on and they are going away faster and faster ...
Nothing will be spared at this rate ... Bernanke just added to the clusterf#$k today.
Hear it from Ben himself about how he thinks the Japanese messed it up:
"In short, Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States. "
Richard Oliphant, a longtime Coachella Valley developer who postponed construction on the billion-dollar Avanterra mixed-use project said he remains optimistic. The Coachella Valley population is only at 425,000, he said. At build-out, it will hold over 1.25 million, so were only one-third built-out.
Oliphant voiced confidence the nations top economists will get it right. Otherwise were making a horrible mistake throwing $1 trillion at the problem, he said. If it doesnt make it right, I dont know how we can.
"Thing is, SF had and has an economy. Out in the exurb nation, I don't see how splitting a row of mcmansions into multi-plexes is going to work.
Exit | Homepage | 12.16.08 - 6:12 pm | # "
In the case of exurbs, probably true. However, at least some McMansions have been shoe-horned into existing communities, or onto the edges of them. Those would be worth converting.
There's are a couple of neighborhoods of 3000+ sq foot "executive" homes at the edge of our town adjacent to the university. Naturals for student coop housing, or duplexes for low-paid professors.
Any thoughts on this as a short term strategy?
~~~~
Yes, it's a very short term strategy ...
I think I will hoard some more cans.
NiNM:
Claremont is an area we LOVE! If we could find what you just decscribe I would have already bought it. Check Redfin for listings under 400k and you find a bunch of 1200 Sqft houses built in 1963 right on the border of Montclair. There is nicer home for sale right but it is right on the 210 freeway.
Housing prices have fallen but do not delude yourself into thinking I am some snob looking for an impressive zip code. I am not rich and that is WHY I fight against people who say I should be paying more in taxes.
All this talk of "too big to fail," argues that the financial industry should be treated like a utility.
reptillian
~~~~
Yep, and run for the benefit of the taxpayers...
Taxpayers take the hits, taxpayers should reap the rewards.
Gary writes: Those with the most wealth benefit the most from the stability of our society. That's a basic fact.
No, Gary, that is a fiction. Go to Zimbabwe to see who suffers most under an unstable society, and infer who benefits most in our stable one.
I say let's employ the unemployed to demolish all suburbia tracts built post 2003 and recycle the materials towards revitalizing the "ghost downtowns" common all across America. Build walkable communities with nice apartment buildings and local shops.
Now that's an infrastructure program I would buy into. And with eminent domain, it would be legal to do something like this.
I think mmckinl's idea of nationalizing the banking system to be a terrific idea. A functioning financial system is every bit as important to our society as electricity, postal delivery, and national defense.
I suppose the Federal banking cartel would be against it though...
The assisted living industry downturn .
No he's not doing the same thing. He's doing more of it and much faster. Mass triage.
\t Igor | \t \t \t \t12.16.08 - 6:35 pm | #
Hm. Do you think that will that make it more effective?
rcc, he does have a point in that the PERCEIVED independence of the Japanese central bank is lesser than that of the FED. It's arguable about the actual independence, however, especially with Bernanke. Also, it seems to me that political forces in a recession would push towards earlier ZIRP, and would do little to encourage monetary restraint. Thus, political forces act as enablers for drastic monetary policy. So, what then is his point?
Gary writes: Those with the most wealth benefit the most from the stability of our society. That's a basic fact.
No, Gary, that is a fiction. Go to Zimbabwe to see who suffers most under an unstable society, and infer who benefits most in our stable one.
DialM |
~~~
Gary is exactly right ... I think you should check your logic ... the wealthy survive therefore it is the wealthy that benefit most. Therefore it is incumbent on the wealthy to pay more in taxes.
Bob Dodds - a consequence of doubling up (or more if student housing) begs the question - what about all the rest of the inventory that sits, unoccupied?
Either population needs to increase, or, the inventory will rot.
For population to increase requires economy AND in California, water. I grew up across the bay from you in PG and remember the water conservation in the late 70's. A substantial increase in population is insupportable, really, in coastal California due in large part to it being a functional desert existing on imported (stolen) water.
That's another baked-in problem, btw - fresh water availability.
Conjure is waiting too...
YouTube - Bruce Springsteen - The Ghost Of Tom Joad w/Tom Morello 2008
I think mmckinl's idea of nationalizing the banking system to be a terrific idea. A functioning financial system is every bit as important to our society as electricity, postal delivery, and national defense.
I suppose the Federal banking cartel would be against it though...
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Ya Think !
"He's doing more of it and much faster. Mass triage."
Conjure asks, "And what, pray tell, has it accomplished, aside from ensuring that financial executives' bonuses got paid this year?"
ille_vir writes:
...
So, what then is his point?
ille_vir
This guy has made a carrer out of studying the Great Depression, and he's convinced that he can prevent one. He'll use all kinds of completely unproven and dangerous tactics to try to prevent a repeat.
Didn't think it could happen, did you?
mp | 12.16.08 - 6:07 pm | #
mp, when I first showed up here (under a different name at first) I wondered aloud about this being another depression and massive asset deflation.
I think this extension of Shiller's graph paints the picture, and I believe Conjure's 50% off sale estimate. CR is honest and he is great, but he is more optimistic than I am.
Projecting Shiller's graph
Conjure asks, "And what, pray tell, has it accomplished, aside from ensuring that financial executives' bonuses got paid this year?"
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Keeps the financial press busy ...
I'm glad someone else is picking up on my house-rotting meme.
Thanks Exit.
Yeah, in South Fla, there on developments that are empty, but what I worry about is all the interspersed houses that will pull down the neighbors.
mmckinl writes: Gary is exactly right ... I think you should check your logic ... the wealthy survive therefore it is the wealthy that benefit most. Therefore it is incumbent on the wealthy to pay more in taxes.
Um, no. The wealthy survive under both the stable and unstable system, the poor do not. The poor benefit the most from a stable system.
well, mp and cb, I think he helped speed the dissolution of faith in the banking system, and also enshrined his visage on the inverse mt. rushmore along with hank, greenie, and shrub.
Um, no. The wealthy survive under both the stable and unstable system, the poor do not. The poor benefit the most from a stable system.
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Ummm very NO ... the rich benefit from not being poor ... imbecile ...
Wow, Gary, thanks for the chart.
Maybe we can have an income tax holiday. No Tax 09!
We'll just have our kids pay it back later, with interest.
This guy has made a carrer out of studying the Great Depression, and he's convinced that he can prevent one. He'll use all kinds of completely unproven and dangerous tactics to try to prevent a repeat.
\t rcc | \t \t \t \t12.16.08 - 6:48 pm | #
Yeah, I know what you're saying, and I guess he kind of has to go this route due in part to his background. However, it just gets to me because this particular policy has been proven to be utterly wrong. The #2 economy in the world is still in a rut due in part to the conditions created by ZIRP. The other dangerous tactic that he's going to try, quantitative easing, has also been proven to not work. We've already seen a manifestation of this perversity in negative treasury bill returns. Why in the world would loaning money to someone cause you to lose money? It makes no sense, because it shouldn't happen except in extraordinary circumstances.
The poor benefit the most from a stable system.
DialM | 12.16.08 - 6:50 pm | #
When a full on revolution ignites, not so. Tell that to Marie Antoinette and the Romanovs.
Volcker, when asked about the Fed's program in England late last month said,
"It isn't working."
Is anyone here silly enough, or stupid enough, to ask what Volcker means by that?
It means that Bernanke is very close to being out of ammo. He'll soon be throwing the kitchen sink and the toilet from the Fed's executive bathroom at this thing.
I don't think it will be paid, by our kids or anyone else.
I don't think it is possible to pay.
Our kids will pay via an impoverished world not because they are handing people tax money to pay our debts.
Hope I'm wrong.
Outta here.
I think they are doing this on purpose so the banks can hold the money and earn interest on the reserves. This way the banks can slowly become solvent again. Once solvent they can begin loaning money and the Fed can stop paying interest.
This guy has made a carrer out of studying the Great Depression,
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Yet Bernanke has never heard of FDRs Bank Holiday !
Still trying to figure out if most posters here see:
1) Deflationary Depression
2) Deflationary Recession
3) Deflation followed by massive inflation
4) Disinflation followed by inflation
5) Mad max world
USD getting spanked. The ECB, China, everyone else can't be happy about that.
At the rates the banks will now pay for CDs, etc, who would keep their money in banks? Seems like a flow of money will be leaving the banks soon, or will have to eventually. I don't see the banks problems being solved by lower interest rates.
1) Deflationary Depression
mp, the Fed has been out of ammo since they went to effective funds rate 0. They've already thrown in the kitchen sink, and it's done nothing. They've made themselves irrelevant, much like the credit rating agencies.
I think 2>1>5 are the likely outcomes, Stretch.
Um, no. The wealthy survive under both the stable and unstable system, the poor do not. The poor benefit the most from a stable system.
DialM | 12.16.08 - 6:50 pm | #
Umm, ever heard about revolutions? Didn't think so.
who would keep their money in banks?
Same type of people who would buy 0% T-Bills.
"Exit writes:
Bob Dodds - a consequence of doubling up (or more if student housing) begs the question - what about all the rest of the inventory that sits, unoccupied?
Either population needs to increase, or, the inventory will rot."
I must admit I'm thinking largely about the California coast, where you and I both live and there isn't really a glut of inventory -- not when the price becomes right.
There is a lot of housing-sharing in this environment where melded households could and would fission into two or more separate households with the right rent or purchase price -- thus soaking up much of the excess.
As far as water constraints are concerned, I will only say that Santa Cruz County is completely "off the grid" water-wise from the rest of the state and always has been. Development is possible under these circumstances if cities are willing to do the necessary: strongly incentivise conservation, develop higher-density housing with smaller yards or xeriscaping, develop water sources creatively, recycle water, and work cooperatively between districts.
We're a strong 10 on conservation, a 7 on housing innovations, a 5 on water sources or recycling and creativity, and about a 1 on cooperation.
But we actually know what to do if push comes to shove. It's just the politics in the way.
who would keep their money in banks?
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those who think liquidity is better than bets ...
mmckinl writes: Ummm very NO ... the rich benefit from not being poor ... imbecile ...
While I find it fitting that you now sign your post, "imbecile," it doesn't help your argument any. The poor suffer and die due to an unstable system, the rich do not. If the system is then stabilized, the poor stop suffering and dying untimely deaths, whereas the rich remain rich. I think you have a tough row to hoe if you expect to convince anyone that if you took a rich Zimbabwean and a rich Zimbabwean and moved them to the U.S., that the the rich Zimbabwean would benefit more from our stability.
mmckinl writes:
who would keep their money in banks?
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those who think liquidity is better than bets ...
mmckinl | 12.16.08 - 7:05 pm | #
+1
I keep my savings in FDIC insured CD's because I am not convinced that PM's are not in a bubble or that oil is "about to take off". Unless we think the government will make our currency is absolutely worthless I cannot envision changing this strategy in the short term.
mp, the Fed has been out of ammo since they went to effective funds rate 0. They've already thrown in the kitchen sink, and it's done nothing. They've made themselves irrelevant, much like the credit rating agencies.
ille_vir | 12.16.08 - 7:02 pm | #
If you read Bernanke's 2002 speech then you know that he has quite a few options left. He WILL use them if necessary and in a few months we will know.
So far I am shocked by the reponses. Any more votes for a likely outcome?
1) Deflationary Depression
2) Deflationary Recession
3) Deflation followed by massive inflation
4) Disinflation followed by inflation
5) Mad max world
just to add. Obviously the Fed in conjunction with the treasury will from now on act in concert.