patrick.net

Nutty,

Nice job there with Der Spiegel. So the IMF is going to investigate the US financial system, and Bush has been blocking them from doing it for 7 years. Surprise, surprise.

Speaking of investigations: I hope the UN member countries will send plenty of election observers in November, We could need lots of those as well.

On the topic of speculation causing high energy prices:

Our local California PBS station was showing a documentary about the rise and fall of Enron corporation earlier this evening. It was pretty interesting to get a refresher on the big picture of the whole scam, but of particular interest was the finer details about how Enron manufactured the energy shortage that resulted in the "rolling blackouts" in California in 2001.

I wonder who is Enron'ing the oil prices right now? I admit to being a bit torn about this, since America as a whole seems unable to grasp the value of energy conservation until it becomes an economic imperative. On the other hand I'd be happier if the difference between $140 oil and the REAL market price of oil was a tax being used to invest in enregy efficiency and renewable energy development, rather than profit for some nasty speculator.

Heck, there was also some fun video footage of Enron CEo Jeff Skilling and Chairman Ken "kenny boy" Lay espousing the value of a free and de-regulated energy market, followed by some fun replays of Enron trading desk phone conversation showing how the traders were busy rigging and monopolizing the "free" market.

[Leave room on the bottom for some free market fantasy from Peter P]

[that should do it]

The BEST thing that can happen to the US in the next few years will be a sharp rise of oil price to beyond $200, and $10 gas.

That will immediately unleash a whole slew of possible energy alternatives. There will be pain for sure, but the sharp pain can be more easily overcome by the whole society throwing all resources behind this one initiative - which could be the new national highway project for Depression Episode II.

The worst scenario is for oil to gyrate between $100 and $150, just causing enough pain but not enough to light a fire under the fat American ass.

BAP,

Brilliant!!! Fight fuego with fuego. Keep us posted. :)

Oooops, I thought you said " out of country" not "out of county" I'm such a doof.

Remember, the property tax default is not real. The homes are liened and the tax will eventually be paid - or a settlement will be reached. Merced should have pretty good borrowing authoroty to get some fraction of that 22mil they are missing.
What they are other counties really need to make certain of is the real value of their tax base. Them services need to be aligned with that dollar amount.

Duke,

True. However, the problems that they are having there are:

1) What will the assessed value be when the smoke clears
2) Will owners reassess to the new lower price thus reducing cash flow further
3) The central valley counties are/were cash strapped when the money was fat, really fat. Services will be cut, jobs lost, crime will spike. Whole swaths of neighborhoods will become socio-economic ghettos.
4) The local economic engine won't be able to lift the population out of those doldrums.
5) Commuters from the south bay have lost their economic edge due to fuel prices. The whole surge was made possible from out of county money.
One could say that the whole region suffering from an offshoot of Dutch Disease.

OO,

Can't say I disagree with you, but the high prices are causing a lot of pain at the bottom of the economic ladder.

This is what happens when the price and consumption of critical natural resources is left to the "free market". First you get 50 years of waste and overconsumption, Then you get 50 years of pain and suffering.

Richmond,
While I agree with you, I think I do so more. . .technically.
For example, when you state whole swaths of neighborhoods willbeocme socio-economic ghettos - I disagree.
But I do thinks jobs will be lost, cash flow will fall, servies will be cut, and crime will go up (though I think spike is too strong a word)

The increase in the pice of gas is an amazingly smal fraction of the housing price increases you see heading in from the South Bay up to the core job markets at or near Moutain View. I think home price averages are more than $300k apart and that buys a lot lot lot of gas.

Intersting notion on Dutch disease. Merced's economy was based primarily on tax roles associated with the land?

A quickfact looks shows $2B in ag as opposed to $200m in prop tax.

So I am not sure that Dutch description holds. . .

(But certainly there are problems)

Trichet is a fool.
I think he will fail in reigning in inflation. And as he cools the European economy he may well preserve the value of the Euro, but at the expense of industry.
With the cheap borrowing costs, US busness has a real chance to steal some market share from Europe.
I think the US is poised to have better policey decisions give a favorable outcome here.

Not to say that we should not raise rates, they ARE too low. But the ECB

Trichet is a fool.
I think he will fail in reigning in inflation. And as he cools the European economy he may well preserve the value of the Euro, but at the expense of industry.
With the cheap borrowing costs, US busness has a real chance to steal some market share from Europe.
I think the US is poised to have better policey decisions give a favorable outcome here.

Not to say that we should not raise rates, they ARE too low. But the ECB

The increase in the pice of gas is an amazingly smal fraction of the housing price increases you see heading in from the South Bay up to the core job markets at or near Moutain View. I think home price averages are more than $300k apart and that buys a lot lot lot of gas.

I would think a lot of people who buys in the boonies are stretched also (either small DP or single income), they must feel the pinch from high gas prices. Check out this house now selling for 950K in San Ramon. It sold for 1.36M in 2005.

http://www.movoto.com/real-estate/homes-for-sale/CA/San-Ramon/100-Rodriguez-Ct-12_40346572.htm

The Dutch idea is a bit loose, I agree. I use the loose comparison between Natural gas and cheap, developable, ag land as a nexus. The economy that sprouted up against the backdrop of low cost construction didn't kill the local economy so much as it overshadowed it. Now that it's gone, you are left with a base economy that cannot support the prices. And we all know that that was made possible by the funny money. People from the South Bay and elsewhere bought multiple dwellings with the hopes constant appreciation, income from U.C. student rents etc..

In my previous post, I meant to say money from outside of the County. I guess you could call it "hot" money if that is the right term.

The ag economy is the ag economy. It's full, if you will. Those workers already have their jobs and housing and the two, for the most part, don't mix, income separation is too great. They really are two different worlds and those that tried to do the 5 and 3 in a culdesac w/pool will probably lose it if they havn't already.

Duke,

One other minor potential problem with the tax liens issue -- if the prices drop to the degree that some expect (e.g. 60-75% in the hardest hit areas) AND the county continues to accrue taxes based on an assessed value from, say, 2006, the back taxes plus accrued interest could be substantial.

Example -- F/C in 2006 -- assessed value 450K. Taxes plus Mello-Roos of 2%. Annual cost -- 9K. Fast forward to 2010 -- FMV price 150K (66% drop), but accrued taxes of 9k x 4yrs + interest -- at least $36k. Call it 42K to keep the math easy. Back taxes equal to 28 percent of the FMV of the house.

Does this make sense?

Ed,

I agree. Here is what I woud predict:
1. FMV home is 150k. Taxes and peanlties owed 42k. Home sells for 108k but is assessed at 150k.
2. Home reaches FMV of 150k. Perspective buyer says, "Woa" to back taxes. Buyer (or owner) runs over to assessment board ans says, "Ill give ya 4 years at 150k - or $14k" If assessor says 'nah' there is an appeal board somewhere that will iiekly get exercised. At issue here is eventually tax lien can exceed FMV of home.

Sad truth is this: If the home is owned by a person who has decent equity the county will probably not give a break. If bank ownes the property (and probaby others) they probably will get a deal. Owning in bulk and/or having deep pckets for representation is so unfair and so American.
Sigh.

justme Says:
the high [oil] prices are causing a lot of pain at the bottom of the economic ladder.

High prices in an essential commodity _always_ cause pain at the b.o.t.e.l. I don't see how this is in the least bit remarkable.

This is what happens when the price and consumption of critical natural resources is left to the “free market”.

No - this is what happens when the government subsidizes the price and consumption while the going is good, thereby encouraging an infrastructure dependency on a subsidized resource. And then, the government shoots itself in the nutsack by debasing its own currency, thereby making the resource more expensive.

SP,

I didn't say it was remarkable. What is it YOU are trying to say? That there is nothing we can or should do about it, because it "isn't remarkable"? I'd say we should cut speculation and raise oil taxes, and use the oil taxes to incentivise the alternative energy field.

I also don't think 50 years of oil waste was due to oil subsidies. One could argue that it was due to lack of sensible taxation. Oils subsidies, while evil, could hardly amount to more than a few cents a gallon.

I'm with you on the topic of debasing the currency, though.

I have a neighbor whose family gasoline bill is over $1800.00 a month and rising. Can't off the gas guzzlers. Can't buy smaller cars because of the notes on the old ones.

He doesn't tease me about my "girly" car anymore.

If it wasn't for the run up fuel and grain etc., Would the GDP be negative and therefor an official recession?

If it wasn’t for the run up fuel and grain etc., Would the GDP be negative and therefor an official recession?

I wonder that all the time.
If People have to squeeze in every penny earned just to get by.
FB's foreclose on house and spend a good chunck of money saved from mortgage on other stuff.
Inflation as high as it is.
Tax Rebates mostly plowed back into system.

GDP and Consumer will be strong.

should we say 2-3% GDP growth as just inflation?

Richmond,

>>I have a neighbor whose family gasoline bill is over $1800.00 a month and rising.

It is truly obscene how much oil these people have been wasting. It must be on the order of 400-450 gal/month. If it wasn't for the cost, they would merrily continue until oblivion.

What really stings is that it is more than his mortgage.

400-450 gal/month---

When you put a volume to it, it's even worse. Sounds about right. Big trucks, long commutes, it adds up fast. Ouch.

justme Says:
I didn’t say it was remarkable. What is it YOU are trying to say?

Just saying that there is _always_:
1. a "bottom of the economic ladder"
2. pain at the b.o.t.e.l.

So I don't see how bringing that up makes any difference. :-)

You may have great suggestions to fix specific issues (like oil taxes being used to fund alt.energy development), but 1 and 2 ain't going away.

Government today is controlled by an oligarchy of cronies, who are great at pissing away money with little public benefit to show for it - so I don't happen to have a lot of faith in the idea of depending on the same bunch of criminals to solve anything, but that is a different topic altogether. Getting this kind of government to regulate "the market" is just asking for more pain for the b.o.t.e.l.

Just to be clear, I am not questioning the value - positive or negative - of government regulation, nor am I taking a dogmatic position for or against it.

Instead, I am questioning the integrity and quality-of-leadership in the government before entrusting more power to them.

BAP,

Garage baby, garage..............and a locking fuel cap. If that doesn't do it, I give up. I should probably get a carbide fuel tank too. Drill that! Heh,Heh.

And chain mail fuel lines.

If you would like to believe it

Fed: Size of Bear Stearns Loan Unchanged at $29 Billion

I have a neighbor whose family gasoline bill is over $1800.00 a month and rising.

Something's odd about this statistic. At $4/gal, that's 450 gallons a month. Even with 12 mpg that's driving 5,400 miles a month! That's an average of 180 miles a day. Who in the HECK drives that much?

SP/TOB

>>Instead, I am questioning the integrity and quality-of-leadership in the government before entrusting more power to them.

>>coming up next… declining quality of education, creating a dearth of suitable leaders.

The "quality" of our leadership isn't due to lack of education or ability. It is a structural problem. The way our government is regulated is flawed, starting with a severely substandard election and representation system. This is the fundamental problem of US politics. It needs proper regulation, with proper incentives for principled and consistent behavior.

For government to work correctly there must be fair and proportional representation. As long as we have essentially just two political parties that have a chance of influence, this will NEVER change. The United States political system is suffering from bipolar disorder, and is always oscillating and never settling down where the people want it to be.

DennisN,

Yes, 450 gals is an awful lot, maybe 20-30x what I use. But they seem to have multiple cars as well?

A thousand miles a week is nothing for alot of commuters nowadays. Mom, Dad, couple of spoiled kids with mom and dad footing the bill, boat, jetskis. Total gas bill. Got all the toys. Might as well run 'em.

You figure anyone coming over the hill to work in the East or South Bay does a grand a week by the time you add in normal running around on top of the commute. That's how crazy things have gotten. It just isn't worth it.

My F-150 gets ave. 19 mpg and my Miata about 30 mpg. Say my mixed use gets 27 mpg (I try to drive the Miata as much as possible). With 450 gallons a month, that's 12,150 MILES per MONTH. There's something really off-wack here. That's about what I drive in a year.

A thousand miles a week, times three trucks, times 4.2 weeks, that's 12,600. Sound pretty darn close to me.

Contractors go where the work is.

OT

Something that will be very impactful for the next decade to come is happening in Australia. Australia just implemented a sweeping tax cut, for businesses, individuals and overseas investors. Oz used to have one of the highest tax in the world, but the commodity boom and enormous immigration flow that accounted for 10% of the population base has enabled the country to enjoy big budget surplus at state and federal level, as well as trade surplus.

A $250K family in the BA originally will most definitely be worse off in tax if they migrate to Australia, no longer the case. In fact, if I were to run through my spreadsheet carefully, you may even come out ahead, due to the multiple child benefits you can receive from the state and a better standard of living at the same cost. For overseas investors, the 10% tax on government bonds is waived, making the high yield even more enticing. Their ATO (IRS) is also very progressive to make the tax codes easier and simpler. I can easily cope with my non-resident alien cap gains in Oz just by reading the ATO tax codes online, it is virtually impossible to navigate the IRS website, you most definitely need an accountant well versed in international taxation in a non-resident alien situation for the US. Our tax rate has only ONE direction to go.

If I were in my 20s, not yet a homeowner, skilled and ready to start a family (more than 2 kids), I would definitely migrate to Australia. Everything that is happening in that country is pointing to a great future in the next decade. My money will be going that way for sure.

Australia's home loan rate is around 10% now, which is much more normal than the US. The fact that its housing market hasn't crashed (only slowed down) means that it is less likely to crash as ours. Can you imagine what will happen to the US housing market if our mortgage rate is above, 8%? There will be riots all over the place.

So you figure a couple of trucks and crappy milage you can eat it up pretty quick. A hundred miles each way for a job is not at all uncommon.

Mind you, their immigrants are mainly skilled labor from Europe (UK, Ireland, Eastern Europe), New Zealand, China and India who have jump through the education and job experience hurdles. So the more immigrants they have, the better off the entire society will be. They don't have any illegal immigration problem, because frankly if anyone can survive the extremely venomous stinger, shark and high sea to arrive at the Australian coastline, his courage and physique obviously should be appreciated.

On average, their immigrants are much richer and skilled than ours, because they only allow people with enough job experience to migrate. So most immigrants arrive with years of savings.

The US immigration has a lot to learn from the Australian immigration policy.

TOB,

I do plan to visit Brazil sometime in 2009, this is one country that intrigues me. Too bad that I am already married, I heard that Brazilian girls are very attractive :-)