patrick.net

HousingBoom says

Alan Greenspan is nothing but a puppet. I don't believe a word that comes out of his mouth.

I agree he is a puppet. but I don't think he's a complete doofus. Come on, after all -- he wrote the paper "GOLD AND ECONOMIC FREEDOM". He understood the role of gold in today's monetary system and why out-of-control spending and monster derivatives market came to exist today.

austrian_man says

Put a time-frame. For instance, I'll tell you this - rates are not going to double digits until 2013 given that Fed is keeping their funds rate low and also euro is in a shittier place than dollar right now.

IMO, we should see double-digit rates within 3 years from today. The Fed's statement about keeping rates low until mid-2013 means absolutely nothing. All they do is make and break promises.

The minute the run on the dollar begins (who knows when), rates will start to skyrocket.

austrian_man says

I agree he is a puppet. but I don't think he's a complete doofus. Come on, after all -- he wrote the paper "GOLD AND ECONOMIC FREEDOM". He understood the role of gold in today's monetary system and why out-of-control spending and monster derivatives market came to exist today.

Don't get me wrong, I am sure Alan Greenspan is extremely intelligent. What use is it when he's told what to say. Ron Paul just asked Bernanke why the Fed holds gold and his answer was "tradition". lol Bernanke is probably very intelligent but that the was one of the dumbest answers I have ever heard. They are all puppets so anything they say is worthless in my opinion.

HousingBoom says

The minute the run on the dollar begins (who knows when), rates will start to skyrocket.

The minute rates skyrocket $50T in debt starts to get defaulted on.

Nomograph says

If you have to try really hard to convince people that we are in a Great Depression

Debt to the penny:

08/11/2008 5,403,503,090,045.93
08/11/2011 9,921,146,601,533.97

$4.5T of deficit spending in 3 years. ~$40,000 per household. Technically (just the basics) $40,000 should be enough to tide a household over for 3 years.

And that was just the money we borrowed.

If Hoover had dumped 10% of GDP into the economy 1929-1931, there wouldn't have been a GD I, either.

Troy says

HousingBoom says

The minute the run on the dollar begins (who knows when), rates will start to skyrocket.

The minute rates skyrocket $50T in debt starts to get defaulted on.

“Nessuna soluzione . . . nessun problema!„

Yes, that's when the real crisis starts. We'll have no choice but to raise rates and the interest on our debt will break the bank. Where will we get that money? The printing press of course. This will most likely snowball into a full blown currency crisis with skyrocketing interest rates. It's a lose lose situation. The housing market is doomed!!!

It will be interesting to see what happens. A currency crisis with the predominant currency in the world. That blazes new ground. It is ineresting to see other coutries indicate that the US is no longer the predominant currency. It might be true soon, but not right now. You can spend USD in many places and if it implodes - nobody can predict what will happen. My bet would be that China will not sit idly by and let our currency de-value. I do not see how they can. The part I have never understood is that even though we are bankrupt, the US still has massive real assets. I do not understand why China does not start buying them all as a hedge. Maybe they already are.

This week will reveal a lot of things as many reports are due. Lets hope for the best but be prepared for the worst.

HousingBoom says

The housing market is doomed!!!

You forgot add "for a long time"!!!

The bing cosby song was re-mixed.

Now it is called "Brother can you spare a trillion".

Nomograph says

Is the U.S. ANYWHERE close to where we were during the Great Depression? Nope.

it's because you're still waiting for a soup line! LOL

Nomograph says

Is the U.S. ANYWHERE close to where we were during the Great Depression? Nope.

1929 -- 2008
1930 -- 2009
1931 -- 2010
1932 -- 2011

This shit's just getting started.

$600B/yr flowing out of the country:

http://articles.latimes.com/2011/aug/12/business/la-fi-trade-imbalance-20110812

Debt To The Penny shows:

08/11/2011 9,921,146,601,533.97
02/11/2011 9,455,006,722,927.41

$500B of deficit spending just in the past 6 months.

California failing:

http://www.reuters.com/article/2011/08/10/us-economy-california-budget-gap-idUSTRE7796LO20110810

We've screwed ourselves 2002-2007 and what's left now is to figure out where we crash.

The 1920s were probity compared to the 2000s -- Gov't spending was held to 4% of GDP -- $80B in 2007 dollars. 2010 spending was $2.7T, and that's not even counting social security.

I don't think we're just going to pick ourselves up and get back to work this time. Perhaps my living in Japan colors my thinking here but I do know that there's no goddamn reason for things to start getting better and lot of reasons for things to resume getting worse.

Mind-bogglingly massive fiscal policy intervention -- trillions! -- has kept the economy from pancaking completely. But what exists now is a bunch of IOUs and promises and none of this is remotely sustainable through the end of the decade, when the baby boom will be aged 59 ~ 74 and cashing in these promises en masse.

The 2010s is not the 1930s but I think it's going to get a lot worse. Higher energy costs, reduced gov't intervention, who knows what else, but higher & higher unemployment as the post-Reagan system we built continues its collapse.

Total government spending in 2010 was $50,000 per household. Unbelievable. That's not even counting SSA. Federal spending in the 1920s was ~$200/household, nominal, $2500 in today's money.

It's all fixable, but the fixes are politically impossible at this time since the core problem is trying to run a Eurosocialist spending program on a Minarchist tax base.

Something's going to have to give here.

Other things we need to get into are: economic war with China, dramatically higher tax burdens, complete reform of health insurance (PPACA is a joke), and a return to Truman's aborted Fair Deal.

Things are going to have to get a lot worse before the get any better.

Troy says

higher & higher unemployment

Reversing this is the key to recovery.

We are not in a great depression and never will worry about food on the table. This is non-sense. We are no in a survival mode here in US. It's about lowering standard of living due to a economic downturn. That's it. If you invest like we are in a Great Depression, then I guarantee you will miss out the great buying opportunities like it happened when S&P dropped to 750 last time.

Bas news sell good and draw attention. Thats about it.

bubblesitter says

eversing this is the key to recovery.

We're spending $50,000 per household on government. This simply has to be cut. Cutting this burden will mean fewer government jobs.

The yuan is still 3-5X too weak. Adjusting the FX to strengthen their yen will give them more buying power, a mixed blessing to us as we have to work more to provide the same output in yuan-denominated terms (I'm thinking of ag and raw materials, not mfg here). A stronger yuan will therefore send more wealth to China, but in balance things from China will cost more here.

This is more sustainable but not an unalloyed good thing for us. Much more fun to just get cheap stuff and send our money back instead.

We're starting to create a Jetson's economy, where productivity increases simply eliminate jobs. This is great if you can find work or have money, not so great if you can't or don't.

Household debt rose $6T in the previous decade, from $8T to $14T -- the Bush Boom was floated on a sea of consumer debt.

Now the Obama recovery is being floated on a bigger sea of government debt.

I don't buy the Keynesian thing that we can just spend our way out of this. The problems go much deeper than lack of demand, if we don't fix the actual problems we'll just dig the hole deeper.

The problems we face have a commonality -- rent-seeking. In real estate (a trillion or two), medicine (another trillion), financial services (another trillion).

These are the flows that are killing us economically.

Troy says

Cutting this burden will mean fewer government jobs.

I agree. They are very inefficient bunch wasting tax $$ and getting raises without any output and then get a hefty pension equivalent to the max salary. They are 50% overstaffed IMO and there is no powerful taxpayer watchdog to take on them.

Troy says

Household debt rose $6T in the previous decade, from $8T to $14T -- the Bush Boom was floated on a sea of consumer debt.

Now the Obama recovery is being floated on a bigger sea of government debt.

That is why I think we have a lost decade,decade and a half ahead of us. Very slow suffering that will be becomes intense as we move forward. Thinks are getting worst? Wait for 10 more years and at that time one would think 2011 was much better. We are SCRWED.

Clara says

We are not in a great depression and never will worry about food on the table.

you're joking right? do you sit at home and watch Snookie all day? there are middle class families living in tents and are on food stamps right now.

HousingBoom says

middle class families living in tents and are on food stamps right now

+1. Moving in with retired parents,other family + living on food stamps = modern day depression. Times change so the appearance of depression also changes.

Troy says

The problems we face have a commonality -- rent-seeking. In real estate (a trillion or two), medicine (another trillion), financial services (another trillion).

This is why I come on this website and read some of these discussions. I just learned something new today. Thanks for sharing Troy.

Wiki: From a theoretical standpoint, the moral hazard of rent-seeking can be considerable. If "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm may choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth. Claims that a firm is rent-seeking therefore often accompany allegations of government corruption, or the undue influence of special interests.[8]

Troy says

Debt to the penny:

08/11/2008 5,403,503,090,045.93

08/11/2011 9,921,146,601,533.97

$4.5T of deficit spending in 3 years. ~$40,000 per household. Technically (just the basics) $40,000 should be enough to tide a household over for 3 years.

And that was just the money we borrowed.

Exactly, Troy.
All this money is additional national debt. It was created to replace disappearing corporate and private debt. However, debt (=money) destruction goes on. Corporations do not borrow, consumers do not borrow. At the same time, existing debt requires repayment or at least interest payment. This is pure money destruction.

So, US national debt has to increase much much more. The amount of already created debt increases money destruction. The only way out of this mess is to raise interest rates the way Paul Volker did, but we don't have him around. It would cause a furious but short recession, no politicion today will agree to loose his sit to fix US economy. We do not have Jimmy Carter either.

So, there is no way out, but to have a very very long destruction of US economy (and partially World economy).

There is no way out of Greater Depression.

The Volcker rates were in response to wage-price inflation, partially if not probably caused by the expansion of credit as the baby boom entered their 20s and 30s.

Just raising rates won't fix what's wrong with the current economy.

What's wrong is that we can't pay our way in the world ($600B/yr trade deficit) and the top 5% is clearing ~33% of the income.

In graphic terms:

☺takes $
☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ ☹ has to share $$

Raising real interest rates will just make the rich richer.

Remember that debt is the flip-side of savings. For every debtor there is a creditor.

Truthplease says

moral hazard of rent-seeking can be considerable

The rent-seeking problem is EVERYWHERE in our culture right now. One blatant one that everyone talks about, but nobody DOES ANYTHING about is patent law. Patent portfolios are traded like baseball cards. The billions spent on that activity does nothing to advance our lives. Patent law is strangling real invention and advance.

Show me a person with a professional degree and I'll show you a rent-seeker : )

There's a fair amount the government can do on various levels that won't cost a penny.

For example under what argument can it be said that we should have sanctions on countries during an economic downturn? It would be hard to take sanctions off of Iran due to political reasons but what reasons are there at this point for Cuba?

On the state level some states prevent towns from sharing equipment without filing red tape. If one town needs to use some piece of equipment once they could save money by borrowing it from another rather than renting it from some company.

Local governments have great leeway. Zoning laws can pretty much prevent a fair number of businesses from opening up, licenses can be denied etc

I agree on the rates..this "We can't raise rates because it will hurt the economy" argument fails. Heck remember post 9/11 about 0% financing for everything?

We have low interest rates, a dollar we think is strong, lower taxes relative to the past and much higher government spending. This cannot hold.

Troy says

The Volcker rates were in response to wage-price inflation.

Just raising rates won't fix what's wrong with the current economy.

It would prevent it, would it done in 1998-1999 instead of printing hundreds of billion using Y2K scare. It would fix it even in 2001, but we got such a good excuse to create hundreds of billions more. Even in March 2003 it would fix most of the problems, but we prefered to believe in WMD and to print, print, print. Yes 18% interest rate will wash away most of our current economy, but we need to recognize that most of it is nothing but shit that need to be washed away, if we want to be more than a banana republic.

What's wrong is that we can't pay our way in the world ($600B/yr trade deficit) and the top 5% is clearing ~33% of the income.

Right, the only responsible way is the default. After the default start with a balanced budget. Anything else is just misleading ourselves.

Raising real interest rates will just make the rich richer.

Not sure about this.

Remember that debt is the flip-side of savings. For every debtor there is a creditor.

Not necessary. When banks issued mortgages there were no savings side to it. When they create Government Guaranteed loans today, there is no savings on the other side. There is a lot of debt created by the Government, or created using Government Guaranties, or created with assuming Government bailout as the endgame, which has no savings side at all.

michaelsch says

When banks issued mortgages there were no savings side to it. When they create Government Guaranteed loans today, there is no savings on the other side.

There's always someone's savings being used when new debt is issued.

That's how CALPERS lost billions in real estate and how BAC has $2T of liabilities (customer's money) against $2.1T in assets (loans and stuff).

That's how the system works. Banks don't get money from the Fed without giving the Fed an asset in return, that's why there's almost $3T on the Fed's balance sheet now.

Government guaranteed debt is another kettle of fish. Some of this is funded from government but most is not, AFAIK.

Anyone who thinks that interest rates will be high during an economic depression is smoking crack. Interest rates usually change in response to inflation concerns, and you're not going to get inflation in a depression.

Kevin says

Anyone who thinks that interest rates will be high during an economic depression is smoking crack. Interest rates usually change in response to inflation concerns, and you're not going to get inflation in a depression.

You need to Google "hyperinflationary depression" and read up on it. A depression does not need to be deflationary. Who's smoking crack now?

HousingBoom says

Clara says

We are not in a great depression and never will worry about food on the table.

you're joking right? do you sit at home and watch Snookie all day? there are middle class families living in tents and are on food stamps right now.

Show my the actual numbers of middle class people living in tent please?

Clara says

HousingBoom says

Clara says

We are not in a great depression and never will worry about food on the table.

you're joking right? do you sit at home and watch Snookie all day? there are middle class families living in tents and are on food stamps right now.

Show my the actual numbers of middle class people living in tent please?

Here's a vid on OPRAH. If it's on OPRAH, it must be big....http://www.oprah.com/oprahshow/Lisa-Ling-Goes-Inside-a-Tent-City

This was recorded in 2009. I will see if I can find more data on "the middle class living in tents"

Clara says

Show my the actual numbers of middle class people living in tent please?

Not tents, so much, but the multi-generational family household is coming back:

http://pewsocialtrends.org/2010/03/18/the-return-of-the-multi-generational-family-household/

>We're not Greece, and we're not really Japan for that matter either.

Agreed that Japan is a different game.

But that's not really a tent. Before the establishment of the modern welfare state the family was the primary support group. If there are cut in local and state government this only makes sense.

Houses are also larger than they were on average for a median sized home than in 1940.

Vicente says

Truthplease says

moral hazard of rent-seeking can be considerable

The rent-seeking problem is EVERYWHERE in our culture right now. One blatant one that everyone talks about, but nobody DOES ANYTHING about is patent law. Patent portfolios are traded like baseball cards. The billions spent on that activity does nothing to advance our lives. Patent law is strangling real invention and advance.

“Eagles are dandified vultures” - Teddy Roosevelt

Ok but what exactly is "advancement of our lives" On the same level millions is spent to develop better tennis shoes and not everyone plays tennis.

Troy says

We're spending $50,000 per household on government. This simply has to be cut. Cutting this burden will mean fewer government jobs.

These are not real jobs. That's one of the reasons why I have been saying the current GDP number is bogus by nearly half its magnitude. Having a bureaucrat watching over every person doesn't make the economy double in size.

The yuan is still 3-5X too weak.

Here I disagree. If China closes its door altogether like it did during their Maoist era, we would just be importing comparable amount of stuff from the next lowest priced producer, just like we did back then from Japan, Korea, Taiwan, Malaysia and Indonesia, etc.. In fact, because the next lowest priced producer would charge more than China does, we'd just get less for our money. The government deficit mentioned above is the fundamental reason why we have to import: all the bureaucrats and bureaucratic distribution that work out to be $50k per household per year has to eat, clothe themselves, have cars, and etc.. The imports are what's preventing massive inflation that take all the food, clothes, cars and etc. from the average households to give to the men/women receiving that $50k directly from the government money printing press.

We're starting to create a Jetson's economy, where productivity increases simply eliminate jobs. This is great if you can find work or have money, not so great if you can't or don't.

That doesn't make much sense at all. If goods keep falling from the sky, the result would not be mass unemployment; (ref: the old Bastiat joke about candle makers guild lobbying to ban the sun for "unfair competition") Cheaper goods should create new jobs . . . just like cheaper oil, while eliminate jobs in Texas oil fields, should create jobs in industries that use oil. What's happening is that government expansion creating "jobs" that dole out benefits to the rich via military contracts, overpriced medicine, overpriced education and above all overpriced financial gambling that is crowding out private sector job creation. Government/monopolistic "jobs" are net resource subtractors instead private/competitive sector jobs that have to create more value/resource in output than input in order to continue. Value/resources are just what is needed/available for more work to be done; i.e. more sophisticated division of labor, more jobs.

It is this net-minus effect on value/resources due to government/monopolistic resource distribution that is snuffing out the economy and killing jobs.

mdovell says

But that's not really a tent. Before the establishment of the modern welfare state the family was the primary support group. If there are cut in local and state government this only makes sense.

That's true.

mdovell says

Houses are also larger than they were on average for a median sized home than in 1940.

That's partially true. Houses built in the late 40s and 50s were typically smaller single family homes, but the bungalows of the 20s building boom were typically larger and more expandable, giving the owners the option of having an extended family or taking in tenants.

McMansions seem to be hollowed out, with two story great rooms and giant kitchens and laundries which can be nice but aren't the most efficient way of housing people.

But I'm sure we have a much better housing cushion now than we did going into the Great Depression. Even if unemployment goes up to depression like numbers, people will be doubling up in houses rather than living in tents.

Cook County resident says

people will be doubling up in houses rather than living in tents.

which is odd since we don't have a housing shortage, just a pay-the-mortgage shortage.

Troy says

which is odd since we don't have a housing shortage, just a pay-the-mortgage shortage.

Yeah, it gets tough when the house isn't paying for itself anymore and the family has to pay for it out of their paychecks when real income is stagnant or declining.

And all the huge tracts of new houses in jobless exurbs will become increasingly unattractive if gas prices continue to rise.

But, around here anyway, there are thousands of big old homes, paid or nearly paid in full, close to the remaining jobs and occupied by a single aging person or couple. There's room for their kids and maybe a couple of grandkids. By traditional economic standards, moving in with the extended family would be a reduction in the standard of living, but for alot of people it will improve their quality of life.

Vicente says

I'd be happy with rates hitting 5% or higher.

I'd be happy with rates hitting 12%. Sure it will jolt the economy, but at this point we need to encourage savings/investment and stop punishing fiscal responsibility. No one is lending because the rates are not worth the risk of lending.