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Housing will slump at least until 2025, Japan is evidence!
2012 Jun 3, 11:54am 8,688 views 20 comments
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Vicente
@
2012 Jun 5, 4:32am
Quote from the book "Bad Money" by Kevin Phillips:
"Over the last thirty years financial services, including the ballooning debt and credit industry, have doubled to a record 20% of gross domestic product, while manufacturing has halved to 13%, greatly imperiling the economy."
I agree with the substance of your quote.
It would seem that the U.S. excels at risk management, but from the results it sure doesn't seem that way! Maybe it is all the government support that keeps that industry growing and is why all the non-supported industries keep getting crushed.
But not with the conclusions you draw from it. The effort of the financial services industry has been to whittle away regulations, or distort what remains to make it window-dressing. Glass-Steagall couldn't have been clearer and simpler, which is why repealing it was such a triumph. Generally though most financial sector efforts to mold the entire economy around their needs are not so brazen, they are are more indirect like making sure derivatives never got regulated or run through a clearinghouse in the first place. Whittle away here, chip away there, it all adds up. What government oversight remains over financial sector is toothless, remember the TARP oversight committee? Neither does anyone else. And of course you have the now-standard revolving door where financial bigwigs do some "ghetto community service time" like Hank Paulson doing his turn at Treasury so he can mark that item off his pre-retirement checklist.
Richie Rich says jump, they ask how high.
Goran_K
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2012 Jun 5, 4:46am
Indeed. God help us though, when people in other countries see our awful "reality" TV shows. Jersy Shore, Kardashian Whatchamacallit, Swmap People, Pawn Stars...
I remember when we used to build stuff and people would buy it. I am getting old.
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Dotted line = price to income ratio
Solid line = price to rent ratio
Many people compare the United States' current economic difficulties with Japan's problems 15 years ago. Japan experienced a major credit binge due to loose credit markets which produced high asset inflation in the 80's. Japan also had their unsustainable housing bubble pop, theirs in 1992. Japan has been known for their major central bank intervention, zombie banks, and extremely low interest rates for the last 20 years. Japan has an aging population and experienced sharp declines in their total fertility rates shortly after the 1940's. Their housing bubble collapse was 50 years after their decline in fertility rates.
In 1955, the U.S. had high fertility rates similar to those of Japan in 1940. Both countries witnessed a halving of their Total Fertility Rate about 15 years after their peak. Subsequently, 50 years later both countries had their housing market collapse. Why? The shrinking demand of new entrants into their housing market could not support their excessive supply.
15 years apart, Japan and the U.S. had a surge in the population of 40-55 year olds prior to their housing collapse. At this age people are at their peak earning and spending years. This created an excessive demand in the credit markets which resulted in excessive money creation through fractional reserve banking. This produced inflation wherever the new, easy money was spent.
For the last 20 years, the Japanese government has been trying to re-inflate or minimize the bubble's impact to prevent the deleveraging of their unhealthy economy. There is nothing Japan's government can do to stop the adjustments in their demographic transition. These adjustments are why the graph shows "affordability†but still declining asset prices. When there are fewer people bidding to buy an excessive quantity of something, the price tends to fall. Likewise, in the U.S., The 50% decrease in demand is, and will be, too much to sustain current asset prices even if they may be "affordableâ€.
http://articles.businessinsider.com/2012-04-09/markets/31311630_1_chart-housing-bulls-ratio
Look at Total Fertility Rate
http://en.wikipedia.org/wiki/Demographics_of_the_United_States#Vital_statistics
http://en.wikipedia.org/wiki/Demographics_of_Japan#Vital_statistics
#housing