March 22, 2006

boom, bust, boom, bust, boom, bust, boom, ...

3p
We are such optimists, we Americans - it's how we got to where we are. Yet we have such short memories. When times are good, unemployment is low, tax receipts are up, housing values are through the roof, business profits are pouring in, we assume there'll never be another recession again in the history of the United States.

Then, it happens.

What will this next recession look like? Will it be worse than most others, or even the last? When will it start, and when will it end?

From a fellow blogger, Thomas Palley:

After having been wrong once, it’s either brave or foolish to make a second prediction that the next recession will be deep and difficult to escape. But the facts point to it being just that—despite the optimism of the Federal Reserve. This is because the economic factors that helped escape the last recession have been largely exhausted, and will not be available to fight the next recession.

Homeowners have already significantly refinanced so that the stock of high interest rate mortgages available for refinancing has been depleted. Consumers are borrowed to the hilt, leaving less access for further borrowing. House prices are already at all-time highs by every measure—so lower interest rates are unlikely to spur another price boom, with all its expansionary effects. Instead, house prices could actually start falling as new supply continues to come on to the market, and this effect could be amplified by recession-induced job losses that trigger mortgage defaults by workers losing their jobs. Taken together, these factors point to future interest rate reductions likely being akin to pushing on a string.

20 comments:

Robert Campbell said...

Yep, this is what can easily happen during credit-driven asset bubbles.

Like a legal Ponze sheme, the collapse starts when there are no more greater fools - sorry, I mean buyers - left to continue the folly.

cereal said...

are you referring to some of the investors whose cars have broken down in tucson and can't get out?

buzz kill said...

Hey, where are all the really big houses? All I see are a bunch of small, anemic, pitiful looking mud huts. I can't fit all my stuff in a puny 3000 sq. ft. house. Oh well, I guess I'll have to keep looking. Or maybe I'll buy two lots when they discount 'em 50% and build right in between those diminutive little shacks out in the desert (er, I mean 'burbs).

David said...

Keith,

I am amazed how many posts you post a day.

keith said...

hitting our stride... and the content is flowing - meaning the bubble has popped

Out at the peak said...

I think there are/were greater fools, but when they requested financing, they were denied. Even with creative measures, some people just couldn't get the loan.

onlygoesup said...

Can we talk more about "busts", I like nice "busts".

Anonymous said...

Get your mittens, scarf and Grab the Sled. It's going to be a long cold ride to the BOTTOM !

Anonymous said...

Yeah, I think busts and peaks are both cool. You can never get too much of either.

new 200 Mbps BROADBAND over POWER LINES said...

WATCH THE ABCNEWS VIDEO

Housing Hangover
Rising interest rates squeeze homeowners to the breaking point.

Out at the peak said...

Excellent link, BPL

Awaiting Bubble Rubble said...

This guy has an interesting chart on his blog at http://www.oftwominds.com/ blog.html (search for 'A Monster of a Housing Bubble') that appears to portray a correlation between significant drops in residentail real estate investment and the onset of recession. I don't know where this data comes from but it seems common sense that recessions hit after significant drops in the level of investment in residential real estate, which spikes and drops fairly regularly, but which has never before seen a spike like that of 2002-05. The author claims: "What the chart reveals is that over-investment in housing (as measured by investment per worker) is inevitably followed by a recession."

Anonymous said...

It's funny how all those Blue state morons are doling out a million dollars for 50 year-old doghouses. Most of the over-priced housing is in California, New Jersey, New York, Seattle and of course the Yankee idiots rushing down to South Florida. When all the liberal idiots go into foreclosure, I'm sure they'll blame Bush for making them take out the ARMS and no-down loans.

patriotz said...

Hey Anon, I'll let you in on a little secret. Republicans live in "blue states" too. Now can you let us in on your little secret - how you know that the RE speculators are all Democrats?

Anonymous said...

Blue state real estate costs more because that's where you find the best places to live. Sorry to put it so bluntly but that's the deal. Plus more people have teeth.

asdf said...

You are so right on the teeth comment, I moved from CA to VA and have never seen so people missing teeth! Not to mention those who 'proudly' wear gold teeth, sheesh!

Anonymous said...

LA is such a wonderful place to live full of well-educated illegal immigrants and gangs. I'm sure their hygiene and manners are above average. Don't forget to mention the smog and traffic. Who would want ot miss out on that and the second highest state income taxes in the country. No wonder all the libbies are rushing in paying $750K for a 1200 sqft house.

Grinch34 said...

anon Thursday, March 23, 2006 1:09:04 AM

Its called greed. Whether it be Republic, Democrat or what have you. I will say this though, if you listen to FOX news (there is no equivalent from the left wings). You will become brainwashed.

Anonymous said...

How about the NY Slimes, LA Slimes, Clinton News Network and the rest of the left-wing old media?

LA Slimes sends out a dozen reporters right before the California recall election telling them to dig up dirt on Arnold Schwarzenegger. What a freaking joke. There's absolutely no bias there.

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