What will the world look like two years from now, assuming as many of us do that the bubble bursts bad, really really bad?
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Hattip to Patrick for the idea
March 18, 2006
The housing bubble bursts bad, really bad (no soft landing). What's it gonna be like?
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Government services will deteriorate from falling tax revenue. New roads put on hold for decades, libraries will have shorter hours, colleges will consolidate. Overall responsiveness and service will decline, as various governemt functions trudge forward on decrepit computer systems.
Unemployment insurance benefits will be cut, medicare premiums and copayments will rise.
Some cities and counties will just go bankrupt, unable to pay their basic services. (Fire, police, sewer, etc.) If it gets really bad we may see some states go bankrupt.
Expect to see more relatives showing up at your neighbors homes, (and maybe your own) because they have nowhere else to go.
College students will spend 2 to 3 years looking for their first "real" job.
And everyone will miss the bubble times. They will view that as "normal" and keep hoping things will return to "normal".
When the Housing Bubble crash...
SAVE BOATLOAD OF CASH... and buy some foreclosed property,,, penny to the dollar !!!
Japan recently went through a giant RE crash and has survived. Many slow years where the economy bumped along near at 0% growth. Japan has maintained its product quality throughout these years and companies such as Toyota have kept dominant positions in the world market- indeed they are destroying the US competition as rumours of bankrupty for GM and Ford accumulate. The Bank of Japan is now starting to tighten interest rates to stay on top of strong economic growth in the country.
Theories of economic armageddon are best kept in the realm of religious fantasy.
I'm not preparing for a survivalist future. But I think something less severe than the 1930s, more severe than the early 1980s, is quite possible.
Plan for it. If things are not so bad, at least you have saving to invest in the next upturn.
The difference between the US & Japan, is Japan had a nation of people who saved. They suffered, but their frugal habits & social cohesion helped a great deal. I don't know what will happen in the US, but we live we beyond our means. This doesn't matter if things keep getting better. It will hurt alot of people who used their homes as debit cards.
Job cuts will become severe. People will lose their houses. Then there will be an election. The new government will create great new jobs and abolish taxes. People will then buy even better houses than they had before. Rainbow stew and a silver spoon for everyone. The end.
Japan also went into heavy deficit spending. We've already done that. I hope things don't get too bad, but I remember the early 80s- here in Pittsburgh it was awful. Some areas are still barely surviving. Many boarded up storefronts have sat vacant for 20+ years.
Real estate also declined in Japan for fifteen straight years.
America will suffer at the lower end of the market:
"What of the poor?"
"FUCK the Poor!!!"
Mel Brooks, History of the World Part 1
The United States may have to return to fiscal obedience as we default on Trillions in debt. Hey most of South America and Africa have, why not us?
Then start over so to speak. There will be currency devaluation, but the Fed will step in...just not as soon as we hope.
Homes fall to 2001-2002 prices and see modest 1-2% growth for 6-9 years.
China suffers a major economic hit and does what they have ALWAYS done, go isolationis AGAIN. If history is a guide, and it is, China will engage in its ongoing open market, open border expansionist policy, followed by a long period of civil strife, class warfare and closed borders.
Two scenarios:
1) Credit contraction lasting about 18-24 months counteracted by reflation. Then credit contraction, deflation.
2) Credit contraction, deflation.
--------------
Inevitable deflation in both scenarios leads to free market reforms. If no free market reforms - if we get another FDR New Deal era, it will be followed by era of international wars. Then free market reforms.
Socialism is dead. We are witnessing the burial.
There are a lot of deserving people, many with children, who are totally priced out of the housing market. Getting these RE prices down will be a good thing because houses have a most basic function of providing housing to people- not as ATMs or investment vehicles for speculators.
Speaking of RE crashes, Denver and the Rocky Mt. region had a heck of a housing crash in the 80s and pulled out of it by early 90s. Of course, the rest of the nation was in a major boom which helped pull Denver out.
Also about Japan- the Japanese reacted logically to economic problems by cutting spending and ramping up the savings. That is good except that domestic demand dropped sharply- to be picked up by exports to the US. The US reacted to the 30s Depression by creating a spending culture which kept demand high and the factories humming...of course, we don't have much in the way of factories anymore.
>>>Socialism is dead. We are witnessing the burial.
Corporate ownership of our government and financial system is what got us to this point.
The only socialism we have in this country is socialism for the rich, like forcing taxpayers to build stadiums where they cannot afford to go to a game, moving highways at public expense so that St. Joe Company can build more beach houses, etc.
By the time this crash is over, Americans will be fed up with the robber barons and ready for a more equitable system.
One suspicion I have, is that the USA will become the Argentina of North America. Maybe not 2 years from now, but perhaps in 20 or 30.
We'll still be a country rich with natural resources and an educated population, but with extreme divergence of rich and poor. Plus Argentina's other main ill, a spendthrift government, that continuously debases its currency and never really catches up on its bills.
"The housing bubble bursts bad, really bad (no soft landing). What's it gonna be like?"
NPL's will have to rolled over very slowly in a worse case scenario. A great book on Japan's experience is "balance sheet recession" by Richard Koo. Japan's RE bust is much larger in the commercial sector than the US's likely residential bust will be. Japan can't unload all of it's bad loans like the RTC did after the S&L crisis because it would would completely collapse RE prices.
The FED has spent tremendous resources studying the Japanese experience and will try to use what they can from their theories. Koo makes it clear that once debt liquidation starts, monetary policy loses most of it's effectiveness. He believes that fiscal policy has to take over(keynes heaven) : that the Federal govt has to keep spending money untill the debtors have paid down their liabilities.(this could take many, many years)
I just got back from Argentina.
For the most part, Argentina has a more intelligent government and a better general social understanding of problems than the power bases in the USA. And they don't have to deal with 30% insane religious fundamentalists.
Note that this government is fairly new.
Simple:
1. Housing market prices drop 10% over the next year and flat for the next 3-4.
2. Long term fixed rates go up 1 percent but variable rates go up 1.5-2.0 percent and the morons who bought at the top with no money down on adjustible rates get foreclosed on.
3. Dollar devaluation over the next several years of 10% to 20% due to China's float, the trade deficit and the loss of confidence in the dollar.
4. The Dow hits 30,000 and the Nasdaq hits 8000 by January 1, 2010...in less than 4 years. Why? Cause as the rich get richer.........
Remember the game is always set up so that the rich win. Hell, they make the rules.
I don't like to think about it, but it will probably take down all of the 401K's, retirement pension funds and IRAs. Its going to hit the baby boomers in the retirement pocket book.
It will hit everybody, but if your 30 years old, you have time to recover.
After the FED's debt party from RE ends get ready for our Global Creditors to dictate our future.
For example the WORLD BANK led by George Soros will tell us that in order to loan us money to pay back our current accounts deficit, we must accept 70% income tax, a 30% wealth tax, and a 17% VAT tax in order to pay down the debts we owe the world. All private ownership of gold will be banned by the UN.
While we are doing that, we all can hold hands in our glorious diverse cultural utopia and sing, "I'd Like to Teach the World to Sing in Perfect Harmony" and follow it up a rousing chorus of John Lennon's "Imagine".
We will be basking in the bright light of a Neo-Con Utopia where all borders will be open, all trade will be free, the Middle East will be full of loving Democracies, and where WE WILL ALL BE WORKING FOR MINIMUM WAGE AT CHINA OWNED WAL*MART, the World's largest employer.
We will nostalgically remember our Grandfather's day when there was a Middle Class, where our Grandfathers's income afforded a nice home in the suburbs, a new car every other year, and a summerhome on a lake.
AH for the GOOD OLE DAYS!
Home prices will devalue for the next 4 years or more, overextended barrowers will sell homes at considerable losses, consumer spending will fall precipitously as people struggle to pay loans, the stock market will stagnate because of the loss of consumer spending, Dubya will be blamed, Hillary will win a close election for the white house, US forces will withdraw from Iraq, government services will deteriorate, and americans who have not been saving money will reap the financial consequences for years.
Well the three major components of GDP are consumer spending, businees spending, and government spending. If the RE deteoriates the consumer is toast so that would mean that business or government would need to pick up the slack. I think we can rule out business picking up the slack for numerous reasons. So that leaves the government...so my prediction is more wars/military spending. In a nicer alternate future they would direct $$$'s to developing high-speed rail and alternative energy sources.
Carbon copy repeat of the 1970's oil crisis. Deflation, unemployment, crime.
Hmmm....living in a bad movies you can't turn off.
Well at least there is one thing to look forward too...differences of opinon will be settled in the ThunderDome!
It will look just like it does now, but the bubble will have moved on to some other area (internet stocks, vaccine stocks, oil, commodities, ?) and the same group of yahoos who went to real estate seminars in 2005 will be going to ___ seminars in 2008. Housing prices will drop, but outside of the most speculator heavy areas they won't drop drastically or suddenly as many who inhabit these blogs seem to think.
4. The Dow hits 30,000 and the Nasdaq hits 8000 by January 1, 2010...in less than 4 years. Why? Cause as the rich get richer.........
Remember the game is always set up so that the rich win. Hell, they make the rules.
Bitter party of one...
bank failures, bread lines...homes at 60% off peak values and still declining...a run on the US currency.
get out of debt.by paying off your credit cards your making 15%on your money.Think about it.How hard is it to make 15%in other investments? Last year the dow was up about 3% and banks are paying 4.5%.
Housing down, probably 30% by 2007, down 70% by 2015, my times may be off +- 2years. Financial system is in a deep state of decay: over burdened by too much debt; every financial user from pension plans to municipalities to states to insurance companies (oh yes, they're HEAVILY into mortgage backed securities and other risky investments). So that said, pretty much all of these fail due to lack of liquidity under a credit crunch. We as a country have pretty much staved off having to pay the piper for 75+ years of building debt. Savings level is at or near lows and even negative at times. The failures will be at all levels: whether that's a household, a city (S.F., Oakland are well in debt), a state (CA will default on its bonds amd it may just break up the state), or a nation etc.,etc. ad nauseum).
Just to note, I was as bullish as the next man during the 80's, and 90's. Something's changed after the peak in 2000. If I look at some of what is happening, I have come to understand that this "bubble is a bubble for all time"-- the last 5 years can be described as a bubble, so could the 90's from about '94 to '00, so could the time from about '82 to '00, now back the market charts way out and even from the '32 to '00 looks like a massive bubble (albeit with small corrections along the way but not enough to match the run-up we have enjoyed). So as markets go the bubble has many levels which it must correct. This bubble, the one for all time, has gone on so long that it doesn't FEEL like a bubble maybe because it has always been surrounding us, like the suggestion that a fish doesn't really know it's in water because the water is so pervasive.
Lastly, there will be runs on banks (the last recession, with the DOW at just 8000, JP Morgan Chase was in danger of default). This time avoiding bank failures will not be so easy. I have done much research to know how to structure my life since I was a top performer at a major company and still got the pink slip.
Don't forget, every society always thought that they were not in a bubble from the real estate land crash of 1837 to the 1929 crash to the tulip bulb mania to the south seas bubble of 1720. If you look at what was hot, RE was always one of the HOT commodities near the end of the given bubble. Here's a note: I was surprised to find that land in Holland (tulip bulb mania) in the 17th century, I think they were townhomes, sold for over a million $. So this is clearly not the first nor the last RE bubble.
BEST Wishes...
http://www.itulip.com/housingbubblecorrection.htm
Housing bubbles don't collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years. Given the extreme and unprecedented nature of the current housing bubble, I expect a ten- to fifteen-year downturn to follow this boom. The government will step in with all manner of supports and bailouts along the way, similar to those that created the bubble in the first place, so the exact trajectory of the decline is impossible to predict. Here I estimate how and over what time period the decline may occur.
"Hillary will be elected in 2008. Socialism will make a big comeback, and not just in the US; it just won't be called "socialism", but "progressive" or "social justice" or "equality" or "diversity"."
Wow, what a tool! Hillary aint winning.
The reason housing WILL crash quickly and suddenly is because of the enormous amount of exotic mortgages that will put lower income families underwater in a quick time period. They will be forced to sell....at a loss.
Housing down 25% in 18 months...then the REAL panic sets in. 40-50% Correction in 3-4 years. Unemployment doubles, anti-immigration fevor rises, the dollar falls 30%, DOW sinks to 8K. Mass hysteria when people realize they have to refinance for a house that is worth 30% less than they paid or face a doubling of their monthly payments. hahahaha
Dont forget it took a nice world war to get us out of the last depression.
For the morons who see corporate domination as socialism, you really should join the new SS that's gonna be formed. They need people with your limited capacity for logic and awareness.
If things get as bad as people say, dont expect the govt to just sit by for a decade, nor the rest of the world to stay stable, because they'll all be coming down with us. Pakistan will fall to nutjobs and they'll go nuclear with India, and we'll get involved.
While we're at it, its about time for the 9.0 earthquake we've been waiting for in CA or Seattle. That should pop a bubble there. Then that Canary Island, La Palma, will erupt and drop that piece of land into the Atlantic that will send a 100 ft tsunami up and down the whole eastern US seaboard. Dont laugh, we've seen it can happen. When that happens, the states will cease to exist and localities in the West and Midwest will form militias keeping refugees out, return to farming etc. Annoying christian Republican hitlers will finally get their chance to play King and there will be a return to feudal duchies, including dome Jim Jones style cults. China and Europe will economically collapse and start gnawing at each other again. Gangs and Cheneys will capture nukes and blackmail people with them and form Cheneyistansand BillKristolistans. Mexico will take over Socal and form Aztlan and reestablish human sarcifice.
But, seriously, which will it be, wheelbarrows of dollars ala Germany pre-Nazi? Can you say HEIL? or will it be brother can you spare a dime deflation a la buy a house for 500 dollars? There's too many dollars out there for them to mean anything. And will a bank really pay 11% interest?
I guess so, in inflationary economies, they pay a lot more than that.
The question is what the govt will do..all they can do is start public works projects and start wars....
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