(HP'ers - I'd encourage you to forward this thread to anyone you care about. I think it about sums up where we are, and where we're going. It's time to prepare if you haven't already.)
Folks in the States, I've got some bad news.
Our economy which has seemed so swell the past couple of years - it's an illusion, a false panacea. The housing ATM blinded us to the reality - our jobs are gone, especially in the manufacturing sector and rustbelt. See the Detroit housing article a few down - the first of many cities where you won't be able to give away a house.
We've made our money the past few years selling each other our houses, in the greatest Ponzi scheme in human history, and taking money out of our houses that in the end, didn't exist yet must be repaid nonetheless.
The illusion is now over, with falling home prices and exploding inventory. And the jobs are gone, gone for good. Not including the over 1 Million about to go away with the housing crash.
But gosh, those prices at Wal-Mart are really great, aren't they? But how will people buy that widget from China if they have no job (that was tied to housing, or tied to manufacturing something in the past), and they can't do a fake equity extraction anymore?
Here's a little snippet on the ATM ramifications:
And lets not forget the biggest reason to worry: the housing market.
Given the well-documented slowdown in home price appreciation lately as well as in new and existing home sales, it is difficult to imagine an economy that can sustain robust growth without that continued stimulus and it is hard to overestimate the ramifications of this deceleration.
There are so many industries on the periphery of the housing market, from real estate and mortgage brokers to the construction industry and commodities, that the layoffs already being seen in the mortgage lending industry are likely to increase throughout the housing-related sector, possibly boosting total unemployment and further lowering GDP rates.
12 comments:
Good work,there is so much news everyday I cant keep up, I think people are talking now and alot of minds are changing.
Thanks for the insight...
Thank God this will end soon. For those of us who are "credit adverse" this housing bubble and it's false sense of security has been an absolute nightmare.
People are always talking about the "pain" that's in store when this thing splatters. But here's a news flash: this bubble in shelter prices has ALREADY caused A LOT of pain.
The sooner it's over the better. Maybe then we'll have a chance in h*ll of getting a solid footing back under ourselves. One that is not imaginary.
This is really a sad, sad commentary on the times we live in. It's essentially dishonest that the "elites" in our culture understand this economic disconnect and yet perpetuate the myth that nothing has changed.
What has changed is that costs are exploding everywhere. College, private schools (for those that live in locations where public schools stink), energy (car fuel, home electricity), health care. Service costs such as phone, cable, and Internet access are way more expensive than they used to be. And now we have digital TV related services which are being used to introduce ever more costly service costs (not to mention the migration to pay TV from advertiser supported TV). To top it off, people seem consumed (no pun intended) with getting the biggest possible house (instead of a smaller, more energy efficient house) and the biggest possible vehicle (gotta have that Hummer to pick up some milk, you know).
I digress a little, but my point is that everyone wants this life style which has been propped up by cheap credit and the escalating values of our homes which enable folks to cash out to maintain their lifestyles.
So mom and pop are not saving for retirement, but they are squandering their own financial security, and burdening themselves with more and more debt to maintain an illusion of affluence.
These rising interest rates are effectively the "margin call" that marks the beginining of the end.
We can't have an economy that operates in perpetuity based on excessive consumption made possible by easy credit provided by our trading partners. Here, take our money, buy our stuff. Oh, by the way, I own you.
Right now home owners seem to be going from denial to fear. They don't want to change their asking prices. It's those that need to get out of their homes that will really set this roller coaster down hill at a good speed.
But what happens once these paper gains have evaporated and interest rates have risen? You'll have people over extended and unable to keep cashing out and using cheap credit to sustain their lifestyles. You'll have people going under from the weight of their debt. And now we have more restrictive bankruptcy laws...
So many ignorant people are going to be crushed.
It's too bad that the politicians aren't able to face their constituents and tell the truth about globalization. My thinking is that going to involve our economy and other economies heading to some form of equilibrium where the typical Chinese worker's (insert any foreign worker making a tiny fraction of what we pay our people in the states) standard of living improves while ours declines.
So what do we do, send Ditech to the rescue...
I agree with all the comment and analysis but I think it is important to remember that manufacturing employment in 2006 is not the same as in 1975. Today's employees are far more productive so to use their numbers as an indication that we don't make stuff anymore is inaccurate.
I can’t go on the street without hearing bubble talk now. Just wait to hear the economy bashing when election 2008 hits the TV. I can feel the consciousness shifting from optimism to pessimism. In my experience, the good times go by much faster than the bad. Time flies when you are having fun.
Yes Bob, today's employees are more productive...they come to work each day knowing if they do not put in a minimum of 12+ hrs. per day tat there are a couple of billion folks in Chindia willing to do just that 6 days a week at 1/10 the cost of the American.
I do believe that the housing market will correct (or crash) based on how you define it and how much equity you have in your home.
However, I don't believe globalization will lower our living standards in the aggregate. Sure, some people in the economy will lose their jobs and will have to retrain. However, for the vast majority of us, we will be better off getting better products for cheaper.
I know this may be an unpopular stand, but why should an American (with 2 years college) get paid $70,000 a year as a programmer when some one in India or China with a masters degree get paid $15,0000. One can argue..because the American is more productive. But, that is not true and is a false argument. We will all be better off getting cheaper software (as an example) and we can use our savings to invest in other sectors / technologies to grow our economy.
Yeah I agree that the case for a housing bubble does not depend on Keith being right about the entire economy being a house of cards. Pessimists have been pointing to these same statistics (manufacturing jobs and trade deficit) for many, many years and thus far the doom scenerio has been wrong again and again. This US economy has shown itself remarkably resilient through thick and thin. You're asking us to believe everything has changed. I don't buy it.
I think a recession is very much a possibility later this year. But global depression? People hoarding cans and gold coins? Let's not get ahead of ourselves.
I'm a believer in significant overvaluation in a number of markets, but no imminent collapse in real estate prices.
But the proselytizing on this and other bubble sites, of global economic doom and the collapse of the US economy, really hurts our cause. At times, I start to question my own belief in the bubble.
I think we all know you can come up with a chart to prove just about anything you want, at any time at all
If anyone one here can articulate how the U.S. benefits from globalization besides the tired old cheaper products gambit, be my guest. That is the dumbest pro-globalism argument of them all. Contrary to Big Media propoganda shopping at Walmart will not make us richer as a nation.
If you believe that globalism helps America you are either A) Member of the elite B) Dumbed down public school attendee
Anonymous said
"some one in India or China with a masters degree get paid $15,0000."
I have some experience in this arena, both as an IT consultant who has lost work to Indian developers (who claim to be well trained and qualified) and been called in to clean up the mess left by Indian developers. I've also been a project manager tasked with outsourcing development. From what I've seen so far, when the quality of the work and communications issues are taken into account, the offshore talent for MOST projects is only marginally cheaper and unless development is managed very very carefully can often end up being much more expensive in the long run. The quality of the work is improving but rates for good Indian developers is also rising and by the time they are half of US rates in 2010 or so, it will be cheaper in total to pay US developers and avoid all the logistical problems. By that time, big companies who have done a lot of outsourcing will have LOTS of sunk costs in facilities in India and they will actually start to lose their competitive edge to small innovative companies that rely on US talent. It's part of the cycle of how business works. There's also the part about how you can buy anybody's mortgage/finance/healtcare/credit card data on the streets of Mumbai for a few rupees, but I won't go into that.
I agree with another reader who rejects all the doom and gloom talk about the US Economony. Many occupants of these boards have an agenda such as trying to pump gold. The economy is incredibly diverse and vibrant and has weathered asset bubbles before. However, the consumer credit crisis (of which the housing bubble represents the most obvious piece) will be large and take years to filter through. I was laughing at the little NAR tapdance on CNBC this morning. The hubris of some of these consumer credit pumpers clearly seems to be approaching that of the Enron traders who were joking about Grannie in California going broke to pay her bills. This level of arrogance angers me as much as other readers who post here.
I'm starting to tire of the endless gloom and doom scenarios constantly posted on here.
The economy is very diverse. For the first time in 5 years manufacturing jobs are being added. Bubble rubble is right that offshoring has been an overrated experience that has often left large companies holding the bag, training people on a remedial level and leaving customers fuming over poor service.
If all these doom and gloom scenarios are correct anyway having gold won't do a damn thing against a guy with a gun and plenty of ammo.
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