As bond yields tumble and the Fed panics, it's smelling more and more like lagging deflation after the leading inflation. Bizarre, but we're living in bizarre times.
Forget Stagflation. Stagdeflation Sounds Scarier
January 25, 2008
HousingPANIC New Word of the Day: StagDeflation
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WATCH THIS! UNBELIEVABLE THIS WILL BE WHAT MANY PARTS OF AMERICA WILL SOON LOOK LIKE
http://tinyurl.com/ytj3jc
World population still growing? Check.
Earth's land area still fixed? Check.
Food supplies still constrained? Check.
Fossil energy resources still depleting? Check.
Giant mountain of debt still there? Check.
Government still printing money? Check.
The deck is stacked - inflation it shall be.
You nailed it.
Stagdeflation
I feel like I am seeing something I have seen before. I think that it is going to be worse than Japan, because
1) Two Income Trap in America
Most mortgages are based on one income (the husband's) in Japan. So, after the bubble burst, many families survived using mom's income.
2) Americans are too dependent on cars
Most families in Japan are living around major cities and don't own more than one car. And car insurance is like a few hundred bucks a year due to low accidents and thefts.
From my experience living in Boston, the cost of living is way less (30% or more) in Tokyo.
3) Education and Medical expenses
We have a national health insurance system and the public schools are decent. College tuition is about the half of what you pay for American colleges.
I was only a high school student but I remember that my parent's house (small 3 br)had become double of what they paid during the bubble, and deflated rapidly in the first 2,3 years of the bust, and then gradually continued to lose value. It ended up a third of the peak price.
We have not been as affluent as during the bubble days, but are doing quite fine.
When the rate was lowered, my parents had refinanced and paid off.
Our case is very typical for a middle class family in Tokyo.
Now, the mortgage rate here is about 3% and people are buying half a million dollar condos because the monthly payments are low.
I feel like I am seeing something I have seen before. I think that it is going to be worse than Japan, because
1) Two Income Trap in America
Most mortgages are based on one income (the husband's) in Japan. So, after the bubble burst, many families survived using mom's income.
2) Americans are too dependent on cars
Most families in Japan are living around major cities and don't own more than one car. And car insurance is like a few hundred bucks a year due to low accidents and thefts.
From my experience living in Boston, the cost of living is way less (30% or more) in Tokyo.
3) Education and Medical expenses
We have a national health insurance system and the public schools are decent. College tuition is about the half of what you pay for American colleges.
I was only a high school student but I remember that my parent's house (small 3 br)had become double of what they paid during the bubble, and deflated rapidly in the first 2,3 years of the bust, and then gradually continued to lose value. It ended up a third of the peak price.
We have not been as affluent as during the bubble days, but are doing quite fine.
When the rate was lowered, my parents had refinanced and paid off.
Our case is very typical for a middle class family in Tokyo.
Now, the mortgage rate here is about 3% and people are buying half a million dollar condos because the monthly payments are low.
Just a few nights ago I was looking for an apartment on craigslist and I was surprised to find rents in Southern California are dropping rather fast.
Although rents are cheap compared to the cost of ownership, the rents are still way too high for the local incomes. At least in this area a good 20% drop is in order.
OC Slacker from 05 Housing Loot said...
WATCH THIS! UNBELIEVABLE THIS WILL BE WHAT MANY PARTS OF AMERICA WILL SOON LOOK LIKE
http://tinyurl.com/ytj3jc
January 25, 2008 5:35 AM
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I've been there and seen it in person! Detroit truly deserves the title "Most Ruined City in America." If Islamic terrorists ever did sneak in a nuke and took out Detroit, they would probably get a medal and commendation from the EPA for a damn fine cleanup job. The existing devastation is beyond anything the average American can imagine.
Tokyo Girl-
if im not mistaken you missed a pretty important one - people in Japan are SAVERS people in America are now and have been for a long time SPENDERS and to the point of being deep in consumer debt- we dont have the personal savings to live off of like those in Japan did.
cletus
Look, all of you fools who believe that we will experience a meltdown are foolish. We are the biggest economy in the world. If we fail, everyone else fails. So the worst it will get is a very mild recession and then our economy starts growing again. The unemployment figures that came out yesterday weren't that bad and as a matter of fact they are improving. Also, when you add up the net worth of Americans it comes out to an astounding 57 TRILLION DOLLARS.
If Islamic terrorists ever did sneak in a nuke and took out Detroit, they would probably get a medal and commendation from the EPA for a damn fine cleanup job.
LOL!!
The deck is stacked - inflation it shall be
If there is a credit crunch, how will there be inflation in home and auto prices? Unless there is inflation in wages, there cannot be inflation in assets that require credit. People can't pay more than they earn - at least in the long term.
Consumer economic perception bad. Check
Low impact government bandage. Check
Huge supply, low demand. Check
Job market contracting. Check
Salaries stagnate and deflating. Check
Low rate of savings. Check
Rent to own ratios way off. Check
Many many unoccupied new developments. Check
Plenty of undeveloped land. Check
Election year economics. Check
The end of an easy money era.
Check mate
Wouldn't stagdeflation be good?? Lower asset prices, but still growth. Sounds ok to me. am I missing something???
http://www.youtube.com
/watch?v=SGkrNJ19DSU
ANON 3:39-
you a moron or what? we are the worlds larget DEBTOR- i'll break it down for you - current nat. deficit $9trillion + $56-$66TRILLION in unfunded promises in the form of Social Security and Medicare - so if we do a back of the envelope calc. we have your $57 trillion on the debit side and we'll use the conservative $56 trillion # for entitlements and then add the current but GROWING national debt of $9trillion - lets see 57-65 HMm... seems we're about $8 trillion BEYOND insolvent I KNOW my numbers are good if overly optimistic considering the dems are going to nationalize healthcare and add trillions of new debt not currently being counted- i however seriously doubt your number considering the MAJORITY of Americans individual wealth is in the form of home equity and -well- we know whats happening to that supposed equity.
cletus
Since August rates have been cut 1.75%. The stock market is tanking. Under normal circumstances with these events the bond market would be rolling up double digit gains, but instead its in the crapper also. About the only place to put your money now a days without concerns of losing it is the Bank of Sealy (mattresses).
should have said nat. debt of 9tril. not deficit.
cletus
Hey DOPES:
5 yr yield was 5.18% in Summer.
It was 2.64% Monday at the bottom.
When the bonds keep tanking because of the CONgress stimulus, the long interest rates will rise.
The difference is $553 over a 5yr car loan for $15k.
There goes your rebate check.
Stagdeflation sounds like code for "depression".....
I'm not sure if universal "trends" like inflation or deflation can even be used anymore. Yes, there will be deflation on home prices, stock prices, dollars, etc. But the the oil, energy, health care/education inflation force is very powerful and will not be slowing anytime soon. Employment is going to take a big hit no matter what. I think we need to break it down a little bit more by types of assests and commodities, rather than spin our wheels looking for uber-trend descriptions. I'd like to hear HPers take on the different areas.
What happened today? The PPT got tired of bailing out the market with taxpayer money all week? And the corrupt republican MSM ran out of rosy economic lies?
You can put lipstick on a pig...
OC Slacker from 05 Housing Loot said...
WATCH THIS! UNBELIEVABLE THIS WILL BE WHAT MANY PARTS OF AMERICA WILL SOON LOOK LIKE
http://tinyurl.com/ytj3jc
Wow, and this administration wants "to rebuild Iraq". Helloooo? Baghdad ain't got sh!t on Detroit.
"Just a few nights ago I was looking for an apartment on craigslist and I was surprised to find rents in Southern California are dropping rather fast."
The same thing is going on in northern Cali as well. (Although San Fran is still stable)
But I noticed in the south bay, rental prices started rising briefly and then did an about-face. Now they are declining again.
Anonymous said...
Since August rates have been cut 1.75%. The stock market is tanking. Under normal circumstances with these events the bond market would be rolling up double digit gains, but instead its in the crapper also. About the only place to put your money now a days without concerns of losing it is the Bank of Sealy (mattresses).
January 25, 2008 5:06 PM
----------------
Got gold?
So let's see...
Recession + inflation = stagflation.
Then "stagdeflation" is a recession with falling prices, you know, just like a "recession?" I guess trying to coin a new term for an old concept is one way to try and get attention when you don't have any original ideas to offer.
Besides, as long as we are using Federal Reserve Notes as "money," the money supply will continue growing exponentially, and that means that all roads lead to inflation. That doesn't mean that everything goes up at the same rate, or that everything even goes up. Stuff like housing in the bubble zones that is clearly insanely overvalued has a ways to drop yet. Americans' wages aren't going to be going up much thanks to the "benefits" of globalization. In inflation-adjusted terms, they have been dropping and will continue to drop.
Other stuff, like precious and industrial metals, energy (oil, etc.), and food, are going to continue increasing in price. There might be a short-term dip in the prices of industrial inputs but in the intermediate- to long-term the only direction is UP.
Hey Keith
Countrywide will report earnings next week and I think there is going to some major noise in the stock market. They have to show a profit inorder for Bofa to go through the purchase. I am wondering if they will come clean and finally go bankrupt or with the S.E.C. now involved, they will create the biggest fraudulent earnings report in history and cause a massive upward swing.
Put your seatbelts on for this week, its going to be interesting.
F.O.M.C. meeting, has to cut rates .50 points or there will be a selloff.
Countrywide earnings
Unemployment numbers
Personally I think its going to get ugly. Everything is collapsing around them and their hand is being forced. That .75 basis point cut was historic and they already know the information.
If you look at housing alone, these are the worst numbers since the great depression. I am surprised that this was not weighed in heavily during the week.
The news from everything else (bond insurers, global sell off, fake rogue trader) made it a side note.
The mortgage loan market is extremely tight right now. They are now actually doing their homework for fear of getting burned. I spoke with a Reo specialist broker this week, and he mentioned the same thing. Closing loans is difficult these days. If you put it in perspective, we have the all time high in available homes for sale on the market today. Yes thats without one more home added to that list, yet we are about to enter a period in which the mega astronomical amount of housing from defaults is about to hit us. Now we have eliminated sub prime borrowers that have under 680 credit score. The housing prices are in for a mega correction that will not stop falling for the next 3 - 5 years.
If you can last 10 years with your payment then stay where you are at.
Don't listen to me, do your own research and find out for yourself!!!!
ICEMAN
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