The Pending Crises

[jsanders]

Well it’s time for my next installment in the continuing Doom and Gloom column.

Earlier I wrote on the subject of over taxing our natural resources and it ended up in a discussion of motorbikes. Maybe this one will hit a little closer to home.

There is a huge financial crises looming and all of the politicians have chosen not to speak of it.

It all started believe it or not in the 70s when inflation was devastating the West. After seeing the results of this devastation the Federal Reserve decided to take steps to forestall any future run ups.

When Allen Greenspan was appointed as the chairman; he used his genius to guide the American economy for the next 25 years; and barring one exception with great success.

During the 90s we saw technology enabled speculation on the stock exchanges, run up the price to value ratios to “Irrational Exuberance”. This should have been a warning, but where greed is concerned, humans alas are hard to teach.

So when the inflation indicators seemed to point to flat inflation the Fed kept interest rates low. This decrease in interest rates and the huge availability of cash did more to stimulate the economy than the highly touted tax cut (but that's another story).

Having lost nearly all of our collective retirement plans to the 2000 stock market crash; we naturally decided to irrationally over invest, and consequently run up, the residential real-estate market. The conditions could not have been more favorable. After the massive wealth creation in the 90s and inflation being at an all time low, a person, or an institution, would be stupid to ignore the possibilities of becoming wealthy; prospecting on real-estate futures.

The wheels were set in motion. Some areas experienced 25% increases in home pricing in one year. People flocked to buy their new dream home, and they could, because the eager lending institutions, backed by the venerable FHA, were discovering new ways to make unaffordable houses suddenly available.

Well folks, the parties over, and this reporter has been telling you for over 2 years, that a major correction was coming. But you see, the correction is only the tip of the iceberg.

All these creative loans, the ones that allowed home owners to take advantage of the rapidly increasing home prices, are starting to mature. Now a couple that bought a condo in Northern Virginia using variable rate, or an interest only loan is facing financial ruin, as they watch new condos in their neighborhood selling for a hundred thousand less than the ones they bought last year and their mortgage going up to $3500 a month from $1500. They can’t pay and they can’t sell. The only thing left foreclosure.

This is multiplied by millions, and what is left?

An unprecedented collapse of the financial institutes. Normally this wouldn’t be so bad, the FHA would step in and bail them out. If not for one small factor.

The fools mission in Iraq. The very same mission that has us in a quagmire, is also running up so much dept that the government will be powerless to support the crises.

I’ll pause now for comments from my esteemed colleagues.

 

[MrsGorilla]

I was reading something about this just the other day. It made me glad that we are in a home we can afford, with your standard 30-year fixed interest rate mortgage. None of that fancy (and risky) financing for me...

 

[Matty]

I'm the same as Cindy. I'm glad I'm on a fixed rate 25-year mortgage. I'm just naturally cautious, so hopefully my cautiousness (??) will help me out. I'm also glad that it's so darn cheap to own a house here. A house selling for $100,000 less in my neighborhood would be nearly free!

 

[FoFa]

So when the inflation indicators seemed to point to flat inflation the Fed kept interest rates low. This decrease in interest rates and the huge availability of cash did more to stimulate the economy than the highly touted tax cut (but that's another story).

Oh, but tax cuts add to the availability of cash. But I digress.

I think what we might see is about the same thing that happened in Houston during the 80's and the depressed oil years. back then it was 12-14% interest rates, and people losing jobs, but the effect is the same. A massive foreclosure effort as people stop paying on their houses. Of course someone like me, even with a depressed salary at the time, could then afford a house, and sold 14 years later for a nice sum, and down payment on a nicer house. But people were willing to go into bankruptcy, and let their house foreclose, then turn around and buy another one at a smaller interest rate. Only after that fiasco did interest rates fall, and people started taking advantage of the refinancing options rather than bailing on their mortage.

 

[Rich]

Well it’s time for my next installment in the continuing Doom and Gloom column.

Why not just move to a more civillised country?

 

[jsanders]

Why not just move to a more civillised country?

Oh you can believe that if the US economy tanks, you’ll feel the effects.

And we are civilized; you’re just not capable of seeing it.

The US economy is many times more resilient than the British.

 

[groengoen]

You are so right. There will be a "correction" and it is just the tip of the iceberg. When the oil starts to run out in the not too distant future we will find ourselves in the dark ages again in more way than one. If only people could learn from history. We have also emptied the seas of fish. So things are looking pretty glum for our grandchildren. What you have said about the economy applies worldwide, as in 1929.

 

[jsanders]

Oh, but tax cuts add to the availability of cash. But I digress.

.

Actually the unprecedented savings rate of the Chinese has provided the majority of the global cash supply.

 

[jsanders]

I think what we might see is about the same thing that happened in Houston during the 80's and the depressed oil years. back then it was 12-14% interest rates, and people losing jobs, but the effect is the same. A massive foreclosure effort as people stop paying on their houses. Of course someone like me, even with a depressed salary at the time, could then afford a house, and sold 14 years later for a nice sum, and down payment on a nicer house. But people were willing to go into bankruptcy, and let their house foreclose, then turn around and buy another one at a smaller interest rate. Only after that fiasco did interest rates fall, and people started taking advantage of the refinancing options rather than bailing on their mortage.

The only difference is that it will not be limited to the relatively smaller Texas market. It will most likely be national.

The Japanese economy went through similar crises in the late 80s and it has taken them nearly 20 years to recover. And they have the advantage of a relatively smaller military budget and a trade surplus.

 

[jsanders]

You are so right. There will be a "correction" and it is just the tip of the iceberg. When the oil starts to run out in the not too distant future we will find ourselves in the dark ages again in more way than one. If only people could learn from history. We have also emptied the seas of fish. So things are looking pretty glum for our grandchildren. What you have said about the economy applies worldwide, as in 1929.

I wrote a similar doom and gloom column earlier titled “Easter Island” where I tried to talk about the diminishing global fish supply.

 

[Adeptus]

When the oil starts to run out in the not too distant future we will find ourselves in the dark ages again in more way than one.

That's OK, I do archery & fencing

 

[Rich]

That's OK, I do archery & fencing

But can you ride a horse?

 

[ColinEssex]

When the oil starts to run out in the not too distant future we will find ourselves in the dark ages again in more way than one. If only people could learn from history. We have also emptied the seas of fish. So things are looking pretty glum for our grandchildren. What you have said about the economy applies worldwide, as in 1929.

When the Americans (who after all lead the world ) and Chinese take global warming seriously and admit there is a problem, then we may get somewhere.
But whilst Bush is collecting millions in backhanders for not imposing emission levels on US industrial giants then me collecting my plastic for recycling is a waste of bloody time.

Col

 

[Rich]

I'm not convinced by the recycling argument anyway. I wonder if more energy is consumed by it than producing the products in the first place

 

[ColinEssex]

Do we need to explain what recycling is for those countries where conservation and emissions are unknowns?

Col

 

[Rich]

Do we need to explain what recycling is for those countries where conservation and emissions are unknowns?

Col

I'm not sure they're unknown, they're certainly ignored

 

[statsman]

I told friends of mine somthing similar when they bought houses 100 miles from where they work (the low interest made it just possible for them to buy).

What happens in five years when interest rates are higher and you have to renew?
Have you factored a big hike in gas prices into your budget.

Well, its five years later. Interest rates are rising and gas is 90 cents a litre. Are you going to sell? Good luck finding a buyer.

 

[Adeptus]

But can you ride a horse?

I have a couple of times... so probably yes, but not well

 

[Adeptus]

I'm not convinced by the recycling argument anyway. I wonder if more energy is consumed by it than producing the products in the first place

I think it uses the same or less energy?
Plus it means less oil needs to be used up in the making of more plastic.

 

[jsanders]

I think it uses the same or less energy?
Plus it means less oil needs to be used up in the making of more plastic.

Aluminum requires 1/10 of the energy and cost to recycle.