Analysis- The Second Graet Depression.

[Shooterman]

Feb 22, 2007, 00:45

“The US economy is in danger of a recession that will prove unusually long and severe. By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation.” --Dr. Kurt Richebacher

“The history of all hitherto society is the history of class struggles.” --Karl Marx

This week’s data on the sagging real estate market leaves no doubt that the housing bubble is quickly crashing to earth and that hard times are on the way.

“The slump in home prices from the end of 2005 to the end of 2006 was the biggest year over year drop since the National Association of Realtors started keeping track in 1982.” (New York Times)

The Commerce Dept announced that the construction of new homes fell in January by a whopping 14.3 percent. Prices fell in half of the nation’s major markets and “existing home sales declined in 40 states.” Arizona, Florida, California, and Virginia have seen precipitous drops in sales. The Commerce Department also reported that “the number of vacant homes increased by 34 percent in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate.” (Marketwatch)

The bottom line is that inventories are up, sales are down, profits are eroding, and the building industry is facing a steady downturn well into the foreseeable future.

The ripple effects of the housing crash will be felt throughout the overall economy; shrinking GDP, slowing consumer spending and putting more workers in the growing unemployment lines.

Congress is now looking into the shabby lending practices that shoehorned millions of people into homes that they clearly cannot afford. But their efforts will have no affect on the loans that are already in place. One trillion dollars in ARMs (adjustable rate mortgages) are due to reset in 2007, which guarantees that millions of over-leveraged homeowners will default on their mortgages putting pressure on the banks and sending the economy into a tailspin. We are at the beginning of a major shake-up and there’s going to be a lot more blood on the tracks before things settle down.

The banks and mortgage lenders are scrambling for creative ways to keep people in their homes, but the subprime market is already teetering and foreclosures are on the rise.

There’s no doubt now, that former Federal Reserve Chairman Alan Greenspan’s plan to pump zillions of dollars into the system via “low interest rates” has created the biggest monster-bubble of all time and set the stage for a deep economic retrenchment.

Greenspan’s inflationary policies were designed to expand the “wealth gap” and create greater economic polarization between the classes. By the time the housing bubble deflates, millions of working class Americans will be left to pay off loans that are considerably higher than the current value of their homes. This will inevitably create deeper societal divisions and, very likely, a permanent underclass of mortgage-slaves.

A shrewd economist and student of history like Greenspan knew exactly what the consequences of his low interest rates would be. The trap was set to lure in unsuspecting borrowers who felt they could augment their stagnant wages by joining the housing gold rush. It was a great way to mask a deteriorating economy by expanding personal debt.

The meltdown in housing will soon be felt in the stock market, which appears to be lagging the real estate market by about 6 months. Soon, reality will set in on Wall Street just as it has in the housing sector, and the “loose money” that Greenspan generated with his mighty printing press will flee to foreign shores.

The second Great Depression

Very interesting read.

[Snowden]

A shrewd economist and student of history like Greenspan knew exactly what the consequences of his low interest rates would be. The trap was set to lure in unsuspecting borrowers who felt they could augment their stagnant wages by joining the housing gold rush. It was a great way to mask a deteriorating economy by expanding personal debt.

One heck of a mask, too. I can't imagine having a mortgage without a fixed interest rate. Even those are sometimes impossible to pay off. During the so-called Great Depression, many banks had to settle for payment of the interest only - and they were at fixed rates.

The meltdown in housing will soon be felt in the stock market, which appears to be lagging the real estate market by about 6 months. Soon, reality will set in on Wall Street just as it has in the housing sector, and the “loose money” that Greenspan generated with his mighty printing press will flee to foreign shores.

No doubt. That's where the jobs are now.

[Shooterman]

Originally Posted by Snowden

One heck of a mask, too. I can't imagine having a mortgage without a fixed interest rate. Even those are sometimes impossible to pay off. During the so-called Great Depression, many banks had to settle for payment of the interest only - and they were at fixed rates.

No doubt. That's where the jobs are now.

Yet, Miss Marianne, how many do you still hear bragging about our robust and expanding economy. I want to take them by the neck and shake them like a puppy with a toy, just to see if I can get through to them.

Since last July, gold is up approximately 17%. that, inspite of a big correction in December. Has the ounce of gold grown and gotten bigger? No, an ounce of .998 or .999 fine gold is still weighs an ounce. The printing on the expanding dollars is just worth less. I've seen it said the buying power of the dollar is down 40% since 2000. Another figure I've seen says that most folks are spending $1.26 for every dollar earned. Oops! Something has to give.

[Snowden]

Originally Posted by Shooterman

Yet, Miss Marianne, how many do you still hear bragging about our robust and expanding economy. I want to take them by the neck and shake them like a puppy with a toy, just to see if I can get through to them.

Since last July, gold is up approximately 17%. that, inspite of a big correction in December. Has the ounce of gold grown and gotten bigger? No, an ounce of .998 or .999 fine gold is still weighs an ounce. The printing on the expanding dollars is just worth less. I've seen it said the buying power of the dollar is down 40% since 2000. Another figure I've seen says that most folks are spending $1.26 for every dollar earned. Oops! Something has to give.

I'm not surprised, Shooterman. Prices have gone up - incomes haven't kept up with it. The first sign of a sliding economy is real estate, I believe. A couple years ago, I could have sold this house for enough to buy one on the other side of the Bay. That's not true now - and we're having a boom here! Houses, new developments - going up like mad. If they sell, I'll let you know.