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It's very hard to overstate the scale of what's happening. The US housing market is one of, if not the single largest asset classes in the world. The nominal value of this asset class doubled and tripled and more in a very short period of time. A large part of that paper increase was extracted and consumed. What backs the $20+ trillion (US) in paper held by the investors all over the world?
All prior Ponzi schemes were of such a scale that they could be followed yet larger ones after a decent interval. What can follow this one? It would seem the the US and even the world economy is a Ponzi scheme, one that is rapidly unwinding.
Yep, this is the big one. They've squeezed the world dry and the Fat Lady is singing the final number. Let me coin the phrase now. "The Greater Depression."
Another truth respecting the vigilance with which a free people should guard their liberty, that deserves to be carefully observed, is this--that a real tyranny may prevail in a state, while the forms of a free constitution remain.
Screw it. Lock and Load.
No, I'm calling it The Great Decline. "Depression" holds out hope that it is just a temporary dip, followed by a recovery. This time, we level off permanently lower.
Permanently? Remember, forever is a very long time indeed.
Depends - is this 'experiment' controlling for population levels? I'm betting with a greatly reduced population - the way the survivors live could be quite well.
You would be more honest to call it "The End." We will not level off. We will go down, down, down, down, Rock Lobster! :)
"It's very hard to overstate the scale of what's happening."
Oh Contrare', Dave, it's been VERY easy to overstate the scale of what's happening.
A few upmarket Wall Street and MSNBC bubble makers lose 3% to 5% of their mistress bait townhouse on the beach or luxury vacation home on the lake, which already overvalued by 150% and they whip up a frenzy in hopes of having someone come in and bail them out.
"Ponzi scam" is the right word, but they want us to be their losers in proxy.
So the press runs stories (calling them "news stories" would discredit the concept of "news") showing some crying "middle class" person saying they are going to lose their house, a house that no middle class person I ever knew would have been dumb enough to buy that looks like the ranch house on Southfork used in the set of "Dallas".
In the meantime, charming old 2,000 square foot houses sit for sale down in the shady nieghborhoods of town, because banks won't finance "old sheds" like them...."interest is low, why don't you just get a NEW HOUSE, WITH ALL THE LUXURIES, IMPRESS YOUR FRIENDS WHEN THEY COME OVER, huh?"
And if the Chinese and German bankers were idiots enough to buy into this mess, well, sorry for your lot boys, but we have all taken flyers. Take your whippin' and get it over with.
For 3 plus years anybody with a brain knew this housing thing was out on it's latter legs, especially the way the game was being played....the same ones who put pretty talking heads on the air saying "there's still lots of life left in the housing boom!" and "prices, while up greatly, still show lots of room on the upside!"
Now they howl. They overstated it on the way, they are far overstating it on the way down. The best thing to do is get out of the way and sweep up the rubble later. We do not owe them a rescue, which is what all this hysteria is all about.
RC
Roger,
I read what you said several times as I couldn't tell whether you were agreeing or not. I finally came to the conclusion that you recognize what's happening but not the SCALE of what's happening. As far as the financial markets are concerned, this is an extinction level event. Like a big financial asteroid coming down and wiping out the markets.
Cid,
I like the imagery. But I'm having a hard time finding the place where you prove that this is a big asteroid and not just a shooting star. Mostly what I'm seeing (and to be clear, it isn't only you) is scare mongering and hyperbole. I'm not saying the current events aren't "it," just saying I've yet to see the proof.
Proof you won't get, except from the passage of time. But the scale of the event is what is crucial. I made a mistake in saying $20+ trillion in paper is held -- that's the total market value (at peak) of the US housing stock. But some significant part of that is mortgaged. But that peak value is rapidly disappearing, not simply because of defaulting mortgages. Also playing into it is what we are all aware of here at TOD -- peak oil. This too will lead to a complete devaluation of US housing stock, especially suburbia, but not just. The failure to expand would be bad enough, because this is what allowed the extraction of equity. But with decline, not only will extraction of equity cease, mass consumption and therewith all other sectors of the economy become involved. Further, the housing Ponzi scheme is not the only one that's been going on. The hedge funds and the LBO's are a whole other area, but I've followed it much less carefully.
Paint me a picture whereby things end up other than quite disastrously. Please.
"Paint me a picture whereby things end up other than quite disastrously. Please."
Screw it. Disaster is good. It cleans out all the bs. Bring it on. I no longer give a shit.
Disaster has often been the lot of humans in this world. This century we've largely whipped infectious disease, done amazing things in terms of food production, the continental U.S. hasn't seen a land war in a century and a half, and we've gone forty years without a land war involving large numbers of citizens. We're totally, completely, utterly spoiled compared to how 99% of humanity has made their way in our history.
Instead of recognizing this boon for what it was we did what every spoiled rich child does - binge, binge, binge. Now the trust fund is down to a small three digit number and we're looking around trying to figure out how to have another great big party. This will not happen.
The only peaceful road out of this is a Ghandi caliber leader who can turn the whole world from material consumption to things of an intellectual and spiritual nature.
So ... we're basically screwed.
Paint me a picture whereby things end up other than quite disastrously. Please
I hope for nothing worse than post-Katrina New Orleans for the USA post-Peak Oil.
If we work quite hard we can limit suicides to x6, overall mortality up only 50%, population density tripled in viable housing with most housing uninhabited, very limited health care, transportation, food supplies, erratic water & electricity, skyrocketing crime and a "Don't Give a Damn, You know they deserved it" attitude by the rest of the world.
Best Hopes,
Alan
"Mostly what I'm seeing (and to be clear, it isn't only you) is scare mongering and hyperbole."
IT'S ABSOLUTELY ASTOUNDING what the press is doing! ABC News had a piece on making claims that "the worse drop in housing values since the great depression" and "the biggest drop in housing values ever recorded", (SOURCE PLEASE!)
(!!!!!!!!!!!!!!)
Then, in the ultimate irony the broadcaster says "The effect on consumer confidence could effect the whole economy, possibly causing a recession."
WHAT, A recession in a depression?
She then says, I kid you freakin' not, "consumer confidence has went down more in the last week than at anytime in the last 20 years."
(!!!!!)
DUH! With this shrill hysterical crap on every network, half the country will be hiding under the bed!
I am now assuming the press has made up it's mind it wants the Republicans OUT, and knows just how to do it (they used the same stuff on Carter)
While that goal may be laudable, people need to settle down....How many people are (a)trying to sell a house (b) trying to borrow money against a house (c) are in trouble on a house as a percent of the national market?
HINT: Don't watch the news to find out, all you will get there is a bunch of hysterical ninnys. Think it's fun now, wait untl FOX owns the freakin' Wall Street Jounal.
RC
You can go back to watching television, Roger. Nothing in reality to concern you, certainly nothing as serious as what is on the tube.
Hmmm. Let's see. Debts of $370 trillion, likely highly leveraged, Cash on hand - $1.3 trillion. I don't see any problem here. Do you?
Lecture me about what's on television and you would source the Weekly Standard?
???????????????????!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Here, have some more "Well sourced" Standard,
http://www.weeklystandard.com/Content/Public/Articles/000/000/014/016tny...
This is the type of crap we are now taking in our constant search for a catastrophe....and frankly, we need one, given that we missed the $100 barrel of oil what, three years running, we missed the gas lines and the riots in the street for about the last two summers, we missed the complete exhaustion of natural gas causing the collapse of the storage salt domes for two winters straight, we missed the invasion of Iran now for two years in a freakin row, we missed the overthrow of the House of Saud since Elvis was alive....
and people complain that folks just won't take the Peak Oil crowd seriously....here's a hint......GIVE IT A FREAKIN REST, WILL YA???
There are threats, and there is IDIOCY. Is there NOTHING that won't set off a panic here?
RC
"8,000 unregulated hedge funds"
And we are going to just go ahead and make the assumption that every fvckin one of those hedge funds has EVERY DIME of that multi trillion dollar debt in unsecured mortgage paper, right... and to top it off, every single mortgage holder is going to be unable to make their payments, ALL at the same time....why would we make such an idiotic assumption?
BECAUSE IT'S MORE FUN THAT WAY! :-)
RC
8,000 unregulated funds ... and two big ones just flat collapsed. The source of a good bit of their stuff is the mortgage market ... twenty billion in ARMs resetting every month for the next ten months straight? OK, and a few months of a quarter of that rate sank the Bear Stearns stuff. Let me think on this for a bit.
Whether peak oil was 11/2005, or last summer, or not for two more years when things really get rolling there will be across the board degradation and periodic spectacular collapses. Perhaps those hedge funds are worth 95% of their claimed value ... today ... but if houses are going to be worth a third of what they are now in the near future ... *B00M.
So we talk about the "thermonuclear blast" about to hit the mortgage market, but its really more like trench warfare in world war II. We've got a million mortgage wave of shells coming, then the whistle blows, and discharged employees go racing into a no man's land of unemployment, no insurance, and blog posts with too many capital letters in them ...
The housing market will overcorrect to the downside and certain markets may experience a greater decline in valuation than others but I think 30% of present value is overstating it a bit.
Roger is correct in that the problems in housing will provoke a change in consumer psychology. When the IT industry collapsed as the .com boom imploded the only people affected were those in the industry and those in the markets. The rest shrugged it off.
This problem is far greater in both dollar value and scope. Hard to avoid concern if you see all those for sale signs going up. If consumers retrench then that will bring on a recession.
What is not being addressed in the media is the fact that Hedge funds used significant amounts of borrowed money to perform buy outs of public companies. After the buy out they then added to corporate debt. The result is that you have many firms that may encounter debt service problems if the original rosy projections turn sour. Since labour costs are 70% of corporate expenses trimming the workforce is likely and this further impacts consumer demand. These cuts would be in addition to the likely job losses in the real estate sector. This sector provided approximately 46% of all job growth since 2001.
I was certainly affected by the dotcom bust. Many of our school clients were spooked, and put their building projects on indefinite hold. Suddenly my employers had more staff than work. They laid me and several other people off. There wasn't much to do but leave the area to find work.
wait untl FOX owns the freakin' Wall Street Journal.
I thought FOX (Murdoch) already did own the Wall Street Journal