Saturday, April 23, 2005

US Housing Key To Global Growth: Economist

The Economist looks to explain why financial markets have the "jitters". The US housing situation is seen as critical, if not discussed at length. "A weaker housing market could complete the consumer's undoing: prices have climbed by 65% across the nation since 1997 and by much more in some areas, and the boom has helped to fuel an increase in household debt and consumption."

Did you know we've got the whole world on our shoulders? "The stockmarket's fear that the American consumer, on whose shoulders the world's economic growth now rests, is buckling as interest rates and oil prices rise."


At 2:59 PM, Blogger John Law said...

I was over on Kudlow's blog and you can all relax, we're in the midst of a bush boom! all us declinists can shutdown the computers and go watch the NFL draft.

At 3:06 PM, Blogger Ben Jones said...

What a relief! Except I didn't know I was a declinist. Sounds like a medical thing. Thanks John.

At 3:08 PM, Blogger John Law said...

declinist is kudlow's favorite word to describe those who question the bush boom.

At 3:49 PM, Anonymous oneortheother said...

If we don't get a decline, then that means the asset inflation game is still underway. Our choice is one of two: 1) a decline now; or 2) a depression later.

Given that the Bush admin (and cronies in the Treasury and at the Fed) have their fingers on the spigots for another 2.5 years, it's not out of the question that they keep pumping the credit balloon and printing the money to fund it.

They could conceivably forestall economic chaos until 2009-2011. But if they do, expect misery after 2008.

At 3:51 PM, Blogger John Law said...

I think it's safe to say that the system is showing signs of cracking right now.

At 5:10 PM, Blogger Ben Jones said...

(They could conceivably forestall economic chaos until 2009-2011)

I used to feel it could go on that long, but lately the affordability matter seems like it will crack the California market soon.

It seems like the last few weeks, the media are changing their tune, as well. Hard to say.

At 11:14 PM, Anonymous Anonymous said...

This article indicates large short positions in broadbased REIT funds:

At 12:22 AM, Anonymous Anonymous said...

"I used to feel it could go on that long, but lately the affordability matter seems like it will crack the California market soon."

Great point Ben. With 5-6% affordability in some areas of California (including big markets like LA and San Diego) there's not much room left for this bubble to grow. And bubbles this large must either keep growing or pop; forget that slowly deflating scenario that the NAR is praying for.

Some people will disagree with me, but I believe the bubble is big enough and bad enough in Ca., that when it pops, it will take down the entire US economy with it, and quite possibly cause a global recession (or worse).

All these people that think there isn't a national housing bubble are missing the point. If the biggest and richest states are in a bubble (NY, FL, CA, etc.) what difference does it really make if other states aren't? An exploding bubble in any of these states will cause a cascading nationwide ripple effect and possibly a global ripple as mentioned in the original post.

CA has about 1/8 the nation's population and is the 8th largest economy in the world by itself. That's why everybody should care what happens here, regardless of whether or not they live here.

Please don't say that Japan's RE bubble didn't cause a worldwide recession, because things are much different now and we're now experiencing a worldwide Credit Bubble of epic proportions.

DW in Sac.

At 12:34 AM, Anonymous Anonymous said...

And another thing, don't pin this on Bush. This is definitely a Greenspan thing and it's got his fingerprints all over it. This guy has been inflating all kinds of things since the 80's and cooking the books to hide the true inflation numbers.

This is simply a cascading bubble moving across asset classes (stocks to RE to ???). Pretty typical bubble behavior. Probably the last stop though...

At 6:46 AM, Blogger deb said...

The thing I don't understand is this is not really inflation in the classic sense. Maybe someone can explain it to me, but it seems all this "money" is just debt. It's not like they are printing bank notes and delivering bundles of them to people's doorsteps. They are enabling people to borrow, borrow, and then borrow some more. It can't be the same kind of inflation that was suffered, for example, in Germany in the 20's. They were printing bank notes.

I keep coming back to this resulting in deflation on a monster scale as debt is paid off, written off, and all this "money" just disappears.

I do think the Fed bears a large part of the responsibility, along with the public's willingness to get sucked into another round of "easy money" speculation.

At 10:04 AM, Blogger Ben Jones said...

(the bubble is big enough and bad enough in Ca., that when it pops, it will take down the entire US economy with it, and quite possibly cause a global recession)

The Economist agrees with you. All this paper is so interconnected. Long term capital management had to be bailed out because of derivatives that threatened the system. Nobody can even say what the thousands of offshore "special entities" Fannie has will result in.

(all this "money" is just debt)

In a fiat money system, debt is what money represents. Someone has to borrow the money into existence. Hence the pushing on a string analogy; when the Fed wants to create money supply but there are no takers. That's a central bankers nightmare, and we may be getting close.

At 10:28 AM, Blogger deb said...


Does that mean you see deflation as the most likely outcome as well?

At 12:42 PM, Blogger Ben Jones said...

Yes. I think Robert Prechter has the best take on it, even if his timing wasn't perfect.

We've had the inflation, now we should get the decline.

At 6:43 PM, Blogger deb said...

I must confess to being a closet Prechter fan too. His views just seem so radical to anyone who hasn't really read and thought through what he writes. When I try to tell people what I think we are headed for, they look at me like I am NUTS!


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