I have a question for those of you smarter than me about the economy...

[Paulie]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

I have a painting business that depends a lot on the business of people like you. I don't really know what to tell you other than where I do business, things could definitely be worse. I started the business almost a year ago to the day, cold turkey with nothing other than a phone call from a buddy of mine to a real estate agency putting in a good word for me about my work, and I managed to just cross into 6 figures gross up to this point. I haven't spent a cent on advertising other than the typical business cards and job signs. Things are picking up around here as far as reno's and new starts, and people are spending money on repaints to get their homes staged for sale or ready for rentals.

But this is an upper class area where a lot of rich people own vacation homes, and they aren't as tight with their money as people would be in other locations.

I'm reserving judgement until I see how next fiscal year plays out to be sure this wasn't just a fluke.

 

[william the wie]

I am not going to compete with the others giving advice on what to do economically but here's basic sales 101: MEET THE PEOPLE.

There are tax sales in your county hand out cards to the bidders.

There are REO offices for all lenders and they all use remodelers.

Have you met every single decision maker in the food chain if not make time to meet them now or you will have plenty of time to meet them when you are no longer in the business.

 

[JimBowie1958]

We're in a slow but gradually accelerating recovery. Short of a substantial tax increase or cut in government spending, you should expect the national economy to continue to improve.

Only in the short term.

Once any of several major equity catastrophies get unleashed (China's real estate bubble, EU's sovereign bond crisis, or the US securities erosion due to poisonous bad real estate loans) the available equity to finance credit for business start-ups and/or expansion simply wont be available.

This means that there will be nothing to balance out the natural cycle of business failures and contractions/layoffs that will accelerate as the consumer market shrinks once again.

Also, our GDP has been having faked up 'growth' since government spending counts toward GDP calculations and this adminstration has been spending money at record levels. Now every $5 requires $2 of debt in our federal budget, and it cannot continue like that. Eventually the federal spending slows to a trickle as the national debt balloons when interests rates start to climb in an effort to control inflation and sell gazillions of bonds and bills to pay for the maturing debt.

It may be possible to dodge all this, but I doubt we have our best and brightest at the top of either party any more as political correctness has been weeding out our brightest minds for nearly 40 years now.

 

[cbirch2]

My friends in the real estate business are gearing up for a good 2012/13 once Obama's one miserable historically bad term ends

The Economy crashed under Bush.

The economy crashed under Clinton and Bush had it back on track in 18 months.
What is Obama's record in the last 3 years?

As if the two scenarios are even remotely comparable.

The slump caused by the bush recession decreased manufacturing output to below the level it hit in the 2000 recession.

In other words, the bush recession was as if he had eliminated all the growth from his entire term and then even brought levels lower than during the 2000 recession.

Not exactly a fair comparison huh?

 

[Foxfyre]

With a severely shrunk market, we have pretty well closed down our business for now. We still service a very few accounts for clients who will lose the business if we don't service those accounts personally, but for the most part we have diverted all the limited available business to others who need the work because we don't have to have it.

Meanwhile, I have read and read and read and have arrived at what I think is a consensus of the responsible economic gurus that I trust. Europe is part of our problem, but as goes the USA so usually goes Europe in recessionary times. And Europe is mostly doing what it must to clean up its act and scale back its entitlements that crush their economy as much as they crush ours.

So, to turn the economy around (according to the economists I have read and trust):

1. The Bush tax policy need to be made permanent for the foreseeable future. No business man with any sense will risk existing capital without knowing what the automatic liabilities against it are going to be. Certainly threats of a tax increase on the "rich" without a guarantee of how much or who the "rich" are going to be is not conducive to inspire business to risk capital.

2. We need to eliminate ALL regulations and mandates that are not NECESSARY to provide the common defense, promote the general welfare, and secure the rights of the people. Onerous regulation along with oppressive corporate taxes and mandates are the primary reason so many U.S. jobs have moved overseas and why trillions in business capital is sidelined until there is some guarantee that satisfactory profits are possible. One of the most onerous new taxes and regulations that is rife with uncertainties is Obamacare. It needs to be rescinded immediately.

3. We need a business friendly Congress and Administration that puts people and jobs ahead of any ideological class warfare and/or politically correct nonsense.

4. We need a policy that assures current recipients that the rug won't be pulled out from under them, but begin now to reform and roll back federal entitlements as gradually and carefully as they have accrued because they will sink the whole ship if we do not do that.

Is any of this likely to happen under the Obama Administration and the current Congress? No. Not at least until the eleventh hour in a last ditch attempt to swing voters their way. Promises from Congress and the President without legislation to back them up have typically been pretty much whistling into the wind.

If we get a Tea Party endorsed President and Congressional majority in 2012, I do think it will happen and it will get better. Once you put a business-friendly tax, regulation, and mandate policy into effect, the economy will take off like a rocket.

 

[Toro]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

 

[The Rabbi]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

 

[Toro]

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

The reason why I think it will be over in a few years is the math.

We are in this recession because we built too many houses and created too much mortgage debt. But the excesses will disappear within a few years.

My numbers may be a little off, but the math works like this.

There are roughly 2.1 million houses for sale in America, which is roughly the average relative to GDP over the past several decades. That is down from 4-5 million a few years ago. Household formation in America averages 1.1-1.2 million. It has been lower recently because of the recession as kids stay at home after school and people delay getting married. Net household formation is less by ~100-200,000 as people die or move in with their kids or move to nursing homes, etc. Every year, ~400,000 houses are removed from the housing stock primarily through disrepair but also fire, new developments, etc. So just to keep up with new demand, we have to build 1.3-1.4 million homes a year. (During the housing bubble, we were building 2 million homes a year.) Housing completions have been about 500k a year, seasonally adjusted. But if you look at the raw data, it is even less. In the raw data, new home completions are running at all time lows in recorded history going back 50 years. At the current rate, demand for homes - which is depressed - is running nearly 1 million units higher than new supply. However, there are only ~2.1 million homes for sale. At this rate, we will have sold all the houses for sale in a little over two years.

All things being equal, the housing markets would be in equilibrium. In a normal economy, this would mean a tightening market and rising prices. But that's not happening. Why? Because of the "shadow inventory" within the banks. These are homes with mortgages that are delinquent but not yet foreclosed upon. So there is all this shadow inventory that the banks will eventually dump onto the market. Estimates are this shadow inventory is 2-4 million units. Numbers I have seen are on the lower side. Here is a recent estimate of 1.6 million units.

Now if demand is 800k-1M homes less than we are building, the explicit market is in equilibrium and the shadow inventory at ~2M units, we will chew through the excess inventory in 2-3 years. So at this rate, in 2013-14, we will have a housing market that is beginning to tighten.

Notice I didn't say anything about taxes or regulations or Obamacare or whatever. This math has been at work since the depth of the crisis. Even if you believe Obama has been the worst President in history, we have been working through the excess inventory in housing like this throughout his Presidency. Maybe we'd be chewing through the inventory faster with a better President, but the affects would only be marginal. It wouldn't matter if we had massive tax cuts and deregulation, massive excess housing doesn't - POOF!! - suddenly go away. It takes time to work through. That can also be said of all these lame programs the government has passed trying to buoy home prices. The market needs to clear, and keeping prices above the clearing price delays the inevitable and slows the recovery. Fortunately, Obama's home price stability programs have been remarkably inept, having little impact on housing supply and demand at all.

The math tells us that it makes little difference who the President will be in 2013. The excess supply of housing is getting cleared out. By 2016, the economy will be doing well because all the excess home supply and mortgage debt will be gone. And it will have nothing to do with any policies. But if Obama is re-elected, liberals will say "See, Keynes works." If a Republican is elected, conservatives will say "The economy is doing better because of tax cuts and deregulation." In reality, the fundamentals of the economy will have done the heavy lifting regardless of what political party is in power.

 

[cbirch2]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

"I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing."

The idea that any business would miss profits because of some boogyman is fantasy economics. If walmart has enough demand, it will increase is supply and it might even have to increase its labor, to realize higher profits. This rightwing confidence fairy bullshit is insane. If anything the uncertainty comes from republicans in the house that threaten default for no reason, and attempt to repeal unemployment benefits, and stop all progress from being done.

 

[editec]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

Similar but not the same.

For one the scale of the problem is very different.

 

[cbirch2]

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

The reason why I think it will be over in a few years is te math.

We are in this recession because we built too many houses and created too much mortgage debt. But the excesses will disappear within a few years.

My numbers may be a little off, but the math works like this.

There are roughly 2.1 million houses for sale in America, which is roughly the average relative to GDP over the past several decades. That is down from 4-5 million a few years ago. Household formation in America averages 1.1-1.2 million. It has been lower recently because of the recession as kids stay at home after school and people delay getting married. Net household formation is less by ~100-200,000 as people die or move in with their kids or move to nursing homes, etc. Every year, ~400,000 houses are removed from the housing stock primarily through disrepair but also fire, new developments, etc. So just to keep up with new demand, we have to build 1.3-1.4 million homes a year. (During the housing bubble, we were building 2 million homes a year.) Housing completions have been about 500k a year, seasonally adjusted. But if you look at the raw data, it is even less. In the raw data, new home completions are running at all time lows in recorded history going back 50 years. At the current rate, demand for homes - which is depressed - is running nearly 1 million units higher than new supply. However, there are only ~2.1 million homes for sale. At this rate, we will have sold all the houses for sale in a little over two years.

All things being equal, the housing markets would be in equilibrium. In a normal economy, this would mean a tightening market and rising prices. But that's not happening. Why? Because of the "shadow inventory" within the banks. These are homes with mortgages that are delinquent but not yet foreclosed upon. So there is all this shadow inventory that the banks will eventually dump onto the market. Estimates are this shadow inventory is 2-4 million units. Numbers I have seen are on the lower side. Here is a recent estimate of 1.6 million units.

Now if demand is 800k-1M homes less than we are building, the explicit market is in equilibrium and the shadow inventory at ~2M units, we will chew through the excess inventory in 2-3 years. So at this rate, in 2013-14, we will have a housing market that is beginning to tighten.

Notice I didn't say anything about taxes or regulations or Obamacare or whatever. This math has been at work since the depth of the crisis. Even if you believe Obama has been the worst President in history, we have been working through the excess inventory in housing like this throughout his Presidency. Maybe we'd be chewing through the inventory faster with a better President, but the affects would only be marginal. It wouldn't matter if we had massive tax cuts and deregulation, massive excess housing doesn't - POOF!! - suddenly go away. It takes time to work through. That can also be said of all these lame programs the government has passed trying to buoy home prices. The market needs to clear, and keeping prices above the clearing price delays the inevitable and slows the recovery. Fortunately, Obama's home price stability programs have been remarkably inept, having little impact on housing supply and demand at all.

The math tells us that it makes little difference who the President will be in 2013. The excess supply of housing is getting cleared out. By 2016, the economy will be doing well because all the excess home supply and mortgage debt will be gone. And it will have nothing to do with any policies. But if Obama is re-elected, liberals will say "See, Keynes works." If a Republican is elected, conservatives will say "The economy is doing better because of tax cuts and deregulation." In reality, the fundamentals of the economy will have done the heavy lifting regardless of what political party is in power.

^^This.

Thats the point. If you imagine the private sector as a giant balance sheet, asset, liabilities, and equity, there would be a massive debt over hang. The private sector is deleveraging, its trying to either pay off its liabilities or raise assets, to increase equity. Prices drop you get deflation and then a depression.

If the government would step in remove the debt from the balance sheets, the private sector would be able to spend again. Stimulus is an attempt to do this by providing business to companies, making them a profit as they normally would, that increases their assets, and theyre debt is easier to pay off.

My opinion at least. And at a time when treasury yields are only 1.86 there is no actual market incentive for us to be practicing austerity.

 

[The Rabbi]

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

The reason why I think it will be over in a few years is the math.

We are in this recession because we built too many houses and created too much mortgage debt. But the excesses will disappear within a few years.

My numbers may be a little off, but the math works like this.

There are roughly 2.1 million houses for sale in America, which is roughly the average relative to GDP over the past several decades. That is down from 4-5 million a few years ago. Household formation in America averages 1.1-1.2 million. It has been lower recently because of the recession as kids stay at home after school and people delay getting married. Net household formation is less by ~100-200,000 as people die or move in with their kids or move to nursing homes, etc. Every year, ~400,000 houses are removed from the housing stock primarily through disrepair but also fire, new developments, etc. So just to keep up with new demand, we have to build 1.3-1.4 million homes a year. (During the housing bubble, we were building 2 million homes a year.) Housing completions have been about 500k a year, seasonally adjusted. But if you look at the raw data, it is even less. In the raw data, new home completions are running at all time lows in recorded history going back 50 years. At the current rate, demand for homes - which is depressed - is running nearly 1 million units higher than new supply. However, there are only ~2.1 million homes for sale. At this rate, we will have sold all the houses for sale in a little over two years.

All things being equal, the housing markets would be in equilibrium. In a normal economy, this would mean a tightening market and rising prices. But that's not happening. Why? Because of the "shadow inventory" within the banks. These are homes with mortgages that are delinquent but not yet foreclosed upon. So there is all this shadow inventory that the banks will eventually dump onto the market. Estimates are this shadow inventory is 2-4 million units. Numbers I have seen are on the lower side. Here is a recent estimate of 1.6 million units.

Now if demand is 800k-1M homes less than we are building, the explicit market is in equilibrium and the shadow inventory at ~2M units, we will chew through the excess inventory in 2-3 years. So at this rate, in 2013-14, we will have a housing market that is beginning to tighten.

Notice I didn't say anything about taxes or regulations or Obamacare or whatever. This math has been at work since the depth of the crisis. Even if you believe Obama has been the worst President in history, we have been working through the excess inventory in housing like this throughout his Presidency. Maybe we'd be chewing through the inventory faster with a better President, but the affects would only be marginal. It wouldn't matter if we had massive tax cuts and deregulation, massive excess housing doesn't - POOF!! - suddenly go away. It takes time to work through. That can also be said of all these lame programs the government has passed trying to buoy home prices. The market needs to clear, and keeping prices above the clearing price delays the inevitable and slows the recovery. Fortunately, Obama's home price stability programs have been remarkably inept, having little impact on housing supply and demand at all.

The math tells us that it makes little difference who the President will be in 2013. The excess supply of housing is getting cleared out. By 2016, the economy will be doing well because all the excess home supply and mortgage debt will be gone. And it will have nothing to do with any policies. But if Obama is re-elected, liberals will say "See, Keynes works." If a Republican is elected, conservatives will say "The economy is doing better because of tax cuts and deregulation." In reality, the fundamentals of the economy will have done the heavy lifting regardless of what political party is in power.

That is a static analysis. Lots of things can and will screw that up. For starters, the number of homes about to be foreclosed on can easily go up. Since something like 30% of homes are underwater currently, that is a lot of extra inventory.
Then there are mortgage rates. If inflation picks up mortgage rates will rise, pricing more people out of houses. Prices must fall to remain competitive, putting more pressure on the housing market.
The 1990 recession lasted like 7 months. It was preceded by a housing boom that went bust. Yet it only lasted 7 months. I would have thought we would be out of this recession long before now. Even though the official numbers show we are, no one really believes that. It is a faux recovery.

 

[The Rabbi]

^^This.

Thats the point. If you imagine the private sector as a giant balance sheet, asset, liabilities, and equity, there would be a massive debt over hang. The private sector is deleveraging, its trying to either pay off its liabilities or raise assets, to increase equity. Prices drop you get deflation and then a depression.

If the government would step in remove the debt from the balance sheets, the private sector would be able to spend again. Stimulus is an attempt to do this by providing business to companies, making them a profit as they normally would, that increases their assets, and theyre debt is easier to pay off.

My opinion at least. And at a time when treasury yields are only 1.86 there is no actual market incentive for us to be practicing austerity.

You are one dumb motherfucker. How about if the governmentn just prints $10k and sends it to every household in the country? Think of the stimulus we'd have then!
That is essentially what you are proposing.

 

[Chris]

Do you all think we are going to have a "lost decade" like Japan?

I ask for 2 reasons.

First, although I like to consider myself well informed on politics I'm in a bit over my head with economic indicators and such. College was many years ago and what I learned then was nothing more than basics.

Second is because I'm seriously concerned about my business. I had nearly 2 decades of great growth and a customer base that grew every year. Business was so good that I pulled all my advertising about 6 years ago. I'm in the upper end of the remodeling business and most of my clients are well off but now jobs are scarce and even the ones available will cut you off at the knees to save a buck. It didn't used to be that way. For every 4 jobs I bid I got 3 without haggling just off my reputation. Now I've entered advertising contracts again with not much noticeable difference.

I can probably manage one more winter like the last two I've had but beyond that I may be in real trouble. I don't know what to do. Clearly I have to weather the winter but I don't want to go down with a sinking ship. My skillset is very broad but limited to my field. I was offered a very tidy sum to sell my business about 5 years ago but with the market the way it is I'm sure that amount is worth half what it was.

Do those of you working in the economic side see a turn around anytime soon? What are the true indicators I should be watching? I don't want partisan bullshit, I need real ideas and thoughts.

Ps. I've downsized as much as possible already so cutting expenses isn't really an option.

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

That's because Japan and Germany have low birth rates.

Germany will lose 10 million people in population in the next century.

The only thing keeping America from losing population are the illegal immigrants.

Ironic, isn't it?

 

[cbirch2]

^^This.

Thats the point. If you imagine the private sector as a giant balance sheet, asset, liabilities, and equity, there would be a massive debt over hang. The private sector is deleveraging, its trying to either pay off its liabilities or raise assets, to increase equity. Prices drop you get deflation and then a depression.

If the government would step in remove the debt from the balance sheets, the private sector would be able to spend again. Stimulus is an attempt to do this by providing business to companies, making them a profit as they normally would, that increases their assets, and theyre debt is easier to pay off.

My opinion at least. And at a time when treasury yields are only 1.86 there is no actual market incentive for us to be practicing austerity.

You are one dumb motherfucker. How about if the governmentn just prints $10k and sends it to every household in the country? Think of the stimulus we'd have then!
That is essentially what you are proposing.

Yup more or less. Except the goverment isnt printing money. Im not arguing that the federal reserve print money to do this, im arguing that the treasury borrow money to do this. Although you dont understand the difference... I would have government subsize any debt of the balance sheets of banks that was due to subprime loans/securities issued between 2000 and 2006, on the condition that they deduct a proportional amount from the payments still due on those mortgages.

I would do that until the bond market signaled through lower prices on long term treasury bills, by which point the market would most likely already be sufficiently deleveraged.

What exactly is the downside of that? It just moves the debt from the private sector to the public sector, it doesnt create new debt. As long as yields on treasuries dont rise then its overwhelmingly beneficial to the private sector.

 

[Truthmatters]

There are three issues, the first is knowable, the other two are not.

The first and most important is the current recession. We will get out of this malaise in either 2013 or 2014 no matter who is elected. How powerfully we get out will depend at least partially policy from DC, but we will get out.

The reason is simple math. This is a very different recession that we had for the rest of the century after WWII. This recession was caused by an implosion in the housing and credit markets. We built too many houses and took on too much mortgage debt. Both are being worked off. In a few years, we will have cleared away the excess supply of houses. The economy will then grow faster. But will that happen fast enough for you to survive? I don't know.

The second issue is US debt. At some point, if we don't get this under control, the US debt will become a problem. But that is likely to not be a problem until the end of the decade. But its unknowable. It could be sooner. The ironic problem you have as a business owner is that if you vote and elect a conservative / Tea Party type of government, if they slash spending now, they will delay and diminish the recovery but they will improve the economy further out. IOW, they will slow the recovery in 2013-15 but it will be beneficial for the economy in 2017-18 and beyond. So the policies you support may put you out of business. If you can survive, though, you will probably be better off at the end of the decade.

The last issue is currency crises. If we have rolling currency crises, all bets are off. We are in a currency crisis right now in Europe. It is solvable if the Europeans have the political will but they aren't showing it right now. I believe we will eventually have a crisis in the yen which could cause tremendous financial market volatility. Finally, we could have a dollar crisis if we don't get our debt under control.

So to answer your question, will the next decade be a lost decade like Japan, the answer is probably "no," but it could be more dangerous.

We had a similar happenstance in 1986 when the gov't changed the laws about passive loss in real estate. A bunch of banks went under as a result of people walking away, and the rest of the S&L crisis hit thereafter. By 1992 the downturn was history, thanks to the RTF and some massive auctions.
I would have expected this downturn to be over. In fact, I predicted it would be done in 6 months when it started. I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing. That can go on indefinitely. Japan has had a declining real estate market for a decade, as has Germany.

"I was wrong.
Government policies have prolonged the agony and kept real estate prices from hitting bottom and the market from clearing."

The idea that any business would miss profits because of some boogyman is fantasy economics. If walmart has enough demand, it will increase is supply and it might even have to increase its labor, to realize higher profits. This rightwing confidence fairy bullshit is insane. If anything the uncertainty comes from republicans in the house that threaten default for no reason, and attempt to repeal unemployment benefits, and stop all progress from being done.

The whole idea of slowing the pace of the default is to give people time to save their homes and to keep us from falling into a DEEP trough.

If it had all gone down at one time it would have taken decades to climb out of it.


If you care about people over profit then you dont just let the market dictate the distruction of millions of peoples lives.


The market takes care of its self but that is at the cost of the market crushing millions of lives.

 

[The Rabbi]

^^This.

Thats the point. If you imagine the private sector as a giant balance sheet, asset, liabilities, and equity, there would be a massive debt over hang. The private sector is deleveraging, its trying to either pay off its liabilities or raise assets, to increase equity. Prices drop you get deflation and then a depression.

If the government would step in remove the debt from the balance sheets, the private sector would be able to spend again. Stimulus is an attempt to do this by providing business to companies, making them a profit as they normally would, that increases their assets, and theyre debt is easier to pay off.

My opinion at least. And at a time when treasury yields are only 1.86 there is no actual market incentive for us to be practicing austerity.

You are one dumb motherfucker. How about if the governmentn just prints $10k and sends it to every household in the country? Think of the stimulus we'd have then!
That is essentially what you are proposing.

Yup more or less. Except the goverment isnt printing money. Im not arguing that the federal reserve print money to do this, im arguing that the treasury borrow money to do this. Although you dont understand the difference... I would have government subsize any debt of the balance sheets of banks that was due to subprime loans/securities issued between 2000 and 2006, on the condition that they deduct a proportional amount from the payments still due on those mortgages.

I would do that until the bond market signaled through lower prices on long term treasury bills, by which point the market would most likely already be sufficiently deleveraged.

What exactly is the downside of that? It just moves the debt from the private sector to the public sector, it doesnt create new debt. As long as yields on treasuries dont rise then its overwhelmingly beneficial to the private sector.

SO you agree you are one dumb motherfucker. That's a good sign.
The gov't does not have infinite borrowing capacity. We already have experienced a downgrade with others on the way. Your plan will render our bonds junk and financing will be difficult.
Your plan makes too big to fail and moral hazard enshrined in our systems. We will face the same crap again in 10 years, as companies figure the gov't will just bail them out. They will start making loans that will make subprime look like triple A credit loans.
That isn't a cure. That's worse than the disease.
The actual way to cure this is to arrange an orlderly liquidation of property via another RTC type corporation with an actual drop dead date. Quit threatening to sue the banks and give them immunity on foreclosure proceedings. Some banks will go under. Others will survive.
Going forward make clear we will not bail out anyone. Remove FDIC guarantees of savings deposits and make banks publish clear statemens of their financial condition.

 

[cbirch2]

You are one dumb motherfucker. How about if the governmentn just prints $10k and sends it to every household in the country? Think of the stimulus we'd have then!
That is essentially what you are proposing.

Yup more or less. Except the goverment isnt printing money. Im not arguing that the federal reserve print money to do this, im arguing that the treasury borrow money to do this. Although you dont understand the difference... I would have government subsize any debt of the balance sheets of banks that was due to subprime loans/securities issued between 2000 and 2006, on the condition that they deduct a proportional amount from the payments still due on those mortgages.

I would do that until the bond market signaled through lower prices on long term treasury bills, by which point the market would most likely already be sufficiently deleveraged.

What exactly is the downside of that? It just moves the debt from the private sector to the public sector, it doesnt create new debt. As long as yields on treasuries dont rise then its overwhelmingly beneficial to the private sector.

SO you agree you are one dumb motherfucker. That's a good sign.
The gov't does not have infinite borrowing capacity. We already have experienced a downgrade with others on the way. Your plan will render our bonds junk and financing will be difficult.
Your plan makes too big to fail and moral hazard enshrined in our systems. We will face the same crap again in 10 years, as companies figure the gov't will just bail them out. They will start making loans that will make subprime look like triple A credit loans.
That isn't a cure. That's worse than the disease.
The actual way to cure this is to arrange an orlderly liquidation of property via another RTC type corporation with an actual drop dead date. Quit threatening to sue the banks and give them immunity on foreclosure proceedings. Some banks will go under. Others will survive.
Going forward make clear we will not bail out anyone. Remove FDIC guarantees of savings deposits and make banks publish clear statemens of their financial condition.

You sound like a child when you insult people. Actually you sound pretty retarded in this situation.

But i realize that the government does not have infinite borrowing capacity. Thats why i said that the government should do this until the bond market signals, through rising interest rates, that it is becoming less interested in financing debt.

But your claim that the bond market will rate our bonds as junk is bullshit. Rates on treasury bills are at record lows, the market has been more than willing to finance US debt. The S&P downgrade was a result of pessimism about our political situation. It was a statement that S&P feels that its less likely we need to make the changes now to not have a debt problem in the future.

We do not have a debt problem right now, not as far as the people buying the debt are concerned.

If you simply allow collapses you lose real wealth. Do you know anything about fractional banking? A bank leverages its assets. Letting a bank collapse and then liquidating its assets will cause a loss in real wealth because the amount of its assets are less than the amount people have in checking accounts there, this is the difference between M0 and M1.

Just because you know big words like liquidity doesnt mean your right. You dont know how the fractional banking system works.

 

[editec]

cbirch responds to Rabbi

You sound like a child when you insult people.

Rabbi can't help himself, I think.

He's a bit of drama queen in that respect. I suspect that he percieves someone who engages him civilially as weak.

That's his problem, not yours, CB

This kind of behavior pointlessly rude behavor is common here because the community tolerates it.

Relief from such behavior is but one Ignore List entry way.

But every once in a while Rabbi says something that is so spot on that it's probably worth keeping him on your radar.

Diminish your expectations and such trollish behavior will roll off your back, amigo.

 

[The Rabbi]

Yup more or less. Except the goverment isnt printing money. Im not arguing that the federal reserve print money to do this, im arguing that the treasury borrow money to do this. Although you dont understand the difference... I would have government subsize any debt of the balance sheets of banks that was due to subprime loans/securities issued between 2000 and 2006, on the condition that they deduct a proportional amount from the payments still due on those mortgages.

I would do that until the bond market signaled through lower prices on long term treasury bills, by which point the market would most likely already be sufficiently deleveraged.

What exactly is the downside of that? It just moves the debt from the private sector to the public sector, it doesnt create new debt. As long as yields on treasuries dont rise then its overwhelmingly beneficial to the private sector.

SO you agree you are one dumb motherfucker. That's a good sign.
The gov't does not have infinite borrowing capacity. We already have experienced a downgrade with others on the way. Your plan will render our bonds junk and financing will be difficult.
Your plan makes too big to fail and moral hazard enshrined in our systems. We will face the same crap again in 10 years, as companies figure the gov't will just bail them out. They will start making loans that will make subprime look like triple A credit loans.
That isn't a cure. That's worse than the disease.
The actual way to cure this is to arrange an orlderly liquidation of property via another RTC type corporation with an actual drop dead date. Quit threatening to sue the banks and give them immunity on foreclosure proceedings. Some banks will go under. Others will survive.
Going forward make clear we will not bail out anyone. Remove FDIC guarantees of savings deposits and make banks publish clear statemens of their financial condition.

You sound like a child when you insult people. Actually you sound pretty retarded in this situation.

But i realize that the government does not have infinite borrowing capacity. Thats why i said that the government should do this until the bond market signals, through rising interest rates, that it is becoming less interested in financing debt.

But your claim that the bond market will rate our bonds as junk is bullshit. Rates on treasury bills are at record lows, the market has been more than willing to finance US debt. The S&P downgrade was a result of pessimism about our political situation. It was a statement that S&P feels that its less likely we need to make the changes now to not have a debt problem in the future.

We do not have a debt problem right now, not as far as the people buying the debt are concerned.

If you simply allow collapses you lose real wealth. Do you know anything about fractional banking? A bank leverages its assets. Letting a bank collapse and then liquidating its assets will cause a loss in real wealth because the amount of its assets are less than the amount people have in checking accounts there, this is the difference between M0 and M1.

Just because you know big words like liquidity doesnt mean your right. You dont know how the fractional banking system works.

OK so first you say that we dont have infinite capacity to borrow. Then you claim that we do because the market is still valuing our bonds. Of course a good part of that is the flight to safety from European bonds. We are the best of bad alternatives.
I dont know what you are calling "real wealth." As opposed to, Fake wealth? Ersatz wealth? Paper wealth, which is all that bank loans are. Is real wealth destroyed when bank loans are called or is it destroyed when the loan goes bad?
Your posts are a muddle of half truths, untruths, poor English, and plain confusion. I'll bet you're an Obama voter.