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Housing Bubble Bursting?

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We Choose To Have An Energy Shortage

I believe that it is obvious to the most causal observer that our local, state, and national laws and policies have dictated that this country shall import oil. For example, we don't let any oil company drill off shore in such places as Florida but China is drilling 90 miles off Florida, in Cuban waters. We don't want the oil; we choose to let the Chinese have it.

We choose not to have nuclear power plants.

We choose to have a clean environment so no new refineries have been built in this country in the last 20 years.

We choose not to have a gasoline standard for all 50 states so therefore we have 50 blends of gasoline that produce shortages in local markets.

We choose to have the FED rein in inflationary expectations by its monetary policies. It is called allocation of credit and money.

We choose to have loss of jobs in this country as a trade off for wage inflation.

We choose to have a trade deficit.

We choose to have terrorism; we buy oil from known states that sponsor terrorist.

We choose to have illegal aliens; we don't want to cause a labor shortage.

Get it? We choose these things, they just don't happen without us.
 
Oil grabs

Understand that North Korea realizes it will be one of the first countries to loose its oil supply; sanctions will be used on powerless countries for an oil grab. Pickens predicts that the only way to reduce demand is to kill men who use it.
 
Moh my apologies for missing it. I saw a link today on the Drudge Report and read it. The date on the page is July 9, 2006 which usually indicates it will be in tomorrow’s New York Times. Of course it wouldn’t be the first time the New York Times is wrong….wouldn’t be the first time they were guilty of plagiarism either. :)
 
Fed Treading on Thin Ice as U.S. Housing Bubble Weakens

Fed Treading on Thin Ice as U.S. Housing Bubble Weakens

By Mark Weisbrot​

Everyone recognizes that the U.S. economy is slowing, but the question is, how bad will it get? One disturbing sign is that the Federal Reserve is raising interest rates as the economy slows, and it is not clear when it will stop. This is not good because each rate hike is deliberately designed to slow the economy by causing both consumers and businesses to borrow and therefore buy less. The idea, as Fed economists see it, is that as overall spending is reduced, employers will hire fewer workers. As unemployment rises, employees are in a weaker bargaining position, and this leads to slower wage growth. Slower wage growth, the Fed hopes, will lower inflation.

Although it is no secret among economists, most Americans don’t know that the Fed fights inflation by increasing unemployment and thereby lowering wages. The public probably would find this unsettling. Inflation, as measured by the Consumer Price Index, has been running at 5.7 percent over the last three months, up from 4.2 percent over the previous year. But most of this is the result of higher energy prices and the fall of the U.S. dollar against other currencies, which raises the price of imports and therefore adds to inflation.

The Fed sees rising wages as the problem, because the people who run the Fed do not look at the economy from the point of view of wage and salary earners. They have a “bankers-eye view” of the economy, which sees even a relatively small increase in inflation as a dangerous thing because it erodes the value of bonds. And for them, the way to keep inflation in check -- no matter what its cause -- is to keep wages from rising.

Average wages, adjusted for inflation, are less than they were four years ago – which is unfair, to say the least, given the economic growth over this period.

But it’s about to get worse. Since the mid-90s the country has accumulated an enormous housing bubble, as house prices nationally have risen nearly 70 percent after adjusting for inflation. In some bubble areas, mostly the east and west coast, the real increase has been over 100 percent. Since house prices have historically increased at about the same rate as inflation, this means that more than $5 trillion of excess paper wealth – similar to the stock market bubble of the late 1990s – has been created. Just as bursting of the stock market bubble caused a recession in 2001, the collapse of the housing bubble will almost certainly do so.

There is evidence that this bubble is already beginning to burst: new home sales, existing home sales, and the median price of existing homes were all lower in the first quarter of this year as compared to peaks last year. Vacancy rates for new homes are rising.

House prices do not have to collapse at once in order to tip the economy into recession. Many Americans use their houses as an ATM machine, borrowing against the value of their homes. These home equity loans, including hundreds of billions of dollars “cashed out” when people refinanced their homes as mortgage rates hit record lows in recent years, are what has driven the U.S. economic recovery since 2001. Falling home prices leave less equity that homeowners can borrow against. The personal savings rate is at a record low for the post-World-War II era, hitting negative 1.6 percent in April.

Rising mortgage interest rates will finish off the housing bubble if oversupply and a psychological reversal of the speculative mania don’t do it first. This party is about over, most unfortunately for the majority of Americans who never got to join in the festivities.
 
Wages are the least of the FED worries.

Nominal wages in this country have been falling. - sited by Barney Frank

Consumption of higher cost energy requires the country to slow down; problem is, as the USA slows down and consume less energy - other parts of the world will continue to consume more and more as the dollar erodes.

"Bankers eyes" - has little to do with commodity inflation ......
 
Randolph Kinney said:
Inflation, as measured by the Consumer Price Index, has been running at 5.7 percent over the last three months, up from 4.2 percent over the previous year. But most of this is the result of higher energy prices and the fall of the U.S. dollar against other currencies, which raises the price of imports and therefore adds to inflation.
Click to expand...
This is really the meat of the article, because if inflation is driven by only one or two sectors of the economy, then the Fed's strategy of raising rates is likely to not work very well. What happened before, during the Carter administration, was that inflation continued to increase at the same time the economy slowed. An intractable situation, dubbed "stagflation" by the media. I bought a house in 1985, and the thirty year fixed rate was near 18 percent; don't remember exactly, because we bet right on an ARM, which went down in each of its five adjustment periods. Fortunately, fuel is not as large a portion of the economy as it was then. Additionally, if the housing bubble does not actually burst, then many Americans may feel the urge to continue spending.
 
Steve Owen said:
This is really the meat of the article, because if inflation is driven by only one or two sectors of the economy, then the Fed's strategy of raising rates is likely to not work very well. What happened before, during the Carter administration, was that inflation continued to increase at the same time the economy slowed. An intractable situation, dubbed "stagflation" by the media. I bought a house in 1985, and the thirty year fixed rate was near 18 percent; don't remember exactly, because we bet right on an ARM, which went down in each of its five adjustment periods. Fortunately, fuel is not as large a portion of the economy as it was then. Additionally, if the housing bubble does not actually burst, then many Americans may feel the urge to continue spending.
Click to expand...
Wage inflation as measured is not showing what it would be if we did not have illegals, down-sizing and outsourcing. The result has been stagnant or falling wages even as the economy shows strong job growth.

The affect of asset inflation has been seen with rising real estate prices, which eventually will be translated into commodity inflation and core CPI inflation.

The problem the FED has was already played out in the recession of 2001 where the stock market bubble did burst prior to it. That set off a deflationary expectation and the FED responded by lowering interest rates to the unheard level of 1%. The FED is looking at Japan as the model of what can happen when you have asset inflation (stock market and real estate market) that went wild. Those assets have declined in value for the last 15 years and only recently have they shown any recovery.

Really, the FED is hamstrung by the trade deficit and a large need to finance the national debt. We as a nation spend our way out of recessions by creating debt. That works as long as the people who buy that debt agree. The problem with Carter administration was the FED monetized the debt - they printed currency and lowered the reserve requirements. We paid our oil bill with printed dollars. Those dollars today are still known as Euro-dollars. The oil exporting countries took their dollars and put them into banks (European and U.S.). The banks loan those dollars out to third world countries who could not pay for their oil imports at very high interest rates. The rest is history.

Today, our banks are selling their loans to investors. It is those investors who now have a choice to demand higher interest rates to compensate for expected inflation and FED policy. If the default rate and foreclosure rate rises significantly, you will see something this country has not seen before as investors pull out.
 
Randolph Kinney said:
.The FED is looking at Japan as the model of what can happen when you have asset inflation
Click to expand...

A couple things are different between the Japan asset bubble and ours ....

Peak oil had not been reached ..... (Today we are crossing unchartered waters)

Japan is a net exporter (We are a net importer)

Japaneese have a savings rate of about 4% (Our savings rate is -1%)

Japan controls its borders (we have wage regulations yet import illegals)
 
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