This morning, Volker (link from CR) says we’re in for a “considerable U.S. recession.”

http://calculatedrisk.blogspot.com/2008/10/volcker-considerable-us-recession.html

Also, we’ve talked about Barclays North on the blog and in the forums. It will be interesting to see how the local state-chartered banks fare once they have to take the Barclay’s write-downs.

Last, I’m with Robert Wojciechowski (comment just above this one.) banks have to make loans to surive, but this time around they need to make good quality loans. Especially during a recession.

We should expect underwriting guidelines to tighten and interest rates to go up on higher risk loans, both of which will contribute to fewer home buyers, rising inventory and shadow inventory of REOs coming from the higher foreclosures.

FHA keeps accepting the marginal buyers with a 3.5% downpayment.

As prices continue their march downward, soon, FHA will need a bailout.

NOW where will the first, second, and third time homebuyers go who don’t have 20% down?

Yes – so the prices of real estate can drop quite a bit. Once that situation stabilizes the prices will not keep going down. Banks will start issuing loans for mortgage again.

So long term this will play itself out I think!

Lot’s of money in circulation = inflation. Little money in circulation = deflation.

In the Japan bust, the govt. threw massive money at the problem and lowered the lending rate to nothing in hopes of getting the money flowing into the system. But instead of taking the money and lending it out, the banks put the money in safer ventures such as T-bills. Thus, inflation never took root.

The U.S. is looking at the same problem. Let’s say we throw mass money at banks in an effort to get them to lend. What is going to get them to lend that money to a guy coming in for a loan on a house that loses value before he gets the paper’s signed? There are much safer ways to invest the money.

The first idea I’ve heard yet that I’ve actually thought could work is the govt. buying into the top banks. It’s a lot easier for one bank to trust loaning to another bank when they know the govt. has a heavy stake in the co.

Personally, I’m against the idea, but if we are going to spend the money anyways, I’d rather see it go this way than some of the other stupid B.S. Paulson had planned.

Thoughts?

Were you looking on this week list or 4 months ahead list?

I think the irony is lost on them.

Tim we forgot to add one choice. Hays Barnard is now calling our economy “nutty.”

Need help: Rheem or Bradford White?

Any advice appreciated. Gas hot water. Thanks!

This is going to be a difficult process to reverse. I see massive investments efficiency, rail, and alternative energy as keys to the solution, but sadly, our politicians do not have the same sense of urgency.

The currency moves in this crack-up are going to surprise a lot of people.

The issue is that in Japan actually the Federal bank curtailed supply of money and that contributed to the bust.

Huh? This is not the case at all. The Japanese central bank FLOODED the market with easy credit, even offering negative interest rates (i.e. PAYING banks to borrow from it). Unfortunately, this didn’t help.

Actually, the loose monetary policy in Japan is one of the main culprits behind the credit bubble. It encouraged the massive Yen carry trade (i.e. with people borrowing cheeply in Japan to invest elsewhere).

The main player in buying the Sonics gets butt kicked financially.

AP
Chesapeake Energy CEO forced to sell company stock
Friday October 10, 8:14 pm ET
Chesapeake Energy CEO Aubrey McClendon sells bulk of his stock to meet margin calls

OKLAHOMA CITY (AP) — Aubrey K. McClendon, the billionaire chief executive of Chesapeake Energy Corp., has sold “substantially all” of his stock in the company over the past three days in order to meet margin loan calls, the company said Friday.

Last month, Forbes showed McClendon at No. 134 on its list of the nation’s 400 richest people, with a net worth of $3 billion, an increase from $2.1 billion the previous year.

A margin loan is a loan made by a brokerage house to a client that allows the customer to buy stocks on credit using securities. When a stock dips below a certain point, brokers who lent investors money through margin agreements demand that the investors sell part of the stock or pony up cash to cover losses.

McClendon said he looked forward to rebuilding his ownership position in the company. He and Tom Ward co-founded Chesapeake Energy, the county’s largest producer of natural gas, in 1989.

Both men are members of an ownership group that recently purchased the NBA’s Seattle SuperSonics and the Seattle Storm of the WNBA for $350 million. A group of Seattle businesswomen purchased the Storm from the group, but the Sonics franchise was moved to Oklahoma earlier this year after much legal wrangling.

Chesapeake’s stock closed Friday on the New York Stock Exchange at its lowest price of the year, $16.52, down $1.19, and well off the $74 top of its 52-week range.

http://biz.yahoo.com/ap/081010/chesapeake_energy_ceo_stock.html?.v=2

How about a global economy with wage depression/competitions on most American workers, 100-200 million more American citizens [most paying in very little income tax] and hoards of bad loans to the greedy poor from the greedy rich from 1998 on.

How do we fix it like we did in 1970 and 1990? Hard question, we’re in uncharted debt territory and I don’t want to sound hopeless, but if we don’t control uncontrolled growth in America, I see no light at the end of the tunnel. It will just get worse as growth gets worse.

Without a decent low growth worker tax base with higher Middle Class pay we can’t fund our crowded schools or rebuild our bridges and roads. Why do you think our public schools are failing in math and science? I clearly believe its too much growth and subsequently not enough decent wage revenues with too much in-sourcing and outsourcing deterioration of the Middle Class tax bases.

King County’s solution, raise our property assessments as home values collapse. Sounds good if you’re renting, don’t smirk, the landlords pass on the illegal increases. Appeal your property assessments, its slam dunk, you’ll win in this corrupt and desparate political environment.

You won’t hear almost all the Dem/Rep politicians or media talk clear thinking like me, you will hear Dr. Nader talk like me though.

The govt can print as much money as it wants. And it looks like all banks will print money as necessary to make sure there is lots of money going around and markets stay liquid. If banks start lending money to each other there will be exchange of goods and services.

The only issue is whether foreign people will be so willing to hold USD. This helped in the past for the US to keep interest rates low and deficit high. So foreign people and govts might no longer be willing to bail out the US. So consumption might go down a notch and the economy could stabilize at a slightly lower level. And the US might be loosing its importance to China and the rest of the world but the US will likely stay strong.

Plus it can still corrupt many 3rd world govts and drain resources out of them. So this can still go on for a long time. I am surprised that Iraqi govt is not sending oil in exchange for some consulting services on democracy or something like that. I am sure if the US decides to go for Iran’s resources then it will put in a govt that will serve US interests. Or maybe the existing govt seeing what happened to Iraq will agree to give the US natural resources for very cheap and allow US corporations to profit there?

On top of that the US does not regulate private enterprises like Europe does and as a result I think the innovation will exist more in the US than say in Europe. I doubt that the French would agree to have a competitive economic model.

So maybe a recession that will provide some clensing after the debt spiral and then business as usual. That’s my bet!

The current actions that our politically elected “leaders” have taken almost guarantee its going to be a depression.

No it isn’t, 70s style stagflation requires a wage-price spiral. Nominally wages increase, although on a real basis they may not be increasing. In the 70s, unions were negotiation double-digit cost of living increases in salary to keep up with price inflation. That is something that we don’t see now. We are not even seeing nominal wage increases that can keep up with the core CPI measurement.

The “stag” part of “stagflation” is not wages, but GDP and productivity growth.

And I don’t think we’re going to see stagnation, either, other than on a decadal scale. I think we’re going to get rollercoasters up and down with stagnation as average.

Just thought I’d point it out. I intentionally didn’t say “stagflation.”

The unusually high levels of personal and .gov debt and how they will resolve are the great unknowns in the current situation. We’ll just have to sit back and see what the .gov comes up with as a strategy. My best guess is we wobble along on the tracks for a year or so before the next phase hits, and it may well be a more widespread collapse. None of the attempts to stabilize put forth so far are really curative- they delay, but don’t resolve the underlying issues.

wage inflation is flat. what we are seeing now is asset prices falling back in line with salaries and destruction of the debt that fuelled the pre-2007 boom. no matter how inflationary the policies of the government are wages are going to be stuck at their current levels due to a collapse in the job market and rising unemployment.

unless we see double-digit year over year inflation in wages this is definitely not the 70s. if it had been the 70s, then for the past 8 years we would have seen aggressive negotiating on the part of strong unions for wage hikes to keep up with the rising cost of gas and food. the prescription would also be to hike rates to 20% like Volker did — and he was allowed to do that because of the relatively low amount of debt that consumers were carrying (due to the debt devaluing due to the inflationary forces). what we find ourselves in now is a situation where we are leveraged to the gills and no way of seeing asset inflation not unwind in asset deflation instead of wage inflation.

maybe in 10 years the 70s will be back, but its not happening today…

(and as much as everyone talks smack about the $USD and the chinese dumping it, what we’re seeing is a flight to the $USD which is taking down commodities and foreign currencies and a massive strengthening wave in the $USD. and as long as the world believes that US treasuries are the only safe harbor in the storm that will make it so).