You don’t seem to realize that 3% inflation caused by M0 increases would wipe out the value of probably trillions of dollars of treasuries that China has bought.

Even if China did not go to war over this, they (and everybody else) would certainly stop buying treasuries. Which means that the only mechanisms for the government to budget would be:

a) Increase taxes
b) Print more money
c) Reduce spending

Take a look at California to see what happens when those options present themselves. Increasing taxes would cripple the economy far more than it already is. Printing enough money to pay bills will make the problem worse (this is a spiral that does not stop). And governments never reduce their spending because it ultimately reduces their power and their ability to give pork to their voters.

I think that ‘Helicopter Ben’ got his name from the idea that he would happily cause inflation through multiplier effects (increasing liquidity) but this is a form of inflating things that does not mess as much with the value of treasuries and therefore does not piss off creditors.

Oh – and the EU might have a lot of regulation in some places, but I consider them equal to the US in terms of government size and socialism. The difference is that the EU spends money on healthcare and infrastructure and the US spends money making Goldman Sachs rich and the military. I am a libertarian, but you have to compromise and prioritize in life, and I think that spending money to make elite bankers rich is a worse evil than building fast trains and keeping poor people from getting sicker.

And if you want to pick on business in the EU, why is it that German cars are the most desirable in the market? Why is Boeing not kicking Airbus’ butt? Where do most luxury brand names come from?

As the number of people who want to take on a mortgage goes down, or if the amount of mortgage on a property is more than people are willing to pay then the price of properties goes down.

While the global economy was expanding and inflation was a certainty mortgages went up. Lenders were willing to lend over the value of properties. Feel free to have the fiat money discussion at this point.

So with Real Estate, if you want to, or some one wants to take on $500K of debt to live in a property, God bless you. We are all grateful for your contribution to the economy. Now, how will you pay for it? if you lose your job can you rent it for the payment?

In all of my career of forty years associated with the Real Estate business that’s been the question. If you lose your job can you rent the place for your payment?

It’s only been in the past ten years, with the internet and global economy that people thought the money would always be there.

If the US starts closing its doors to innovation by taxing people more or regulating businesses like they do in Europe – this is only then that the US will be screwed.

Also – the US needs to keep on attracting top talent from all over the world – even from nanny countries as you call it. So many patents are actually filed by foreign people. So basically you would need the opposite what Bush did. Fingerprinting foreign people and doing mug shots will not discourage strawberry pickers which are ok but not so essential to the US – but Harvard scholars might choose to look for future elsewhere.

Let’s assume the US govt has a sensible policy – that is we want inflation to go up to 3%. So we will print money in the quantity that will allow this inflation to happen. I am sure some good math people can come up with the # of dollars that will need to be printed.

The value of the dollar is just what it is. It does not matter how many dollars are in circulation. IT ONLY matters what you can buy with it. And say there is a 3% inflation rate. Well – investors will demand greater return than just 3% inflation rate. And if they do not like this – they will invest – for example they can build a new factory that will produce some goods and this will give more than 3% return.

And – OK. China could say – we want to just sell all our dollars. But they will NEVER do that. If the US economy collapses the Chinese are screwed. They have 1 billion people to support and feed. If their companies collapse – they will have nothing. Well no – they will likely have some upheavals.

I mean what else is there? The US govt can at any point if they see nothing is working to make a tough decision to just print. And Helicopter Ben certainly is open to that – especially if they call him this.

RALLY DUDE

You’re way overly optimistic IMO and the federal debt spending since Feb 2009 has stagnated anyway, it had to IMO [and apparently Obama agrees with me too]….or we’d be looking at sky-rocketing mortgage rate increases [and even more severe house price collapses than now, especially with concurrent job base loss wage deterioration and unemployment with uncontrolled population growth] and Dr. Roubini clearly agrees with my allegaltion, with his “W” recession prediction.

Turning into a “nanny state” with printed money sounds like a nice fairy tale to our new lower classes [and our elite banksters too...LOL]; but in the end its simply impossible now. A lot of our newer population came from nanny state countries too, so want America to assimilate to their forms of government IMO; its a great American fairy tale to tuck them in bed with; but the harsh actuals today are “No Way”.

As long as the inflation is in check – so it is not too bad – the value of the dollar will sink but not too much. And who cares even if it sinks. So people in the US will not have to go to Europe. And Europe will just have to try to export VERY expensive products so that should bode well for the sales of BMWs….

I think we are dealing with Helicopter Ben. If push comes to shove I think the US govt will just really print like crazy….. OK. and so the bonds will go bananas. So what. The govt can just print and print. And maybe China will feel uncomfortable. Well – China realizes that if the US heads down they will not be able to produce more toys and the Chinese govt will be in a big mess with lots of angry people running around in China. So China will try to maintain a low profile.

It really does not matter how much the credit market as contracted. The US govt HAS the ability to replace the money by SIMPLY printing it. And IT CAN print money in any quantity.

ROUBINI SOFTENING AFTER ELECTION

Yep, myself and a lot of his bloggers don’t rib him much about it [most of us are Democrats], but when he came up with the “W” recession logic; let’s put it this way, if you were betting on odd or even on a roulette table and said both, you can’t lose….

He’s been travelling all over and looks weary, he gets more negative about the economy only after Obama does….

Besides, Roubini admits to 2009 deflation, yet throws out a possibility of $100/bbl oil [just about the time cap and trade were being developed]…..now with the bad economy some are saying its heading for $20/bbl….the point is, you don’t make economic comjectures or possibilities just to line up with bills you like. Lord only knows where oil is heading is the right answer…..LOL

I don’t think Roubini uses “Lord only knows” as a prediction….LOL

Deflation is here though, and how in Hades do we have inflation with constricted wages? Even our house mortgage cash machines are tapped out and credit cards were tapped a long time ago.

RE: The Tim @ 35 – So in proportionally equivalent environment where prices have dropped 45%+- the rate of absorption is the same as KC where prices dropped 18%+-?

The bay area had a Superbubble or a really tall tree that needed to be topped. King county was a fruit tree that needed some serious pruning.

RE: Sniggy @ 50 – Who’s dealing with this for you? .

I am not sure that the listing agent is properly equipped to handle this. We really want the house, for the price that was accepted I am willing to spend 2% of the purchase price out of pocket to make the deal go through.

Or, if you are correct that his doom message has been watered down, could it be that actually Roubini thinks things might just be a bit better than they were, say 7-8 months ago?

To some people 7-8 months in a recession seems like too long, and to others it’s only a small portion of the total time they expect the recession to last. I think most of the former group call themselves Republicans and most the latter Democrats, at least while there’s a Democrat as President.

I have an offer in on a short sale, where I knew about the 1st and 2nd Mortgage.

We pulled title, and found that their is a 3rd and 4th lien that are also on the house.

The house is going to foreclose, and nobody will buy it for anywhere close to the 1st and 2nd let alone the 3rd and 4th.

Once the house forecloses the 3rd and 4th are gonna get squat anyways.

Is it unreasonable for me to offer 2-4% of the 3rd and 4th to get those liens removed so we can close the house?

I am 95% sure that we can get the 1st and second taken care of with our offer.

….ever since Obama was elected the Democrat Dr. Roubini’s doom message has been watered down substantially….

Softwarengineer, are you suggesting Roubini is softening his doom and gloom message to make Obama look good?

Or, if you are correct that his doom message has been watered down, could it be that actually Roubini thinks things might just be a bit better than they were, say 7-8 months ago?

I mean, what is more likely, a highly respected economist distorts his economic outlook to make a politician look good – or the economic outlook isn’t as bad as it was?

Just curious….

Why can’t we work out our differences? Why can’t we work things out? …Why can’t we all just get along?

With the Fed maintaining the money supply so aggressively, inflation is going to result not from the moneyary side, but from falling production due to layoffs and the disincentive effects of higher taxes and higher social spending.

I am not going to have an inflation/deflation argument on this blog. Been there enough times to know it is pointless. But I must say I don’t get this statement.

As for the piece, I’d still recommend subscribing to John Mauldin. He was going to have a newsletter in the near future talking about the case for inflation. You may even enjoy that one.

RE: The Tim @ 35 – Thanks The Tim, so surpising it isn’t. And dj you need to use the info given by mukoh which did not include any size other than the number of counties so save the smartass comments for when they apply. Do not worry, you will not lack opportunities to ecercise them ;-)

What was smartass about my comment? I thought it was pretty tame.
common sense says that the 9 bay area counties don’t have 9x the population of king county. I was trying to add actual facts, Tim’s post was cross-posted with mine but we are basically saying the same thing.

YES

Realitors should be screaming for environmental controls and fiscal responsibility, like a good portion of the Democrats like us do…..their jobs are on the line too.

The GDP prediction in your article of flat for many years is simply “horrifying” [especially with more uncontrolled growth competing in a stagnant/deteriorating job market for many years to come, assuming the article is correct]; and perhaps neither of has economic degrees, but I’m a man that admits I have islands of common sense in a sea of confusion.

I hope these economists leading us back to the gas chambers of more uncontrolled growth debt making it far worse, gain an island of common sense too and change their minds. That kind of obsolete thinking falsely worked when Greenspan had a mortgage interest rate lever he could keep lowering [making retirements impossible]; now-a-days, the short-term treasuries are at 0% interest and the lever is “pegged out”, just like when Japan couldn’t use the Greenspan interest rate decrease lever anymore too [and sunk into a twenty year real estate downturn, they never recovered from to date].

In June the Bay area had about 8600 closings, while King, Pierce, and Snohomish ( Seattle MSA) had 3662 closed sales, so in reality the Bay area closings for June were slightly higher than ours based on population, but not all that significant.

RE: Softwarengineer @ 36 – SWE – w/r/t the inflationary impact of the stimulus package, you should read this article. John Mauldin presents some of the more pragmatic thinking on the issue that I have seen. Well worth subscribing to his newsletter.

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/07/13/debt-and-deflation.aspx

There were a lot of missing pieces in that article. The Fed appears to be pacing its money creation to balance the monetary effects of falling asset values. That’s why inflation is slightly above 0.

The article you cite mentions the supply side only briefly and never returns. However, to say that the multipliers from taxes and government spending balance out leaves out the fact that business spending is intended to produce goods and services or to improve productivity, while government spending is usually just the opposite. With the Fed maintaining the money supply so aggressively, inflation is going to result not from the moneyary side, but from falling production due to layoffs and the disincentive effects of higher taxes and higher social spending.

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/07/13/debt-and-deflation.aspx

so to the question asked by Ira, 8600 closings appears to be proportionately much higher than what we are seeing. But prices have dropped much further and foreclosures account for a greater share of the volume in the SF area.

I feel that the Bay Area also had a huge pent up demand. I mean $800k in 2006 for a 1k SQFT house. Many people there wanted to buy houses, but couldn’t dream of spending that much for one.

RE: mukoh @ 22 –

“A total of 8,644 new and resale houses and condos sold across the nine-county Bay Area in June.”

KC has about 3000 ( sfh only ) sales a normal year in June. If the 9 Bay area counties are close to KC in size it would make 9 x 3 = 27k sales a normal year. What is so suprising about 8.6k sales?

the only thing surprising to me is the assumption that every one of the bay area counties could possibly be the same size as KC – which is the 13th largest county in the country at 1.8mm residents.

Bay Area CSA (San Jose-San Francisco-Oakland, CA) is about 7.3mm residents. Seattle MSA (Seattle–Tacoma–Bellevue) is about 3.3mm. It is a bit of an apples/oranges comparison but that is roughly the 9 county vs. 3 county population stats

so to the question asked by Ira, 8600 closings appears to be proportionately much higher than what we are seeing. But prices have dropped much further and foreclosures account for a greater share of the volume in the SF area.

HI DEEJAYOH:

Assuming Dr. Roubini’s “W” recession theory holds water [I think its basic philosophy is true, albeit ever since Obama was elected the Democrat Dr. Roubini's doom message has been watered down substantially; hence, I believe we're actually in a depression with today's actuals of "high unemployment and deflation" that will turn for the far worse into "high unemployment and inflation (stagflation)", if we significantly increase the federal debt short-term causing inflation], any substantial federal debt in the near future, will make today’s low fixed mortgage rates look like low-balled impossibilities.

Population as of 2000 Census:

Sonoma 458,614
Napa 124,279
Marin 247,289
Solano 394,542
San Francisco 776,733
Contra Costa 1,024,319
Alameda 1,443,741
San Mateo 707,161
Santa Clara 1,837,075
Total 7,013,753

King County: 1,737,047

So the 9-county Bay Area has approximately 4x as many people as King County. NWMLS reported 2,083 SFH+condo sales in June for King County. If the Bay Area sales were happening at the same rate as King County, they would have had 8,410 sales. So homes down there are selling only slightly faster per person than they are here.

“A total of 8,644 new and resale houses and condos sold across the nine-county Bay Area in June.”

KC has about 3000 ( sfh only ) sales a normal year in June. If the 9 Bay area counties are close to KC in size it would make 9 x 3 = 27k sales a normal year. What is so suprising about 8.6k sales?

There is no top or bottom to Real Estate. Real Estate is a constant as an investment, it is a hedge against inflation. Real Estate is tied to, but is not a part of the Consumer Price index. Housing is an intangible in many ways, but it’s core value is it’s ability to generate rental income. That rental income is calculated into it’s ability to pay down the principle balance. In that way it is an equity investment.

The problem we have today is that the debt instruments tied to Real Estate are priced far beyond the consumers ability to service that debt. Look at it this way: if all properties were to depend on rental income to pay down the principle would that be possible? No.

The debt instruments that were being traded for years rely on some American Dream that home owners will love the home so much they will pay ahything to keep it. Hah!

one thing I can say for certain, Cramer doesn’t have it right. but don’t worry, he’ll make another bottom call soon.

RE: b @ 24 – Confusing how 8k+ people decided to buy homes in this market. WTH are they thinking.

It just might end up being a good decision for those who have waited patiently. I rarely agree with Cramer, however this time I think he’s got it right. Housing has bottomed.

King County pending counts remain very steady coming in at 545 for the week. The last 7 weeks KC pending counts:

599, 597, 601, 580, 514, 481, 545 .

The last week of March, we saw pendings go from approx 400 / week to 500. Weekly pending counts have remained fairly consistent since mid April.

A total of 8,644 new and resale houses and condos sold across the nine-county Bay Area in June. That was up 16.1 percent from 7,447 in May and up 20.4 percent from 7,178 in June 2008, according to San Diego-based MDA DataQuick.

8600 people bought in one month? Thats pretty weird.

http://www.calculatedriskblog.com/2009/07/dataquick-california-bay-area-home.html

I don’t believe anyone sought office to give money away to bankers and idiot home buyers.

RIGHT ON PATIENT

He’s in a grave with a bullet hole through his head, but one of the greatest presidents we’ve ever had [IMO] coined the phrase:

“Ask not what your country can do for you, ask what you can do for your country.”

Boy, does JFK’s philosophy counter this current “nanny state” philosophy of giving catastrophic sized welfare to banksters and idiot home buyers.

DON’T WORRY TIM

I think its all wishful thinking to spend more like a drunken sailor. If we spent the other 95% of the imminent $787B stimulus approved way last February, I assert it would be highly inflationary on home mortgage interest rates, let alone spending another $Trillion on medical or anything else for that matter.

We don’t dare spend more or face an imminent mortgage rate increases [with more subsequent home price collapses] IMO. The spend philosophy is all talk IMO to sooth the public in to believing we’re doing something we can’t to solve unemployment.

Its a horrifying witches brew budget deadlock conundrum and a good percentage of the Democrats agree with us too.

When the banks are actually doing well, there won’t be any complaints about tight commercial financing.

Smoke and mirrors. The left wing media – govt. do not believe in personal responsibility.