Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

41 responses to “Economic Conditions Open Thread”

  1. pfft

    “or headed for a second leg down?”

    I predict that many people who didn’t call this upturn or don’t believe we are in an upturn will disproportionately call for another downturn.

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  2. Chris M

    I think we’re in for a long hard slog to get out of the hole, made more uncomfortable by our relative decline to some big Asian economies, but things are improving, just slowly. We stopped the decline and made it 1/4 of the way back up out of the hole by applying the lessons of the 30s.

    But dealing with the structural deficit (as opposed to the temporary spending that stopped the crash) is a political problem which neither party can currently face up to (more taxes and less services are both coming or we default) and will be the big challenge of the country for the next 10 years. Long and hard lower paid work to get the rest of the way back.

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  3. pfft

    I think that we are at a pause in the economy that started a few weeks ago. the pause that refreshes. we are still in recovery.

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  4. DrShort

    We are in a weak recovery and globalization will make it very hard to get unemployment down significantly. During the downturn, US workers lost their jobs. As we recover and companies expand their output, they will look to cheaper sources of labor outside of the US.

    The US government needs to make serious structural changes to the cost of domestic labor. This includes:

    + Eliminate social security and medicare taxes on wages
    + Eliminate employer provided health care
    + Replace lost revenue with a value added tax. By doing this, health care and social security is funded by all, not just US workers.

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  5. David Losh

    RE: pfft @ 1

    Every one predicted the up turn. It’s really a no brainer that if you dump Two Trillion Dollars, $2,000,000,000, that there will be an up turn. However that $2,000,000,000 was on top of another set of Trillions of Dollars. So yes we are having an up turn.

    I banked on inflation. Other thought magic would happen, Obama for instance. We did however just stall what will be a continued deflation. Assets in particular, and in my opinion commodities also. We just don’t need it. There is nothing shiney enough to induce us to buy.

    When you stop a steam roller of an economy, the way we had, there will be a lot of surplus once the demand stops.

    So I don’t look at it as a leg down, but rather an adjustment to normal. The stock market at 9000 would be normal, and I think healthy. The price of housing dropping, would be normal, and healthy. We can go down the line, but here in this country we will be able to afford the adjustment, other countries, not so much.

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  6. Sniglet

    I called for a substantial economic rally back in early 2009, which would be similar to the recovery seen after the crash of ’29. So far things are playing out exactly as expected. The next major leg down in the depression is just starting to gain speed, and we should see breaks of the 2009 lows by the end of the year.

    We likely won’t hit bottom till 2016, give or take a year, at which point the Dow will be below 1000 and average Seattle real-estate prices will be less than 80% of their peak prices. Commodities will likewise be significantly devalued. Oil will be going for less than $25 a barrel, and gold will be less than $200 an ounce. We are embarking on a deflationary depression of an even greater magnitude than we saw in the 1930s (i.e. the credit bubble we have has been much longer in duration, and rose to far greater heights than the bubble pre-ceding the 1930s depression).

    Interest rates for high quality debt will remain extraordinarily low, and will likely fall even lower than they are now. However, increasingly fewer individuals and companies will be able to qualify for loans in the first place.

    Along the way to the bottom I expect there to be MAJOR multi-month rallies that will retrace 60% to 80% of the previous peak (which will be mirrored across all asset classes such as stocks, real-estate, commodities, etc). But each of these rallies (which will spark optimistic calls for a “bottom”) will eventually be undone and we will see even lower lows.

    This is similar to the phenomena Japan has been experiencing for 20 years. They too would see their stock and real-estate markets rally for a year or two, only to see them decline to even lower lows. Anyone who thinks real-estate prices only go up just has to look at how homes are now selling at 30 year lows in Japan!

    This cycle occured during the 1930s as well, where there were several massive rallies as well as crashes.

    You can listen to the discussion I had about deflation on my Optimistic Bear radio show a while back if you are interested.

    http://surkanstance.blogspot.com/2010/03/this-week-on-bear-radio-primer-on.html

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  7. Lamont

    Recovery.

    Bank failures are a very lagging indicator.

    Stock market will be sideways-to-up from here at the end of the year. Employment will recover further. GDP and other indicators will recover further. This year is likely to be a bit of a sideways pause though.

    I don’t claim this recovery to overall be a healthy boom, but I don’t see any kind of double-dip, and expect everyone calling for another imminent collapse by the end of the year are going to be proven very wrong. They will eventually be right 3-5 years in the future when the business cycle turns down again, but that’s the broken-clock phenomenon.

    On a much larger viewpoint, I expect that we have one more major downturn to bring an end to the 15 year+ overall sideways motion of the markets. Somewhere out at 2015 I expect we’re going to be back to roughly where we are now, but I expect that coming out of that low we could exceed DOW 20,000. I think for now that if the DOW hits 13,000+ its time to think about bailing out (because all the risk and worries that all the bears are pointing out are entirely valid economic issues that will come home to roost eventually).

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  8. Coloradoan

    I think we will see the following 2 years from now:

    The good:
    Unemployment rate much improved to 7%.

    The bad:
    Persistence of asset bubbles in the US, little will have changed to prevent another bubble pop & No reduction in national debt

    Neither good nor bad:
    Housing prices will be moderately lower than they are now

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  9. Dave0

    By DrShort @ 4:

    We are in a weak recovery and globalization will make it very hard to get unemployment down significantly. During the downturn, US workers lost their jobs. As we recover and companies expand their output, they will look to cheaper sources of labor outside of the US.

    With this downturn in the USA, combined with the growth of Chinese and other Asian markets, has caused many Asian companies to open factories in the USA. This is good news for the USA, as it means that more money will start flowing into the USA, bringing down the trade deficit.

    Here is a good article about it: http://money.cnn.com/2010/05/06/news/international/china_america_full.fortune/

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  10. Sniglet

    growth of Chinese and other Asian markets

    Unfortunately, I fear that Asia is going to experience an even deeper economic contraction than America, and that demand from Asia will tank big time. China, for example, is in the midst of a MASSIVE asset bubble. We’ve already seen Shanghai stocks fall 25% in the last 10 months, and considering how this is a volatile emerging market a 90% drop from where it is now isn’t out of the question. Worse, the mal-investments with easy credit in real-estate across China is astounding. There are massive malls lying and countless skyscrapers lying vacant.

    The real-estate bubble in China makes what’s happening in the US look like child’s play.

    India, Australia and New Zealand are similarly experiencing massive bubbles in real-estate and stocks, most of which is being driven by easy credit rather than fundamentals.

    Foreign markets aren’t going to be of much help to the US in getting out of the depression that is gathering.

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  11. David Losh

    RE: Sniglet @ 10

    Those shopping malls, and sky scrapers were make work projects, that were built with borrowed money, that made the security instruments, that allowed China to be a player in the global market place. For a brief period of time China was on a level playing field with the rest of the world.

    Now let’s remember that China has 1.5 Billion people to feed. They are a communist country, so they will return to the task of feeding the poor. There is still a political elite that will continue to make deals out side of the country. They have already invested the money so they will follow it.

    Let me repeat, they are a communist country so there is no bubble. They can either service the debt, or simply not pay. They have a choice that other countries do not. Other countries are dependent on economies. The Chinese, like Russia before them, can simply throw up their hands, and declare they were just kidding. It was all a grand experiment that didn’t work. It’s all capitalisms fault, so they are going to start over. “Mr. Gorbachev Tear down that Wall,” and they did, and now we are all allies. Go figure.

    The collapse of Germany, on the other hand, will be a problem for us. Greece is a lost cause, Italy lost, Spain lost, England lost. India? Forget about it. That’s a billion people without a skill set, other than English. India has to be the most overly exploited country on earth. A topic for another time, but over educating a population with sever social, religious, and cultural disparity only made matters worse.

    Africa I think will come out better, and just possibly South America. It will depend on if they learn from what they just saw. The more countries resisted being involved in our financial nonsense the better off they will be.

    The United States, if they forge a good working relationship with Canada, and Mexico will thrive. We will pay back the debts we have, and move on within seven years. I think that’s the cycle.

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  12. Scotsman

    A long, bumpy drift to the bottom. I’m with Sniglet as far as the structural issues go but don’t think the bottom will be quite as low. Dow in the 4,000 range, homes 60% off peak, lower interest rates, oil in the $40’s, gold who knows where- it’s an irrational purchase to my mind. Real unemployment will hang in the low teens for some time, wages and benefits will be cut to bring us more in line with world competition. China’s collapse will come within a year or so and be the final nail in the coffin since they will no longer be able to buy our and others debt. Many states and municipalities will face serious problems and cutbacks leading to a general restructuring of public sector wages and benefits. This will put additional downward pressure on consumption spending and public revenue streams, leading to further reductions. Bottom in 2014-2016 with a very slow climb back up.

    Most people miss two important issues- that the entire world is involved in this bubble and debt binge, and that the marginal productivity of new debt is already zero or less, so “stimulu” will not provide a lasting boost. In fact, it will just add weight to the anchor already positioned around our necks.

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  13. Ben Edwards

    Some things I will predict —

    1) Expect investors worldwide to continue piling into US dollars and US bonds as a safe haven from IMF- and World Bank-created (the two economic arms of the UN) global economic turmoil. Then, without warning, Obama will declare a bank holiday. The US dollar will lose 50% or more of its value overnight. All US dollar-based assets in savings, checking, trading acounts, retirement accounts, etc. will be frozen and only a certain limited amount will be available from your withdrawal over a period of several months, as the US dollar continues to decline.

    2) The US dollar will be replaced with a new world reserve currency. This could very well be a simple devaluation of the current currency, such that $1 now equals $0.50 or $0.10, for example. Maybe similar to what happened in Mexico, with the “Mil” Peso. The new reserve currency may be US dollars (a fixed, devalued version), SDRs (special drawing rights), or something entirely new. This will be a regional currency. We may also see a world currency that is created, as well, which is back by carbon credits (instead of precious metals).

    3) The White House’s PPT (Plunge Protection Team) is actively manipulating stock prices at critical technical junctures, in order to create the illusion of a healthy market. Expect stocks to go up regardless of whatever bad news you hear. This will continue until the bank holiday hits the US.

    4) Precious metals will enjoy a nice spike in price due to these events, but I expect this to be quickly dampened by coordinated global news reports stating that gold and silver are bad investments since the new currencies will not be backed by precious metals, but by carbon credits, instead. In others words, it will be good to be in silver and gold, but you may also need to unload your metals into the panic buying.

    5) Real estate prices will plummet in the US. Unemployment will be a historic highs.

    6) The Chinese yuan will begin revaluing against the US dollar within the next three months. This is a good time to begin purchasing yuan/remnibi through your local bank. The media news claiming that China is in trouble is intentional fear-mongering designed to prevent investors from moving money to China investments prior to a US bank holiday and US dollar devaluation.

    7) 99.9% of Americans will be in shock when they realize they are destined to live in “poverty” (the US definition) the rest of their lives. Crime will explode in the US, and martial law will make it easy to for the govt to collect private property and resell it to foreign investors, such as the Chinese, for pennies on the dollar.

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  14. Ben Edwards

    RE: Ben Edwards @ 13 – The question I am regularly asked by the programmed drone illusion-believers is this: why would the government want to do such a thing?

    1) The government does not want to do this. Government is good.
    2) The people who own governments worldwide are doing it, instead,
    3) These individuals stand to be fabulously powerful when such goals are complete. Their power will remain unchallenged even if large, organized groups of individuals know who these people are, since they control the military industrial complex and the world economy. They are simply solidifying and protecting their power now that people are realizing for the first time that they are in charge and have been for some time.

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  15. pfft

    By Sniglet @ 6:

    I called for a substantial economic rally back in early 2009, which would be similar to the recovery seen after the crash of ’29. So far things are playing out exactly as expected. The next major leg down in the depression is just starting to gain speed, and we should see breaks of the 2009 lows by the end of the year.

    could you do the math on this? as far as I can tell that rally you are talking about looks nothing like the rally we have experienced. what we have experienced is similar to 1973-74, 1908-1909 and 2002-2004. that rally happened early and was never confirmed by the major economic indicators. I will go back and look but most indicators, such as the unemployment rate topping, didn’t until 1932.

    I don’t know the exact dates, but FDR’s policies happened after most of the indicators started turning up. the stock market bottomed in 1932. one could easily be bearish because FDR was going to meddle in the economy and we wouldn’t have a real recovery. in fact one hears the same thing right now.

    could it be because just politics? I think so!

    what reason to you have for stocks declining more than 80% like the Great Depression?

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  16. pfft

    By Ben Edwards @ 13:

    Some things I will predict —

    1) Expect investors worldwide to continue piling into US dollars and US bonds as a safe haven from IMF- and World Bank-created (the two economic arms of the UN) global economic turmoil. Then, without warning, Obama will declare a bank holiday. The US dollar will lose 50% or more of its value overnight. All US dollar-based assets in savings, checking, trading acounts, retirement accounts, etc. will be frozen and only a certain limited amount will be available from your withdrawal over a period of several months, as the US dollar continues to decline.

    2) The US dollar will be replaced with a new world reserve currency. This could very well be a simple devaluation of the current currency, such that $1 now equals $0.50 or $0.10, for example. Maybe similar to what happened in Mexico, with the “Mil” Peso. The new reserve currency may be US dollars (a fixed, devalued version), SDRs (special drawing rights), or something entirely new. This will be a regional currency. We may also see a world currency that is created, as well, which is back by carbon credits (instead of precious metals).

    3) The White House’s PPT (Plunge Protection Team) is actively manipulating stock prices at critical technical junctures, in order to create the illusion of a healthy market. Expect stocks to go up regardless of whatever bad news you hear. This will continue until the bank holiday hits the US.

    4) Precious metals will enjoy a nice spike in price due to these events, but I expect this to be quickly dampened by coordinated global news reports stating that gold and silver are bad investments since the new currencies will not be backed by precious metals, but by carbon credits, instead. In others words, it will be good to be in silver and gold, but you may also need to unload your metals into the panic buying.

    5) Real estate prices will plummet in the US. Unemployment will be a historic highs.

    6) The Chinese yuan will begin revaluing against the US dollar within the next three months. This is a good time to begin purchasing yuan/remnibi through your local bank. The media news claiming that China is in trouble is intentional fear-mongering designed to prevent investors from moving money to China investments prior to a US bank holiday and US dollar devaluation.

    7) 99.9% of Americans will be in shock when they realize they are destined to live in “poverty” (the US definition) the rest of their lives. Crime will explode in the US, and martial law will make it easy to for the govt to collect private property and resell it to foreign investors, such as the Chinese, for pennies on the dollar.

    thanks for the laugh. I like to keep up to date on all the whacky conspiracy theories.

    you forgot to mention that global warming is a giant hoax to transfer wealth from the rich poor.

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  17. WestSideBilly

    By Chris M @ 2:

    But dealing with the structural deficit (as opposed to the temporary spending that stopped the crash) is a political problem which neither party can currently face up to (more taxes and less services are both coming or we default) and will be the big challenge of the country for the next 10 years. Long and hard lower paid work to get the rest of the way back.

    I don’t know exactly what’s going to happen, or even pretend to, but I think it’s fairly safe to say that neither political party is up to the task of fixing things right now. A split Congress seems likely for 2011-12 (Dems narrowly hold Senate, maybe with 52 or 53 seats, but lose House by a narrow margin, 5-10 seats), and given the decline of how the Senate has operated the last few years, any sort of meaningful reform is very unlikely. Obama seems feckless at whipping Congress into action; Congressional Democrats seem deathly afraid of raising taxes, and the GOP (for all its screaming and hollering) is beholden to an elderly voting block and will not allow any real reform to SS or Medicare. Even the far right Tea Party representatives will find it hard to effect change when their elections are paid for by the over 55 crowd. Neither side wants to address military spending.

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  18. Scotsman
  19. WestSideBilly

    RE: Scotsman @ 12 – Could you explain why you think China is going to have an economic collapse? My understanding is that they have an excellent financial position.

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  20. Sniglet

    as far as I can tell that rally you are talking about looks nothing like the rally we have experienced. what we have experienced is similar to 1973-74, 1908-1909 and 2002-2004. that rally happened early and was never confirmed by the major economic indicators. I will go back and look but most indicators, such as the unemployment rate topping, didn’t until 1932

    The rally of 1930 was definitely of a shorter duration (and slightly less magnitude) than what we’ve seen in the last year. But that fits with the fact that our “bubble” was so much larger, and longer in creation. Earnings were improving a little during the 1930 rally, and business people (and policy makers) were falling over themselves saying that the worst was over. Even unemployment dipped a bit during the 1930 rally. Of course, the masses of bank failures weren’t going to happen till ’33, and unemployment would get much worse in the coming years.

    As far as government intervention goes, Hoover was falling over himself with stimulus long before FDR got on the scene (fiscal conservatives HATED Hoover). It is eerily similar to what happened with the Bush/Obama hand-off. It was Bush who pushed through TARP and the biggest of the bail-outs, Obama merely continued the spending.

    My primary reason for this depression is the need to purge private debt. The world’s economy simply reached a point at which new debt was simply unable to generate sufficient new productive economic activity to pay for it. Moreover, in the last 20 years, the super-easy debt markets have enabled mal-investments on an almost unimaginable scale.

    The reality is that the majority of outstanding private (consumer and corporate) debt will never be repaid, and someone is going to have to take a hit for it. So far in this recession we’ve been playing hot-potatoe, and avoiding any real reckoning. “Toxic” assets haven’t gone anywhere, and banks are playing myriad games to value their assets at higher than market prices to avoid insolvency. The government allows such chicanery to occur because it doesn’t want to have to close down the entire banking system.

    If you want proof of how dysfunctional (and untenable) our financial system has become, just look at what has happened with mortgages in the US over the last couple years. Over 90% of ALL mortgages are now underwritten by either Fannie Mae, Freddie Mac, or FHA. FHA, in fact, has become the primary backer of the mortgage market. Private capital has virtually disappeared. Don’t even get me started on commercial real estate (with huge percentages of non-performing properties that are set to go into foreclosure in the next few years).

    This is completely unsustainable. The recent disruptions in the credit markets (with the Libor and junk bond yields rising) shows that round 2 of the 21st century’s great depression is just getting started. As I’ve pointed out before, this policy of extend-and-pretend is EXACTLY what Japan did after their initial crash in 1989, and just look at how well things have worked out there. The Japanese policy makers flooded the nation with cheap credit (interest rates at 0%) and trillions in stimulus (with more bridges to nowhere than anywhere else on the planet), as well as turning blind eyes to all their technically insolvent banks sitting on non-performing loans.

    This is a sure-fire recipe for just prolonging the agony.

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  21. Sniglet

    Could you explain why you think China is going to have an economic collapse? My understanding is that they have an excellent financial position.

    Nothing could be further from the truth. The Chinese financial system is completely messed up, and is driven by government dictates rather than financial motives. Thus, there has been MASSIVE lending to ventures that never stood much of a chance of generating profit. I like the example of the South China Mall, a modern retail environment bigger than Mall of America, which is virtually empty. I have seen videos of tours of new neighbourhoods in major Chinese cities, that feel like ghost towns, with $100 million skyscraper after $100 million scyscraper lying vacant. Investment for industrial product is even worse. The new steel production capacity brought on-line in the last two years alone boggles the mind, and would be completely unable to turn a profit even if world steal demand increased by 20% annually for the next five years (and yet we are seeing a contraction).

    The Chinese economy is poised for a major reckoning, where all these mal-investments will come home to roost, and the government will be unable to keep it’s many millions of peasants employed in useless make-work projects as it has been.

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  22. Hp

    RE: David Losh @ 11 – Get your story straight, Indians are everywhere, in key positions and making an impact – not without skills. Yes, knowing English does help. IMHO you are just someone who lives in his own world making stupid assumptions and deriving equally stupid conclusions.

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  23. Scotsman

    RE: WestSideBilly @ 19

    China has a weird (to us at least) mix of capitalism and central planning, really two economies operating within the same country. The first is a generally capitalistic lower level economy where the Chinese people make and consume either through purchase or barter the stuff needed for daily living. It is more or less in balance and responds to supply/demand cues and forces. The second is an economy run by the central communist government that essentially captures through taxes, mandates, etc. the excess profits of a huge export economy and then uses those funds to employ an increasingly urban and dissatisfied population in building all sorts of projects from huge malls to F-1 race tracks. There are two problems here- first, the supply of these goods is completely out of proportion to the demand. Remember, none of this is market driven- it’s essentially make-work employment to keep the population busy and at peace with the government. The average Chinese family doesn’t have the money to either start a shop in these malls or go shopping there. And they certainly aren’t going to F-1 auto races, etc.

    But the larger problem is that the whole scenario is dependent upon a healthy export market and the excess profits it can generate thanks to dismally low Chinese wages. And as the rest of the world’s economies fall apart- Greece, Italy, GB, Spain, the U.S.- so does the market for Chinese goods. The next domino to fall is then Chinese government spending on make-work projects- whose collapse leads to a large unemployed, unhappy, potentially rebellious population. China has been floating their own “stimulus” money to try and keep both the economy and the established social order under control. Unfortunately, they too are about to run out of (our) money. (remember, we pay them in dollars which they have been saving by buying our debt) Then they face a choice- use the decreasing dollars they have to buy more of our debt, our use them to buy more make-work projects at home. Either way they lose- either our default is hastened, or their social collapse, or perhaps both. But they certainly aren’t facing a stable, happy, future. Hope that helps.

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  24. Ben Edwards

    By pfft @ 16:

    By Ben Edwards @ 13:
    Some things I will predict —

    1) Expect investors worldwide to continue piling into US dollars and US bonds as a safe haven from IMF- and World Bank-created (the two economic arms of the UN) global economic turmoil. Then, without warning, Obama will declare a bank holiday. The US dollar will lose 50% or more of its value overnight. All US dollar-based assets in savings, checking, trading acounts, retirement accounts, etc. will be frozen and only a certain limited amount will be available from your withdrawal over a period of several months, as the US dollar continues to decline.

    2) The US dollar will be replaced with a new world reserve currency. This could very well be a simple devaluation of the current currency, such that $1 now equals $0.50 or $0.10, for example. Maybe similar to what happened in Mexico, with the “Mil” Peso. The new reserve currency may be US dollars (a fixed, devalued version), SDRs (special drawing rights), or something entirely new. This will be a regional currency. We may also see a world currency that is created, as well, which is back by carbon credits (instead of precious metals).

    3) The White House’s PPT (Plunge Protection Team) is actively manipulating stock prices at critical technical junctures, in order to create the illusion of a healthy market. Expect stocks to go up regardless of whatever bad news you hear. This will continue until the bank holiday hits the US.

    4) Precious metals will enjoy a nice spike in price due to these events, but I expect this to be quickly dampened by coordinated global news reports stating that gold and silver are bad investments since the new currencies will not be backed by precious metals, but by carbon credits, instead. In others words, it will be good to be in silver and gold, but you may also need to unload your metals into the panic buying.

    5) Real estate prices will plummet in the US. Unemployment will be a historic highs.

    6) The Chinese yuan will begin revaluing against the US dollar within the next three months. This is a good time to begin purchasing yuan/remnibi through your local bank. The media news claiming that China is in trouble is intentional fear-mongering designed to prevent investors from moving money to China investments prior to a US bank holiday and US dollar devaluation.

    7) 99.9% of Americans will be in shock when they realize they are destined to live in “poverty” (the US definition) the rest of their lives. Crime will explode in the US, and martial law will make it easy to for the govt to collect private property and resell it to foreign investors, such as the Chinese, for pennies on the dollar.

    thanks for the laugh. I like to keep up to date on all the whacky conspiracy theories.

    you forgot to mention that global warming is a giant hoax to transfer wealth from the rich poor.

    Likewise, thanks for the laugh at your prediction, friend. I have the track record, while you do not. Nothing like an arrogant know-nothing taking a stab at someone with an excellent track record. Guess who got the bigger laugh?

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  25. Ben Edwards

    By pfft @ 16:

    thanks for the laugh. I like to keep up to date on all the whacky conspiracy theories. you forgot to mention that global warming is a giant hoax to transfer wealth from the rich poor.

    Interesting that you find it necessary to single out my predictions and then make an effort to convince others here that my predictions are somehow “lesser” than all other predictons posted here, don’t you think? Because, as you state, my predictions are “whacky.”

    Do you always provide such deep analysis of world issues, friend? Or did I happen to touch something deep inside of you that you are having trouble grappling with lately?

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  26. Ben Edwards

    By Sniglet @ 21:

    Could you explain why you think China is going to have an economic collapse? My understanding is that they have an excellent financial position.

    Nothing could be further from the truth. The Chinese financial system is completely messed up, and is driven by government dictates rather than financial motives. Thus, there has been MASSIVE lending to ventures that never stood much of a chance of generating profit. I like the example of the South China Mall, a modern retail environment bigger than Mall of America, which is virtually empty. I have seen videos of tours of new neighbourhoods in major Chinese cities, that feel like ghost towns, with $100 million skyscraper after $100 million scyscraper lying vacant. Investment for industrial product is even worse. The new steel production capacity brought on-line in the last two years alone boggles the mind, and would be completely unable to turn a profit even if world steal demand increased by 20% annually for the next five years (and yet we are seeing a contraction).

    The Chinese economy is poised for a major reckoning, where all these mal-investments will come home to roost, and the government will be unable to keep it’s many millions of peasants employed in useless make-work projects as it has been.

    The Chinese “crisis” of late is a purely manufactured media event. I watched it unfold in the financial media, in its early stages, and it has nothing to stand on. Just like 90% of the financial news media in existence. The same media that told you the housing market was healthy, that WTC 7 fell at a free-fall due to firey plane fragments, that WMD’s were in Iraq, and that Israel is your best friend.

    Such trust. What warrants this high degree of trust?

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  27. Ben Edwards

    By Ben Edwards @ 26:

    By Sniglet @ 21:
    Could you explain why you think China is going to have an economic collapse? My understanding is that they have an excellent financial position.

    Nothing could be further from the truth. The Chinese financial system is completely messed up, and is driven by government dictates rather than financial motives. Thus, there has been MASSIVE lending to ventures that never stood much of a chance of generating profit. I like the example of the South China Mall, a modern retail environment bigger than Mall of America, which is virtually empty. I have seen videos of tours of new neighbourhoods in major Chinese cities, that feel like ghost towns, with $100 million skyscraper after $100 million scyscraper lying vacant. Investment for industrial product is even worse. The new steel production capacity brought on-line in the last two years alone boggles the mind, and would be completely unable to turn a profit even if world steal demand increased by 20% annually for the next five years (and yet we are seeing a contraction).

    The Chinese economy is poised for a major reckoning, where all these mal-investments will come home to roost, and the government will be unable to keep it’s many millions of peasants employed in useless make-work projects as it has been.</blockquote

    The Chinese "crisis" of late is a purely manufactured media event. I watched it unfold in the financial media, in its early stages, and it has nothing to stand on. Just like 90% of the financial news media in existence. The same media that told you the housing market was healthy, that WTC 7 fell at a free-fall due to firey plane fragments, that WMD's were in Iraq, and that Israel is your best friend.

    Such trust. What warrants this high degree of trust?

    Let me give you two predictions that I would be willing to bet hard money on at this point. Maybe this will get you to look back at my predictions above, when you see these two “predictions” come true. For most if not all of you, you have been programmed so that “come true” means you saw it in multiple mainstream news channels. So when that happens, come back and read my earlier post here.

    1) The US and/or Israel will attack Iran before June 2011. This will turn into a full-scale war.
    2) The IMF will be turned into the World Treasury Department (maybe not that exact name, but definitely that function) before August 2011.

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  28. David Losh

    RE: Hp @ 22

    My concern is that Microsoft is the latest corporate structure to exploit the people of India. There are over a billion people in India with dire economic need, and what we have is Microsoft with a new source of cheap labor; don’t tax them, or they may move to India.

    Call Centers are my personal favorite. A person, an individual, a guy, educated in England, and the United States comes up with call centers. The guy is exceedingly wealthy by putting in call centers, in India.

    There are over a billion people in India with a wide disparity of class struggles. As a financial hub India will always be over shadowed by visible poverty.

    So when people use India as a financial player in the global economy, I remember that I get four calls a week from India, when I call in to some place, I’m talking to India. I understand people need a job base, but that isn’t it.

    Do you want to talk computer science? Then educate me about the finances of India, because i can’t get the images of starving people out of my head.

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  29. softwarengineer

    We’re Out of Fish, Trees and Water

    The obvious demographic/scientific solution is world depopulation ASAP [and it will still take decades of limiting birhrates to approx 1-2, to shrink the earth's food/resource dependents back down to 2-4 billion], as building green technologies is pointless [one plane trip has a bigger carbon foot print than incorporating all of a home's energy efficiencies in a year, i.e., flourescent bulbs, recycling, new windows, etc]….green technologies also are all mostly manufactured overseas anyway.

    Borrowing more money for overpopulation has hit the Malthus Point [point of impossibility due to overpopulation] too, we don’t have a fishing/logging industry collateral for monthly payments to keep applying debt upon debt [look at Spain. Portugal and Greece too], even with retirement unfriendly low interest rates keeping monthly payments as low as possible for uncontrolled growth.

    IMO, we need a real Tea Party alternative to the current subpar group of uncontrolled growth Republicans/Democrats, a mixture of liberals and conservatives too….with the scientific/demographic based backbone to start using “overpopulation” in their vocabulary and teaching it in our public schools again. Folks that will stand up for America and provide the “Y Generation” with future economic planning, not a grim future at $3-4K/yr with 500M people in America soon.

    Or we can do nothing and watch starvation, disease and wars do our demographic planning for us. Look at the current oil spill [probably the worst environmental disaster in the history of mankind], caused by horrifying overpopulation energy needs eliminating safety engineering due to bankrupt world governments trying to borrow and provide for uncontrolled population growth food/resources. We’re in a downward spiral IMO and no economic recovery is going to occur without depopulation ASAP and it will take several decades to fix even if we start now.

    But what do I know, I just talk exactly like those “wild-eyed politicians of the past” supporting Earthday 40 years ago: John F. Kennedy, Richard M. Nixon and Martin Luther King Jr.

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  30. matsayswhat

    RE: DrShort @ 4
    Interesting ideas. I’d like one of your pamphlets please :)

    RE: David Losh @ 11
    You’ve been full of great responses lately, keep up the good work!

    RE: Ben Edwards @ 13
    Gruel, is that you? I thought you said you weren’t going to post here anymore? Also, you mention the global currency, but not Agenda 21 or UN troops on US soil?

    My arm chair economist prediction: Plateau. I think we’ll see small up ticks and down ticks that bulls and bears will point at as signs that prove their respective predictions, but essentially I think we’re going to see relative flatness for at least a few more years.

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  31. One Eyed Man

    RE: Ben Edwards @ 27

    “1) The US and/or Israel will attack Iran before June 2011. This will turn into a full-scale war.
    2) The IMF will be turned into the World Treasury Department (maybe not that exact name, but definitely that function) before August 2011.”

    You seem to think that you are some kind of sooth sayer Ben. Are you psychic or just privy to better intelligence data and capable of better deductive reasoning?

    As to the US and/or Isreal attacking Iran, I would imagine that almost every reader here thinks that there is a high probability that will happen as Iran gets closer to producing significant quantities of weapons grade nuclear fuel. That’s no surprise. It’s not something outside of main stream thought. And it’s not like you picked the Mariners to win the Series this year or made some other wild prediction.

    Will it be June 2011? Maybe, but if so, only because those who fear Iran feel they have run out of time. Will it result in a “war?” Again, maybe. There are too many variables there to suggest one has the calculus to predict the exact outcome. Certainly a war between Iran and Isreal wouldn’t be a huge surprise if Iran is attacked. And if factions backed by Iranian took action against western powers some form of coalition to invade Iran wouldn’t be a shock either.

    But your second prediction lacks any credibility. You may have a track record but I don’t even know who you are, much less that you have any unique abilities or accomplishments. In the 1970’s a songwriter who never really made it put out an album entitled: “A rumor in his own time, a legend in his own room.” I liked the album, but it wasn’t a hit with the general public. For all the rest of us out here, that describes your claim to a track record as we don’t know anything about you or your accomplishments. I don’t generally bow to authority figures, but a track record will commonly get my attention to take a closer look. I know you don’t want to tell us anything about it, but if you’ve got some reason we should give your second prediction any level of credence, I’d love to hear it because at present I am beyond extremely skeptical.

    For those of us who know nothing about you, you have no more credibility than the mainstream Pied Pipers you seem to think others blindly follow. And just so you know, I consider myself to be a bit of a Huckleberry Finn. I refuse to abdicate responsibility for my decisions (including moral and eithical judgment) to you or any other political or religious demigod claiming authority. Just ask Scotsman.;-)

    I also disagree with the prognostications of both Sniglet and Scotsman, not because their predictions might not bear out, but because I take issue with the level of certainty they attribute to their predictions. My personal anwer to this post would probably be the most similar to DrShort’s. As important as it may be to identify what we preceive as problems, I think its just as important to try to fix things. Replacement of the current Federal tax system with a modified VAT might help. Actions by the Fed to promote inflation might also help as would better fiscal restraint by Congress and the President.

    But I personally have little fear of the IMF usurping control of the world’s financial and economic destiny. You’ve got a ways to go to convicement that Dr. Evil is using the IMF to control the world for his own personal gain. Sounds a little like using sharks with lasar beams strapped to their heads to take over the world.

    Lastly, please don’t be offended by my attempts to use humor in the discussion. I mean no disrespect. I just think that humor makes life more fun.

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  32. k2000k

    RE: Sniglet @ 21

    Agreed, there was an article recently, either on forbes or barons, that was writing about a city built in inner mongolia that was supposed to house over a million people, it is virtually empty. That alone has to be tens if not hundreds of millions of income invested that will never see a return.

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  33. k2000k

    RE: softwarengineer @ 29
    Man I have to disagree with your depopulation solution, people have been predicting the reckoning that should come from over population since Malthus and it hasn’t happened, human ingenuity has learned how to adapt and we will do so again. Just opening up a popular mechanics mag and you can see the truly amazing technologies that do more with less and better than its predecessor.

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  34. Scotsman

    RE: One Eyed Man @ 31

    ” I think its just as important to try to fix things. Replacement of the current Federal tax system with a modified VAT might help.”

    Help what? Fix what? Wouldn’t you really be happier in Berkley? Who else but a Berkley/Seattle liberal with strictly linear thought patterns would see a larger tax as the perfect replacement for an already hideous tax. I bet your mind can’t even read/recognize the following words/concept:

    “cut spending and benefits”

    But you had me going with that bit about the Mariners wining the series. I must have missed it- along with a couple hundred thousand others.

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  35. Matthew

    Wonder what the future looks like for the economy and housing? Go to the Grand Canyon, walk to the edge of a cliff, and stare straight down.

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  36. Matthew

    I’ve been to China recently, how many people on SB have? They have entire cities sitting vacant. It’s like the U.S. housing bubble on steroids and meth. Workers are building around the clock. You can walk down the street at 2 am in Shanghai and builders are knocking down 10 year old buildings and putting up new ones. They fire up some floodlights in the pitch black and go to work.

    They have to keep up their manufacturing pace just to keep their population pacified. They are one more economic downswing away from a revolution.

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  37. One Eyed Man

    RE: Scotsman @ 34

    I’ve previously said that we need to cut spending and benefits in numerous other comments on the bubble and I guess I assumed that it went without saying. My comment regarding a VAT was in response to DrShort’s comment at #8 that I think deserves more investigation than it gets. A lot of people are interested in making American business more competitive by cutting the tax burden on business (as I recall you previously suggested a reduced flat tax on business). As DrShort discussed, cutting business taxes could improve employment in the US. Although a true VAT has impact throughout the production chain and might not be any less of a burden on business and employment than an income tax, replacement of the income tax with a national sales tax or a modified VAT that is limited primarily to finished goods might help put US manufactured goods on a more level playing field with foreign imports.

    As with any big change, elimination of the income tax and replacement with a modified VAT or a pure sales tax would likely cause some unintended consequences and shouldn’t be seen as being without risk. For example, because a VAT is a regressive tax, there would likely have to be some legislation to mitigate the impact on lower income groups and perhaps some small businesses.

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  38. Ira Sacharoff

    By The Tim @ 38:

    By matsayswhat @ 30:
    RE: Ben Edwards @ 13
    Gruel, is that you?

    Ding. We have a winner.

    The man has never been wrong, is misunderstood by mere mortals like yourselves, and is willing to state his predictions, which have never been wrong. You people are complaining? Galileo was not appreciated in his time either.

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  39. CCG

    By Matthew @ 36:

    I’ve been to China recently, how many people on SB have? They have entire cities sitting vacant. It’s like the U.S. housing bubble on steroids and meth. Workers are building around the clock. You can walk down the street at 2 am in Shanghai and builders are knocking down 10 year old buildings and putting up new ones. They fire up some floodlights in the pitch black and go to work.

    They have to keep up their manufacturing pace just to keep their population pacified. They are one more economic downswing away from a revolution.

    Thanks Matthew. Stories like that tell more than reams of statistics sometimes. Did you happen to stop by Hong Kong? I’m curious to know how much of this nonsense is going on there.

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  40. M

    I think China might not be doing as badly as most people think here. Yes, there are individual projects that are apparent failures (e.g. the mall and the mongolian town) but there are also projects that are great investments. They are building a bridge, for example, that will connect Macau, Zhuhai, and Hong Kong. This project will shorten travel time from Hong Kong or from its international airport to the western side of the Pearl River Delta by hours, dramatically improving efficiency.
    Meanwhile, maybe those malls and new towns are returning no profit for now, but by merely putting the uneducated population in a relatively more urban setting and putting them to work, you are increasing the life-time productivity of each individual simply by exposing them to something other than rice fields. You can’t underestimate the value of that. In the US, the stimulus dollars are going to welfare, which actually does not improve (and argurably could negatively affect) the productivity of Americans.

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