Weekend Open Thread (2009-08-21)

Here is your open thread for the weekend beginning Friday August 21st, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

67 comments:

  1. 1
    Trigger says:

    The stock market again is gearing up for another sizzle. People are making loads of cash every day. So are there still doom and gloom people who think this will end up with Dow at 5,000 points and then we will have the real onset of Great Depression? I seriously doubt this theory.

    After the housing mess is over – will it be business as usual? I think the house prices will still drop a bit in Seattle but I doubt if they will go down 50% from here. More like 10-20%. So not a biggie. If you own a house for 800K – you might loose 160K or so – so not a biggie.

  2. 2
    The Tim says:

    RE: Trigger @ 1 – Regarding the current levels of the stock market, look into the current P/E ratio, and please explain how it is even remotely reasonable.

  3. 3
    Rack says:

    losing $160k is “not a biggie”??

  4. 4
    Kary L. Krismer says:

    RE: Rack @ 3 – Well, it probably isn’t if you own a $800,000 house. Of course, that assumes you didn’t buy an $800,000 house when really your financial situation is such that you should have bought a $400,000 house.

    Look at how much Bill Gates gains and loses each day. Do you think he thinks even $160,000,000 is a biggie?

  5. 5

    RE: Trigger @ 1

    I see, the 600K that lost lost their jobs last month are just excess population and we should send them all to the poor houses and slam the door shut?

    Stock increases or decreases follow no real common sense shorterm pattern, but if you want to invest in stocks right now, its your nickel.

    The short term stock rally rationale IMO:

    Cash for Clunker, which fizzles out soon
    Tax credits for 1st time collapsed home price buying, which fizzles out soon
    The 2009 stimulus, which fizzles out soon
    etc, etc, etc

    A prudent economist would wait until the “fizzle out” occurs before casting unlikely predictions that can likely make them eat crow by year’s end. China had a phony positive short-term GDP too, because of their stimulus spending, which fizzles out soon; yet their “prosperity” with gutted exports was touted as a reason for stocks to go up. How much of the financial equities are being bought by our government right now? This can’t go on much longer either, we’re broke.

    Unemployment is running out for many by year’s end. Hey, that will make your phony rosy economy look better, as the unemployment rate is mitigated with giveups. “Just throw the excess Americans in the poor house”, like Scrooge would say….and keep bringing into America the current 125,000/mo uncontrolled population growth to compete for jobs that are disappearing….yep, the economy is on the mends and your pink pony side has the common sense of a shyster circus fortune teller.

    Are you one of the employers that like to hire Americans for lower and lower pay? Or perhaps you feel if you mouthpiece their greedy globalist values, they’ll spare you from the coming FY 2010 budget cutting in local governments and Boeing’s defense base jobs?

  6. 6
    Kary L. Krismer says:

    By softwarengineer @ 5:

    Cash for Clunker, which fizzles out soon

    Let me start by saying I don’t like the program, and didn’t like even the idea before there were any specifics.

    But I’d hardly use the term “fizzles” to describe it ending. The program was more of a short term explosion than anything.

    I only bring this up because I saw a headline today that referred to it as not running on all cylinders. I’ve heard that the government is slow to pay the rebates, and that their website gets overloaded, but seemingly this is a program that did what it was intended to do–sell a lot of cars. If anything it sold them too quickly. So seemingly it was very effective, even though perhaps the cost of the program wasn’t worth it (which was only one of the reasons I was against it).

    BTW, I don’t think the stimulus is close to fizzling out either. I’m not even sure half the money has been spent yet, and I seem to recall that it will extend well into 2010, if not beyond.

  7. 7
    Trigger says:

    RE: The Tim @ 2

    Hey Tim – It all depends on which stocks. MSFT http://finance.yahoo.com/q?s=msft is trading at P/E = 14.8. I think companies like yahoo are a yahoo in terms of P/E 820! – But if you own yahoo – you should be okay if there are some wild swings in your wealth and you should not cry if suddenly 90% of your wealth evaporates. But MSFT is not going anywhere – they will grow but it will be slow – so 14.8 is kind of high but if economy recovers – then it might be ok.

    So I agree – stocks are not cheap at all. But they will generally go up if there is anticipation of a growth pattern in the US. The main drag was housing and the fact that banks were not capitalized. This was solved. At least partially solved. I am sure the velocity of money could start increasing soon as well.

    So the GD II was averted because the govt did its job. Without the govt capitalizing the banks – this could have been a whammy. BTW – it is worth noting Bernake’s comments on economy:
    http://finance.yahoo.com/news/Stocks-jump-as-Bernanke-says-apf-1907490562.html?x=0&sec=topStories&pos=main&asset=&ccode=

    Regarding the debt – it is all dominated in $$ – so the govt should be responsible and control the supply of $$ and should create a situation where it can service the debt.

    But because there will no longer be any reckless lending – the real estate will keep going down a bit. I talked to my friend who has a 1 mill house – and he is chilling. Even if he looses 20% – he does not plan to sell anytime soon and he is more interested in spending a good weekend on Orcas Island or enjoy a good mountain hike!

  8. 8

    RE: Trigger @ 7
    For established stocks, one rule of thumb is to look at the historic and current rates of earnings growth, and see if that is below the current price/earnings ratio. There are lots of exceptions. Some stocks that are proven growers and keep doing well in any economy are rewarded by a P/E ratio larger than it’s growth rate, and some stocks with interesting technology or high potential are also valued with a P/E ratio far greater than their earnings growth rate…Of course the risk is also greater there.

  9. 9
    Trigger says:

    RE: softwarengineer @ 5
    Hey SoftwareEngineer – I think what is happening is that there is a globalization process. So an American worker directly competes with his Indian counterpart. That does put pressure on the wages here in America somewhat but it contributes to the overall better living of all people on this planet. I have not been to India – but I heard that people look at all of this as a positive change.

    But the US has a very competitive banking system – especially VCs – so you can do lots of cool innovations here in America and make yourself a load of money. But you can also make a lot of money in India and in any country where there is no dictatorship. There are some really good universities like MIT – so you have lots of talent sitting in 1 place. And then you have parts of America like the West Coast – which is a desirable place to innovate. Would you rather innovate in Lincoln, NE or Seattle, WA? People who innovate generally have more options to choose where they live and a lot of them happen to like West Coast. So this place should be kind of performing better than the rest of the country.

    The poor Americans as you say – just need to really be proactive and find jobs and fit in with the economy. Look a Mexican undocumented worker is able to find a job without problem because the person is willing to do sacrifices in order to be employed. Now the American worker can also do a little more. And as economy stabilizes there will be less of push come to shove for the American worker. Everybody will be happier I hope in 1-2 years time.

    With regard to overpopulation – I think WA state is blessed with low density of people. This is why I like hiking here. You can go out to the wilderness and not meet a single person for 2 days while you hike. You only interact with deers and other animals. Look at the UK – now this island is populated! So I do not fear any overpopulation in my lifetime. But I don’t know what will happen in 1000 years. But then again – who cares if it is safe assumption that both you and me will not be able to see what will be in 1000 years time he he hee……

  10. 10
    NickSincere says:

    I often hear about how things have changed for everyone as a result of the economic meltdown, i.e. consumer’s rejecting too much debt, people sharing housing, etc. However, I have not heard anything about new economic models being developed, something that might be an alternative to economic health being measured by GDP growth. I don’t mean a rehash of 20th century ideas but something new. Does anyone here know of any new economic theories that are being put forward, even if only on the outskirts of the debate at present?

  11. 11

    RE: Trigger @ 9

    Read this blog article from a New York University common sense type economist, it says it better than I can:

    Article in part:

    “…Green Shoots? This is magic accounting as if they were all Houdini… NO JOBS! Housing Crashing, Insolvent Banks! on and on….

    The Consumer Has Dug in His Heels
    By Bill Bonner

    08/14/09

    How do you like this recovery? Pretty good, huh?

    Except for the jobs, of course.

    And except for the retail sales.

    And except for the foreclosures…and house prices. And incomes. And consumer prices. And business profits.

    It’s like a female impersonator…just like a real woman in every way, except for the essential ones.

    At least stocks are doing well. The Dow rose another 36 points yesterday. In terms of time, it’s already beat the bounce of ’30…it’s in its sixth month. In terms of stock prices, it’s still a laggard, however. US stocks are up about 45% from their low of 6,547 on the Dow. By that measure, the current reading of 9,398 falls a little short of the 50% increase registered five months after the ’29 low.

    Yesterday’s news was a big disappointment for mainstream economists. It’s ‘back to the drawing board,’ says The Wall Street Journal.

    The dumbbells were already celebrating the end of the recession. Just yesterday, we reported on a survey of 53 of them. They figured the stimulus was working and the recession was coming to an end.

    Even the Fed seemed to think so. The Washington Post headline: “Fed views recession as near end.”

    But here at The Daily Reckoning summer headquarters we were doing some more painting yesterday…

    …which means, we were doing more reckoning…

    We don’t know when the recession will end…but we’re dead sure that those 53 economists interviewed by Bloomberg…and those at the Fed too…don’t know either. Few of them seem to have any idea what is really going on.

    And now comes news that the economy is not recovering as planned.

    “Even with Cash for Clunkers retail sales fall,” reports The New York Times. Retail sales were expected to go up in July. Instead, they went down.

    Bummer.

    Economists also expected unemployment numbers to go down. Instead, they went up in July…and last week, 558,000 people filed for unemployment benefits – up from the week before. That brings the total to 6.7 million jobs lost since the downturn began in December ’07.

    Oh…and what’s this? Foreclosures hit another record high in July…making the third new record in the last five months.

    This is a “recovery that only a statistician could love,” says another Washington Post headline.

    You can prove anything if you torture the numbers enough. But if you need a job…or need to sell your house…or refinance your mortgage – good luck to you!

    And here…in the spirit of summer…of warmth and camaraderie…we would like to offer the above-mentioned economists a little help: Pssst….it ain’t a recession; it’s a depression.

    Since 1945, the US economy – and much of the rest of the world economy – has been carried on the backs of American consumers. First, they spent money they earned during the war years. Then, they spent money they earned in the big boom of the ’50s and ’60s. And then they spent money they hadn’t earned at all. They borrowed from future earnings…increasing total US debt from just 120% of GDP in the ’70s…to 370% of GDP in 2007.

    In the last 15 years of that period, especially, each time the consumer showed a reluctance to continue spending, the feds rushed to give him more credit. And during the final five years – the Bubble Epoque – debt doubled.

    Now, the consumer has dug in his heels. He’s not going a step further until he unloads his excess baggage of debt.

    Once again, the feds are trying to stimulate him. The Fed’s key interest rate is practically at zero. The feds are pumping money into the economy as fast as they can. And they’ll give a fellow up to $4,500 if he’ll agree to kill his old car. The Cash for Clunkers programs seem cruel to us auto enthusiasts, but they have been popular, all over the world (more below.) But what good do they do?

    Even with the stimulus spending…and the stimulating low interest rates…he’s still not willing to add debt. Of course, this is just what happened in Japan. The public sector spent; the private sector saved. Net result: an on-again, off-again recession that has lasted almost 20 years.

    That’s a depression. It’s a point where the model no longer works. Look, how could the US economy recover? It’s a consumer-led economy, so the consumer would have to spend more money. But he’s not earning more money. He has no prospects of earning more – not with 10% unemployment and a punky economy. So, the only way he can spend more is by borrowing. Ergo, the only way the consumer economy can grow is by adding more consumer debt. Is that possible? Could the ratio of debt-to-GDP go to 400%…500%…to the moon?

    Well, we’ve weren’t born yesterday. We’ve been around long enough to know that almost anything is possible.

    This morning’s news tells us that the federal deficit through July comes to $1.27 trillion. We didn’t think that was possible. And despite this inferno of new debt…the 10-year Treasury bond yields barely 3.6%. We never thought that was possible either.

    So, anything could happen. But generally, government stimulus only works when it is not needed. That is, it only works when it goes in the same direction as the underlying trend…not against it. Just like you can make a sailboat go faster by unfurling the sails, you can speed up an expansion by offering more and easier credit.

    But now, the underlying trend has reversed. It’s no longer a credit expansion; it’s a credit contraction. The consumer has had his fill of debt. He’s cutting back on his spending and paying off debt. That’s what the July figures show. That’s been the history of entire downturn. That’s why it’s a depression, not a recession. It’s a major change of direction that will take years to accomplish. Now, stimulus is not only useless – since it is against the major trend – its counterproductive. It delays and contradicts the adjustments that need to be made.

    But wait. We know what you’re thinking – that the Cash for Clunkers program is a success, because it encourages consumers to buy. See. Sometimes central planning really works, right? Yes, and if you look no further than the auto sales figures for proof, who can argue? Alas, a centrally planned economy is a perverse thing…where every positive statistic has the crumpled up bodies of tortured numbers buried beneath it. Take away the ‘free money’ from the feds and there’s nothing left. No real increase in demand…just a temporary demand based on a temporary and unsustainable stimulus.

    Encouraging people to buy too much was what caused the problem in the first place. Encouraging them to buy more now is not a solution; it’s just a continuation of the same flawed policy of stimulating consumer demand…a policy that has been in place for decades.

    But now the wind is blowing in the other direction. The government may not like it, but they can’t stop it….”

    The rest of the Dr. Noriel Roubini URL:

    http://www.rgemonitor.com/roubini-monitor/257527#196649

  12. 12
    truthtold says:

    #9 – just need to really be proactive and find jobs that fit in with the economy! and then we can hike & stuff…just like the Mexican undocumented worker…sacrifices…happier.
    Pass me the Friday blunt. Camping IS fun.

  13. 13
    deejayoh says:

    By Trigger @ 7:

    RE: The Tim @ 2
    Regarding the debt – it is all dominated in $$ – so the govt should be responsible and control the supply of $$ and should create a situation where it can service the debt.

    But because there will no longer be any reckless lending – the real estate will keep going down a bit. I talked to my friend who has a 1 mill house – and he is chilling. Even if he looses 20% – he does not plan to sell anytime soon and he is more interested in spending a good weekend on Orcas Island or enjoy a good mountain hike!

    no more reckless lending? Depends on who the lender is, I guess
    http://img9.imageshack.us/img9/6254/federaldebt.png

  14. 14
    Kary L. Krismer says:

    RE: deejayoh @ 12 – Try: http://tinyurl.com/

    (Nevermind–I see you changed links).

  15. 15
    Flying Ape says:

    RE: Trigger @ 7
    Analyzing P/E or any other statistic is only valid if a risk premium is priced in and the asset is trading in a rational market. IMHO we have neither. Last 6 months equities brushed off any negative data and rallied on “not so bad” data so it will probably continue to do so. Pretty boring on the macro news for the rest of the year so the rally will probably continue until at least Q4 earnings or another crisis. End of QE expansion and exit strategy could be announced in the Fall but that would probably be bullish. Just because we averted GD2 doesn’t mean there will be bumps or worst yet a “W” recession. Day traders chase those yields!!

  16. 16
    Kary L. Krismer says:

    RE: Flying Ape @ 14 – If you’re time frame is flexible and you’re able to monitor the market closely, the PE is practically irrelevant. Actually, not irrelevant. A low PE is probably bad.

  17. 17
    Cheap South says:

    “If you own a house for 800K – you might loose 160K or so – so not a biggie.”

    So many shocking statements in that sentence…

  18. 18
    Costco Mike says:

    Does anyone know a good source for the avg. cost of construction for SFH’s in the Seattle area? I am curious as to what building would differ from rent/buying and if the ratio is at all realated.

  19. 19
    Scotsman says:

    RE: Trigger @ 1

    We’re all gonna die in food riots, general lawlessness, and the total breakdown of society.

    Here’s a cheery video of Gerald Celente in a recent interview:

    http://www.youtube.com/watch?v=EOnrdyY_nXY

    Here’s his web site- watch the intro video:

    http://www.trendsresearch.com/

    Will it be as bad as he predicts? Who knows, but there’s a growing group that leans in his direction. If it’s only half as bad, is that bad enough? With no upside potential on the horizon, and this sort of outcome as a possibility for the downside, only a fool would buy a house in an urban environment at this time. Nothing to gain, lots to lose.

  20. 20
    The Tim says:

    By Trigger @ 7:

    So I agree – stocks are not cheap at all. But they will generally go up if there is anticipation of a growth pattern in the US. The main drag was housing and the fact that banks were not capitalized. This was solved. At least partially solved. I am sure the velocity of money could start increasing soon as well.

    I completely disagree that anything has been solved or even partially solved. Banks still have massive amounts of bad debt on their books that they will not mark to market. The US national debt is skyrocketing at an unbelievably faster rate than the already breakneck pace. Consumer debt has barely dropped at all.

    All the government accomplished was to delay the inevitable.

  21. 21
    Scotsman says:

    RE: The Tim @ 20

    Trigger says: “the main drag was housing and the fact that banks were not capitalized. This was solved. At least partially solved.”

    This is completely false- here’s someone who knows what she’s talking about:

    Here’s Elizabeth Warren on what the banks really have for assets. She’s the head of the congressional oversight panel. Video is MSNBC:

    “We’ve been lying to ourselves”

    http://www.zerohedge.com/article/elizabeth-warren-we-have-real-problem-coming

  22. 22
    Kary L. Krismer says:

    By Scotsman @ 19:

    We’re all gonna die in food riots, general lawlessness, and the total breakdown of society.

    Golly! I guess we all should have gone out and bought really expensive houses, and run up our credit card balances too!

  23. 23
    Markor says:

    RE: The Tim @ 20

    All the government accomplished was to delay the inevitable.

    I concur. When the “solution” includes changing accounting rules to turn a loss into a profit, you know it’s not going to end well.

  24. 24
    Groundhogday says:

    RE: Scotsman @ 21

    It isn’t just Warren. Just about anyone who has been following things closely knows that we are playing the “pretend and extend” game at the national level. And the longer this game is played, the greater the ultimate losses will be. The Obama administration is hoping that with free money the banks can earn their way out of a deep hole… sort of a hidden bailout. We’ll see…

  25. 25
    Markor says:

    RE: Trigger @ 9

    Overpopulation exists when the standard of living is unsustainable, not necessarily when there’s high density.

  26. 26
    tomtom says:

    Overpopulation exists when you find *other* people annoying.

  27. 27
    AMS says:

    RE: Kary L. Krismer @ 16

    Do you think it is better to buy a Low P/E or High P/E? Why?

  28. 28
    AMS says:

    RE: The Tim @ 20

    But I am driving a new car using $4,500 of Obama money!

    (I do agree, however, that there is little good to be found in the economy. The present economic conditions reminds me of when the rendering truck emptied its load on I-5 about four weeks ago. Dead animal parts everywhere–it was quite smelly!)

  29. 29
    Kary L. Krismer says:

    By AMS @ 27:

    RE: Kary L. Krismer @ 16

    Do you think it is better to buy a Low P/E or High P/E? Why?

    What I’m referring to is you don’t want to buy a company that’s doing well as much as a company that a lot of other people think is doing well. A high P/E reflects the latter, and those people can push it even higher. But it can collapse quickly, which is why I said you have to be able to closely monitor the market, and hope for no news while it’s closed. What I’m saying probably has more application to day traders, if there are such things still. ;-)

  30. 30
    Rack says:

    By tomtom @ 26:

    Overpopulation exists when you find *other* people annoying.

    Too Funny

    Why don’t all the people that complain about overpopulation, help be part of the solution, and off themselves.

  31. 31
    Jillayne says:

    Meredith Whitney saying at least 300 banks will fail. See Bloomberg or CR.

  32. 32
    Sniglet says:

    The closest analogy I can think of to what we are facing today is the “recovery” of 1930. Stocks had regained most of their losses in 1930, and most experts were talking about how Hoover’s massive stimulus had sparked a recovery. It was hard for most Americans of 1930 to contemplate the idea that massive waves of bank failures were just ahead (in 1933), and that they were just embarking on a depression that would last a decade.

    As I’ve been saying since early this year, we would see a “recovery” that would last for 6 to 10 months, and bring the Dow up to (or even beyond) the 10,000 range. Only to lose all these gains, and more, in 2010.

    I still hold to the conviction that we are beginning a deflationary depression, and that real-estate prices in the Puget Sound (and almost everywhere in America) will fall at least 80% (on average) by the time we hit bottom.

  33. 33
    fwiw says:

    Seattle developer Mastro forced into bankruptcy

    Three banks have succeeded in forcing longtime Seattle developer Michael Mastro Sr. into bankruptcy. Columbia State Bank, First Sound Bank…

    By Seattle Times staff

    Three banks have succeeded in forcing longtime Seattle developer Michael Mastro Sr. into bankruptcy

    http://seattletimes.nwsource.com/html/realestate/2009709948_webmastro21.html

    I’m sure someone mentioned this would never happen, they wrote that it would be a chapter 11 bankruptcy instead. Wish I could remember who that was.

  34. 34
    Kary L. Krismer says:

    By fwiw @ 33:

    I’m sure someone mentioned this would never happen, they wrote that it would be a chapter 11 bankruptcy instead. Wish I could remember who that was.

    Maybe I’ll send you a dictionary so you can learn the meaning of the word “probably.”

    This was actually the debtor’s amended answer (although it’s not labeled as such). Previously it was denied that any of the petitioning creditors had unsecured claims. I’ll assume they discovered they couldn’t support sufficient values on any of the collateral to support that claim.

    This isn’t necessarily over yet. The debtor really hasn’t done much in the case yet. Maybe I missed something, but so far I’ve only seen that they’ve filed 7 electronic pages of documents, two of which were duplicate. I’d be extremely surprised if the debtor remains that quiet.

  35. 35
    Kary L. Krismer says:

    RE: fwiw @ 33 – What is this? The latest Republican smear tactic–sort of a “death panel” for economic policy? A Google search indicates LaRouch (sp?) is pushing it too.

    Even assuming Hoover increased spending, that doesn’t mean it was in the same manner, in the same timeframe, and more to the point, the debate has been at least partially whether the stimulus is big enough (e.g. Krugman’s arguments). If Krugman is right, than both Obama and Hoover would be wrong, but not for trying to stimulate the economy, but for doing too little.

  36. 36
  37. 37
    BillE says:

    Deutsche Bank is estimating approximately 50% of mortgages will be underwater in the next couple of years. They’re not alone in that view.
    Unemployment is still on its way to 10% and beyond.
    Summer is nearly over and fall isn’t known as a great time for real estate.
    Every Friday there’s a new list of banks taken over by the FDIC.
    Banks are valuing their assets at whatever they feel like.
    I don’t see much reason to believe this lousy ride is nearly over.

  38. 38
    jon says:

    RE: The Tim @ 36 – This is not the national crisis you are looking for. *waves hand*

    Mark Steyn makes the observation that of the major economies, the ones that have not yet come out of recession are the ones that did stimulus programs: http://www.ocregister.com/articles/obama-percent-sign-2536772-president-government

    However, instead of talking about any of that, Congress is focusing all its time on the health care crisis, which is in reality an obesity crisis and will not be fixed by changing how insurance claims are processed.

  39. 39

    RE: Kary L. Krismer @ 29
    P/E ratios, in and of themselves, are pretty meaningless. Some people will say a low P/E indicates that the stock is cheap or discounted, but that isn’t always the case. The E, or earnings, refers to the last four quarters, or last fiscal years earnings….So lets say a stock is ten dollars a share, and let’s say the lat four quarters earnings ( starting with the earliest) were 3 dollars, zero, minus 50 cents, and minus 1 dollar, so the last four quarters earnings would be 1.50, and the price over the earnings( the P/E ratio) would be about 6.6, a low PE…But this is a company that hasn’t made any earnings the last three consecutive quarters, and who is increasingly losing money. You’d have to dig for information to find out why, but on the surface it doesn’t look too promising…
    As another example, take a company whose earnings in the last four quarters were: minus 1 dollar, zero, 40 cents, and 65 cents. If this were a ten dollar stock, the PE would be 200, seemingly very high. But this stock is now making good money, and on the surface looks very promising.

  40. 40
    Kary L. Krismer says:

    RE: The Tim @ 36 – I’m not sure what your point was in that. It didn’t mention Hoover at all, so were you supporting my claim that comparing Obama’s spending to Hoover’s is probably false like the “death panel” argument, or just trying to refute the reference to Krugman claiming it’s too low? I wasn’t trying to support the latter, btw, just call into question the Hoover/Obama comparison.

    BTW, on the death panel thing the best argument I’ve heard is the commentator in the wheelchair, Charles something, who basically argues that it was simply unnecessary spending being added to the program. It would allow people to charge for those services and be compensated by someone else (govt.), while at the same time, recommending even more services that again someone else (govt.) would pay for.

  41. 41
  42. 42
    David Losh says:

    It takes absolutely no thought to say taht any one who took a cash out refinance or purchased a home in the past five years will be underwater.

    You most certainly can broad sweep value. Zillow is a complicated sales data computation and that is meaningless, NWMLS sales data is meaningless, these things onle show what a property sold for recently. The future is highly predictive for Real Estate.

  43. 43
    Scotsman says:

    So, BarryO is fessing up that the national debt will grow by at least $9T over the next 10 years, not $7T as originally claimed. And we all know that these longer term projections are optimistic even during the best of times. But let’s assume two things- that the $9T addition is true, and also that the government wakes up and decides to freeze spending at it’s current level. (ha, ha, that IS funny!) That leaves us with a total debt of a bit over $20T. Again being optimistic, let’s pretend an average T-bill rate a few years down the road is 5%. That means that the interest only payment on the debt will be $1T per year, or fully 1/3 of the frozen federal budget. Yikes! What’s that you say, Federal revenues are falling, not even meeting current projections? What, social security, Medicare, Medicaid, free prescriptions, etc., etc. have already grown beyond the taxes that fund them and are now net drains on the budget, not net revenues as they have been in the recent past? What’s that you say, the federal guarantees- FDIC, Fannie, Freddie, GM, derivatives, etc. totaling over $30T are being called as sector after sector of the economy continues to contract or fail outright? Hmmmm.

    We’re gonna need a new tax, maybe more than one, maybe on the chronically unemployed, or on the rich, if there are any left who have liquid assets. Maybe we should just print up some fresh greenbacks to pay those pesky entitlements. So what if the dollar devalues to the point where oil costs $200/barrel and even a basic foreign good is considered a luxury item. Sure, it may drive interest rates up a bit more, but we’ll cross that bridge when we come to it- the constituents are getting angry, their pensions (private/city/county/state) have failed and they need benefits now! Vote for me, and I’ll make sure you’re not the last sucker drawn into this ever expanding ponzi scheme! I’ll give you free medical care, free retirement, a free vacation every year, free food stamps, and free housing in all these government homes we got stuck with by the banks. And it will all be worth what you pay for it…

    We are SO screwed, and all anyone wants to do is dance, dance, dance…

  44. 44
    David Losh says:

    RE: Scotsman @ 43

    This is getting to be more and more unbelievable by the day. Real Estate blogs or the conservative movement are kind of the same thing. Every body trying to sell me something.

    Health Care, Energy, and Education can fix all of the economy. No one likes it because people will have to work for a living.

    My favorite is oil. What a useless product and yet our entire economy is built around it. I would say technology is the next biggest drain on the economy, but it pales in comparison to what we spend so we don’t have health care.

    Let’s just take insurance in general where we all pay so that we don’t have to pay when something happens. What an absolutely useless endeavor that has driven up the cost of cars, health, homes, products, and government. Insurance against what?

    Last, but not least we have an under educated population because you either choose to go into debt or you fore go an education to support yourself. Then we have the people who are working their way through college to get some other useless degree so they can become more useless.

    It’s so simple yet so complicated for those people who are useless appendages to our society. You need to work and make a contribution. There’s plenty of money around yet two years of bad times seems to have blinded a whole bunch of people to the fact we had ten years of exceptional growth.

  45. 45
    cheapseats says:

    RE: David Losh @ 44 – Aside from any of the points you make, since you replied to post 33, at what point does the national debt become troublesome to you if 33% is not?

    Maybe 2 years of recession is no big deal. But in my opinion the debt problem has evolved over a much longer time frame, we as a nation have slowly become acclimated to it. The numbers are so large that they no longer seem real.

  46. 46
    Scotsman says:

    RE: David Losh @ 44

    ” There’s plenty of money around yet two years of bad times seems to have blinded a whole bunch of people to the fact we had ten years of exceptional growth.”

    In a nutshell the problem is that those ten years of growth weren’t real. The money wasn’t real, it was credit. There was very little net new production, but lots of future demand pulled forward. We didn’t build a lot of machines or new capital, we didn’t save anything, hell we didn’t even maintain the roads, bridges, etc. we already had.. We went on vacation, ate out, drank $5 coffees and bought big TVs. Now the credit is gone, because the asset base that supported it is gone, a bubble burst. The bills keep coming though, on all levels- personal and governmental. We have to borrow money we don’t have, and perhaps never will, just to pay the interest.

    There isn’t “plenty of money around.” That’s the problem. It all went “poof” almost overnight. This nation is like the construction worker who went on a binge, bought a new boat, the big truck, an ATV, and 2 weeks in Mexico after one big job. Now there’s no work. The credit cards are all maxed out, the offers for new ones have stopped coming in the mail, and the cash advances on the last one are being used to make the minimum payments on the others. Here’s the kicker- next week when our hero heads off to some small job the transmission in his truck is gonna crap out. He’s toast. We’re toast too.

  47. 47
    fwiw says:

    By Kary L. Krismer @ 35:

    RE: fwiw @ 33 – What is this? The latest Republican smear tactic–sort of a “death panel” for economic policy? A Google search indicates LaRouch (sp?) is pushing it too.

    Even assuming Hoover increased spending, that doesn’t mean it was in the same manner, in the same timeframe, and more to the point, the debate has been at least partially whether the stimulus is big enough (e.g. Krugman’s arguments). If Krugman is right, than both Obama and Hoover would be wrong, but not for trying to stimulate the economy, but for doing too little.

    I see this post is as accurate as most of the posts you make since I posted nothing of the sort in post 33 …

  48. 48
    David Losh says:

    RE: Scotsman @ 46

    Funny.

    The money went poof? It went where?

    OK, I’ll admit I had a hard time with this one myself. I wasn’t looking, paying attention, or was just too stipid to see it.

    The thing that’s left is the debt. The money is still out there. The Plasma TV was bought with credit, but the product was paid for in cash. There are a thousand deals along the way from suppliers, to shipping, to retail sale, to the labor to put the thing together. That may all have been floated by credit, but all that did was boost the price of the TV.

    Here’s where it gets to be a communistic plot inside of a capitalistic shell, we all pay for the debt. Actually the more you have the more you pay, or really great is that all of the debt free people pay for the debt other people don’t pay.

    Isn’t that what your talking about? You paying for everybody else? Oh my God the government is going to pay for something with my tax dollars?

    I could go on and on, but the bottom line is that the government can either spend or invest. The government spent all the way through the Bush administration and invested in nothing. For eight years nothing was done except chase phantoms. Right now the Afganies are kicking our asses with second hand AK47s while we spend billions of dollars. We have billions of dollars of equipment in Columbia for Crist’s sakes.

    We got the War on Terror with the War on Drugs and neither war has a profit, or a goal, or a mission, or any good associated with them. It is a subsidy to oil and medical Industries.

    Let’s not forget it was Bush who threw the first few billion at the economic crisis that was built on his watch. While he played fighter pilot we paid for a long list of covert ops in foriegn lands. We were the ultimate spy vs. spy.

    Obama was left with a mess he is doing a great job of repairing. Yes there is debt associated with government programs, like the rail road, or airports, or roads, dams, cargo facilities, custome, border patrol. We need leadership and direction that is for the benefit of the public. Right now the Obama guy has made sense as opposed to the Bush guy who caused so many problems we could never finish the list.

  49. 49
    Scotsman says:

    RE: David Losh @ 48

    There are now more government workers than there are manufacturing and construction workers combined. Projected total federal tax receipts for 2009 will only supply about 1/3 of what the government spends, and the real entitlement expansions haven’t even hit yet. You call that “cleaning it up?”

    How long could that go one in your household? How long do you think it can go on at the federal level?

  50. 50
    Sniglet says:

    Anyone hoping that the real-estate market will see a swift rebound, let alone any kind of recovery, should take note of what’s happened in previous bubbles. The bubble in Texas property that burst in the early ‘80s still hasn’t seen a return to pre-bubble values nearly 30 years later.

    http://surkanstance.blogspot.com/2009/08/who-says-house-prices-always-go-up.html

  51. 51
    David Losh says:

    RE: Scotsman @ 49

    This is really simple. Do you think Obama hired those workers? Heck no. Those workers are a culmination of hiring that goes back to the Johnson Administration’s War on Poverty. I think we can do away with that program. I think we can cut military spending, that’s proven to be a big drain on resources. The Department of Agriculture can be gutted along with the Department of Commerce. TSA has got to be the greatest make work program ever to have been invented.

    In other words, if you want to cut spending that’s not a problem, there is plenty of cutting to do. Raising taxes is no problem. Plenty of people made plenty of tax free money going back to the Reagan years. There is tons of money to tax and you will never feel it. People both liberal and conservative live in awe of people like Warren Buffet or Bill Gates who profit by government programs. Did you know Nestle and Alcoa get tax breaks? They need ’em, they never seem to make as much money as they want to.

    Let’s just cut the crap. We give more tax dollars to the oil and auto industry than any other entitlement program. It’s a matter of National Security. This has been going on since World War I. it’s a dinosaur, let it die. Let’s move forward.

    What this is all about is jobs. Government, corporate, small business, or independent it’s all about keeping busy. It’s the churning of dollars through the economy. We have a government for the People and by the People. Let’s say we all do nothing and the government feeds us, clothes us, houses us, and allows us health care. It’s up to the government to figure it out. We were born here and we are entitled to the natural resources this country has.

    You’re just not tracking. No matter what you want the fact is there are more people in the world than there are resources. Debt? Dollar debt? it’s completely meaningless. It’s an abstract concept. Dollars? What dollars? Which Yen, Euro, or Peso can you eat?

    If we don’t pass health care our private pay insurance program will not be able to cope with the next pandemic, or epidemic. Swine flu will not stop at the insured or uninsured. That will be the next bail out.

    Bush should have made a State of the Union address concerning the financial markets in 2005, he did nothing. That’s the difference here. We have a guy doing something like a President should and we had a guy who did nothing. Bush was a scared, whiny, little wimp who consistently put us in harms way.

    That needs to be corrected and thank God we got some one other than Clinton. Obama by far looks like a good choice.

  52. 52
    David Losh says:

    RE: Sniglet @ 50

    Real Estate is constant. The value is constant; it rises with inflation. It’s the cost of housing.

    Just because people pay more than it’s worth or less is a personal choice.

  53. 53
    Trigger says:

    RE: Scotsman @ 46
    Hey Scotsman – I see the analogy of the US to construction worker is that the US is like an educated construction worker who went a bit on spending binge. Now this construction worker needs to brush up on new skills so that he can earn more money more efficiently. This way his binge will look less like a binge. So the US needs to invest more in new technologies, innovation to increase GDP and as such the debt will look less formidable.

    Also keep in mind that debt in general does not matter – ONLY the servicing of the debt matters.

    I would sit down and look at numbers catefully to see if the govt can wiggle its way out of this one. The key would be to have an economic recovery – so the govt revenues should be rising and not falling. China should be supporting the US in this one as they manufacture all the toys for the US. And I would see the impact of innovation on growth of the US economy. I have not come up with the exact model but I am sure Bernake and their team are digging into this.

    If things really push come to shove there will be a way to inflate ourselves out of this mess. Basically if debt is not sustainable you need to reduce it so that future growth is not jeopordized. I am sure debtors like China will understand. And possibly Americans living here – will also understand if their savings take a hit.

    Too much debt is not a good thing in general. Look at Germany before WWII. They had too much debt imposed on them and they spinned out of control.

  54. 54
    Kary L. Krismer says:

    RE: fwiw @ 47 – That was actually a response to Sniglet in post 32. I apparently clicked on the wrong reply link. Sorry. He was the one comparing Obama’s spending to Hoover’s.

  55. 55
    Kary L. Krismer says:

    RE: fwiw @ 47 – BTW, I didn’t miss the irony that you claim my posts are inaccurate in the same thread where you deliberately misstated my position. Good work! ;-)

  56. 56
    Kary L. Krismer says:

    Harney on efforts to extend/expand the home-buyer tax credit that is expiring on November 30, 2009:

    http://seattletimes.nwsource.com/html/realestate/2009708517_harney23.html

  57. 57
    Scotsman says:

    RE: David Losh @ 51

    Agreed, there’s plenty of blame to go around and a fifty year history of politicians pandering to constituencies. But the first rule of holes still rings true: when you find yourself in one- stop digging! Instead, we’ve brought in the heavy equipment to speed the task.

    There won’t be any more bailouts. The government is broke. It was well along the path to insolvency 10 years ago thanks to entitlements and demographics with the inevitable conclusion mathematically locked in. When the housing bubble burst all it did was cut 25-30 years off the time-line. What would have happened in 2040 is happening now.

  58. 58
    Scotsman says:

    RE: Trigger @ 53

    “Debt doesn’t matter” sounds like something a deficit loving politician would say, not an economist. Of course debt matters, and not just because of the interest or servicing costs. If you can’t see it’s effects on a national level, scale it back and tell me how much debt you as an individual can sustain/service and the impact it has on your life and future plans. Macro economic growth or failure happens on the margins, reflecting what happens with the extra 3-10% you have left over each month after the basics or current consumption are covered. Does that little bit of discretionary income go to savings and eventually growing future production, or does it go to interest? Interest is little more than a wealth transfer, either from you to your bank or from the U.S. to rest of the world. Where will you find yourself or your country after all the wealth has been transferred out? When the law of exponents kicks in on a transfer out, when you’re paying interest on the interest, it’s extremely hard to recover. Math remains a bitch.

    Inflation is not a viable solution. High inflation in the U.S. comes with associated costs- a falling dollar and higher interest rates. Higher interest rates kill the economy, a falling dollar increases the price of all the “cheap” stuff we’ve been relying on for decades, and especially oil. While David Losh may scoff at oil, the fact remains without it disaster looms. It’s not just gas prices, it’s all transportation and energy related costs, a huge manufacturing base dependent on polymers and hydrocarbons (make-up, plastics, fertilizers- i.e. FOOD, etc…), the list goes on and on. Best guess from those I read is that high inflation would turn the U.S, into something more like India- class stratification, a large underclass, large environmental issues ( when the choice is to be green or eat..?) and political instability. Sound like fun?

  59. 59
    softwarengineer says:

    RE: Rack @ 30

    The endangered Orcas in Puget Sound due to overpopulation heavy element and fertilizer run-off isn’t laughing.

    Our debt burdenned grandchildren of our grandchildren to pay off the mass of overpopulation bad loans aren’t laughing.

    It sounds like its only you two laughing.

  60. 60
    softwarengineer says:

    RE: Sniglet @ 32

    I agree Sniglet, but there’s also a part of me that hopes we slow it down, but the other part of me knows slowing it down will probably make it far worse later.

  61. 61
    softwarengineer says:

    RE: Kary L. Krismer @ 35

    Its always been a contentious argument that FDR’s stimulus spending for a decade eventially squashed the depression, vs., he did no good, WWII’s industrial base and new technology inventions squashed the depression.

    I’m for technology innovation curing the depression, but 1st we need an industrial base with good paying non-service sector jobs back again.

    Even VP Biden agrees with me, until jobs come in the “positive” growth its just getting worse and worse. This lame brain pipe dream that job growth follows economic recovery is hogwash. Its clearly the opposite. When economists start thinking common sense and realize that Malthus was right on overpopulation causing wage deterioration and unsolvable chronic unemployment, with more overpopulation we’ll be on the road to recovery, albeit it will likely take decades to repair and depopulate.

  62. 62
    softwarengineer says:

    RE: David Losh @ 42

    So true David.

    I agree with the younger families going into debt if they want a house, but, I think 30-35% of net pay is generally a complete joke, let alone 30-35% of gross pay on mortgage qualifications. The average American family needs much more than a roof; they need food, transporation, unpaid medical/dental, vacations, savings, etc, etc…in other words, they need a life too. Spending 15-20% on the roof and having 80-85% left for a life is prudent common sense thinking to me. Now, if you’re one of the top 5% elite household incomes making $200-250K per yr, then 30-35% of net is more understandable for a mortgage. But, the average household income making $40-50K/yr would say that family is totally out of touch with America’s real Middle Class and middle income. Also, the bottom 50% of American households living in poverty, unemployed or homeless would say that elite family was out of their minds thinking they were mainstream little guy.

  63. 63
    softwarengineer says:

    RE: David Losh @ 51

    I’m for Health Care Reform as a completely separate entity from Medicare. Medicare was paid for by retirees paying monthly premimums into Medicare, thus adding freeloaders that paid no retiree premiums all their lives and have not retired is totally ludicrous and worse yet the proposed $500B cut [cost free efficiencies…LOL] to Medicare to fund freeloaders is wrong, because budget cutbacks on Medicare will be needed soon and simultaneously adding unpaid freeloaders on the Medicare contract masks the depth of the cuts really needed and bocks transparency in government.

    But don’t worry, our government would never lie to us on transparency of budget cut issues…LOL

    Health Care Reform will mean lower wages for nurses and doctors, believe me, there’s no other way to create more care and expect a bankrupt government to miraculously carry it through right now at present health care salaries [the AMA totally agrees with me], before we’ve even developed a job base and a tax base that doesn’t keep getting worse month to month, year to year. That’s the trouble with Obama’s campaign promises, they sounded good last year, until the bill arrived in the mailbox this year.

  64. 64
    Sniglet says:

    Its always been a contentious argument that FDR’s stimulus spending for a decade eventially squashed the depression, vs., he did no good, WWII’s industrial base and new technology inventions squashed the depression.

    Actually, there is another school of thought which holds that the depression ended when the mal-investments had finally been purged, and social moods towards investing had undergone long term changes. The fact that WWII happened to come along at the same time is a coincidence.

    I certainly don’t think that FDR’s spending was helpful, but I suspect it was inevitable. People will DEMAND their governments do whatever they can to prevent pain, and no matter who had been in office, the result would have been the same (heck, even Hoover had tried opening the spending spigots, much like Bush was already priming the pumps when Obama came on board).

    In theory, a short and sharp conraction is best, but the reality is that voters won’t tolerate such an action. In fact, government meddling is itself a part of the natural cyclical process of multi-generational depressions, and growth periods.

    I suppose I have become somewhat fatalist about our fates these days, and think that we are all just subject to the long term generational cycles, and there really isn’t much that can be done about it.

  65. 65
    deejayoh says:

    By softwarengineer @ 61:

    This lame brain pipe dream that job growth follows economic recovery is hogwash. Its clearly the opposite. When economists start thinking common sense and realize that Malthus was right on overpopulation causing wage deterioration and unsolvable chronic unemployment, with more overpopulation we’ll be on the road to recovery, albeit it will likely take decades to repair and depopulate.

    SWE – actually it is not clearly not the opposite. Job growth typically lags GDP recovery. As you might say, SEE THE PROOF

    http://bigpicture.typepad.com/comments/employment_and_gdp_growth.html
    Unemployment has peaked at the end of the recession for at least the last five recessions, probably more if I had a longer time-frame for the chart.

  66. 66
    TJ_98370 says:

    By Jillayne @ 31:

    Meredith Whitney saying at least 300 banks will fail. See Bloomberg or CR.

    .
    Not to worry Jillayne. The FDIC is getting help.
    .
    Guaranty Bank bought by BBVA Compass

  67. 67
    DrShort says:

    Mortgage related question….

    Early in 2009, a law was passed or something was done to create “conforming high balance loans” which upped the conforming limit from $417K to somewhere around $567K. This really helped breathe life into the higher end home sales. I believe this higher limit on conforming loans was temporary through 2009. Has anyone heard anything about this being extended?

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