Depression | e-commentary

Archive for the Depression Category

USA, FDIC, Or NCUA? LCU? SPCU? (October 19, 2015)

Posted in Bail In, Bailout/Bribe, Banks and Banking System, Boycott Series, Collapse, Credit Unions, Debt/Deficits, Depression, Dollar - World's Reserve Currency, Federal Reserve, Gold, International Finance, Kleptocracy, Money, SDR - Special Drawing Rights, Silver on October 19, 2015 by e-commentary.org

. . .

B “I want out of the Racket – the stock market Racket. I want to hold my deferred compensation in the form of dollars, for what they are worth. As I see it, Treasury Bills and Treasury Bonds are allegedly protected by the ‘full faith and credit’ of the United States. What is that worth? When the Big Jolt hits, what is Uncle Sam’s telephone number? Or e-mail address? unclesam@unclesam.gov? A general promise by the Uncle when I have full faith that the credit of the United States is sketchy, provisional and conditional at best. I won’t touch Treasury Bills or Treasury Bonds.”

C “Another hollow and worthless promise. I won’t touch Treasuries and refuse to deposit money in a bank. The FDIC (Federal Deposit Insurance Corporation) allegedly provides insurance for banks, yet the agency is ‘stressed’ to put it mildly and will not pay all claims in the event of a significant bank run. The NCUA (National Credit Union Association) allegedly provides insurance for credit unions and may provide some insurance protection for some time for some depositors. I am willing to make a tentative commitment to the system and keep some of my funds in my Local Credit Union (LCU).”

B “Depositing a healthy chunk of money in the Sealy Posturepedic Credit Union (SPCU) involves little counterparty risk and allows me to sleep peacefully at night. When the Big Jolt hits, there will not be enough physical dollars. Regular folks may accept regular dollars for two related reasons – inertia and habit – until the shock triggers them to do something and change their habits. Regular folks will accept the few available physical dollars for four or six or eight weeks for transactions as long as other citizens accept dollars for transactions. Then regular folks will only accept Sacagawea dollars and some coins for a few weeks, although coins like dollars of any kind are in short supply today. After a few more weeks, some informed folks will accept silver coins minted before 1964 at a premium.”

C “In the end, the Depression is our guide. Twelve gauge shot gun shells may be another medium of exchange and twenty-two rounds may be used as change to support the emerging barter economy. Cash of any kind is the threat to the those who run System. The government now requires banks to obtain and record the identity of anyone making a cash deposit and are refusing to accept cash for some payments.”

B “Banks do not need deposits to be able to loan money. Yet today many banks are offering gimmicks and gewgaws to attract funds that they will be able to retain during a ‘bail in’ without any obligation to the depositor.”

. . .

C “Junior’s paper route money stored in his piggy bank may be our only available liquid asset.”

B “She may not stand for us withdrawing some of the Standing Liberty quarters from the collection she has accumulated with her baby sitting money.”

C “We may need a bushel basket of Wheat Pennies to buy a pocketful of wheat.”

B “When the banks are maneuvering to avoid a haircut, we may be required to go to our Barbers.”

. . .

[See the e-commentary at Preserve Cash; Preserve (Some) Privacy (May 4, 2015), “Bail Ins” Are Globalized; “Bail Outs” Are Bailed Back In; No Bail For Bankers (December 29, 2014), Globalizing The Bail In (July 8, 2013), Bailouts: Out; Bail Ins: In; Slowly Boilin’ The Frog (April 15, 2013), Money “In The Bank” Or “Under The Mattress” (October 8, 2012), Boycott Big Banks – Vote Your Dollars (November 21, 2011), and Boycott Big Banks (February 1, 2010).]

Bumper stickers of the week:

The U.S. government is pursuing an international currency war and a domestic war on currency.

SPCU/You > LCU/NCUA > Bank/FDIC > Uncle Sam/FF&C

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Venturing A Few Unfounded And Unwarranted Predictions (July 13, 2015)

Posted in "L" Shaped Economy, Bankruptcy, Banks and Banking System, Collapse, Depression, Elections, Foreign Policy, Gold, Gold Standard, Kleptocracy, Money, Pensions, Quantitative Easing, Recession, SDR - Special Drawing Rights, Security State, Silver, Silver Standard, Supernova Dollar, Zero Interest Rate Policy on July 13, 2015 by e-commentary.org

. . .

3 “Pensions will be even more problematic.”

4 “When the stock markets reset catastrophically, pensions will need to be reset correspondingly.”

3 “We will need to muster the collective intellect and imagination to craft a provision allowing states to file bankruptcy.”

. . .

3 “Interest rates cannot be allowed to rise and will not be allowed to rise beyond a nominal .25 percent. Any greater rise would result in devastating financial and economic consequences. Some nominal rise will be imposed to proclaim that interest rates can indeed rise above zero without negative consequence. Those citizens who planned to fund a retirement with interest-bearing instruments have been sacrificed and will continue to be sacrificed without even a vote or even a debate on the policy.”

4 “Sacrifices have to be made. Few folks are concerned or even aware that the Federal Reserve rather than the market sets interest rates. The way I see it the Petrodollar will continue to rise as other currencies decline and those with the wherewithal seek the safety of the Petrodollar. At this time. The Petrodollar’s status as the world’s reserve currency and fundamentally weak foreign economies are a double magnet for money. When the world establishes its own world currency such as a system of Special Drawing Rights (SDR) and circumvents the Petrodollar, the Petrodollar will explode and decline precipitously in value. As I describe it, the ‘Supernova Dollar.’ The last American export – the Petrodollar and resulting inflation – will not be imported by the world.”

3 “Along those lines, the physical dollar will disappear from circulation in the United States before it disappears from the world stage. The U.S. government and large corporations are slowly discouraging and will ultimately outlaw the use of dollars as ‘legal tender’ and as a medium of exchange. Possession of gold and silver bullion by private citizens also will be outlawed. The government will outsource to large corporations the issuance and control of the Universal Electronic Benefit Transfer (UEBT) cards to its subjects. Current credit and debit cards will be re-purposed seamlessly. The IRS will send a statement each year or even each month dictating one’s tax obligation and deducting the amount owed directly from one’s government controlled account. As a consequence, everyone’s inclinations, transactions, and movements will be monitored and manipulated as necessary.”

4 “On the other hand, possession of gold and silver in any form by foreign citizens and governments will be the law and settled practice. The West has readily abandoned gold and silver to an East that has eagerly absorbed the precious metals at rates that have been manipulated down by the West. And gold and silver will be a component of the Special Drawing Rights.”

3 “The West will no longer be able to use paper and electronic transactions to manipulate the prices of physical gold and silver.”

4 “If the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system and the Petrodollar are circumvented, the West will be less able to use paper and electronic transactions to manipulate prices.”

. . .

3 “The nations in the oil-producing regions will not fight over the oil they have but over the water they do not have with far less involvement of and intervention by the United States.”

4 “Nation-States will also disappear as thriving and functioning communities and be replaced by Corporation-States that dictate policy. The United States Congress took the lead and sold out to become the ‘Citigroup-Congress’ recently. More than just naming rights are involved. Current nations are just entities that can be manipulated and maneuvered to go to war with each other when necessary.”

3 “Along those lines, shares in United States Senators will be sold more openly akin to shares in corporations. The news will announce that shares in ‘Senator Larry Jenkins, Inc.’ are up 3.1 percent today on news that he will sell his vote for the Big Project. The John Roberts Supreme Court has endorsed the two-step business plan. If you pay a politician directly for a vote, you are in trouble; if you pay an intermediary that pays a politician for a vote, you are blessed.”

4 “Notions of freely-established supply and demand for goods, services and commodities will yield to quotas per subject each month. Without functioning markets and with regular and systematic market manipulation and intervention, notions of inflation and deflation will be antiquated. World population will continue to grow and resources will continue to be more precious which under the old paradigm would fuel inflation. However, people will simply do without.”

3 “Along those lines, capitalism is a system that socializes the costs of activities and privatizes the profits. The end stage is the emergence of a very small cabal who control all resources and allow the subjects access to just enough resources to subsist in a police state that throttles any debate or dissent.”

4 “The treatment of Cyprus and Greece are intermediate stages in the process.”

3 “The future is not unpredictable.”

. . .

[See the efforts to eliminate cash at http://betterthancash.org/.%5D

[See the e-commentary at Monitoring The Masses: The Card And The Chip (January 12, 2015).]

Bumper stickers of the week:

If you do predict a definite event, do not pick a definite date. If you do pick a definite date, do not predict a definite event. Unless you want to.

In the past, if you could predict the future accurately, you could make a fortune. In the present, you can predict the future astutely, but you cannot do much to protect your fortune or your future. Even if you want to.

“The best way to predict your future is to help create it.” Attributed to Abraham Lincoln

There are few warning signs on the off ramp down the road to serfdom.

What about global climate change?

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Prepping: Public And Private Perspectives (April 27, 2015)

Posted in Bail In, Bailout/Bribe, Bankruptcy, Banks and Banking System, Collapse, Debt/Deficits, Depression, Economics, Global Climate Change, Guns, Population, Recession on April 27, 2015 by e-commentary.org

. . .

C “A system that cannot go on forever will not go on forever. The System in its current incarnation cannot go on forever. Thus, the debate shifts fundamentally from ‘if’ to ‘when.’ The syllogism suggests that fundamental change is in store. Do we have the stores?”

D “‘When’ not ‘if’ and also ‘what.’ Plan B is by definition less desirable than Plan A or presumably it would be Plan A. The most desirable plan is failing. What is Plan B?”

C “The other systemic challenge is weather. That problem like the financial machinations is also substantially man-made and man-modified. Mother Nature allocates every region a specially-tailored natural catastrophe. Florida and the Southeast get hurricanes, the Midwest gets tornadoes, the West Coast gets earthquakes, other regions get typhoons and cyclones. And Mother Nature is shifting the script so that some areas get floods and some get drought. The jet streams and the gulf streams are working in tandem to change things on the ground.”

D “Leaves you wondering what is Plan B?”

. . .

C “The script never varies. The public Emergency Preparedness offices provide detailed lists of necessary supplies and valuable advice yet always unfailingly avoid even hinting that a gun, even one for hunting squirrels or pigeons, is a wise and prudent investment. Some of them are reluctant even to mention acquiring a knife other than a pocket knife or perhaps a scalpel.”

D “And the private sector prepper sites go to the other extreme and focus the entire discussion around guns and ammo and ammo and guns and guns and ammo. The alpha, the bravo, the charlie and the delta of preparation for the Great Omega.”

C “Get a gun. We have a moral duty to protect our family and friends. And get an LED flashlight. And extra batteries.”

D “And beans and bullets. My personal Plan B combines public and private sector suggestions.”

. . .

C “Going it alone is a failure from the start, yet desperately few humans have the intellectual and emotional software to engage others cooperatively. Finding others who have resources, skills and tools is not promising.”

D “At heart, the most prudent preparation is to restrain the dragons in our soul to free our mind.”

. . .

[And this past weekend, earthquakes in Nepal.]

[National PrepareAthon! Day on April 30 is a grassroots campaign for action to increase community preparedness and resilience.]

[See the e-commentary at Beans and Bullets (April 6, 2009), We Ain’t Ants; We Are Grasshoppers (April 9, 2012), On Community (June 3, 2013) and On Roiling And Rolling Collapse (March 9, 2015).]

Bumper stickers of the week:

Get a garden rake, get a gun, get a grip

“If you want to awaken all of humanity, then awaken all of yourself; if you want to eliminate the suffering in the world, then eliminate all that is dark and negative in yourself. Truly, the greatest gift you have to give is that of your own self-transformation.” Attributed by some to Lao Tzu, but who knows.

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We Ain’t Ants; We Are Grasshoppers (April 9, 2012)

Posted in Depression, Entitlements, Environment, Food, Global Climate Change, Global Warming, Pogo Plight, Society, Water on April 9, 2012 by e-commentary.org

. . .

C1 “Eating out will make you eat in. Or lose your appetite. Americans devour too much food and waste too much food. A friend said that he could not go a week in any activity catering to the American appetite because he could not stomach the gross waste of food.”

C2 “Americans put too much on their waists and then waste the rest. They waist food and then waste food.”

C1 “If Bill Shakespeare didn’t document it, Aesop did. The timeless human experience.”

C2 “Bill on burgers, Aesop on arugula?”

C1 “I thought they relayed the ‘Ant and the Grasshopper fable’ to us to teach us to play well with others even if the others played too much. I thought we would be directed to be a good ant and let the grasshopper come in out of the cold. Then she read the ending and said that the ants rebuked and rebuffed the grasshopper when he sought to come in out of the cold.”

C2 “You can’t blame them. The ants saved and gathered all summer while the grasshopper played and partied.”

C1 “But we are all playing and partying. There are not enough ants.”

C2 “Everyone must be an enlightened ant. The grasshoppers are preparing by collecting guns. The few ants must continue to save and gather and . . . collect guns.”

. . .

[See the article “Clean your plate, save the world?: Scientific American.”]

[See the “e-ssays” titled “Beans and Bullets (April 6, 2009),” “On Entitlements (July 19, 2010)” and “Girding For The Going Grid (October 11, 2010).”]

Bumper stickers of the week:

Personal responsibility; fiscal responsibility; legal responsibility

Providence prefers providence

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“Fiat Gold” / Fool’s Gold (May 2, 2011)

Posted in "Fiat ______", Depression, Dollar - World's Reserve Currency, Economics, Gold Standard, Recession on May 2, 2011 by e-commentary.org

. . .

F “Remember that back in 1933, President Franklin Roosevelt confiscated all gold, devalued the dollar and decreed that the United States no longer allowed U.S. citizens to convert dollars into gold. On August 15, 1971, President Richard Nixon decreed that the United States no longer allowed for the convertibility of the dollar into gold. At the same time, federal spending and dollar creation grew and continues to grow exponentially. Gold is an unworkable and irrational benchmark and restraint, yet it was a brake.”

G “You still believe that the rest of the world will decree that the dollar is no longer the world’s reserve currency.”

F “Don’t lose faith. In time, it is only a matter of time. Even with careful explanations, the public will not understand the consequences. If there is a ‘slinky slide’ rather than a sudden drop, ‘fiat dollars’ may be accepted for a few months or perhaps longer if there is still some residual faith in the greenback. The buck is familiar and will be readily available, but it may stop here. Some members of the public will shed their habit and shift their faith from ‘fiat dollars’ to gold and silver.”

G “Moving from money to Morgans.”

F “Then the Great Revelation will be revealed when they discover that they are now holding ‘fiat gold’ and ‘fiat silver.’ The half life of the fascination with the shiny stuff may be two or three months. Then everyone will discover that the stuff is generally useless, although gold may be useful for some electrical connections and silver for our electrical devices.”

G “And maybe the stuff is not really as necessary if there is limited delivery of electricity.”

F “A garden shovel will be much more valuable than a golden bar.”

G “And knowing how to use a garden shovel.”

F “And being physically able to use a garden shovel.”

. . .

[See the “e-ssay” titled “Is The Gold Standard Really The Gold Standard? (January 18, 2010)”]

Bumper stickers of the week:

Why is gold always priced in . . . dollars?

Fiat = Fiat = ?

All that glitters is not a medium of exchange, a store of value, and a unit of account.

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“Peak Land”: The Exodus Toward The Equator . . . or the North Pole? (April 4, 2011)

Posted in Consumerism, Depression, Economics, Global Climate Change, Global Warming, Housing, Peak Land, Population, Recession on April 4, 2011 by e-commentary.org

. . .

7 “Look at the movement of the ‘center of population’ or the ‘median point’ of the population in America over the decades. Opportunity, open space, sun shine, clean air, air conditioning, ‘right to work laws’ and lax state environmental and occupational regulations attracted individuals and businesses to the western longitudes and the southern latitudes of America. The center has moved from Maryland to Missouri. In the coming decades, the population will need to migrate closer to the sun which on this planet means closer to the equator.”

13 “Not enough dead dinosaurs. The decline in fossil fuels will drive everyone crazy and may drive them to drive south. About ninety percent of the Canadian population lives within one hundred miles of the United States border. They can’t move far and remain Canadians. We will need to move south. However, people will not have the electricity to condition the air.”

7 “Americans are drifting toward the southwest, yet they cannot live and work there because of the limited water supply even if photovoltaic cells are welcome and promising. The populace may end up moving to enclaves in Oregon.”

13 “Then we bump into another limit. We as a people have always lived at ‘peak land’ because the total number of hectares is finite and known.”

7 “With the rising seas reducing the land mass.”

13 “Exactly. I look at the globe and a map differently. I see a narrow undulating band of livable land that does not demand the consumption of substantial deceased dinosaurs to stay warm, offers adequate water supplies and provides locally grown food. The sustainable plat on the planet is contracting. Even rising temperatures will not be enough to offset the prohibitive costs of heating cold regions and handling short growing seasons.”

7 “Yet as the perverse insulation envelops the Earth, northern climes may become temperate climates. Canadians may be well positioned.”

13 “All the rates of change are in flux and uncertain. We are now moving from ‘peak land’ to scarcer land.”

7 “We are on the wrong side of too many tipping points. Usable land is contracting while the population is expanding.”

13 “While the population is exploding. A friend estimated that the city will reach five hundred thousand residents by 2030. I observed that the city would need to contract to fifty thousand residents at most. He was nonplussed and added an aside about the birth rate. I agreed that we are over gross and getting grosser. Nonetheless, our numbers must shrink and migrate. He remained nonplussed.”

7 “For most people, it does not add up. They aren’t even doing the math.”

. . .

[April – National Poetry Month]

Bumper stickers of the week:

A half dozen six-word memoirs in an “e-poem” titled “Take only pictures; Leave only footprints.”

Many live humans; Few dead dinosaurs.

Disregard the e-con-omists; Regard the physicists.

Change your attitude; Range the latitudes.

Pay old bills*; Develop new skills.

Consume less junk; Savor more beauty.

So many challenges; So little time.

* Craft your own financial game plan. With hyperinflation on the way, purposefully delaying the payment of bills allows one to pay obligations with significantly devalued dollars. That is the strategy being pursued by the governments.

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Rational Fear: Still “Unusually Uncertain” (November 8, 2010)

Posted in "L" Shaped Economy, Bailout/Bribe, Banks and Banking System, Bernanke, Depression, Federal Reserve, Greenspan, Kleptocracy, Technology, Unemployment, Volker with tags Volker on November 8, 2010 by e-commentary.org

. . .

K “Think about it. Some maintain the blind conviction that the business cycle is ordained by nature like the tides to rise after it falls.”

J “Faith in nature. This season is bad so that the next season will be good because that is the way it is. Good luck.”

K “Some desire to return to unrestrained personal consumption and unbridled economic growth. Even if it is attainable at this time it is not sustainable over time.”

J “Faith in unchecked consumption. With oil peaking and a world population that has not peaked, the prospects are not promising. America had its opportunity to consume. Other countries, particularly China and India, now want and have earned their opportunity to consume. If the oil holds out. And if the coal does not kill us.”

K “Some believe that new technology will be pulled out of the hat and pull us out of this mess.”

J “Faith in technological salvation. The technology sector likely will continue to grow but not enough to propel the entire economy. The tech world is producing some sexy developments and neat gadgets.”

K “I’ve always supported free trade when it is truly free. Decades ago, I could see that globalization would shift massive numbers of American jobs overseas. They said the solution is to train and retool the America workforce. The workforce is not retrained and retooled and may not be retrainable and retoolable. Not many commentators in academic economics or in the financial press have a clue.”

J “It is one thing to listen to Greenspan and know that everything he says is wrong, yet who is getting it right. Knowing which way not to go in a maze is not the same as knowing which way to go. Volker has a clue, yet he is on the sidelines.”

K “Bernanke* has a clue. Now that monetary policy has effectively failed, he is enacting what is effectively fiscal policy. Fiscal policy is the province of the legislature, the Congress. But Congress is broken. The Humphrey-Hawkins Full Employment Act, an act of Congress, requires the Fed to promote full employment. Perhaps he is actually trying to stimulate employment.”

J “But there are no jobs, now or in the future. Quantitative Easing II is nothing more and nothing less than TARP II implemented by the Fed rather than Congress. The Fed’s purchase of bonds is nothing more and nothing less than a slick way to provide another bribe and bailout to Wall Street.”

K “That is hard to dispute unless there are a few random hires here and there. And he continues a tradition at the Fed of lying or at least deceiving the public. He can do something. He and the Fed regularly issue ‘Remarks’ and ‘Speeches’ on all manner of topics. He should direct the Fed to issue a finding that a single bank with deposits and assets of more than 100 billion is a clear and present danger to the American economy and to the security and well-being of the Republic. If a bank or other financial institution does not enter into an Enforcement Action with the Fed, close the resources of the Federal Reserve to the bank or financial institution. In effect, require banks to downsize to manageable sizes. They must be small enough to fail and to play well with others.”

J “Won’t happen. Our democracy is now a kleptocracy.”

K “That won’t help employment, however. But he could pull it off. He can be bold. He would have to play all his capital. But for us citizens, however, the only things we have to fear are so many very real fears.”

. . .

Bumper stickers of the week:

The only things we have to fear are so many very real fears.

Don’t end the Fed, mend the Fed.

“And as things fell apart/Nobody paid much attention.” “(Nothing But) Flowers” – Talking Heads

“This country’s hard on people, you can’t stop what’s coming.” No Country for Old Men movie (2007)

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The Depression is Over!? (September 20, 2010)

Posted in "L" Shaped Economy, Depression, Economics, Recession on September 20, 2010 by e-commentary.org

. . .

E “The Depression is over. So they say. In fact, it was only a recession and has been over since June 2009. So says the National Bureau of Economic Research, the NBER.”

U “How does that work? Can I get a job, go back to work and collect a paycheck retroactive to June, 2009? That is my benchmark.”

E “Call them. The NBER is generally respected as institutions go. They pegged it as just a recession that was over in June 2009.”

U “Praise the Lord and pass the paycheck.”

E “A well-informed citizen should understand the NBER economic model; I don’t. There may not be enough time even late on Saturday night to analyze the economic model. However, I follow every fundamental economic factor. The economic fundamentals are worse than they were two years ago. The NBER conclusion seems wrong.”

U “I don’t understand the economic model, but I know the conclusion is wrong.”

. . .

Bumper stickers of the week:

Recessions are so overrated.

2 + 2 = 5

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An Economic Tsunami?: The Road Ahead (Dec. 14, 2009)

Posted in Bernanke, Depression, Dollar - World's Reserve Currency, Economics, Volker on December 14, 2009 by e-commentary.org

. . .

“Log this road map in the back of your mind. The M3 money supply is no longer even reported. The world currently has reservations about the world’s reserve currency – our handy-dandy trusty dollar. Petrodollar implodes; gold explodes. Residential housing market, commercial real estate, and criminally over-leveraged corporations (LBOs) start really diving precipitously. Fire employees; productivity/profits increase. U6 unemployment up to 20% or more. Fired employees decrease purchases; profits decrease. Murdoch (Dow) down to 6K or less. Gazillions of no good dollars spewed by the Fed; no goods are produced nor services provided by plundered economy. Imagine unimaginable inflation exploding. A great, catastrophic and unanticipated economic surprise surprises us. And you get the Great Depression 2.0. We are on the road.”

“To ruin? To perdition? To serfdom? We’re Americans, we always do something. We demand success and we expect success. We can just decree that it not happen.”

“The problem is that nothing can be done effectively or efficiently to stimulate the economy when the economy at core is so fundamentally broken. O’Bama inherited this imploding and exploding economy. However, other than possibly some insights from Paul Volker and Warren Buffett, O’Bama has failed miserably in selecting his economic advisers. He is now in control of an economy that is out of control and out of his control. Many members of the public are angry, anxious, frightened, and desperate.”

“And there is nothing you can do about it. Nothing.”

. . .

[The Murdoch (Dow) could go to 6,000 or 4,000 or 5,000 but not likely 36,000. See the “e-ssay” dated Oct. 12, 2009 entitled “Dow: 10,000 To 5,000: The ‘FUBAR’ bubble” and the “e-ssay” dated May 11, 2005 entitled “The Coming Depression Is Not Depressing.”]

(O’Bama in Oslo. “Si vis pacem, parati para bellum.” Strong speech; right message.)

Bumper stickers of the week:

Next stop – Pottersville

Great Economic Tsunami 2010; Great Depression 2.0

The Republicans are part of the problem; the Democrats are not part of the solution.

Pass the Terrorist Tax

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Housing Revisited (June 22, 2009)

Posted in Case-Shiller/S&P Index, Depression, Economics, Greenspan, Housing, Recession on June 22, 2009 by e-commentary.org

Four years have past, four summers, with . . . the housing market continuing to deteriorate. The cover of the June 18 – 24, 2005 edition of “The Economist” depicts a falling brick with the words “House Prices” on it and leads with an article entitled “After the fall.” The article and earlier articles in the magazine were prescient in warning about the explosive rise and pending collapse of house prices. In conclusion, the article notes:

“Of course, by the time American prices begin to fall, probably sometime next year [2006], they will not be Mr. Greenspan’s headache. He will have retired and someone else will be in his job. If weaker house prices push the economy towards recession, the awkward truth is that America’s policymakers will have much less room to manoeuvre than they did after the stock market bubble burst. Short-term interest rates of only 3% leave less scope for cuts. In 2000, America had a budget surplus. Today, it has a large deficit, ruling out big tax cuts.

The whole world economy is at risk. The IMF has warned that, just as the upswing in house prices has been a global phenomenon, so any downturn is likely to be synchronized, and thus the effects of it will be shared widely. The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.”

In the last few weeks, when someone applied for a building permit to construct a 12 by 16 foot shed, too many commentators were ready to proclaim the housing crash ended. Few seem to realize that the housing market is just starting to crash. The infection is now impacting families with reasonable fixed-rate 30-year mortgages and long-term ties to their communities who are losing their jobs and will soon lose their homes.

Until housing prices drop to at least the extrapolated historical levels of a bench mark such as the S&P/Case-Shiller Home Price Indices, the decline in prices will continue. The Federal Funds Rate is zero which eliminates the primary tool to shape economic events. The Fed is creating other gimmicks to stimulate the economy that are unwise, unwarranted and unfounded in law. More later.

Bumper stickers of the week:

Still pushing hard on a string

Everything that goes down does not necessarily go up

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