1 Time to buy more ammo.

2 I'll just put it on my credit card.

3 Those unfunded social things are crazy! They should get Paulsen to use TARP to adjust it to a level the US can actually pay. Doesn't he know there's a recession?

4 But are they counting what you could get on eBay for the Roswell aliens, the Ark of the Covenant, and all the stuff in the Restricted Section of the Clinton Presidential Library?

5 Hey, no problem!  The fed'ral gummint can just print more money!  Problem solved...

6

Yeah, but... shouldn't the government take care of us all? And make sure we got healthcare, a home and a Nintendo Wii? I mean, come on!

Maybe if Bush hadn't invaded Iraq for all that oil, we'd have some money left.

Tax the rich!

7 They are missing value of the underground barter economy, that will keep us solvent.  Everything from childcare to drugs happens off the books.  Might as weel count half of Mexico's GDP as ours.

8 Yeah!  I second whut that other Obama votur rote.

Its onlee fare!

9 Proof that socialism has failed. Again.

Like you needed more proof.

10 Good news is that "unfunded liabilities" don't need to be paid.  No one holds debt on the Social Security payments of people born in say, 1980.  Bad news is that the days of retiring at 55 or 60 are probably over unless you do it all yourself.  I suppose this had to happen.  These programs are Ponzi schemes.  A couple of generations got a good deal at the expense of the generations behind them, but now we can bring it all to an end... as if there was a choice. 

11 There's no need to worry. Camelot II is starting in about a month. All of our problems will be solved. And if they aren't don't dare ask Dear Leader about them. He'll be too busy being presidential and historic.

12 Maybe the Federal gov't can file Chapter 11.

13 Good analogy about the Ponzi scheme, they only fail when the 'investor' wants their money back....it will be good to see how that plays out as the next generation of 'investors' demand their money. Unfortunately, printing money, though a way out, does not solve the problem.

14 Yeah, thank God this is all coming to a head now so that Obama can make it all disappear with his magical Messiahness.

Those liberals really are visionary geniuses, and here I thought they were all just racists and totalitarians.

15

I've predicted this a couple of times lately to my family.  I'm no economist but it's only a matter of logic and common sense.  How long can we as a nation be credit junkies before it takes its toll?  Stupid politicians and liberals.  Idiots.  All the feel-goody take care of everyone who is missing their daily dose of electronic toys on a silver platter and everyone deserves to own their own house regardless of their income or even whether or not they even have a job. 

I'm kind of mad about all of this.  The lousy liberals in D.C. brought most of this on and the spineless Republicans did little to nothing to stop it and even helped it along.  Everyone let pretty words override logic and this is what we get for it.  Well, I'm glad Obama gets to deal with this mess.  He and his homeboys deserve it.  Yeah, they'll lie about it and blame it all on the Republicans, but when the MSM isn't around, they'll know it's their mess.  They created it and they get to deal with it.

But we all have to suffer for it.

I'm so mad I can't even come up with an insult to justify this lunacy.

16 They're comparing apples and kumquats.


They palmed a card, actually two cards: the first one is they’re using household net worth … but that leaves out corporate net worth, so they’re ignoring, eg, Exxon. The second is that they’re comparing future obligations to pay with current assets, so it’s like saying you’re “bankrupt” because the total of your expected future living expenses exceeds your net worth.

17 9 Proof that socialism has failed. Again.

Like you needed more proof.

Like we need the hundreds of examples of proof we haven't even received yet.

18 Don't worry..   The US is too big to fail..   Someone will be along to help us..

19 Don't worry your pretty little heads about it.  Here's $10 billion, go buy yourself something nice.

20 16:

True, they ignored future income streams, yet counted future outflows. 

Still, no way these programs continue without benefit cuts or never-ending payroll tax increases.  Any guess what the Dems will do?  Washington will not change until we are not able to service the debt.

21

Eric J at December 17, 2008 11:42 AM (7t+Ws)

What Eric said.  I agree that we are in an economic downturn but I also believe that much of it has been a self fufilling prophesy.  As someone else said, the more you talk down the economy with half truths and sky is falling scenarios, the less someone is will buy the GI Joe with the Kung Fu grip for their kids for Christmas which just makes the situation worse.

22 quick keep importing illegal aliens to work for peanuts!

23 "[The liberals] created it and they get to deal with it."

There would almost be a silver lining in the cloud if this led to some introspection on their part and maybe a reassessment of their failed, failed approach to things, but we all know they'll never do it.  Liberalism requires immaturity to sustain itself.

24 "quick keep importing illegal aliens to work for peanuts!"

You can't call a person "illegal"!  That's hate speech!

People aren't illegal; they're people, and they love their kids, too!

*squish*

25

Well, time to declare bankruptcy, wipe our debts, and start over. 

Really, almost every previous generation of human beings must be mocking us from the grave.  We have the power to smash any nation on the planet.  We should be demanding tribute, and exacting fees for our protection.  Our pathetic weakness and unwillingness to bend other nations to our will is our undoing.

26 quick keep importing illegal aliens to work for peanuts!

This is a great idea... until those illegals want their bennies.  Then again, there probably won't be many illegals once Obama signs Comprehensive Piece o' Shit.   I'm sure Juan McAmnesty's groveling will have them all voting Republican.

27 I predicted we would have this IF the ONE had implemented all of his campaign promises.

So far he has backed off on all but AGW which by itself will to the job.

In any case;

Don't waste your question!!!

28

The Skeptical Optimist says different. In fact, based on his metric, TIT, the government has actually cut back!

29

"[The liberals] created it and they get to deal with it."

That's comforting.  What could possibly go wrong?

30 But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

Then I'll put my wealth there.  What's left of it.

31 I'd like these guys to make a similar "apples to kumquats" comparison for the Euro... I'd bet we'd find that the Euro is FAR more bankrupt than the dollar.

32 Currency will be outmoded world-wide and will be substituted with a mark on wrist and/or forehead, eventually.

33 Me too, bunny...me too.

34 These guys are from MSNBC right?

35 All government funding for everything except a vastly expanded military should cease immediately.  It's not like we'd notice.  Then, when those 1.4 billion creditors come knocking at the door to repo the US, we can tell them to jam it.  Problem solved.

36 Hey,

There's an easy way out of this...

Just place a few more rules and regulations on Industry to limit productivity and profitability, hire a few million to do gov't work, and isolate ourselves from the global economy.

In thirty, forty, or fifty years, we should be able to balance the books.

37

Currency will be outmoded world-wide and will be substituted with a mark on wrist and/or forehead, eventually.

Computer chip under the skin.  Jeez, don't you read/watch science fiction?

38 This isn't just "some guy," it's David Walker, who until recently was the Comptroller General of the United States.

39 WHO RUNS BARTERTOWN???????11?

40 Everything's going to be fine; I'm going to hire the lot of you to do busy work.

Next!

41 "But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?"

Hmmm...intriguing...

42 But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

Why gold?!  What is gold worth? As a precious medal it's not near as valuable as other metals from an industrial standpoint.... Just because it's always been the standard??  Who would enforce the ability of a consumer to exchange this currency with actual gold?

Let's face it gold has no more "value" than any other basis for currency.

43 Perhaps, if we reach a depression, can close down Washington DC and return power to the States...where it belongs except for national defense and a monetary system.

If we can get Congress out of the way, we could drill our own energy, start businesses (without the myriad of DOL and IRS mandated crap thrust upon employers) and start setting our financial house right.  We are screwed as long as we have dishonest politicians (redundant) running things.  Time for big-time change!

Angry White Dude

44 Using the word “bankruptcy” is just a rhetorical scare tactic (...unless the person using it really does not understand monetary economics, in which case it's just plain ignorance—which, fortunately, is fixable).  The reason is quite simple:

In any scenario short of hyperinflation, it is impossible for the federal government of the USA to become incapable of paying its obligations in money backed by the federal government of the USA.  (Reread that sentence.)

 The word “bankruptcy” should be a red flag to listeners whenever anyone uses it to describe our federal government’s finances.

Now that we know federal government bankruptcy is impossible, we can shift our sights to the one true monetary black-hole-to-be-avoided, hyperinflation.  What would cause it (...deficits maybe?), and what is the supporting historical evidence?  What would prevent it (...surpluses, maybe?), and how do we know?  What are the signals?  How accurately do we measure inflation?  How far ahead of time can we tell it’s getting out of hand?  Those are important questions,  (...not that I know all the answers; I just know a lot of the questions, and that several of the answers do not support conventional wisdom). 

For now, here’s a two-part brain-teaser about avoiding hyperinflation.

Part 1: Spot the flaw in Joe’s logic

Joe had a deathly fear of being killed by heat stroke.  His research revealed that his chances of getting heat stroke were highest at the equator, and lowest at the north pole.  Joe concluded that he should move to the north pole, to minimize his chances of death by heat stroke. 

Part 2: Spot the flaw in Sam’s logic

Joe had an uncle named Sam, who had a deathly fear of being killed by hyperinflation.  Uncle Sam’s research revealed that the chances of triggering hyperinflation were highest when too much money is created in the economy, and lowest when little or no extra money creation is allowed.  Uncle Sam concluded that he should dampen, discourage, or even prevent the creation of extra money in the economy, to minimize his chances of death by hyperinflation. 

the first part should be clear as to the pitfalls, the second may take a little more in depth analysis that would take to much to go into here.  but feel free to give it a go.

45

 banded together to create a gold-backed alternative to the dollar

RON PAUL!

46

And so begins the long-prevented rise of an "accountability society."  If you can't grow it, build it, or fix it on your own; you won't survive.  Those of us who've become accustomed to handouts, pay-for-play, and generally resting on our laurels while we hire others to actually DO and MAKE for us will wither in the sun.  A bankrupt currency literally isn't worth the paper it's printed on, just ask the Germans who were burning Marks to stay warm in the 1920's.

Good times, good times.

47

katya wrote:

Computer chip under the skin.  Jeez, don't you read/watch science fiction?

Science what?

48 Good thing I grew up poor.  I come from a long line of survivors and pirates.

49 secondly adding money to a system isnt what causes inflation.  using MV = PY, that’s the formula for the theory of money. M is the quantity (or supply) of money, V is the velocity of money, P is the price level and Y is the aggregate economic output, as long as the velocity of money doesnt grow as fast as the quantity of money the price doesnt increase (hyperinflation) 

but as the velocity increases (this is what you are after when you increase money supply) you can then drain the supply to keep the price from inflating.  This is probably what will end up happening as it did in the 1980s.  The feds drained the money too fast as velocity increased and put us back into the recesssion without letting the Y stabilize. 

50 Bird flu, global warming, now this? Time to fill the bathtubs with fresh water, restock the canned goods supply -- my Y2K stock is starting to expire, anyway.

51

But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

Just as the word "bankruptcy" should have been a big clue that the first fellow linked above had no idea what he's talking about, the suggestion of a hypothetical, just-putin'-it-out-there "gold-backed alternative" should have been a big clue that the second fellow is equally full of shit.

 

52 42 Let's face it gold has no more "value" than any other basis for currency.

Not quite. If all else fails, you can always get out a rock, beat it into jewelry, and give it to your wife. There's your intrinsic value, right there.

53 Katya-

AAAAARRRRR!

54 And yet Treasury bonds, which pay principal and interest in dollars, now pay a whopping 2% for a ten-year. Billions of them trade at this rate every day. That's telling you something: People expect that the government is going to pay them back in meaningful currency. Lots and lots of very smart people buy American. They sure aren't buying those bonds because of the returns.

55

I come from a long line of survivors and pirates.

I'm pretty sure there are horse-thieves and pirates in my dad's family tree.  My mom's tree is probably full of shrewd under-the-radar types. 

56 "the first fellow linked above had no idea what he's talking about,"

Actually, David Walker probably has a better sense of these issues than anyone else on the planet. I agree that "bankruptcy" is the wrong term to use in this context. This is a press release from a think tank--it's designed to get attention.

57 I'm pretty sure there are horse-thieves and pirates in my dad's family tree.

If the movies are anything to judge by, your horse thief ancestors are in Judge Roy Bean's tree. 

My ancestors wore kilts, whacked one another with swords and didn't have the sense to come in out of the rain.

58 Just as a side note:

This doesn't ever include "Federal assets" in the forms of national parks and forests like the Rockies, Cascades, and most of Alaska.

59

The other night I argued forever that this sort of thing could happen, and probably won't,  but we should try to prevent the auto companies from going under which could make it worse.  All I kept hearing was:  "fuck, let'em go", and "we're in a recession already and we've still got only 6.3% unemployment", and "it's already here and it ain't so bad" and "your a pussy and all your arguments come down to nothing but FEAR."  To which I had to reply: NO SHIT!  I tried to ignore taunts and insults and stick to the argument.  But I came away with the conclusion that some commentors on AoSHQ (a) don't really understand how bad a depression can be (b) don't want to face the truth (c) thinking about it scares 'em so much they react by getting angry (d) are on methadone and living in their parents' basement or (e) all of the above. 

What does the ACE have to say on this?  I've asked three times. 

60 Correct me if I'm wrong, but a 15% unemployment rate, compared to a 25% rate in the Great Depression is like comparing apples to oranges, right?  Just exactly how much of the female population back in the 1930's was calculated into the equation?  Wouldn't a modern day 15% unemployment rate be equivalent to an 8% rate or a 9% rate back then?

61 59-

(f) don't want to bail out the makers of ugly useless cars and the thug unions that work on them.

62 The way the gov. reports the unemployed is a crock. Were near 15% now.
I say the dollar crashes in Feb.

63

61 59-

(f) don't want to bail out the makers of ugly useless cars and the thug unions that work on them.

It certainly looks that way.  But I'm still wondering where is ACE on this?  Or have we just heard the Official AoSHQ pronouncement?

64 I'm actually more worried about the pink cyanide-producing dragon millipede.

65 Big3 is where they're at because of bad business.  Let them eat their problems and quit trying to get everyone else to.  I vote no bailout.  Or loan.  Or whatever.  Let them deal the way any bad business deals with it.  It isn't the government's job to bail businesses out of bad times.

66 64 Are you the union rep guy?

67 have we just heard the Official AoSHQ pronouncement?

Huh?!  You mean me? oh hell no.

68

 we should try to prevent the auto companies from going under which could make it worse.

7HEAVENS, this is the part you need to concentrate on to convince people.  First, chapter 11 does not mean the auto companies will have "gone under." Okay? You need to explain why even Chapter 11 restructuring "could make it [the economy] worse." You also need to explain why the negative effects of an auto bailout will be less bad than the negative effects of a restructuring.

69 Yep

70 Okay, 7Heavens or Gabriel.  Tell me.  In everyman language. 

71

Nothing here that a cataclysmic world conflict won't solve.

In one way or another.

72

In the past, I've waited in gas lines for hours.  At one time I also thought that if mortgage interest rates would ever get down to 10% I would buy that house I had my eye on.  Also, though I was only a kid, I heard the grown ups complain about inflation and welcome something called 'price controls' which I later learned was not the best idea.

What I'm trying to say is I'll have to save judgement on this being the definitive economic nightmare.  

 

73

Oh and 7Heavens--under which Chapter 11 did United quit flying?

Try not to hurt yourself with the required contortions to answer.

74

>> But I'm still wondering where is ACE on this?

Well, rather than petulant demands for an answer, you could try paying attention.

75 3 Those unfunded social things are crazy! They should get Paulsen to use TARP to adjust it to a level the US can actually pay. Doesn't he know there's a recession?

Posted by: Rocks at December 17, 2008 11:22 AM (Q1lie)

Paulsen is either a fucking retard with no understanding of basic economics or a criminal fleecing the taxpayer to pay off his Wall Street/ K Street cronies, or possibly both. He's a piece of shit and he belongs in prison getting assraped.

76

need to explain why even Chapter 11 restructuring "could make it [the economy] worse

Simply because no one would buy a car from a car company in Chapter 11.  Why would you buy: an already unappealing car, from an already viewed-as- inferior-car-company when there might be warranty and service problems ahead when you can get a Toyota with a good warranty and no service problems?

I guess if no one accepts that premise then they won't accept the rest. 

77 >>>What does the ACE have to say on this? I've asked three times.

I was a big supporter on the financial bailout on the A-Depression-Would-Be-So-Bad-Almost-Anything-Is-Worth-Trying theory. I'm still somewhat inclined towards that, but a lot more agnostic about it now.

The antis said even if something should be done, it's unlikely the right thing would be done, which I should have taken more seriously.

I don't know if Paulsen has helped or hurt. I don't know if he stampeded us towards a crisis with his sky is falling stuff, or if he averted a crisis. I don't know.

On bailing out everything else -- no thanks.

78

ace at December 17, 2008 01:20 PM (8T2pi

My exact position.  I'm sure that just lowered the credibility of it.

79

I guess if no one accepts that premise then they won't accept the rest. 

I don't.  A preplanned Chapter 11 is not the same as a normal bankruptcy.  Instead, it is entered into with a lender already in hand based on certain restructuring commitments.  It also allows the company the same bankruptcy options available to a company entering into an unplanned Chapter 11, restructuring of debt, the ability to get rid of underperfomeing assets, reworking of contracts, etc..

In short, it would allow the Big 2, Ford doesn't even want a bailout, the ability to rid themselves of the structural problems that are plaguing them now and would plague them if they just got a government check.  The companies are horribly bloated relics of the past and not comptetitve in today's environment.  If no significant changes are made, and they won't be short of a bankruptcy, what is the point of pouring tax dollars into a sink hole?

80 Of course, you know who this benefits. . .

81 74

Well, rather than petulant demands for an answer, you could try paying attention.

"He said that in the 20s-60s only Europe and the US were producing cars so unions could price then a as high as they wanted because Europes unions were even more unproductive than ours. 

that's no true anymore"

Not exactly on point.  And I'm merely asking for the opinion of our host.  Don't be so touchy.

82 I don't know nuthin', 'cept I haven't had a job since September (which is why I'm hangin' around here all the time) and no one, especially the union pukes, gives a crap--as if anyone outside me, my family, my church (maybe) and circle of friends (maybe) should give a crap.

83
Simply because no one would buy a car from a car company in Chapter 11.  Why would you buy: an already unappealing car, from an already viewed-as- inferior-car-company when there might be warranty and service problems ahead when you can get a Toyota with a good warranty and no service problems?

So the car sucks, the company sucks, and the competition offers a better product.  And you think that its Chapter 11 will prevent people from buying the Big 3 car?  Under a bailout, the car still sucks, the company still sucks, and the competition still offers a better product.  Not only that, but you've basically placed the Big 3 in receivership, controlled by the feds, making cars to the specifications of the feds instead of the consumer.  Not to mention the taxpayers get fleeced.  Great plan.

84 This is what happens when you elect a pot-smoking beta male.

On the plus side, 88 new taxes in NY should alleviate some of the burden, or cause a mass exodus, or er, something...

85 That's because it's a horrible premise. If they restructure under Chapter 11 and get their costs back in line with other companies, they can focus on being profitable on the cars they do sell, which interestingly enough starts a chain reaction of confidence in the company increasing, sales increases, more money is made, they can then invest money in not making shitty unappealing cars, sales increase, more money is made, and on and on.

You really think it's a good idea to take money from the profitable sectors of the economy and redistribute it to failing sectors in times of economic instability? All that does is reduce economic output in total. Keynesian economics is a failure and has failed every time it's tried.

Confidence will never be restored to the financial markets if we continue to talk about bailouts for failing companies. Restructure or die. Restore limits on the market and we can ride out the storm.

86 Obama is a beta male.  Hehe.

87

I was a big supporter on the financial bailout on the A-Depression-Would-Be-So-Bad-Almost-Anything-Is-Worth-Trying theory. I'm still somewhat inclined towards that, but a lot more agnostic about it now.  Ditto

The antis said even if something should be done, it's unlikely the right thing would be done, which I should have taken more seriously. Ditto

I don't know if Paulsen has helped or hurt. I don't know if he stampeded us towards a crisis with his sky is falling stuff, or if he averted a crisis. I don't know. Ditto

On bailing out everything else -- no thanks.  Hmmm, food for thought.

 

88 But I'm still wondering where is ACE on this?

Posted by: 7HEAVENS at December 17, 2008 01:00 PM (f1opM)

He's busy.

89

THIS WILL HAPPEN...

if The Obomination gets and signs the Global Warming legislation. That series of total stupidities will crater the economy for certain. When the backouts and brownouts start happening it'll be too late.

No amount of Fairy farts and Unicorn piss will be able to power a dynamic economy such as our present one. All modern growing economies require a rising, cheap source of energy to power them. Take a look at China and India. It doesn't take a lot of energy to plow a rice paddy with a carabao and go home to a dinner cooked over dried carabao crap, but when  you start making cars and tractors you've got a whole nother situation.

( buy your carabaos and oxen early while prices are still down! )

90 BTW, unemployed does not equal hobo.  just sayin'

91

#88

Posted by: ace at December 17, 2008 01:20 PM (8T2pi)

I was a big supporter on the financial bailout on the A-Depression-Would-Be-So-Bad-Almost-Anything-Is-Worth-Trying theory

The ACE has spoken!  Truth is, I read AoSHQ to hear what the ACE has to say.  A voice of reason I generally agree with.  But enough toadying.

92

People can only live in a fairy tale for so long before life kicks them in the jimmies.

Now, have we heard of this type of story before, perhaps in the Bible, or better yet, Atlas Shrugged. )

But no, we need to ponder the finer points of the philosophy of Bill Ayers and other knowledgable people, like Malcom X, on life and meaning.

We can't make a living or anything like that! that's too dirty and gauche!

93 Yeah, that was pretty sickening. And you'd already outed yourself as a knucklehead so your opinion won't even mean anything to him.

94 I have a completely unorthodox and "out of the box" kind of bailout.  How about this:

When the owner of a home with a government guaranteed mortgage defaults, the government covers the loss and then tears the house down and sells the blank lot.
This does several things.  First it eliminates the liability on the financial company.  Secondly it provides business for some people in the construction industry while they aren't building new construction..  Thirdly it reduces the excess supply of housing on the market.  This will eventually act to increase the value of existing homes and plants the seeds for more new construction later.

A more subtle thing it does is by not putting the house up for sale as a home at fire sale prices, it stops the plummeting of home values.  If you foreclose, raze the house, and sell the building lot, it counts as a building lot sale, not a home sale.  This prevents the foreclosure from dragging down neighboring housing values and increases the asset values of the surrounding homes rather than decreasing it.
 

95 Now we're talking about real money!

96

if The Obomination gets and signs the Global Warming legislation. That series of total stupidities will crater the economy for certain.

I can hear that sick voice of Nine Inch Nails wailing:

"Only"

I'm becoming less defined as days go by
Fading away
And well you might say
I'm losing focus
Kinda drifting into the abstract in terms of how I see myself

Sometimes I think I can see right through myself [x2]
Sometimes I can see right through myself

Less concerned about fitting into the world
Your world that is
Cause it doesn't really matter anymore

97

Meh

Santa be here in a week.

98

Santa be here in a week.

The original with the white beard and red suit, not the charade with the big ears, mouth and suit and tie.

99

"trillion-dollar sovereign wealth fund allied with several countries around the world"

Is the current economic crisis limited to the US?

Oil prices are far down so the Arabs and Russia are hurting.  China is going to be in worse shape than we are, they will decline from  a much lower level with way more people.  Europe has high debt and already has high unemployment plus their banks are failing too. 

Brazil seems in moderate shape but the rest of Latin America is already in the toilet.

So, where is this fund going to appear from?

 

100

When the owner of a home with a government guaranteed mortgage defaults, the government covers the loss and then tears the house down and sells the blank lot.

Look up "Broken Window Fallacy."

 

101 94 I have a completely unorthodox and "out of the box" kind of bailout.  How about this:

When the owner of a home with a government guaranteed mortgage defaults, the government covers the loss and then tears the house down and sells the blank lot.
This does several things.  First it eliminates the liability on the financial company.  Secondly it provides business for some people in the construction industry while they aren't building new construction..  Thirdly it reduces the excess supply of housing on the market.  This will eventually act to increase the value of existing homes and plants the seeds for more new construction later.

A more subtle thing it does is by not putting the house up for sale as a home at fire sale prices, it stops the plummeting of home values.  If you foreclose, raze the house, and sell the building lot, it counts as a building lot sale, not a home sale.  This prevents the foreclosure from dragging down neighboring housing values and increases the asset values of the surrounding homes rather than decreasing it.
 

Posted by: crosspatch at December 17, 2008 02:05 PM (cT4BE)

You're operating under the premise that falling home prices are necessarily a bad thing and that the government should take action to prop the prices up.  I disagree.  Tearing down foreclosed houses is just destroying wealth.  Regardless of what it does to increase the values of surrounding properties or provide construction jobs, wantonly destroying tangible wealth would not be a good move under any economic circumstances.

102 A ready to build lot is not a "broken window".  It is not a blight.  In fact, it is extremely common in my neighborhood for people to buy up 1950's and 1960's vintage ranch homes, raze them, and sell the lot for more than they purchased the house for because the value of the lot went UP when they removed the old house from it.

You can buy an old Eichler home built in the late 1950's for about 600,000 here. You can tear it down and resell the lot for 700,000 to 750,000.  There is a fellow around here that owns a construction company and does just that. It actually improves the neighborhood and increases the value of the surrounding homes.

A lender could do this in order to protect the value of their other mortgages in the area.  If the lot sold cheap, it would not count against the "median home value" because it was not a home sale.  If they DON'T raze the house and it sells cheap, it DOES count as a home sale and due to "mark to market" requirements, forces them to mark down the value of every other mortgage in the area.

103 You're operating under the premise that falling home prices are necessarily a bad thing and that the government should take action to prop the prices up.

I am not saying the government should do anything.  Actually, the lenders themselves could do it.  It would preserve the value of the other mortgages in the area.  But the main problem is that home equity was the single greatest source of cash for the purchase of "durable goods".  That is one reason why the drop in home values has resulted in a drying up of purchases for cars, boats, RVs, home improvements, money for college tuitions, etc.  Most importantly, when a lenders portfolio goes "under water", they can not lend to business for new construction and expansion of production, bridge loans, import export loans, etc.  The wipeout of home mortgage value has rippled through the entire economy and prevented business from getting loans.

 I disagree.  Tearing down foreclosed houses is just destroying wealth.

No it isn't.  Whose "wealth" are you "destroying"?  At the point of foreclosure the house is a liability not an asset.  And if it sells cheap, it reduces the value of all the other homes and all the other mortgages the lender holds ... it becomes a HUGE liability.  Razing the house is basically taking a one-time write-off to save the value of everyone else's home in the region ... and the rest of the lender's portfolio.

104

Ol Dirty is right. If you look at this graph for house prices  you see where the prices took off (coincidentally with Greenspan’s cheap money and the CRA). In order for prices to get back to what they should be there is a lot more dropping to do and the sooner we get that over with the sooner the market will recover.

105 Fuck you pay me

106

One other issue with home prices; that astronomical rise did not occur uniformly all over the country. We didn’t have it here and consequently we haven’t had the massive drop in prices as they correct.

107 No it isn't.  Whose "wealth" are you "destroying"?  At the point of foreclosure the house is a liability not an asset.  And if it sells cheap, it reduces the value of all the other homes and all the other mortgages the lender holds ... it becomes a HUGE liability.  Razing the house is basically taking a one-time write-off to save the value of everyone else's home in the region ... and the rest of the lender's portfolio.

Why not condemn the houses indefinitely without permanently destroying them?

108
No it isn't.  Whose "wealth" are you "destroying"?  At the point of foreclosure the house is a liability not an asset.  And if it sells cheap, it reduces the value of all the other homes and all the other mortgages the lender holds ... it becomes a HUGE liability.  Razing the house is basically taking a one-time write-off to save the value of everyone else's home in the region ... and the rest of the lender's portfolio.

Posted by: crosspatch at December 17, 2008 02:58 PM (cT4BE)

Wealth is wealth, it doesn't matter "whose" wealth.  In the case of a foreclosed house it most likely belongs to the bank that wrote the mortgage.  If they raze the house it does nothing to reduce their liability. They loaned somebody money for the house, the money wasn't paid back.  If they keep the house they have something, if they raze it they have nothing.  A blank lot won't be worth anything until the market recovers.

The house will have to be rebuilt later when demand goes back up. The money has to come from somewhere, and could be used for other things.

If you don't believe me, ask any economist. Even a Keynesian would think tearing down perfectly good houses to prop up the value of others is suspect.  Friedman, Hayek, or Bastiat would facepalm.

109 Maybe tearing down the houses could make sense under some extreme circumstances.  Like the neighborhood is a shithole, but the houses are filled with copper pipes, and if the houses stand, the locals are just going to strip the copper.  But it still costs money to tear down the house and haul away the debris.  Why not just go strip the copper and let the houses stand? 

Most shithole neighborhoods are shitholes because there is no economic activity, nor hope of activity in the future.  The bank is wasting its time tearing down the 50 foreclosed houses in order to prop up the price of the other 20.  The neighborhood is still a shithole, and reducing the supply of houses probably won't help when everyone is leaving in droves and there is no hope of people moving in.  Me personally, I wouldn't live in East Cleveland next to a vacant lot or an abandoned house.

Again, maybe there is a reason a bank would do this that I can't fathom, but they'd still be holding a worthless mortgage, a worthless lot, and they'd have to pay to remove the house.

110 This is exactly the same as claiming that I am bankrupt because the sum of my future liabilities (next 20 years worth of grocery bills, medical bills, mortgage payments etc etc) is more than my current net worth--that is, it's completely bogus.

111 > federal liabilities now not only exceed government assets and income (which we all knew, of course), but also the gross cumulative net worth of all American citizens to boot.

That ignore the assets the Federal Govt. itself owns. For example, most of Alaska. Or, In a pinch, I think you could sell Yosemite Park and raise a little bit of money.

Also #110 makes a good point.

112

Ahem. Much as I'd like to blame Greenspan, I find the arguments in this longish paper plausible.  A big geek-fight erupted in libertarian/Austrian circles when this came out a month or so back.

http://tinyurl.com/6njtgx

But Rickards is right when he says the Fed is now in a position to make things much, much worse.   

113 ...to stave off economic panic after 9/11. If it all comes tumbling down, the terrorists will have in fact have succeeded at their goal....

I've been saying this for months, everyone's been calling me a crazy dolt.

114 Rickards says investors – many of whom already resent that they have no alternative to the dollar – would sell American currency in huge numbers to take advantage of the new opportunity. “If that happens, that’s the end of the dollar,” Rickards said. “You’d have high unemployment, deflation, and interest rates would go up. It would take what already looks like a strong recession and make it a Great Depression or worse.”

Ok, I'm not an economist; but if we print a crapton of dollars, then investors get out of the dollar... how does that cause deflation?

Isn't that what causes inflation?  More dollars in circulation chasing less (35% reduction in industry, etc.) goods?  Causing the cost of goods relative to the dollar to go up, and the value of the dollar to go down?

Yes, I'm working with a high school equivalent understanding of the economy; but I'm confused by the whole concept that this would cause deflation and not hyper-inflation.

More money, more foreigners trying to get rid of the dollar, weakening dollar, less goods and services; and this will cause prices to plummet increasing the value of a dollar?

If I assume Rickards isn't a moron incapable of defining simple economic terms (which his resume says I should) then how can his statement make sense?  Do I misunderstand what deflation is, or will more dollars and less goods really result in lower prices?

115

DeMint on Fox telling Cavuto that Bush screwed up by announcing that they would bailout the big 3 before the negotiations with the union were over. I guess even DeMint is tired of Bush’s shit.

116 If we have another Great Depression which lasts ten years, and everyone gets to either be out of work or fear being out of work, miss some meals, deny their kids Christmas gifts, drive crappy twice-used cars, etc....

... we'll learn to make do and stop whining. We'll get toughened up. Just in time to win the next World War.

Which is what happened, of course, when the wild, free-borrowing Twenties ended. If we hadn't had the Depression, we might not have won WW2.

How do I know? Because World War ONE came after a 100-year run of peace and plenty, and the people of that time were utterly unprepared to win the war. On BOTH sides. Which is why nobody won WW1, it just wrecked Western Civilization so bad we're still paying the price.

So bring on the bread lines, the soup kitchens, the apple sellers. Just, uh, go light on the WPA make-work this time, okay?

117

Which is what happened, of course, when the wild, free-borrowing Twenties ended. If we hadn't had the Depression, we might not have won WW2.

Yeah, right, cause it is in bad economic times that people toughen up and fly right. The economic failures known as Socialists will love that one.

In reality, if we hadn't had the Depression, we almost certainly would not have had WW2 in the first place.

118

In reality, if we hadn't had the Depression, we almost certainly would not have had WW2 in the first place.

 

We would not have had the communists taking over. FDR and Hoover took a normal economic downturn and stock market correction and turned it into the depression. Then FDR gave us socialism and we have never recovered.

119

 The economic failures known as Socialists

Seriously, is there a Socialist economy that has ever worked?  Any one that I've ever been aware of has been a monumental failure.  Why can't the idiots remember that?  I just don't get it.  It is not logical.  It does not compute.

120 Did we forget when Roosevelt paid farmers to burn their crops and livestock to try to raise the prices on commodities? That didn't work, so why would tearing down a house to sell a lot that no one wants to build houses on anyway work in raising the prices on the housing market? That's right, it wouldn't.

History folks.

The problem I have with Rickards' argument is that if everyone were to pull out of the dollar for this magical gold backed foreign currency, is who would they sell their dollars to? The only people that would be willing to buy the dollar would be America (If the rest of the international community decided no more dollars for the magical currency) which would give us back more control of our currency, we'd get it back at a cheaper rate than we sold it to them, (since we'd be able to set the price and get pennies on the dollar most likely) so we'd actually make money on the transaction and hold more of our currency here. It's a win-win. But that will NEVER happen.

121 @117: No WWII? Unlikely.  Prior to the Washington naval treaties, there looked to be decent odds of USA vs. UK Round III.  The Japanese would still have been on the rise in the Pacific, and the Soviets would still have been making trouble in Europe.  The war probably would have come anyway, it would simply have started along different fault lines.

122

Because World War ONE came after a 100-year run of peace and plenty, and the people of that time were utterly unprepared to win the war.

Oy. The Mexican-American War, the Civil War, the Spanish-American War don't count?

And those are just the American wars. Europe was busy tearing itself up throughout the 100 years prior to the start of World War I in 1914.

123 Yeah. I went back to make sure you weren't just goofing. But it seems like you're serious. The French have a word for your premise: le bullshit.

124

Look, These statistics are "factual" and as presented certainly paint a bleak picture of the US balance sheet...however...analysis like this miss three critical components:

1) The US's balance sheet is not static...each and every year we produce more goods and services which create new wealth. These numbers are more or less static".

2) The market value of real estate and investments fluctuates...at some point in time the value will go back up and this analysis will be worthless.

3) This analysis does not take in to account the value of US Governemnt holdings of raw materials and natural resources. For example, what is the value  (both at today's prices nor at future implied value) of all the land, minerals and timber on US Governemnt owned lands and natural parks ?

These types of alarmist statistical studies while importanat are statistically invalid.

 

125 Economies run on information.

Now that the drumbeat of criticism has actually triggered a recession, after eight years of constant harassment, the MSM and the "academics" are trying their hardest to drive us into an actual depression.

Some days, I really, really fucking hate people.

The MSM, the academics - they're like the morons in LA burning down their own neighborhoods because they "felt" oppressed by a trial outcome.

Fucking idiots.

126 The golden rule, he who has the gold makes the rules.  China and Japan have all the gold. We have slightly less then world powers like Turkey and Italy.

http://www.globalfirepower.com/list_gold_reserves.asp

Rome has come to an end. Break out the marshmallows.

127

But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

This is extremely stupid.  Such an alternative already exists: it's called... gold.

 

128

joe dag,

Nationalist mercantilism has been discredited for, oh, about 200 years now.

129 Hmm. So you admit that the terrorists really wanted to bankrupt us, and that we are in fact bankrupt now.

So... who do you think paid the trillions of dollars that Bush's war of choice is costing us? And can you see where I'm going with this? (Hint: I could have just as easily found zero WMDs and nonexistant al-Qaeda operatives in my backyard for free.)

130 trillions of dollars

Heh.

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