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14.7 Million (19%) Of US Mortgages Have $770 Billion In Underwater Equity, $2.4 Trillion In Total Debt Impaired
An excel spreadsheet released from a recent briefing by Mark Zandi and Robert Shiller is making the rounds within the blogosphere. It provides a useful compilation of the underwater equity statistics in the country. In a nutshell here are the observations:
- 19%, or 14.748 million of the 77.570 million US households, are in negative equity
- 30.6% of the 48.243 million of homeowners with first mortgages are in negative equity
- 21.8% of the 67.578 million in owner-occupied single family homes are in negative equity
- 4.133 million of the 14.748 million of underwater homeowners are underwater by 50%+, meaning the owe more than 50% more than their homes are worth
- Of the 50%+ underwater category, the worst states are California (672K), Florida (423K), and Texas (344K)
- Total Negative Equity in the US is currently estimated at $771.1 billion
- California mortgages have $234 billion in negative equity, Florida mortgages have $79 billion in negative equity, Texas mortgages have $48 billion in negative equity
- California mortgages have $234 billion in negative equity, Florida mortgages have $79 billion in negative equity, Texas mortgages have $48 billion in negative equity
- $2.4 trillion in total mortgage debt is impaired due to negative equity
How Mark Zandi, who prepared this spreadsheet according to the meta data, could look at this data and come up with his recent paper in collaboration with Blinder, claiming that the recession is over, is simply beyond rationalization.
Some of the key data in chart format:
Total and relative mortgages in negative equity:
Underwater mortgages as a % of all owner occupied households:
Total negative equity by state:
Underwater homeowners as a % of owner occupied households: 50%+ and Total
Those who wish to obtain the source Mark Zandi excel should write to the usual place.
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Whoa, the Total Equity by State chart proves that Kalifornia is numero uno by a long shot. what a joke
We're livin' the dream, dude.
4shz,
Nasty data indeed.
Ha,Kondratieff "Winter in July".Hey,that reminds me of an old music track with those lyrics
Now i remember it was summer 1991 and when i was working in factory assembling industrial ovens.This track was almost played daily on the radio and has stuck with me ever since, still got it on cassette.
I think you'll like the track by the way.
Bomb The Bass-"Winter In July"
Look around, wonder why
We can live a life that´s never satisfied
Lonely hearts, troubled minds
Looking for a way that we can never find
Have a listen before Sony Entertainment removes it again.
http://www.youtube.com/watch?v=g9aRkMycxX8
......"future dreams can never last"....damn right you are baby.
gone by the sony snag...damn that was quick
mad ups for the track tho
bomb the bass rocks
not too many know but those who do...
Now let's assume that of the first time home buyers, 20% took out an average secondary lien of 10% of the original mortgage value.
Not a reach so when you see these charts, there's more dead money being held on the books at "full face value" as the original issues in many cases, WaMu, Wachovia, Indymac, Colonial, etc., are no longer in existence hence those loans are still being held on the acquiring banks at full face value. Yet we're still be sold the snow job by Bubblevision and their guests that "mark to market" as FASB is insisting upon re-instituting on January 1, 2011 is too strict of a standard for the banks and the loans on the books. Thus the banks are insisting that the second liens on homes that are 40% underwater have some prayer in hell of ever being repaid.
Let's explore this more.
Now let's take the TRILLIONS in refis which occurred in the same period. Assume that 10% of those refis are going bad. Assume of that 10% which have gone bad, half took out 105 to 125% LTV. Once again, if those refis are going bad, the houses are on average 20-40% underwater, and they are on the path to foreclosure, the question once again has to be asked:
How can the banks in good faith or even current GAAP accounting rules be allowed to show secondary liens on their books as a performing loan or security (or just off the books in many cases) when everyone knows that there is no way in hell that those secondary liens will EVER be paid for or settled in full?
Thus the con and the implications of this spreadsheet. Realistically another 2000-3000 banks need to be liquidated and another $1.5 to $2 trillion in write offs undertaken immediately so we can let the markets function and assigning proper valuations to the underlying properties, the securitized instruments (which will be 1-5 cents on the dollar in many cases), AND the equity value of the institutions holding the paper.
Until the con is resolved by the markets, the economy and con artists will perpetuate a Japanese style Sake inspired blindness to reality which eventually will destroy the housing industry for 20 years plus instead of just the past 3. This could be resolved by 2015, instead it is more important to extend and pretend while
change as it ever was
If you look at the Troubled Asset Ratios of the Banks, you'll see that they have been steadily getting worse. Some of BofA's subsidiaries have absolutely staggering TAR values; well in the range that the FDIC is shutting down now. And the rest are in the range that the FDIC has shut down.
Wells Fargo is "better", but now it too is approaching the range that the FDIC was shutting down last year.
Mind you, this is with the ability to cook their Books. The real numbers must be much worse.
They were hoping for a miracle to occur in order to get themselves back to being solvent (ala the Volker plan of the 1980's). That's not happening, and it won't.
So they are going down. The big questions is how long it will take.
"Wells Fargo is "better", but now it too is approaching the range that the FDIC was shutting down last year."
Wait a minute, buster, I heard Jim Cramer just say that "Wells Fargo is the smartest lender out there". Care to comment? Naw, don't bother.
Re: Until the con is resolved ...
In a society of sociopaths - run by sociopaths - "the con" will last a long time.
Wasn't it Deutche Bank who issued a report a few
months ago that 48% of ALL mortgages would be
under water by June 2011 ? If memory serves, yes.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adBYDzUMt68k
This presentation is based upon a snap shot in time from some time ago using data sources approved for general distribution...
This analysis should help shed some light on why Janet Yellen was selected for advancement at the fed and what skill and experience sets the fed hopes she can apply at the vice level.
"$2.4 trillion in total mortgage debt is impaired due to negative equity"
At least the stock market is doing well.
Thank god for small mercies eh, Misean?
I do find the blaring nature of these headlines strange, because we've all been watching the ARM resets charts for the better part of two years now, like a slow motion train wreck.
All the housing bailout money only added to the already downward debt spiral (nothing from takermint is free, someone pays).
It's only going to get worse. No one has ever successfully pushed an avalanche back uphill.
ORI
http://aadivaahan.wordpress.com
http://www.zerohedge.com/article/its-not-market-its-hft-crop-circle-crim...
sisyphus?
tip e.
Boulder yes. Avalanche? Nope!
ORI
http://aadivaahan.wordpress.com
Sisyphus pulled off that boulder up the hill thing successfully? Damn, I'm gonna have to go back and review my Greek mythology.
it was a joke tricky dick...one that rolled back to the bottom of the hill obviously
Well it rolled over my head, anyway.
well, at least the banks are doing well. (eyes rolling)
Anyone who doesn't think this will end with a inflationary currency event is delusional.(Prechter, Denninger et al)
Deflation my ass, if everyone underwater decides to strategicly or honestly default, the banks will be insolvent. When the banks are insolvent, taxes (interest payments on US debt) will not be paid.
When the US FIRE economy cannot service the debt, the currency will be sold off and the dollar will go down. That is INFLATION.
Look what happened in Europe when the solvency of their banks got called into question. (remember that German banks own allot of greek and Spanish debt)The Euro got sold off and tumbled in value. That is INFLATION. Commodities and gold got more expensive for people earning and holding Euro's.
Why is there any argument over inflation vs deflation when Europe already gave us the answer ?
That is NOT inflation. Inflation is an increase in the supply of money and money substitutes. Collapse debt is an implosion of the primary money substitute.
Absolutely correct. And TPTB have "a solution" -- slashing long rates. Don't bet against it.
Reposted from Leo's comment section above:
Nobody dislikes what Bill Gross represents more than I do -- he's a shrewd sleazeball who's figured out how to parlay political influence to offset his screwups as a portfolio manager. By whining, threatening, and blustering about the "systemic risks" posed by GSE debt, he managed to get a boatload of Pimco's toxic MBS offloaded on taxpayers making him one of premiere corporate welfare queens of our time. HOWEVER, regardless of how you may feel about him, it is not a smart idea to be on the opposite of a trade with Gross. Anyone thinking of shorting Treasuries should listen carefully to the Bloomberg interview with Gross linked below. Pay special attention to his reference to Bullard's recent speech and to the swarmy manner in which he slimes his way around the question of whether he's "one of those doom and gloomers who believe that a depression is inevitable." This guy is going to eat Nassim Taleb and the other Treasury bears for lunch.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=axOlI7jOQOmc
Again, why didn't the Euro rise in value when they where on the cusp of debt deflation ?
I will answer it for you. The ability to service the debt in Europe was called into question. If the interest cannot be paid on a security then there is no reason to hold the security so it will be sold.
If Johnson and Johnson cut their dividend to 0%, would the value of the stock rise or fall ?
Because they're not the world's reserve currency?
No thats not the reason,the Euro is not gold and niether is the FRN
Do you think uprooting the world's reserve currency is the same as uprooting any other currency? How do you account for and what is the result when all the world's central banks are in agreement to prop up the dollar? Obviously collusion does not work on a long enough timeline... but, the reasons for the euro getting taken to the woodshed although similar, are ultimately different than the dollar... one is afforded vastly more leniency.
Yo Fo' ,
I agree. Japan here we come.
Yes, the deflation in Japan is really amazing. Tokyo has become one of the cheapest cities in the world to live...wait, it hasn't. It's actually still one of the most expensive. Go listen to Marc Faber explain that it costs $200 to take a taxi to the city from the airport. After 20 supposed years of deflation in Japan, where is the deflation?? Prices of real estate are still very very expensive. A piece of fruit is like $20.
Japanese 'deflation' is a huge lie.
@ITG
The price of a taxi ride has nothing to do with debt collapse deflation. Maybe the number of taxi licenses is severely restricted?
When this debt is eventually cleared (aka marked to market) it will be a deflationary event.
Will be? Supposedly Japan has had 20 years of 'great deflation'. Where are the falling prices?
Seems like the problem in your discussion lies with the definition of inflation. I thought inflation was money losing value independent of growing money supply. Alas we might be seeing a strong trend emerging in ags and maybe even crude while the dollar is losing value. Seems like inflation to me, but hey, I've switched sides before - and I should warn you guys I don't have a PHD ;)
well whatever. rates have been near zero for over
20 years.
Is that an inflation marker?
Debt was close to getting cleared in Europe and the Euro fell (inflation)
Why no inflation in post-bubble Japan. U.S. hyperinflation to come? hmmmmm
http://www.youtube.com/watch?v=SrJZRBf_Y5s
Japan is a creditor export nation which finances itself with its own production.
Rates can't go below zero. They literally cannot go much lower, but they have huge upside potential. Buying bonds is a terrible idea.
Hmmm... How could rates rates go below zero? I think there are ways. For example, in exchange for taking REOs off the books borrowers could literally be paid for using dollars. Picture 0% interest on $275,000 and, here's the 'pay', for every year you actually make the payment (principal only as you are at 0%) a point or so gets knocked off the principal. That would translate into a negative interest rate - and an awful lot more eDollars out there.
Use your imagination - I am sure that Ben's and Timmy's imaginations are FULLY engaged. I have no idea what these fools will come up with next.
Yes it is inflation.
why didn't the Euro rise in value when they where on the cusp of debt distruction ?
When you say "rise in value" what are you measuring it in? Dollars?
If debt = money then shrinking debt should be deflationary. But it would still need to be measured vs something that itself was "stable in value". The Euro is as fiat as The Dollar.
Perhaps it needs to measured it against the API and PPI (indexes), as described by "Attila the Wimp" below?
Rise in value measured in gold.
" In the quiet words of the Virgin Mary... come again?!"
Check your facts before opening your mouth next time.
Also; gold bulls are as annoying [if not more given the grand narrative associated with Gold] as are the equity bulls who preach SPX 1500 and the like.
Its annoying, its boring, its bad advice. All in all Gold is the worst asset class to invest now. But do go on; hedge that Apocalypse.
All those who bought gold in the past 2 months [in Euros in this case] are down 20%; others just flat.
And please dont preach me some grand narration about this and that; I know it better than you do; and Gold is currently shit; same as equities, same as pretty much any other asset class out there save for bonds.
Greece was not tanking in July you dumbass.
July is also historicly the weakest month for gold and any informed investor knows that.
Do you really think that gold got cheaper for Euro earners when the Euro was crashing ?
Are you really that fucking stupid ?
If CB is looking that fucking stupid to you then the reflection must be simply blinding... No wonder you chose that particular avatar. And if Greece wasn't in the tank in July what would you call the state of affairs in Greece? Robust? Transparent? hahahahahahahaha Now that I think on it, perhaps there is a simpler reason your dry, barren ass chose Spitzer..
You are absolutely right if.....we all lived in economic formulas. We don't. We live in the real world.
With a currency declining in value, "things" would cost more, that's in real life definition, INFLATION. END OFF.
The US 10y will still see sub 2 before it sees +5 while the 2y runs for .35-.45... and perhaps a Japanese .1 print before a turn does come.
That works for me. ;>)
Ya, me too. Even if the thought of Ben & Bill getting together over a weekend to make pancakes turns my stomach..
http://www.youtube.com/watch?v=GJs9c__Xvf4
2 year 1/2 a fuckin %. jesus keeeeerist.
Or the concept that .5 could be a long forgotten dream in a .25 - .40 world... Especially if we get to see the 2/10 halve from here... After all, if a 4.1 print of a 15 yr RRE note won't cut it why not make a run for 3.1? reflate .. please reflate, pretty please .. reflate or else
PANCAKE BITCHES !!
A Kansas elevation profile will look like Tibet.
Speaking of the East I wonder how much US real estate is collateral for the Chinese at this point?
When you say 'Donk' most of Amerika thinks 'Donk'
http://www.youtube.com/watch?v=RHa07adEmOg
We are so freaking doomed.
Good to see you wings. The Chinese swapped nearly all of their US mortgage backed paper for the pure government paper backed by nothing more than that good old full faith and credit CO2. Their MBS issues are now, for the most part, purely homegrown.
btw, that must be some kinda rightcoast action... On the left-coast, doing the 046, it's like this...
http://www.youtube.com/watch?v=TDF4kOLCt1M
Most excellent vintage! I'll always take a Mediterranean climate over hurricanes and humidity.
Not necessarily, as the first part of this creates a shortage of Dollars, so people will need to sell assets on order to cover debts.
The European situation was a bit different. Excluding gold, other commodities fell relative to the Euro, though more so vs Dollars. I wonder whether the Euro moves were not a central bank controlled panic exercise to shove the Dollar higher prior to the inevitable monetization exercise that the Fed will have to do?
Sell what ? the house that they are underwater in ?
Bullshit, everything, not just gold got more expencive for people holding Euro's which is not demand pull inflation but currency crisis inflation.
One more thing, when the USD loses the primary reserve currency status (within the next year for oil transactions I expect), that will be game - set - match. We have inflation now (shadowstats), hyperinflation will happen overnight.
Without the petrodollar reserve status, this house of cards would have collapsed a long time ago ... the US has proven it will not relinquish its petrodollar hegemony without a fight!
Why do you think we are in Iraq & Afghanistan?
Why would the banks be insolvent? You think they are holding that toilet paper? Maybe the regional banks are holding some CRE loans but the majority of bad loans are held in MBS by the taxpayers, pension funds, sovereigns, etc. I really don't think B of A is holding anything unless they couldn't unload it when the music stopped. Think about this - the Government controls your money, health, and now owns your shelter though the GSE's. We are being ruled, not governed. But I digress, banks ain't going down because they don't own the crap.
B of A and WFC have the most crapola on their balance sheets and it is a hella lot.
To state that Citi or B of A as "solvent" is to not know about how what goes for "accounting" and "rating" these days. Accounting is not for "accounting" it is for concealment and subtrefuge, until you can sell the basket of "investment vehicles" (junk CMBS and CDOs) to some sucker namely you and I John Q Taxpayer whrough Freddie and Fannie.
It is not long before the shooting starts. The natives and peasent sill rise up and revlot, and there a lot of them reped by this particular thread.
Blood will be in the streets.
The US banks are quasi nationalised. The dollar/treasuries are the stock of the US banks/government. When it becomes clear that the FIRE economy cannot service its debt, dollar/treasuries will be sold. That is INFLATIONARY.
When the stock in the ECB was sold, the Euro fell which is INFLATION.
You're being absolutely silly. The inflationists lost the battle last year, when they were screaming that QE was going to ignite inflation. It didn't. And now that QE has faded, deflation has kicked in. Just look at M3.
I agree inflation will kick in later. But right now, the only way you can pretend inflation is on the near-term horizon is by ignoring all of the reality around you.
So when are you going to dump your treasuries and dollars ?
Next week ?
next month ?
After the excess credit in the system comes crashing down. That is the key point you touch upon, but aren't quite clear about, in your original statement. You almost have it right; and when you bring in the destruction of Credit which has to happen (and is happening right now), then you've got it spot on.
And by "Credit" I don't just mean home loans, but all Credit, especially in the Ponzi scheme House-of-Cards derivatives market, which is over $600 Trillion world wide, and probably well over $1 Quadrillion. That's a lot of Capital destruction; and such destruction is deflationary, not inflationary. This destruction is absolutely guaranteed, since no Ponzi scheme is sustainable.
I'll be selling my Treasuries around that point, and buying up things on the cheap, because cash will be in short supply. Remember, the ones who made out in the Great Depression were the ones who could trade cash for assets.
After all the excess Credit has imploded, then and only then, will inflation kick in. That should be the key lesson learned from last year's QE. And I'm in agreement with you very much there. I'd say the resulting inflation will be like nothing we've seen before.
The US dollar was backed by gold during the depression and Germany's currency wasn't.
Are you aware of how fatally flawed your assumption can be and how much you are relying on market timing ?
If I'm wrong, I'll change my mind. What do you do?
So far the argument is compelling, and the current evidence is firmly behind it. It basically boils down to whether or not you believe Ponzi schemes are sustainable.
Also, regarding gold, I'd be wary. There was a recent report put out by the Chicago Fed describing the real reason why FDR confiscated gold. In short, it was to support their version of QE 2. The Fed had "printed up" $1 Billion and didn't want to monetize any more. FDR got the gold, raised the price to $35 per oz, and had an instant windfall of $2 Billion to spend.
Seen in that light, I think the odds are very high that any Administration will try the same trick. Beware of gold if you are in to Precious Metals. Silver might still fly though.
Part of the problem is the suggestion that homes have "a worth". Homes have a theoretical price, but this is different to worth.
As Adam Smith said, "A dwelling house, as such, contributes nothing to the revenue of its inhabitant...If it is to be let to a tenant for rent, as the house can produce nothing, the tenant must always pay the rent out of some other revenue...Though a house, therefore, may yield revenue to its proprietor...it cannot yield any to the public, nor serve in the function of a capital, and the revenue of the whole body of the people can never be in the smallest degree increased by it."
There is no net yield on residential property as it doesn't actually produce anything and is in someways the same as a Louis Vuitton handbag. We can all see what they sell for on eBay, so there is a market price, but there is no way you could sell them all at the same time, the supply demand balance determines the clearing price.
Put it this way, if California defaults and either levies new taxes or dramatically cuts services, thus driving people away, this situation will get a lot worse very quickly.
Really homes do not have a price either unless there is a buyer. Theoretical price depends on a population of buyers, and suggests some neutral stance in market momentum. Real estate does not work like this. It is buyer driven.
What we try to understand is real estate fair price. Real estate traditionally produced an economic benefit (motivation for ownership) through equity appreciation. What we are experiencing is real estate price reduction towards mean wages. However, it is not that simple. We have entered a situation where the government actions (costs) are far to high to increase growth (real benefits to tax payers), and have the FED trying to inflate real estate price beyond wha the tax base can afford.
The system we have today is so broken, it is a non-economy. A DieConomy. It is tapped out.
Mark Beck
Hong Kong Mortgage Loans in Negative Equity Up 2.3% in Q2 2010
http://www.scmp.com/portal/site/SCMP/menuitem.2c913216495213d5df646910cb...
This comes despite housing prices rising 10% since beginning of year.
"Negative equity", lol.
Negative equity, a brilliant oxymoron, translates to central bank owned, rented to you in the near future courtesy of Ben (with an option to buy) so as to tactically delay the default of the geometrically increasing debt. Rent seekers will roam the lands in their thirst for declining yield, yet they shall find that the land has been deserted and the collateral of their so-called intrinsic property value was just the linear interpolation of a proxy spot price.
Yes folks, we're trapped between deflating real estate (res and comm) with deflating real incomes AND inflating input costs for small business and cost of living. This will effectively dismember what's left of the middle class and further entrench the elite. Add a dash of QE1.5 lite and we're just pouring gasoline on a fire. Because the collateral damage of QE2 is that all paper assets will inflate, further reducing buying power of the middle class or anyone income-dependant. That ensures that real estate will stay dead in the water with deflating values for years to come. It also ensures that business must put further pressure on wages and incomes as part of cost cutting to cope with increased input costs. Which further locks in deflation. Circle complete. QE3 by Jan, 2011. QE4 by July.
Further downside in wages is also further downside in tax revenue.
No tax revenue means no service of the debt, no service of the debt will result it a flight OUT OF DOLLARS. THE VALUE OF THE DOLLAR WILL PLUMMET which is INFLATION.
I agree with the inflation definition, but I'm unsure it's just the dollar that will get hammered. And God (No, not GS, but John Taylor) more or less said he was pretty long the dollar - damn the fiat is confusing right now...
Is John Taylor suggesting that it is a good trade to go long the currency of a failing economy ?
US economy fails, go long the dollar ?
Euro economy fails, go long the Euro ?
Zimbabwe economy fails, go long Zimbabwe dollars ?
Question is which of the EUR and USD is the shittiest...
The US dollar is but the only thing that gives it a slight edge was that it WAS backed by gold.
In reality, the Euro is better because the ECB marks its gold holdings(10,000 tons) to market every month, the Fed marks its holdings(8000 tons) at $45 or something.
We have a privitaized, debt based fractional reseve currency. Once it is debt-saturated, it is broken beyone repair. And it is. People are defaulting on their loans, and there are fewer and fewer borrowers with collateral. The currency in circulation can no longer grow through the fractional reserve system. So people can't get their hands on the money to pay back the principle PLUS interest. So more people default on their loans. A self-reinforcing cycle.
The FRN is toast. Dead man walking.
Exchange some FRN's for gold and silver while you still can.
So, this would be deflationary implosion, collapsing denser and denser - until almost no light escapes (even the optimistic sycophants on CNBS are darkened - but a few nipples are still slightly visible) and then exploding into a gold super nova? (The star kind not the Chevy kind).
$771 billion of negative equity vs. $2.4 trillion of mortgage debt.
Implies that banks should be marking residential mortgages @ 67.88% on a good day.
Ouch!
The Zandi-Blinder paper (probably written by Larry Summers the night before it was released) this past week on TARP's, etc. success was simply one piece of an orchestarted propganda effort -- visible all week -- intended to prevent a dramatic market selloff when the weak (and still overstated) GDP number came out Friday. The PPT succeeded admirably and the proletariat went shopping at the Apple store instead of selling the last of their IRAs/401Ks/201K equities. The 100,000 iPads and Iphones sold Friday will add 1.0% to Q3 GDP.
Agreed gigeze787. See a 'nuff said, simple smackdown linked below.
http://falkenblog.blogspot.com/2010/07/chief-economists-are-for-pr.html
Economists are good at presenting the information that seems useful, but as per tying it together, they can't and most people making important decisions know that. This is why economists are always on TV and not in boardrooms.
I'm one of these Kalifornia underwater owners. I thought I was so smart waiting for the market for drop 30% from the 2005/6 highs. Closed in Janauary 2007, at $300,000 for a better home that sold at the high for $456,000. Now its closet comp is $185,000. The worst part of it all is the shadow inventory and the NOD in the pipeline. You can troll the neighborhood and see unmarketed OREO sitting around for over a year. Meanwhile, my neighbors tell me they stopped paying their mortgage 9 months ago and still no NOD filed. At least we have the income to survive, but with the local brokers intentionally keeping a fake 30 day inventory on the market, there is no real price disocvery. The main lesson here. do not get emotional about real estate. Hindsight 20/20 - stop paying the mortgage two years ago, short sale or deed in lieu and reent the market with a little cash. I would worry about inflation on the local level, becasue nobody is seeing their wages increase anytime soon. Kalifornia ready for another round of IOUs. Exp. Craiglist two year old front loading washer and dryer - was $1,200, now $200. For reelz.
At what point does the local helpless gentry just throw in the towel and start blaming the Jews?
There must be an algorithum for that scapgoating.
"At what point does the local helpless gentry just throw in the towel and start blaming the Jews?"
Oh, they already are. Sorry for your housing misfortune. Love that craigslist deal.
What amazes me is that after nearly a decade of local recession, Michigan STILL ranks as one of the worst states in the data.
>>
Craiglist two year old front loading washer and dryer - was $1,200, now $200. For reelz.
>>
This is the sort of powerful anecdotal evidence that confirms crushing deflation.
You simply can't increase the prices of things no one wants to buy, and houses are SO OVERWHELMING in overall total that they can swamp out food and other items. That's just the way the math plays out. Bonds are the only place to hide until oil depletion kills people.
A house or a washer and dryer in the US costs more for a person earning Euro's when the Euro fell from 1.5 to 1.2.That is currency inflation. No gold bug ever said that we would have demand pull inflation.
Falling prices in the closed economy have nothing to do with it.
Sigh.
This is simply irrelevant. All that matters is houses are falling in price. "Price" is numbers on DOLLARS. Not Euros. Not ounces of metal. Dollars.
Remember the mantras? "Your house will be the biggest purchase of your lifetime." "Your house represents the vast majority of your net worth." These were truth for the overwhelming bulk of America. If those prices are falling, then that is the MOST IMPORTANT PRICE IN AMERICA.
That's deflation and there is simply nothing you can do about it.
And when the FIRE economy goes broke from all this deflation, who is going to service the debt of the US government ?
What is going to happen to the quality and value of dollars and treasuries when that happens ?
"Your house will be the biggest purchase of your lifetime." "Your house represents the vast majority of your net worth."
New Mantra - "Your house represents the vast majority of your negative equity."
You have to buy food, and look at wheat, sugar and coffee, crude approaching 80+ (maybe)... Seems to me the deflation death spiral is turning into german hyperinflation... The large white mass will have no quarry with blaming the jews when they one day realize they can't buy anymore iphones with borrowed money. Expect to see an american Hitler-type douche turning up in the near future. Or, the stupid masses could've just voted for Ron Paul instead - But hey, why shouldn't they have voted for the dude who promised change... Nobody really knew what change he talked about, but I guess the majority just had a pipe dream about changes like: "If I vote for the Bamster, maybe my wife would take it up the a-hole once a week, that would be some nice change... Mmm a.hole"
Re: blaming the jews
Kinda old school. It's considered "more inclusive" if we just blame "those people" now.
You know, "those people" caused all these financial problems. If we weren't giving all our hard earned tax money to "those people" none of dis wudda happened. Dis is all doze people's fault.
You figure it out...
Re: blaming the jews
"Kinda old school. It's considered "more inclusive" if we just blame "those people" now.
You know, "those people" caused all these financial problems. If we weren't giving all our hard earned tax money to "those people" none of dis wudda happened. Dis is all doze people's fault.
You figure it out..."
Regarding second paragraph, last sentence - "They Took Our Jobs!" (said with southern accent/south park reference)
Okay Young, let me see if I'm fully grasping your thesis. You seem to be arguing that Obama was elected because men believed that if Obama won, their wives would consent to more anal sex. If he's not re-elected I assume that means either the wives went back to blocking up the rear access, or the men got bored with all those back door hijinks.
That is.... almost a correct interpretation of my thesis. Of course, women voted for Obama so they wouldn't have to take it up the fanny, and that's why the voters really aren't noticing any "change" from George W ;)
I disagree. Obama or not once they become wives, they categorically deny access to yon cinnamon ring.
Or so I've been led to believe.
OT - Sure its safe to go back in the water. There's no sharks now.
http://www.weather.com/outlook/videos/gulf-waters-reopened-to-swimming-1...
/LOL!!!!/
In a bath, one's skin consumes 1 - 2 gallons of water.
Corexit Cocktail!
So, if I had a home that I actually still had equity in...say 70% ($235K mortgage, comp value ~875K), would you sell now (peak comp value was ~$1.15M in 2007) to reap the net gain and sit on the cash or stay in the house with the real possibility of continual price deterioration?
Its a great question for which I am not competant to provide an answer. But whenever I see great questions like this, I always get visions of canned goods and shotguns in my head, and I don't know why.
Same here, reinforced by wood and ammunition as well as learning new things and relearning old ways such as Colonial or Western Technology.
A few years back we owed more in total debt than all the things we owned were worth including the home. It took several jobs and a hell alot of over time to knock them down.
We had a 9 month zero percent card from Chase as a promotion, shipped about 12,000 dollars off another card that had 14% and rising. Paid that off in 8 months. A time later, Chase stopped that little promotion. LOL.
Once that was finished, the extra monthly payments paid off the home in a few years.
Now we dont need overtime. Just a bit of part time now and again.
I watched homes sit for sale for months to a year in my area. Some of which slowly rotted to nature. The demo'ing has begun. The new lots will be sold to people who will build duplexes or quadplexes and make twice or 4 times the normal single family income for that place while the town and county makes that much as well.
If we search the question I think it will help in deciding what is the question.
So if the question is strictly a math question I think the answer is obvious. But on the other hand if this is a question of love then it may be harder to answer.
That's my answer and I'm sticking to it. Cause I'm a conservative lover of cash. There may not be any more loves of your life but there are for sure more houses.
If you find a "buyer" cause there's one born every minute, sell (IMHO). Buy farm land and invest in "hay" powered vehicles, seeds, and the 3 G's Gold, Guns (and ammo), Groceries!! Plan to live like the lovable Eddie Albert and ZaZa for the rest of your life.
"So, if I had a home that I actually still had equity in...say 70% ($235K mortgage, comp value ~875K), would you sell now (peak comp value was ~$1.15M in 2007) to reap the net gain and sit on the cash or stay in the house with the real possibility of continual price deterioration?"
What's your ROI since purchase? What will become of the 500K (couples) federal tax exeption? My advice - forget what it "was" worth when making a decision.
You do not have a decision sir, it is completely obvious. Sell immediately, reap your gains, park it in something safe, preferably multiple things, hedged, and without leverage... cash, arable land, precious metals, and medium grade multifamily come to mind.
Your situation is incredibly easy... mine, not so much... owe $118k on an appraisal value of $150k (can sell for $145k all day)... held less than two years... and have a first time homebuyer credit on it. If I rent, the equivalent will be ~$1000/mo. Wait two more years and get to keep fthbc and no gain on sale... and pay down a couple more grand in principal. current note payment is ~$600/mo... your decision is easy.
Look at it this way, you will NEVER sell the house for more than you can now... simple as that. Sell it and rent one next door. Cash out.
Leonard Cohen - Everybody knows (live in London, 2008)
Updated DOW charts:
http://stockmarket618.wordpress.com
The aforementioned $1.2 million 1100 sq.ft. bungalow on Velarde in Mountain View has been marked down to $998,000. Zillow says it was worth $730K last year.
We have deflation it's just not evenly distributed.
How is this an arguement for legalized pot?
It is an argument against not having legalized pot.
Then we will almost certainly fall into deflation..
ever hear the word homegrown?
After staring at the underwater mortgage graphs and contemplating the service that zerohedge provides, I decided to make something. Took a massive tagcloud generated from the front page posts of the site, and did a little manipulation to make it a big 'ol poster image.
Enjoy! (That is until my 100MB monthly limit is exhausted on flickr I guess.)
http://www.flickr.com/photos/tradertim/4846759203/sizes/l/
If you want a different caption - suggestions welcome: tradertimm {at} gmail.com
that's cool timm...would be nice to see a cloud of which words are most prevalent lately.
betya the NSA's got one.
I'm kinda surprised its only a bit less than $800 billion - I'd expect it to be higher. An Nevada didn't even make the top three? I bought my house for $396,000 in 2005 and I bet it wouldn't get even $150,000 right now - I think we Nevadans have earned the right to be tops in the "you're screwed" list.
There are two types of (“American”) money
1: Federal Reserve Notes (Peasant Money)
2: U.S. Treasury I.O.U.s (Aristocrat Money)
When you understand the relationship between the two types of “American” money then all other economic matters - such as so-called inflation and so-called deflation - are instantly demystified.
Let’s start with the two institutions involved - the Federal Reserve System and the U.S. Treasury. Actually, they are in reality one institution because both answer to the same masters so from now on I will refer to them collectively as the T-FED.
The T-FED issues two types of money. One type of money is for wealthy aristocrats and their institutions and the other type is for peasants. The type of money the T-FED issues for the wealthy aristocrats is U.S. Treasury IOUs. This type of money is issued in large denominations to restrict it’s possession to the wealthy aristocrats and it increases in value with time.
Now I know what the simple peasants will say, “But golly, professor Attila, U.S. Treasury IOUs are not actually currency because you can’t buy anything with them. If you want to buy something with Treasury IOUs you first have to sell them and get Federal Reserve Notes for them and then make the purchase with the Federal Reserve Notes.”
OK, you simple peasants, let’s follow a typical aristocrat market transaction step by step.
Step 1: Aristocrat A wants to buy (for example) a fast food franchise that specializes in custom-made hamburgers called Build-A-Burger which is owned by Aristocrat B.
Step 2: Aristocrat A sells a load of his T-FED IOUs to any aristocrat or aristocrat institution that would like some more. In return Aristocrat A gets a load of T-FED Federal Reserve Notes. Just for fun we’ll call the buyer of these T-FED IOUs the First Aristocrat Bank In Any Nation (or “FABIAN Bank” for purposes of acronymic brevity).
Step 3: Aristocrat A hands over the load of T-FED Federal Reserve Notes to Aristocrat B and in return gets ownership of the Build-A-Burger Corporation.
Step 4: Aristocrat B doesn’t want a load of T-FED peasant money that loses value with time so he hands over his load of T-FED Federal Reserve Notes to the FABIAN Bank and gets a load of T-FED IOUs in exchange.
Alert peasants will observe that the stock of both T-FED IOUs and T-FED Federal Reserve Notes remains exactly the same … and … the ownership of both types of money remains in exactly the same hands as before - the wealthy Aristocrats and the FABIAN Bank.
The selling of T-FED IOUs for T-FED Reserve Notes by Aristocrat A and the instantaneous conversion of said T-FED Reserve Notes back into T-FED IOUs by Aristocrat B is pure theater for the sole purpose of fooling the peasants into believing that they have real money.
There are two primary tests of real money according to those lucky fellows who dine at the establishment trough. The first is that money should be a “store of value.” In reality the NEW rule is that money must be an increasing store of value for the Aristocrats and a diminishing store of value for the peasants. That’s why we have two forms of “money” even though the fibbing establishment insists we have only one.
The other classic rule of money is that it must be a “medium of exchange.” The NEW rule of money is that only the inferior form of diminishing money (T-FED Reserve Notes) may be used by peasants as their medium of exchange and that the increasing sort of medium of exchange (T-FED Treasury IOUs) can only get into the hands of the Aristocrats. The fiction that T-FED Treasury IOUs are not a medium of exchange is maintained by the basically instantaneous switching described earlier.
Alert peasants will note that no such two tier system of shrinking and increasing money would be possible if gold or silver were our medium of exchange. That’s because the T-FED can not create gold “ex-nilo” as it does when it creates T-FED Reserve Notes “ex nilo” and uses them to buy T-FED Treasury IOUs which instantaneously wind up in the hands of the Aristocrats.
Every Time the T-FED creates T-FED Reserve Notes to “buy” interest bearing T-FED Treasury IOUs the ratio of Aristocrat money to peasant Money grows larger. In other words the Aristocrats automatically get more of everything and the peasants automatically get less. Also, please note that the supply of both sorts of money increases so that over the long haul almost all prices of almost all things will increase ... which will regrettably necessitate the issuance of even more T-FED Reserve Notes to pay for it all which will regrettably necessitate the issuance of more T-FED Treasury IOUs because only by issuing more T-FED Treasury IOUs can the T-FED get more T-FED Reserve Notes.
Now lets move on to so-called inflation and so-called deflation. The establishment measure of inflation/deflation is called the Consumer Price Index or CPI for short. The establishment defines inflation and deflation as the rising and falling amount of T-FED Reserve Notes that peasants must have to buy things that peasants buy. Let us therefore for sake of clarity call the CPI the Peasant Price Index or PPI.
You will note that the establishment does NOT define inflation and deflation as the rising or falling amount of T-FED Treasury IOUs that the Aristocrats must have to buy things that Aristocrats buy. Just for fun let’s measure if we’ve been having inflation or deflation recently by measuring inflation and deflation by the Aristocrat Price Index or API for short.
Ever since the T-FED started increasing the money supply of the Aristocrats the API as measured by the cost of stuff that Aristocrats buy - like stocks, bonds and gold - has shot upwards. Yes, we have been having inflation but only for Aristocrats. The polite term for this inflation is the “dollar carry trade” but don’t let that fool you, it’s really nothing but inflation.
On the other hand, because the T-FED did not likewise juice up the supply of peasant money, the PPI or Peasant Price Index, has not experienced the dramatic increase of the API. But what the heck happened to all those T-FED Reserve Notes that the T-FED conjured up ex-nilo when the Federal Reserve half of the T-FED created them to buy T-FED Treasury IOUs from the Treasury half of the T-FED. Gosh and golly, it’s all sitting in the ledgers of the banks who are not loaning it out to main street peasants.
Currently, the run up in the stock market is mistaken as economic recovery when it is really nothing more than inflation in the API or Aristocrat Price Index. If you want confirmation of this view just check out the dismal dividend yields of stocks. It’s exactly the same with gold. Gold’s dividend yield is eternally stuck at zero point zero but it cost more these days as well and it’s nothing but inflation - more and more Aristocrat money chasing a fixed amount of gold - just more inflation in the Aristocrat Price Index.
And what about the price of future money - AKA T-FED Treasury IOUs - has their price gone up or down? The price charged for future money has gone up as well and once again it’s nothing but inflation - inflation in the Aristocrat money supply. The polite term for this inflation in the Aristocrat money supply is “falling interest rates.”
So what does the future hold in the way of inflation and deflation for both Aristocrats and peasants? We pay foreigners in inflating Aristocrat money and to put it plainly the foreigners are tired of being stuffed. Foreigners will raise their prices across the board or stop taking our T-FED Aristocrat money altogether and then inflation will hit American peasants as the cost of imported goods soars and such rising inflationary pressure will far exceed the current deflationary pressure caused by the strangling of the peasant money supply by the banks.
At this point we’ll have hyper inflation in both the API and PPI … so … the
monetarist indoctrinated Aristocrat Establishment will probably try the traditional sure cure for inflation - strangle it to death by raising interest rates. This will be done to persuade the foreigners that they should take our Aristocrat money but it won’t work. Why won’t it work? It won’t work because we have essentially nothing behind our money - no gold, no surplus to export, no nothing at all - and ANY amount of money - whether an increasing amount or decreasing amount - backed by nothing is worth … NOTHING.
So Burger Miester will pay less for two bulls in deflation and pay alot more for one bull in inflation.
How then is Burger Miester able to stay in business when no one is able to have enough money to sit and eat the burgers during inflation and make any money at all during deflation and constant two burgers for price of one sale?
I hope that Burger Miester paid in full the eatery because if there is a note on the place, the BANK will be the 900 pound gorilla.
Bravo and well said. This should be posted as an article instead of a comment.
what's it got backing it?
real estate baby real estate
remember this diddy?
O beautiful for spacious skies,
For amber waves of grain,
For purple mountain majesties
Above the fruited plain!
Nice article (yes, it would make a good separate post).
This nicely explains the phenomena of simultaneous inflation and deflation too. Interesting.
It sounds like though, that when all interest rates hit zero, we go to the half time show and then the exciting second half.
Da Cash shall be helicopter dropped to provide peasants with da funds...per Mr. Berbankie.
The idea being hang on til the China Syndrom (mega ponzi) takes out the Chinese housing/commercial bubble. First one to go down loses. Europe just made a stick save.-
Isn't a lot of nothing worth more than a little nothing? I'm an economist by trade.
You are looking at it from the wrong end of the telescope. The negative equity/impairment only matters if cash flow no longer supports the debt obligation and people no longer believe it is in their best interest to maintain the ownership of their home.
Yes, another example of "Minumum Payment America". The economy will expand until every ounce of income is required to service the debts. I'm not sure we're there yet. Delayed payments count too, as these are just "unoffical" reductions in interest rates. Most of the peasants I know are on the phone constantly making excuses to the debt collectors. (And looking for more stuff to buy on their still functional credit-cards).
I have lived a life in the Shopping Mall. A place where there were hundreds of stores, all willing to issue you a card at 15% off whatever you buy that day.
Only to hit you with a 25% interest rate the first billing cycle.
My wife bought a item and I dragged her back the next morning and paid off the card, the item and closed the account right then and there.
But I learned something.
I went to Sears bought about 2700 dollars worth of stuff with a gigantic sale they were holding with one item 500 off and the other two a total of 200 off. For only about roughly 2000 then 10% off for getting a brand new sears card approved.
I went back the following monday morning, paid all in full cash and closed that account.
Scorched earth.
I was not to be welcome back to that particular store for a very long time after that.
Just as well, the minimum payments on 1800 would have been impossible once I saw the first bill (That still arrived after everything was closed and zero balance.)
Stores are not set up to be opening credit card accounts and then closed (Paid in full by cash) in less than 24 hours. They are simply not that agile.
Bloomberg: "Americans Buy iPads While Broke in New Abnormal Economy"
http://www.bloomberg.com/news/2010-07-29/americans-splurge-on-ipads-whil...
I don't do iAnything, however I feel that many people have felt that cash is better than stress under any condition. Fortunately I think there are sufficient alternatives to fighting the bank and there isn't a black mark for walking away from a place.
However, call me old fashioned. I buy a home to stay in for the rest of life unless something better comes along.
In this economy I see alot of much better and attractive properties now, but dont dare go into debt to get it. No sir, no more debt.