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A brave new economy – California budget implications for real estate

drhousingbubble's picture




 

Over the weekend it was announced that California’s large $9 billion budget deficit was no longer $9 billion but $16 billion.  Whoops.  Last week J.P. Morgan Chase, a darling of the Federal Reserve, reported a $2 billion trading loss on “synthetic derivatives” yet still had the audacity to state no further regulation was needed.  Whoops.  What we have here is a system of phony numbers and massive speculation.  This plays into the giant pool of shadow inventory sitting in bank balance sheets while trillions of dollars went to bailout these banks.  Even accounting standards were frozen for these speculators.  Instead of working to increase transparency and help the overall American taxpayer they instead are using the same leverage to gamble on global stock markets.  The system is interconnected and that is why the California budget figures this weekend came as no surprise.  What is surprising is the cheerleaders narrowly focused on real estate and pretending the economy around them is completely sound.  Do they have ear plugs and blinders on as to what is really transpiring?

Employment

California’s unemployment rate is officially back to 11 percent but the underemployment rate is above 20 percent.  If we look at “not seasonally adjusted” numbers the unemployment rate is 11.5 percent:

california employment data

Over 2,000,000+ Californians are out of work.  The participation rate continues to decline similar to trends across the country yet very few even address this.  This is absolutely crucial especially when it comes to housing.  Are all the retiring baby boomers going to be the next segment that will boost the housing market?  The unemployment and underemployment figures are very important because as long as the employment situation is weak, there is little reason to expect higher home prices.

Unemployment Insurance

A report this weekend discusses how over 200,000+ people on unemployment insurance will lose their coverage this weekend:

california unemployment insurance

Of those losing unemployment insurance coverage 40 percent will be here in California.  I’m sure this is a big plus for the housing market.  There is only so much fudging of numbers that can be done until people start realizing what a giant mess we are in.  Besides this, we now have the government trying to obscure even more numbers to keep their crony financial friends protected.

Cutting off Census

I saw this posted last week and found it astonishing.  Many in the non-mainstream financial press use the Census data to crunch numbers and bring a new perspective to what is happening in the market.  I certainly use this data as I’m sure many of you do as well.  Take a look at this:

“(Census) The Appropriations Bill eliminates the Economic Census, which measures the health of our economy. It terminates the American Community Survey, which produces the social and demographic information that monitors the impact of economic trends on communities throughout the country. It halts crucial development of ways to save money on the next decennial census.”

This is mind boggling but plays into the statistics deception that is being pushed on the public.  Similar to those trying to forewarn about the housing bubble bursting, the system is trying to hide data to keep the illusion moving forward.  This is madness.  Do people realize that good statistical measuring tools came about right after the Great Depression?  You know why?  So analysts, educators, and all citizens can dig in and keep the system honest.  The fact that we spend billions of dollars building streets in other nations and can’t spend a few million to actually audit our own books is nothing more than a purposeful hiding of the obvious.  Those that continue to act under the “business as usual” mindset are largely not open to seeing what is going on.

This is why I find it fascinating what is going down in Greece.  People have been living in austerity for well over two years and now, for lack of a better word, are revolting.  They realize the financial system has them by the scruff of their neck.  They have nothing left to lose with a 25 percent unemployment rate.  Here in the US, it seems like the folks in charge would rather keep the data obscure and feel that as long as you get your steady dose of iPhones, Dancing with the Stars, and double-lattes that things will just keep marching forward.  By the way, we’ve been in recovery since the summer of 2009 so all this data must be imaginary right?

Budget Gap

The budget gap announced this weekend was stunning but not surprising.  Just look at the April revenue data:

california budget estimates

Source:  State Controller, CA

“SACRAMENTO – State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in April, showing monthly revenues came in $2.44 billion below (-20.2 percent) the latest projections contained in the Governor's proposed 2012-13 Budget.”

April is a big month for tax receipts and revenues came in $2.44 billion below expectations.  The California budget is a mess.  So we are now assured that we have two items that will hit in the next year:

-Tax increases

-Service cuts

Both of these are unlikely to boost real estate values.  I hear arguments of people saying they are buying homes near prime schools and colleges like UCLA or UC Berkeley.  These are public colleges with large support from the state!  What do you think this does if prices keep on increasing and put students into deeper debt?  These institutions were built with public funds and those funds are running dry.  So what do they do?  They raise fees.  We have a lot of hidden benefits in California paid for by taxpayers and many in the state suffer from the “I want it all but don’t want to pay for it” mentality.  Well the time is coming when choices will need to be made.  Real estate is no sacred cow like some would think.  Heck, even 30 percent of those that own their home in the state are underwater on their mortgages.  Just looking at all of this in context makes you realize that some of those diving into the housing market today are suffering from cognitive dissonance when it comes to real estate.  The low mortgage rates are a siren call to jump in but just look at the above metrics.  What are we going to do, live in homes and trade them to one another continuously as our major source of economic growth?  We tried that during the housing bubble and look how that turned out.  Beyond artificially low interest rates, why in the world would housing values go up in the state given broader economic conditions?

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Tue, 05/15/2012 - 12:18 | 2427544 Seer
Seer's picture

"If you are not careful, the newspapers will have you hating the people who are being oppressed and loving the people who are doing the oppressing."

- Malcolm X

Pretty clear that people haven't discovered that they're being manipulated as such.

Tue, 05/15/2012 - 16:42 | 2428868 FeralSerf
FeralSerf's picture

The manipulation is more difficult if the manipulatees understand what's going on.  That why it's important to make them believe they have "free will".

Tue, 05/15/2012 - 08:49 | 2426373 Lednbrass
Lednbrass's picture

If you feel that you dont pay enough and are selfish, what prevents you from writing extra checks to your state for the taxes you think you should be paying?

Tue, 05/15/2012 - 11:49 | 2427296 Joe The Plumber
Joe The Plumber's picture

He wants you to pay more taxes so he can benefit. He doesnt want to work hard enough to be in the top ten percent and hence has no extra money nor any intention of paying extra taxes

Tue, 05/15/2012 - 14:15 | 2428212 Things that go bump
Things that go bump's picture

Really?  How can everybody make it into the top 10% by working hard enough?  It is by definition an exclusive club, closed to 90% of the population.  

Tue, 05/15/2012 - 14:12 | 2428210 Seer
Seer's picture

"He doesnt want to work hard enough to be in the top ten percent and hence has no extra money nor any intention of paying extra taxes"

Yeah, like EVERYONE can be in the top 10%?

That's the mirage that keeps the ruling elite in place.  Carrots front and center!

2/3 of the world's population lives on $3/day or less and you want people to believe that if they ALL worked harder that they would be in the top 10%?

Oh, please, can I be in the top 10% of the people who are living horrendously unsustainable lives, living off of meaningless consumable, oh can I? (TPTB require this to be the mindset, as it provides them with Their labor and their guards)

Tue, 05/15/2012 - 11:08 | 2427077 hedgeless_horseman
hedgeless_horseman's picture

 

 

...what prevents you from writing extra checks...

He or she probably has no income or wealth.

Tue, 05/15/2012 - 08:16 | 2426270 Be_Prepared
Be_Prepared's picture

Governor Moonbeam is the king of give free lunches and pay for them when he's out of office.  The white elephant in California's room is that they voted to be themselves to the be the largest welfare state in the US.  They want to ignore that they have upwards of 2 to 3 million illegal immigrants in that state alone.  Since there's less work, those people are draining California dry because everyone wants to be Politically Correct instead of facing up to the reality that you can't support everyone so harsh and clear decisions need to be made.  This issue isn't just an immigration problem though, but an attitude of lavish spending for programs and public servants that they can't afford.... and gutting Prop 13 isn't the answer, but closing the corporation loopholes, capping public pensions, etc. are a start.  Just imagine if that 1/4% sales tax increase goes through, Los Angeles County will have a 9% sales tax.

Tue, 05/15/2012 - 14:18 | 2428224 Seer
Seer's picture

When you've slain the "illegals" you'll find that you haven't solved any "problem" (and you probably will have increased your food costs, which, in my opinion as someone raising food, is fine- we need to realize actual costs for food).

From http://www.isil.org/resources/libertydocs/immigration-open.html (CATO data):

     I also presented evidence that the existence of welfare is not the determining factor in the movement of people. If this is true, then people in the U.S. would be moving from states with low levels of welfare to states with high levels of welfare. Just the opposite is true.

     Of the 10 states that give the most welfare, 9 of these experienced net domestic out-migration in the decade of the 1990's. The one exception is Virginia, and that is due to the extraordinary exodus of people from the government's poorly managed, showcase capitol next door. Look how attractive Washington D.C. has become, with 24% of the domestic population leaving in the 1990's. Conversely, of the 10 states giving the least amount of welfare, 9 of these experienced net domestic in-migration.4

Top 10 welfare states Hourly wage equivalent of welfare (1995) Net domestic migration (%? 1990-99) Hawaii $17.50 - 9.0% Alaska 15.48 - 4.3 Massachusetts 14.66 - 4.1 Connecticut 14.23 - 6.9 Washington D.C. 13.99 - 24.2 New York 13.13 -10.5 New Jersey 12.74 - 4.9 Rhode Island 12.55 - 6.3 California 11.59 - 7.3 Virginia 11.11 + 1.6 Average 13.70 - 7.6 Bottom 10 welfare states Mississippi $5.53 + 1.7% Alabama 6.25 + 2.8 Arkansas 6.35 + 4.7 Tennessee 6.59 + 7.3 Arizona 6.78 + 15.7 Missouri 7.16 + 2.0 West Virginia 7.31 + 0.1 Texas 7.31 + 3.4 Nebraska 7.64 - 0.2 South Carolina 7.79 + 4.1 Average 6.87 + 4.2

Cato Institute Bureau of Census

Tue, 05/15/2012 - 11:36 | 2427221 Not Too Important
Not Too Important's picture

Governor Jerry Brown's sister, Kathleen Brown:

"She was elected California State Treasurer in 1990.

She currently serves as head of public finance for the Midwest region for Goldman Sachs, after taking positions as president of private banking for Bank of America from 1995 to 2000 and as head of public sector and infrastructure investment for Goldman Sachs from 2001 to 2010." From Wikipedia.

The Squid has access to the Gov's dinner table. You figure out the rest.

 

 

Tue, 05/15/2012 - 14:46 | 2428322 lemonobrien
lemonobrien's picture

the squid probably sucks his dick at night.

Tue, 05/15/2012 - 12:00 | 2427392 Zero Govt
Zero Govt's picture

small world politics and banking

..and they're both in big trouble, who'd have thunk it full time paid professionals getting us so deep in the dog doo

Tue, 05/15/2012 - 08:09 | 2426258 apberusdisvet
apberusdisvet's picture

KALIFORNICATION

What occurs on a daily basis when you live in a socialist paradise run by economic psychopaths.

 

Tue, 05/15/2012 - 10:13 | 2426772 DosZap
DosZap's picture

Gov Brown said today, more taxes, or less services.............which will it be?.

Duh, less services asshole.How do you tax 50% of whats left of your population more?,so the people with no jobs on govt assistance get the same  services for free?

Tue, 05/15/2012 - 07:54 | 2426230 bourbondave
bourbondave's picture

Can someone explain to me where the money comes from when California runs a deficit?  Are they finding suckers to borrow from or is the Fed buying their debt as well?

Tue, 05/15/2012 - 12:11 | 2427482 Walt D.
Walt D.'s picture

It comes from off-budget (under the table) funding (loans that CA has no way of paying back) from the Federal Government. Incidentally, this is why the Federal Debt is increasing by more than the official federal budget deficit. ("Enron Accounting")

Tue, 05/15/2012 - 10:40 | 2426927 GMadScientist
GMadScientist's picture

Last time they did the budget dance it came to issuing IOUs with 3% yield and BofA made a market for them...in short, Cali FIAT!

Suckers == anyone who is owed money by the state for any reason (UE check, tax refund, vendors, etc ad nauseam).

Tue, 05/15/2012 - 09:29 | 2426524 Tortuga
Tortuga's picture

It's coming from US. There are all kinds of sweetheart deals for the SANCTUARY state from the different departments of our govt. to buy those 55 electoral votes. Of course about 15 of them are ILLEGAL because they are from counting ILLEGAL immigrants.

Tue, 05/15/2012 - 14:27 | 2428258 Seer
Seer's picture

Seems that any data to support your position would show up here:

http://martincantor.com/files/FederalbudgetAndStatesShortForm.pdf

Here's an argument against creating immigration restrictions (from the Institute Society for Individual Liberty [libertarians]):

http://www.isil.org/resources/libertydocs/immigration-open.html

BTW - There's vastly MORE "legal" immigration.  Also, the "illegals" are desired by lots of right-leaning folks (Ag etc.) for cheap labor (which then becomes a benefit in the form of reduced food costs and less outflow from SS [money is paid in but cannot be taken out]).  Everyone needs a scapegoat I guess...

Tue, 05/15/2012 - 11:31 | 2427196 FeralSerf
FeralSerf's picture

Those aren't illegal immigrants.  They're rustled Mexican sheep.

Tue, 05/15/2012 - 10:40 | 2426942 GMadScientist
GMadScientist's picture

Fuck that retarded muppet.

 

Tue, 05/15/2012 - 07:45 | 2426219 max2205
max2205's picture

Just move the hockey stick to the right

Tue, 05/15/2012 - 06:47 | 2426150 savagegoose
savagegoose's picture

no bad news, is good news? no thats not it, no news is good news, hmmm.   doulbe plus gov good news is good news.

Tue, 05/15/2012 - 06:44 | 2426148 disabledvet
disabledvet's picture

Pushing this on the public? HAHAHAHAHA. You mean BONDHOLDERS! In other words "we really want that low interest interest rate" meets "you really need to pay 750,000 bucks for that postage stamp sized house." Interesting public policy i must say...what did they call them..."LIAR LOANS"?

Tue, 05/15/2012 - 08:45 | 2426356 LawsofPhysics
LawsofPhysics's picture

Same as it ever was.  People in power pretend to make loans to their friends who pretend to pay them back.  It is and has always been about power and control of resources and the masses.  When the "financial" shit gets complicated they simply "light a match" and no one goes to jail.

Hedge accordingly.

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