United States Heading towards a Depression?

There are some very strong opinions in this forum. Even if I don't agree with some of you, I do value your view point. America will be what "we" want it to be, not what they say it will.

 

Great, article Mike!!! I especially like Einstein's quote which has never been truer.

 

Thank you Jeremy. My own grandma went thru that period of time in germany and the similarities are astounding. The only way to discard it is by completely ignoring facts and pretending that someone is going to save the U.S.

In the end it was the allied forces actually helping Germany.

Who will help the U.S.?

The UN??

 

Hiya boys and girls. I bet you missed me. I noticed a couple of refernces to me.

Frankly, I've been busy. I run some businesses. Keep working on them all the time. Find the things that work --> keep doing them. Find the things that don't work--> drop them. Fix the things that are going bad. Deal with the problems. That is what makes an economy work.

I know. That doesn't fit in with fantasy theories that have never been put into place. C'est la vie.

This article caught my attention. Its about the real world.

http://www.nytimes.com/2009/09/16/opinion/16friedman.html

Read it. Its fascinating. While the political morons who are wrapping extremist right wing politics around everything that is being suggested to make the American economy work.....the US is losing opportunities to the rest of the world. Its sad to see this happening.

$200 million factories are being built around the world to provide items that will be used everywhere...and we haven't built one of them. How stupid is that.

Why not? Stupid extremist right wing politics that is wrapping political bs around every idea that could stimulate the economy.

Bye bye jobs. Buy your stuff from China. How stupid is that.

BTW; anyone know how the US got to be damn strong in a couple of little industries before anyone else? lets see...say Computers ...and the jet industry--little industries. The US govt invested in them first. Then it moved into the private sector. Just like that. I dunno. Seems to have created a lot of wealth, a lot of economic behavior. I'm sure right wing extremists can find a way to brand those actions by the govt. as communistic or socialistic.


Now if people want to get a great picture of how markets work....this is terrific....http://www.fairfaxcountyeda.org/sites/default/files/publications/ye08rer.pdf

(I forgot about this data source until just today. I'm so glad they have maintained the records back till 1980. What a great description of demand and supply)

Its a 28 year history of office space demand and supply in Fairfax County Virginia. Subtract out downtown and midtown Manhattan, and Fairfax County is one of the largest markets for office space in the nation.

Fairfax is a terrific picture of the boom and bust elements of markets. From 1980-the early 90's it added supply (office space) like crazy. It is a mini picture of what happened across the nation. It is why the recession of the late 80's early 90's occurred.

Supply skyrocketed. Demand lagged. That is why the vacancy rate soared.

It took years for supply to start being produced again in any quantity.

That is why we will have all sorts of rotten business news for years, interspaced with news about some things here and there flattening out, then getting better than growth.

The economy (world wide) took an unbelievable hit (the US took the biggest hit) trillions of trillions of $ of wealth were wiped out. It will take years for recovery.

All the political bs in the world doesn't change what happened in the economy.

Why did the vacancy rate soar again in the early 2000's? The telecom and dot.com implosion occurred causing the recession of the early 2000's. Fairfax was very vulnerable. It had (and has) a lot of those businesses.

Then over time, businesses recovered and the vacancy rate dropped again. Now because of this recession vacancy rates are growing again.

Here is a little tidbit. Its very rare to find long term data like this. I guess some of the PRIVATE business real estate firms have it. Its not that accessable. Some of them might have junked old data. There is one data provider that might have information like this...but its history doesn't go back to 1980.

Oh here is another little real fact about economics/govt involvement etc.

Following the recession of the late 1980's and early 1990's guess who started to own a lot of the buildings that obviously had a ton of bankruptcy?

It was your friend, the US govt. under the RTC agency. Banks failed. Savings and Loans Failed. Developers went into bankruptcy. So many largely vacant buildings went into bankruptcy. Geez the lenders failed too. So the owner of last resort was the US govt.

Do you know what happened? Over time as the economy recovered the RTC sold all those buildings to private entities.

All that communist/socialist action by the govt...that spent your money and was turning the private world into a big socialist world....Sh!T. It all got sold back to private owners.

So much for socialism.

Anyways its been nice visiting. Have fun.

 

Robert Samuelson is a well known economic commentator/writer for the Washington Post and Newsweek. Interestingly he is often pilloried/ripped apart, and criticized by the economic commentators from the Left. He is anything but a lefty.

In his latest commentary on the economy Samuelson credits the Federal Government with preventing a depression.

He compares negative signs from 1929 and the current period to present a crashing economy...that was far worse today than the negative elements of the 1929 crash.

While he doesn't put a finger on any one program that stemmed the recession, he does indicate that a series of steps basically forestalled a crash that would be far worse if not for government intervention.

None of that is good news. The current economy is shaky and weak. Nevertheless, where there was no spending, no activity by the private sector and a potential for a scary plummet into incredible economic disaster, Samuelson credits government financial intervention for blocking this possible crash.

 

More bad news...

Prime fixed-rate mortgages now account for one in three foreclosure starts. The best borrowers in our financial system are defaulting on the best loans in our financial system. The cause? Unemployment.

Late payments on U.S. mortgages hit a record in the second quarter, and are expected to go much higher as unemployment rises. 9.24% of all home mortgages are now delinquent. Just one year ago, that rate was 6.41%.

Due to the incredible debts being stacked up by the Obama administration, this recession/depression is going to get a lot worse before it gets better.

 

The following link is a sophisticated discussion on commercial real estate, including conversations on employment/unemployment, debt issues, commentary on economic actions by the Obama administration re: employment, and the state of some aspects of commercial real estate by Boston Properties in a presentation and then Q & A with Wall Street Analysts.

Boston Properties is a premier US REIT (Real Estate Investment Trust). It owns approximately 50 million square feet of commercial real estate, primarily highest end office buildings, one hotel, and some warehouse/flex tech space. Its been around as first a private company and then a REIT since the 1970's. It is successful, profitable, and is one of the premier office space owners in the nation. The people who operate this business are amongst the smartest, most sophisticated in the industry.

To try and summarize some of the points that have been addressed in these D & P forums and discussions on the economy, here are some of my reviews of their commentary:

1. The state of commercial real estate in the US.

Boston Properties (BPX) is an active player as a buyer and developer of buildings in the US. It primarily acts in 5 major markets in the US; midtown Manhattan, Boston city and suburbs, DC city and suburbs, San Francisco city and suburbs and Princeton, NJ. Its inventory of properties is invariably at the high end of office space in each market. They have developed many of the properties over the 3+ decades and purchased additional properties over the years.

They stated that commercial real estate debt is essentially owned at almost 50% by banks, 10% by insurance companies, and 25% by CMBs.

Currently they suggest that there are many problem properties where there has been a "quiet partial change of ownership" already, due to the fact that existing owners have been unable to support the buildings. While not yet legal change of ownership this implies the financial lenders are making ultimate decisions while the de facto former ownership is operating the buildings on a daily basis.

That is interesting. It suggests that the fears and problems predicted relative to commercial loans coming due are being quietly worked out between lenders and owners on an ongoing basis. BPX predicts there will be substantial sale situations over time. The lenders neither want to, or are capable of operating the buildings and obtaining maximum value.

2. Employment. BPX is a sophisticated real estate firm. It was evident in their discussions. They can create an overview with regard to their overall tenant base as to what is occurring with regard to the short and near term perspectives of their tenants. The majority of those tenants are major corporate firms, extremely profitable service firms, government entities, contractors, etc. BPX is usually at the high end of the rental market. As such it attracts tenants with the most income and high profit margins.

BPX summarized to say that corporate America is finding that it can operate profitably now with less people. They attribute the surge in the stock market to businesses cutting costs (that is employees) while retaining profitability. They referenced cutting advertising. They see law firms as essentially staying flat or shrinking. They reflected virtually no significant long term expansion needs from their tenant base.

That is not a reflection on all aspects of the American economy but reflects their insights into their own tenant base and in their own markets.

Mort Zuckerman, the Chairman, added his own commentary suggesting that overall unemployment, including the existing unemployment rate of 10% plus those not included in that calculation, plus those underemployed, plus taking into considertion calculations on the average hours worked per week, probably adds to unemployment totals not seen in 70 years and far higher than the official unemployment totals of the early 1980's.

3. Credit and Debt.

In terms of commercial real estate, BPX acknowledged and agreed that there is probably a lot of capital available to chase commercial properties should they go bankrupt, be returned to lenders, become available for sale. Those funds are available from overseas markets, institutions and investors flush with cash, and the strong REITS.

They see significant overall credit problems existing in the US economy as credit card issues, housing issues continue to plague the US economy. They frankly see a long term sluggish economy.

4. Commentary on the Obama administration.

Again Zuckerman, who is additionally an owner of some print publications, and a "talking head" on Sunday political commentary shows, suggested that the Obama stimulus to date has not generated the job growth relative to the money spent. He sees this as an ongoing problem.

After all that was addressed, it was interesting to see that BPX's 3rd quarter results published as of 9/30/09 were significantly better than those published as of 9/30/08. BPX lost two substantial office tenants as a result of major bankruptcies including Lehman Brothers and GM. In the ensuing year they have aggressively managed to release these spaces (at considerable cost) and secured long term income streams from the releasing, into the future.

The company's income statements are strong for the year and going forward. Probably more relevant its balance sheet is very strong for a real estate company. They will most certainly be players in purchasing major office or development opportunities across the nation...as they develop over time.

On a personal basis, I brokered deals with that firm in the past. They are amongst the most professional in that industry, and a first class operation. I've worked with one of their senior people a bit and knew him professionally and a bit socially. I remember vividly one evening where we shared brewskis and both discussed being "dicked around" by one of the more unscrupulous b*stards in the industry, during the efforts to transact a deal.

LOL...you take your lickings and you keep on ticking.

 

You are assuming that Obama wants what is best for America. I believe he does not and neither did the previous administration. Money is being transfered into a new world bank. The federal reserve is starving the American people and forcing them into financial needs.
Both parties are in this.

 

We still have a Federal Reserve and the various triple-letter organizations designated to maintain the status quo.

Please don't let your personal politics affect your judgment on what is good for the country.

Obama is not doing what is best. If he did, we'd be out of the war. Watch the latest talk on Afghanistan, it's quickly becoming his Vietnam (and WILL be if he commits any more to that quagmire).

Bullshit knows no party.

 

I like when you're frank, stick to that more.

 

i like that quote, and it was hard for me to get to that point. But once I stopped having favors, I saw far beyond what is going on in the eyes of the public

Especially once you look into the federal reserve business.

http://www.firetown.com/blog/2009/10/28/the-complete-idiots-guide-to-the-new-world-order/

 

@Earlpearl- Interesting articles. Perhaps it would be good to distinguish which "Stimulus" program actually saved us. TARP1? TARP2? or the 800 billion dollar Democratic wet dream which has yet to be really spent on the various non-job related Democratic pork barrel initiatives it was created for.

You've got 18 months to two years to find a shelter for the inflation that is coming to this country. 17-20% mortgage interest rates under Jimmy Carter are going to look cheap in not very long at all.

 

For the Paulists out there: How would you deal with the 10% unemployment plus damn large underemployment.

Lets assume that somewhere at about 15% of American families have been hit hard by no income or severely less income.

I suppose you would let them wither and die. That is the end result of extremist right wing politics. It is shriller and louder then ever. Fortunately while loud and shrill it is a teeny majority of the real population, and primarily made up of people with little or no real experience in the real world.

In reality we are in a long slow haul. Our current economy is no longer a production based economy making things for the rest of the world. That is China.

We have underlying problems of massive private debt, corporate debt, and amazing levels of financial institution debt.

It will be a long slow haul to revitalize the existing economy.

I'd suggest that at best the Obama actions have ended up putting some drops into a significantly weak economy.

Nobody has answers. The simplistic responses from the extremist right would simply result in creating a huge and impoverished underclass of Americans.

....and with that....Lebanon....here we come with 20-30 years of violence, unrest and powerful tribes/groups fighting to take over an increasingly impoverished nation. What a tragedy that would be.

 

Not a Paulist, but I will tell you in my experience the best way to create jobs is to cut or eliminate the stranglehold on Small Business. You do this by cutting or eliminating taxes.

 

Ron Paul is a nut job with a few very good and valid points.

Right on target, except for one thing... we are not in for a long slow haul outl, we are going down and the folks in charge are hastening the the process.

Truth be told, we cant escalate the debt and entitlements without the cash to pay for it. When our country no longer produces things, like it used to, our economy becomes analogous to a Ponzi scheme with no real assets to back any of it up. For us to take the long slow haul OUT of this mess, rather than the long (or short) pause before a death rattle, we would need to be taking actions in that direction. That would mean less spending, not more.

Even with an absolute reversal of course... today.. right now... Monetizing the debt seems inevitable, which of course means devaluation of the currency and massive inflation. Instead, we are busy arguing about how to solve the health care problem which, at over a trillion dollars of new spending, will hasten the big problem along nicely. The titanic is headed for the ice burg and the crew is speeding up because they are worried about getting to New York on time.

You say nobody has the answers, but when Clinton cut entitlements in the 90s to correct the budget, it was the obviously correct thing to do. It just wasn't very popular.

 

Obamanation:

Last comment first re: Clinton cutting entitlements. Just for the record for all the extremists from the Right.....

Had Clinton been a Liberal, he would never have cut welfare entitlements in 1,000 years. Clinton was a Democratic Centrist. He helped set up The Democratic Leadership Group (DLC) which worked to move the deep Democratic Party from the left to the Center.

A liberal wouldn't have cut welfare entitlements. Clinton did. He alienated the far left...the real liberals in doing so. He alienated some of his closest friends, some Cabinet members in doing so.

My gut...is that Obama is more like Clinton in that regard. That is my gut, but I do see him as leaning toward the center more than toward the far left.

I do believe the economy is miserable. It is the worst economic period to hit the US since the great depression.

Even if the 3rd quarter reports an upswing on previous economic aggregate activity...and then it occurs again in the 4th quarter...it only moves us off of the deep downward spiral. It sort of flattens things out.

Growth is rough and it doesn't rush in. It occurs slowly.

Look, I'm the guy who directly lived through an industry DEPRESSION. It took 4,5,6 -7,8,9 years for recovery. In that recession of the early 90's late 80's....demand and supply were grossly out of whack. It took years for demand to meet supply. Once that occurred then the commercial real estate business started hitting full employment and commercial real estate values started recovering to their pre recession levels then boomed....till now.

This deep recession is different. Wealth got wiped out. Its not recovering quickly. It won't.

Investments in real estate have been brutalized. That is trillions of dollars in lost value. There is nothing occuring that would signal dramatic regrowth.

People are still losing homes. While some of the worst hit regions may be stabilizing or recovering the loss of values has moved to other regions. With some cutbacks on immigration and even illegal immigration, population growth slows. That is what drives up demand for housing.

The commercial real estate markets follow employment. There are no incredible growth industries right now.

Its hard (impossible) to predict the future. Its nifty and interesting to review the past.

IMHO, the thing that fueled economic growth through the 1980's and 1990's was incredible innovation and development in the computerization and telecom world(computerization thru communicating). Even while our manufacturing base shrunk on older businesses the incredible evolution of computerization was astounding and moved in ways that the innovaters of five years earlier couldn't have seen:

personal computers, networking, software, rapid development in endless forms of communications (crap the fax machine was born--exploded--and has sort of died in about 20-25 years.); the internet, etc. etc. etc.

Its hard to predict that...but a smart economy with drive and capital finds it and capitalizes on it.

Hopefully somethings of that nature evolve. That is one of the miracles of human development. Hopefully it evolves and develops in the US.

All the debt screamers from the Right consider the following:

This recession grew out of incredible volumes of personal debt and financial industry debt. It was not out of govt debt.

Now govt debt is exploding. This year, as a result of the recession, bailouts, etc. it is absurd. It is roughly 10% of the economy ($1.4 trillion in fed govt. debt versus a $13,14,15 trillion dollar economy). During this decade it was running around 3-4% every year.

Don't blame the debt on Obama. Sure he has responsibility..but consider the following:

His administration was probably facing built in debt at around $400 million; Because of the recession the govt took in about $400 million less in taxes; The bailouts from both Bush and Obama made up the rest.

If you want to cut govt expenses look at 4 big things. 3 Big things comprise the bulk of the govt spending. Medicare/medicade, social security and defense. All the other stuff is pennies on the dollars. The 4th big thing is paying interest on the debt. As it grows the ability to spend anywhere else shrinks.

If you want to cut big time, those are the areas. I don't mind figuring out how to cut on social welfare....but I wouldn't slash those areas without slashing on defense. Currently we roughly spend 1/2 of all the world spending on defense. I'd cut some of that. (I'd still hunt down and kill and imprison terrorists). I'd also work to figure out how to get others to help in doing that. I'd work to figure out how Islamic nations will aggressively tackle the growth of terrorism in every way possible.

I'd work to figure it all out. In doing so, I'd put the emphasis on respecting Americans. Got to help out Americans. Keep them working, assist them in dealing with health care, whose costs have skyrocketed over decades, and keep people from suffering because they can't get insurance.

Frankly, nobody's profits are that important, that Americans have to die, go deathly sick, go bankrupt because of bad health.

Keep investing in education. That is where growth comes from. Its the ultimate investment in the infrastructure. Its human infrastructure.

I'd do 2 more things.

1. Take the money out of politics. American politics sucks. All the politicians spend 80% of their time raising money and maybe 10% on real politics. They are all beholden to money raising entities because it is rediculously expensive. Most legislation on the federal side gets screwed over by interest groups.

2. I'd regulate the shit out of the financial industry.

In my experience we have had two horrendous recessions caused by the financial industry in cahoots with the real estate industry.

I'm a real estate guy. I saw some of it first hand. In the 80-90's recession and this one there is some incredible disconnect in how financial companies are valued and how they operate...from what is actually going on in the markets and ultimately how when it all f*cks up...how the entire economy pays as a result of a recession.

I've shown an example of the disconnect if you care to look. It is here in this link with with 3 telling graphs on pages 2 and 10.

In one graph it shows both enormous growth of volumes of office space and an incredible increase in the vacancy rate.

If all these talkers about the wonders of the market...and how the market is so much more efficient than putting controls on it...can explain how that happened...then speak up. I've presented these numerous times...and not one of the free markets yakkers has dared to say a word.

Those graphs represent one rather significant micro market in the US. Magnify that issue many many many fold...and that is the key killer that caused the recession of the late 1980's early 1990's.

Hey boys and girls...those graphs are reality...not some bs political slogans about how free markets are most wonderful things alive.

If the markets were efficient what would have happened is that the investments into real estate would have stopped or slowed.

But they didn't. They kept going crazy for another 5 years in the decade. 5 years of f*cked up investing by financial institutions..

Here is a damn good cost estimate of the impact of that one little county. Buildings probably cost about $140/foot to build. In other words banks and S&L's came up with the bulk of $7 billion to invest in that one county. It should have stopped or seriously slowed at about $3.5 billion.

Okay multiply it across the country. Do you realize how bad the financial crisis was at that time?

By the end of the 1990's the calculation for what the US taxpayer had to put up for failed S&L's was about $126 billion. That was just for the failed S&L's that doesn't cover the costs of the failed banks.

That is roughly the cost of bailing out Bank of America and Citibank in this latest crisis. That was in the 80's to 90's. US dollars were worth more and the economy was significantly smaller.

It was a major f*ck up in the banking industry. Frankly it first hit regionally in the Southwest. Why the f*ck wasn't it stopped then?

The cost hit every taxpayer, every citizen, and the entire economy went into recession.

Now the financial institutions did it again this decade.


There are serious disconnects in how the financial institutions are able to raise money, make investments, somehow hide risk, and show profits.

Here is the problem. Everytime they f*ck up...the rest of the world pays.

They have too much responsibility to the rest of the world. I'd watch them.

Its that simple.

(of course actually doing it would be complex I have to admit that. ).

I don't give a sh!t if they aren't as profitable. I don't want them screwing up the rest of the world.

 

@Earlpearl

Moody's put it in black and white for the US Government. These are the same underwriters that gave AAA ratings to the cr@p ass mortgage backed securities that created this mess, so you know its bad when US treasuries are less credible than those mortgage backed securities.

How much more difficult will it be for the US govt. to raise money when it's credit rating gets dropped? One doesn't need a crystal ball or a degree in economics to predict the future in this case. It just isn't that complicated. You run up way more debt than you should, your tax revenues drop because the economy is in the crapper, you cant pay your debts, your credit rating goes down which further hampers your ability to pay your debts(with borrowed money).

Regarding solutions, why even talk about existing entitlements when you are busy running up over a trillion dollars in new debt(with cooked books mind you)? Its like treating a bleeding hemophiliac with blood thinners. The solutions is simple. Stop spending money you don't have. We all live by that rule as individuals, and those of us who don't are constantly broke and rightly so. Its not a partisan issue, its a common sense issue.

Sure you can cut from military spending. Sure you can cut from Entitlement spending. Sure you can cut from ridiculous government salaries. Don't say this program or that program is too small to matter. A couple hundred million here and there starts to add up really fast. Sure we can put back in the legislation removed by Bill Clinton and the Republican Congress which prevented regular banks from investing in riskier investments. Sure we can force Credit Default swaps to comply with existing Insurance Laws, something also averted by the Clinton admin and then Republican Congress. The answer is YES. All of the above.

That may mean some people wont get their free insurance on the backs of people who work. That may mean we don't get to build brand new weapon system XYZ this year. That may mean the government wont be able to ensure(with subsidies) that gay baby whales are able to get a college education, marry, and have US citizenship. I'm sure there are many nice and shiny things some of us would like to have the government buy us that we can live without because the alternatives are bankruptcy, monetization of our debt, devaluation of our currency, decades of mediocrity, or all of the above.

BTW, your link is broken, so I cant comment on the irregularities with Fairfax counties commercial real estate market.

 

Nine U.S. banks seized today the most in onde day since 1992
http://news.yahoo.com/s/nm/20091031/ts_nm/us_usbancorp