United States Heading towards a Depression?

It certainly is an interesting time ahead thats for sure.

Some people are going to be hit harder than others as is always the case in an economic downturn.

I have just made a blog post on the effect of a recession on affiliate marketing

 

Paul, maybe you should change your opening line "Some of the major markets (notably UK and USA) are supposedly heading towards a recession."
to the fact that we ARE already in a recession in the USA.

 

I wasnt aware the USA were confirmed as definately in a recession e.g. two quarters of consecutive negative growth?

I thought it was just a large majority of Americans already believing they were in a recession even though they are not quite there based on the actual definition of a recession?

 

Some of the smartest people in the world think we have been in one for quite some time. If you believe the manipulated data that comes out of our government than we are not, if you are regular folk you will know that we have been in one for quite some time and there is no doubt that it will get worse before it gets any better (unfortunately).

 

Ok well Im in the UK and I dont believe we are in a recession yet.....but we are definately heading that way.

For now I think I will leave the wording on my blog post if the government haven't openly admitted it yet. Although I do agree that you probably are already in one, in the UK we are not that far from one and I know the US is further down the line than we are.

Manipulated though that data may be, perhaps by not openly admitting it they are at least reducing the panic recession can bring slightly.

I know in the UK, the onc ome of recession has been speeded up by the media causing people to panic.

 

You know how it is, it seems the government is the last to know about these things.Good post nevertheless!

 

I think we were in a recession a long time ago and the government just didn't want to admit it....If McCain gets elected which god i hope not I think the untied states is differently going to go into a depression...


-Chris

 

Based on the recent data from the Fed, the US is not in recession. However, every regional Fed was reporting sluggish or dismal growth. So there's no doubt that there is a slowing...

To me, the big thing is not the recession per se. Those come around every 5 years or so... To me, the big issue is the estimated $1-$2 TRILLION in bad debt that is sprinkled around on the balance sheets of US (and other) companies. If you don't understand accounting, think of it like having a bank account statement that says you have $5,000 in it. But in reality, when you go to pull that money out, you really only have $900 due to a default at the bank.

That's the situation here folks. By most estimates, about $300 -$400 billion of the $1-$2 trillion has already been recognized as losses. This has been done by banks and investment houses. So, I sit here and wonder, when is the rest coming out? And also, every month the numbers on mortgages and housing is "worse than expected." Does this mean that the $1-$2 trillion number is low? If so, hold onto your hat.

 

In other words, the housing market has not tanked... Its just corrected a bit, but has a long ways to go to get back to where it should be.

I'd argue that Supply and Demand have very little to do with Oil prices in the overall scheme of things when compared to the OPEC cartel, price fixing, price manipulation, speculation and those in control of the "Supply" making idle threats.

At the moment, there is more supply than demand.. The problem is; where the supply comes from.

IMO, there should be NO minimum wage. Minimum wage gives unnecessary wage increases (raises) to some, while removing all incentive for those who've earned their wage.

What am I trying to say?

Quite simply, lets say you make minimum wage and you work hard, earn a raise, and then the government comes along and gives someone else who did not earn that raise, a "raise"... Now you have someone making what you are without having earned it. You, yourself are back at square one.

Government mandates on wages are retarded. Most employers already pay much more than the minimum anyway. Its just another feel good measure aimed at giving hope to those that don't need it.

 

............

 

You've all been pretty quiet about the behemoth of a housing bill that was passed last week. There are some parts in it that are good, but others are horrible.

I may have time to detail in it what I like/dislike later, but I must go now.

 

The sad thing is that we have a crisis and housing prices have only fallen around 6-10% nationally. In some markets like California prices have gone down 30% but prices have gone up like 250% since 1998. I wonder why people paid crazy prices at the height of the market and the banks gave the loans.

Didn't the banks appraise the properties?

The scarey part is that the mentality is similiar to what was being said just before the 1929 US Stock Market Crash and Great Depression.

“The continuing shortages of housing inventory are driving the price gains. There is no evidence of bubbles popping.”

- David Lereah, NAR’s chief economist, August 2005

"There may be a recession in stock prices, but not anything in the nature of a crash."

- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929


"When I hear [about a housing bubble] I get the sense that people aren't connecting the dots.”

- James Glassman, JP Morgan Chase Economist

"This is the time to buy stocks."

- R. W. McNeel, market analyst, New York Herald Tribune, October 30, 1929


"There was never a "bubble", so there is nothing to "burst".

- Jeromith Sutton, 2006, NAR Investment Advisor

"... a serious depression seems improbable"

- Harvard Economic Society, November 10, 1929


"The idea that we're going to see a collapse in the housing market seems to me improbable”

- John Snow, Secretary of the Treasury

US production is down to 5 million barrels a day. The oilfields in Alaska are in serious decline and without new drilling US is in some serious trouble. Oil could hit $200

Spare oil production capacity is 2 million barrels a day down from 7 millon a day a few years ago.

The bailouts remind me of what the Fed did in 1927 to keep the stock market bubble from popping. The bailouts may actually turn what should have been a recession into a severe economic crisis where financial companies become unglued.

28 branches of the 1st National Bank of Nevada and First Heritage Bank N.A. — owned by Scottsdale, Ariz.-based First National Bank Holding Co. — were closed Friday by the FDIC. -- Banks are not in good shape.

The 'Housing bailouts' are pouring more money into the economy and fueling inflation. This driving up oil and the cost of living. The US government in response is increasing the minimum wage that is starting a wage/price spiral.

Many wholesalers are already starting to pass along the 10% inflation in wholesale prices.

 

Merrill Lynch is selling CDOs that use to worth north of $30 billion for $6.7 billion. That is 22 cents on the dollar, but they are financing most of it bringing the sale down to a nickel on the dollar. They also financed most of the sale of its Bloomberg stake a few weeks ago. I’ll buy that shit too if they are going to give me the money to buy it, lol.

They are also going to continue to dilute the shareholder base. None of these financial institutions will ever be back to the stock prices or market cap they once use to be at, not with all this dilution. Merrill has raised more capital than its market-cap this year. Haha. This current dilution is also being heavily financed by Merrill, once again, and a lot of the shares go to some Singaporean Wealth Fund.

Most CDOs from the banks will follow suit being sold off for pennies on the dollar or will just rot away in Level 3, despite there being an obvious market for these derivatives, albeit for quite the “haircut”.

Home prices continue there descent into hell. No one can get financing unless you have a big down payment (25-30 %+). This will be more than some “correction”.

 

This isn't the first time the USA has face hard economic times. It happens. Each time in the past, the country has weathered the storm and came out stronger than when the troubles started.

 

you can say that and its true but you also have to consider a massive amount of money created in the past 7-8 years due to that bubble going away

which is to say much of the "good" economic news and much of the job creation of the past 7-8 years was directly tied to that bubble

by saying it should be back where it should be, it is also saying those hundreds of thousands of people who had jobs should all be put out work

which may be true, but I doubt if the job was yours that was going away you would see it that way

 

if that become reality, then home prices will be amazingly low

America has a negative savings rate, most people can't save up enough to buy a big tv with cash, let alone 25% of a house

this would be great for me, and honestly if you don't count all the current home owners being reamed, it would be good in general for housing to be less expensive

it has become common place where people spend over 50% of their salary on housing, which sucks, all that money just to live inside

 

The recession can be a state of mind. Granted, I don't think the economy is booming right now, but certainly having the media talk about how crappy things are right now doesn't help the situation any. And when people panic, so does the stock market.

 

Things can be talked up a little bit, consumer confidence typically drives spending and GDP growth. But when there's no money left and even the banks lending the debt are running low, there isn't much that can be gained from convincing people that everything is fine and we should continue spending to keep things afloat.

There's one financial secret that we haven't tried in many many decades in America: spend less, save more. IMO, there is no recovery until we realize this is the only solution.

 

Things are only crappy in two sectors, only one of which affects everyone. At least for now. That would be ENERGY!!!


As for housing, these crap ass bailout bills stand to cost those of us who did not make stupid decisions.

Ultimately, things are not as bleak as everyone thinks. It really depends on where you are, and what you have done in your own situation. For the most part outside factors have had little affect either negatively or positively on most people.

When you have housing prices / values falling 16% or even 30% as some seem to want to indicate, you must remember to factor in the fact that these same houses values/prices where already about 250% over valued. So at the end of the day, what looks like a falling/failing housing market is really a housing market that is over populated with older homes that are still about 200+++% over their real value.

Why is there a problem then? Because the morons with these over valued homes took out equity in them up to that 250% over valuation. Now they are upwards of 30% in in the rears now.

There is really only about 2-4 million homes out there in this situation. Its been said before, and I agree.... Let the sick patients die.

The only true recovering can come from a swift correction in the housing prices. There are people that bought a home for $100k, put $10k into it, and then listed it at $300k. See a problem with that? Still others bought a home for $100k, got in appraised at $300k and took about near 200k in a home they had no real equity in. The equity that people took out was based on an over-valuation of the home, not the real equity. You really need 5-10 years in payments to realize any liquid equity in a home.

But, people got the loans. People took out the loans. And banks were happy to lend. At the end of the day, everyone involved simply fucked up.

Let's move on and get over it. Home prices do not belong at 200+% over their real value. Not all of us stand to lose if they settle back down. Those of us with real equity in our homes still have more value in them than we did when we bought them. Both my properties fair market tax valuations are still much more than I have outstanding in debt. They are fairly conservative numbers, and low IMO based on what I would ask.

The trouble is many people owe more on their home than that fair market value. Because they took out equity that was never there. Not my fault. They fucked up. They made a mistake. We've all done stupid things. Difference being that most of us that make mistakes own up to them and move on; we learn from them. We don't ask others to pay for our mistakes.