Pop goes the Globaloney Economy - Eric Janszen

[rchdenton]

Re: Pop goes the Globaloney Economy

Fred, you have a lot of faith in elections. The struggle between the production/consumption 'old money' and the FIRE/military 'new money' wasn't settled in the voting booth.

Is that the right way around, I thought the old money was the FIRE/military? I grew up in England and it certainly was that way round there. My experience of US when I lived there was that it was the same but far more so - massive respect and brown nosing of old wealth.

[Tronacate]

Re: Pop goes the Globaloney Economy - Eric Janszen

Some commentary along the same line of reasoning, from historian Niall Ferguson, writing in the FT [Don Coxe made mention of this article in his weekly conference call Friday morning]:

The age of obligation

By Niall Ferguson
Published: December 18 2008 19:10 | Last updated: December 18 2008 19:10

In the Old Testament Book of Leviticus, God commands the children of Israel to observe a jubilee every 50 years. Nowadays we tend to associate the word with celebrations of royal anniversaries such as Queen Elizabeth’s golden jubilee in 2002. But the biblical conception of a jubilee was more precise: that of a general cancellation of debts...

...Is it really plausible that the cure for excessive leverage in the private sector is excessive leverage in the public sector? Might there not be a simpler way forward? When economists talk about “deleveraging” they usually have in mind a rather slow process whereby companies and households increase their savings in order to pay off debt. But the paradox of thrift means that a concerted effort along these lines will drive an economy such as that of the US deeper into recession, raising debt-to-income ratios.

The alternative must surely be a more radical reduction of debt. Historically, such reductions have been done in one of four ways: outright default, restructuring (for instance, bankruptcy), inflation or conversion. At the moment, more and more American households are choosing the first as a way of dealing with the problem of negative equity, while more and more companies are being driven towards bankruptcy. But mass foreclosures and bankruptcies are not a pretty prospect.

Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets.

That leaves conversion, whereby, for example, all existing mortgage debts could be wholly or partly converted into long-term, low and fixed-interest loans, as recently suggested by Harvard’s Martin Feldstein. (In his scheme, the government would offer any homeowner with a mortgage the option to replace 20 per cent of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2 per cent and the loan would be amortised over 30 years...

I also assume we will follow the rules of the Jubilee and return all the land to the original owners.
I guess my Cherokee tribal card will indeed be a worthwhile document.

[Brooks Gracie]

Re: Pop goes the Globaloney Economy - Eric Janszen

Repeat after me "THERE IS NOTHING WRONG WITH RENTING. THERE IS NOTHING WRONG WITH RENTING. THERE IS NOTHING WRONG WITH RENTING."

If Joe 6P bought the house for $300,000, with a 10% downpayment, then he has an existing mortgage of $270K. If his house declines in value to $200K, he is underwater for $70K. Given that, is the best thing the government can come up with is a "restructuring" where J6P pays the $270K back over 30 years with a fixed rate mortgage? He is still paying $270K for an asset valued at $200K, in a declining market. All this is being touted as a great way so that "families can stay in their homes", or that "families won't be homeless".

Helloooo! If the family merely walked away (especially if they remained in the house stopped paying the mortgage and saved the rent until the lengthy foreclosure process played out), they could likely pay the saved mortgage payments in amounts equal to 2 or 3 years of pre-paid rent.

The family will then be more wealthy than they were before, much more weathy than if they "restructured" the mortgage so they they were $70K in the hole to start. They will have 2-3 years of prepaid rent (rent is always cheaper than a mortgage payment on the same property), will not be a "victim" of foreclosure, will not be in any stretch of the imagination homeless, and will be in better financial shape than anyone who took out an Alt-A or subprime loan who didn't act as the family described above did.

Personally, I think all the politicians' rhetoric about "keeping people in their homes" really means "keep overpaying for the benefit of the bank". Or "please don't act in your own best interest" and walk away, please continue to agree to pay $270K for an asset worth $200K.

If I have a client that comes in facing foreclosure, with little or negative equity, I hope I can convince them of this logic. Sadly, people become sentimental and attached to the house they are living in, and are more scared of renting than they are of ruining their financial future by staying in a lose-lose situation.

[FlyingBoat]

Agree 100%

This is all about supporting the bankers and investments in equities. It has nothing to do with helping the person in the house. There is no way that could ever get through the head of Polosi or other dim wit democrats, however.

[c1ue]

Re: Pop goes the Globaloney Economy - Eric Janszen

Doctor Housing Bubble has a good example of the balance between interest rates and house price:

http://www.doctorhousingbubble.com/o...-toxic-assets/

A comparison between a $200K home with a 1% mortgage vs. a $105K home with a 6.25% mortgage...note the difference in monthly payment.

Now mentally add in the real estate property tax.

This is what Hudson speaks to.

1percent-note.png

6percent.png

[BadJuju]

Re: Pop goes the Globaloney Economy - Eric Janszen

When do you guys think the global economy will pick up again?

[FRED]

Re: Pop goes the Globaloney Economy - Eric Janszen

When do you guys think the global economy will pick up again?

How old are you again?

[BadJuju]

Re: Pop goes the Globaloney Economy - Eric Janszen

How old are you again?

I'm not an economist. I do not know much about economics, which is why I have come here. I am trying to prepare for my future.

But I will humor you, I am in my early 20s.

[Chris Coles]

Re: Pop goes the Globaloney Economy - Eric Janszen

I'm not an economist. I do not know much about economics, which is why I have come here. I am trying to prepare for my future.

But I will humor you, I am in my early 20s.

May I suggest that you back track to the beginning of the second launch of iTulip, about 2006, and read on from there. no, not every thread or posted comment, but take a broad view of the debate as it has evolved. Yes, several months reading. But by the end of the exercise you will have begun to understand why Fred made his comment. Again, a good read is The Downwave by Robert Beckman. And if you are going to bone up on investment then my suggestion is "Beginners Please" as a starter which is the book I bought when I first looked at investment in shares way back in the late 1960's.

There are no easy answers and no one can tell you with any certainty what will happen when. iTulip has gained a solid reputation from doing its best to set out a broad debate and prompting others to add their viewpoint as additional input to any ensuing discussion about the points raised. You in turn have to learn to see through the core of the debate and glean the information that is relevant to your own circumstances, which will be different to everyone else.

Also, if you find you seem to gain more from reading any particular individuals posts, you may turn to their individual place in iTulip and read everything they have posted. You will never find yourself in total agreement with anyone. You have to learn how to break threads down into those that give you what you need. Get used to placing your own opinions into the threads and from that you will see which makes progress and which do not. Start your own thread too.

Enjoy!

[krakknisse]

Re: Pop goes the Globaloney Economy - Eric Janszen

How old are you again?

It's been brought up before. But look up The Long Depression on Wikipedia. It could last for a long time. I've taken a liking to Catherine Austin Fitts "The Slow Burn". There's lot more loot to be had picking of the carcass of global capitalism. So they want to avoid a fast crash and heart-wrenching adjustment. Instead, we'll get "the forever recession".

And after that, Peak Oil comes and bites you.

I'm looking for a farm. (And I've spent decades on my career...) Merry Christmas!

[BadJuju]

Re: Pop goes the Globaloney Economy - Eric Janszen

And after that, Peak Oil comes and bites you.

Thank you for the replies, sirs. I will do as you have suggested.

ps; I do not really understand the concern of Peak Oil. There are far too many alternatives, and this recession is going to really burn away demand for a long time. And there is just too much lead-time for it.

[FRED]

Re: Pop goes the Globaloney Economy - Eric Janszen

I'm not an economist. I do not know much about economics, which is why I have come here. I am trying to prepare for my future.

But I will humor you, I am in my early 20s.

First of all, welcome. We don't have as many young members as we'd all like. More than half of us here are retirement age.

Second, it is entirely possible that the transition from the FIRE Economy to a new economy may take a decade or more. Detours, such as war, will of course extend the process.

[BadJuju]

Re: Pop goes the Globaloney Economy - Eric Janszen

First of all, welcome. We don't have as many young members as we'd all like. More than half of us here are retirement age.

Second, it is entirely possible that the transition from the FIRE Economy to a new economy may take a decade or more. Detours, such as war, will of course extend the process.

Thank you for the welcome, sir. I was introduced to this on another forum, where I have pestered a couple members about the future incessantly. :p As I am only in my early twenties, I am very concerned about my future, especially since so much of it seems to be out of my control now. I cannot help but think that my generation and every other that comes after will be the ones to suffer for all the excesses of prior generations. And it concerns me that given the global nature of human existence, that the process of recovery will be fraught with potential for utter catastrophe on a global scale, as we are seeing now.

Usually, when confronted with a situation I do not understand, I attempt to learn as much about it as possible. With Peak Oil, for instance, it is quite easy to learn the nature of the beast; however, economics is an entirely different monster with many, many heads to distract you with. Because of that, I tend to ask a lot of questions, some of which may seem completely nonsensical or very obvious to people that have studied economics for a while. :confused: In spite of that, I feel that I have learned a lot, certainly a great deal more than your average person about the circumstances of our situation. :cool:

[FRED]

Re: Pop goes the Globaloney Economy - Eric Janszen

Thank you for the welcome, sir. I was introduced to this on another forum, where I have pestered a couple members about the future incessantly. :p As I am only in my early twenties, I am very concerned about my future, especially since so much of it seems to be out of my control now. I cannot help but think that my generation and every other that comes after will be the ones to suffer for all the excesses of prior generations. And it concerns me that given the global nature of human existence, that the process of recovery will be fraught with potential for utter catastrophe on a global scale, as we are seeing now.

Usually, when confronted with a situation I do not understand, I attempt to learn as much about it as possible. With Peak Oil, for instance, it is quite easy to learn the nature of the beast; however, economics is an entirely different monster with many, many heads to distract you with. Because of that, I tend to ask a lot of questions, some of which may seem completely nonsensical or very obvious to people that have studied economics for a while. :confused: In spite of that, I feel that I have learned a lot, certainly a great deal more than your average person about the circumstances of our situation. :cool:

Then you will always be welcome here. We have infinite patience for those with questions and none for pedantics with all the answers.

[Verrocchio]

Re: Agree 100%

This is all about supporting the bankers and investments in equities. It has nothing to do with helping the person in the house. There is no way that could ever get through the head of Polosi or other dim wit democrats, however.

Perhaps you have greater insight into what "dim wit Democrats" have in their heads than I, but I think it reasonable to assume that Ms. Pelosi is well aware of who will benefit from legislation that she supports.