Are We Due for a Economic Depression?

Off Topic Politics & World Issues
21

[quote]Zap Branigan wrote:
Neuromancer wrote:
Correct me if I’m wrong please,but let’s say your average person has a house (primary residence),and now the assesed value of the property is less than the mortgage value.
When does this issue become a problem?
In my view ,only if the individual wants to sell.
Up until that point it’s of no consequence.

Or am I not understanding something here?

Assessed value is what you pay taxes on and doesn’t necessarily equate to market value.

Having a home assessed for $ 100,000 and being able to sell it for $ 200,000 is a good situation.

Having a $ 200,000 mortgage on a home that people will only pay $ 100,000 for is a bad situation.[/quote]

While I do appreciate that,if you live in your home till it’s paid off,then you will have equity in it regardless of the fluctuations of the market.
And property,always having been a long term investment,could never have have sustained the increases seen in recent years .The decent money in property,as I have always understood,is to be made in rental,not flipping or market related increases.

22

WASHINGTON - President Bush’s top economic adviser said Friday the nation’s economic growth could dip into negative territory for the current quarter, an assessment that tracks with many outside experts but is the most pessimistic to come so far from the White House.
http://news.yahoo.com/s/ap/20080307/ap_on_bi_ge/bush_economy

23

[quote]Headhunter wrote:
What’s next?[/quote]

I don’t know about a depression but I do believe that there is going to be quite a bit of dollar instability as long as the Fed keeps answering with credit expansion. That is going to hurt the middle and lower income earners as well as slow capital growth.

I wonder how high oil and gold prices have to get for the Fed to accept that they need to quit “tinkering”.

24

[quote]lixy wrote:
jp_dubya wrote:
The invisible hand. Let the market forces run. Intervention is counterproductive. Intervention extended the great depression.

And while you’re at it, please note that intervening in sovereign countries’ internal affairs is not only counterproductive, but very dangerous.

Remind me, how much money you lot spent on Iraq so far?[/quote]

Who cares? As long as we are killing cowardly little fucks like you, it is an expense I am willing to live with until you are all gone.

25

An interesting take on the payroll decline that came out today:

http://www.ftportfolios.com/Common/CommentaryContent/MarketCommentary-929.pdf

26

In the 1920s, you could buy stocks with 10% down. In the 1990s and 2000s, you could buy a house with 5% down, or some other small figure.

Now, in a economic downturn, people who should not have bought stop making the payments. The bank or mortgage company puts the home on the market, trying to get its money back. Prices begin to fall as more and more homes flood the market. Banks stop making loans or dramatically raise their qualifications for a loan. The banks/mortgage companies sit on lots of non-performing assets.

Panic spreads and prices begin plunging, but no one will buy at anywhere near the prices necessary to bail out the banks. The banks record huge losses.

Foreign investors see banks losing billions and begin pulling deposits and going to Euros and Yen. The dollar falls and oil prices and inflation accelerates. Real estate falls and falls while prices in general begin to soar. The Fed begins to flood the country with dollars, like with a tax rebate, but soon the money is gone and inflation is soaring. Investors see the huge debts of consumers and government, the defaults coming in the muni market, and flee the collapsing dollar.

The Great Depression II has begun…

27

[quote]Headhunter wrote:
In the 1920s, you could buy stocks with 10% down. In the 1990s and 2000s, you could buy a house with 5% down, or some other small figure.

Now, in a economic downturn, people who should not have bought stop making the payments. The bank or mortgage company puts the home on the market, trying to get its money back. Prices begin to fall as more and more homes flood the market. Banks stop making loans or dramatically raise their qualifications for a loan. The banks/mortgage companies sit on lots of non-performing assets.

Panic spreads and prices begin plunging, but no one will buy at anywhere near the prices necessary to bail out the banks. The banks record huge losses.

Foreign investors see banks losing billions and begin pulling deposits and going to Euros and Yen. The dollar falls and oil prices and inflation accelerates. Real estate falls and falls while prices in general begin to soar. The Fed begins to flood the country with dollars, like with a tax rebate, but soon the money is gone and inflation is soaring. Investors see the huge debts of consumers and government, the defaults coming in the muni market, and flee the collapsing dollar.

The Great Depression II has begun…[/quote]

What is the current default rate on these mortgages?

WHy does a change in the market value of my house change my ability to pay back the loan?

28

[quote]rainjack wrote:
Headhunter wrote:
In the 1920s, you could buy stocks with 10% down. In the 1990s and 2000s, you could buy a house with 5% down, or some other small figure.

Now, in a economic downturn, people who should not have bought stop making the payments. The bank or mortgage company puts the home on the market, trying to get its money back. Prices begin to fall as more and more homes flood the market. Banks stop making loans or dramatically raise their qualifications for a loan. The banks/mortgage companies sit on lots of non-performing assets.

Panic spreads and prices begin plunging, but no one will buy at anywhere near the prices necessary to bail out the banks. The banks record huge losses.

Foreign investors see banks losing billions and begin pulling deposits and going to Euros and Yen. The dollar falls and oil prices and inflation accelerates. Real estate falls and falls while prices in general begin to soar. The Fed begins to flood the country with dollars, like with a tax rebate, but soon the money is gone and inflation is soaring. Investors see the huge debts of consumers and government, the defaults coming in the muni market, and flee the collapsing dollar.

The Great Depression II has begun…

What is the current default rate on these mortgages?

WHy does a change in the market value of my house change my ability to pay back the loan?

[/quote]

The default rate is still small, something like 2% (officially). The point is though that many, many homes were sold to people with marginal income. In a downturn, these people lose their jobs and stop paying. The lenders lent huge amounts and are now out this money. For example, the median house in California was over $600,000. A buyer puts up $30,000 and borrows $570,000. When the dude walks, the bank has a bad debt of $570,000 and tries to sell this house. Now imagine this happens to 2% of all homes. Prices start falling, the bank’s losses pile up.

The investors see the banks losing billions. They pull out their deposits and move into Euros, Yen, and Swiss Francs. The banks have to be bailed out by the Fed, which pumps in hundreds of billions. Investors see this and know the currency is being debased. The run on the dollar accelerates.

It becomes harder for Texas farmers and businesses to borrow. They cut back. Maybe they cut back on their…accounting services?

29

[quote]Headhunter wrote:
The default rate is still small, something like 2% (officially). The point is though that many, many homes were sold to people with marginal income. In a downturn, these people lose their jobs and stop paying. The lenders lent huge amounts and are now out this money. For example, the median house in California was over $600,000. A buyer puts up $30,000 and borrows $570,000. When the dude walks, the bank has a bad debt of $570,000 and tries to sell this house. Now imagine this happens to 2% of all homes. Prices start falling, the bank’s losses pile up.

The investors see the banks losing billions. They pull out their deposits and move into Euros, Yen, and Swiss Francs. The banks have to be bailed out by the Fed, which pumps in hundreds of billions. Investors see this and know the currency is being debased. The run on the dollar accelerates.

It becomes harder for Texas farmers and businesses to borrow. They cut back. Maybe they cut back on their…accounting services?

[/quote]

If they default on 2% of home loans - they don’t lose everything. The bank will have a foreclosure sale, and recoup at least half of their loss. So the 2% nets out to be maybe 1%.

But that’s neither here nor there.

I thought that part of the problem was the Fed keeping interest rates low. So low that money is worthless - like Japan went through several years ago. At that point you can’t give money away.

Either way, when the dollar slides, farmer’s crops become much more valuable as an export.

Case in point: As bad as you want to see things, Cotton futures were trading in the mid-high 80’s. That’s 80 cents a pound. 33% above what the cash price has been for the last 10 years I have been in business. On top of that, wheat is going for about $13.00 per bushel. Compare that with $2.60 per bushel 2 years ago.

So - in short - the worse things get for the dipshit city folk who bought more than they could afford, the better things get for us in the ag sector.

30

[quote]rainjack wrote:

Case in point: As bad as you want to see things, Cotton futures were trading in the mid-high 80’s. That’s 80 cents a pound. 33% above what the cash price has been for the last 10 years I have been in business. On top of that, wheat is going for about $13.00 per bushel. Compare that with $2.60 per bushel 2 years ago.

So - in short - the worse things get for the dipshit city folk who bought more than they could afford, the better things get for us in the ag sector. [/quote]

Do the folks in the ag sector ever borrow money? If no one will lend them money, they have to use their own capital. Farmers who are entirely self-sufficient and well-insulated from markets would do well, but I suspect that many farmers rely a lot on credit.

The banking/financial sector troubles are not isolated, like many industries are (autos, for ex). Banking is in every community. Furthermore, smaller banks often put deposits in big banks. If Citibank or Morgan goes down, the bank in your town can probably kiss itself goodbye.

If a depression does unfold, as we are due for, I suspect ag will be better than most. Realize however that farmers suffered horribly in the last depression. At least they won’t starve…

31

[quote]Headhunter wrote:
rainjack wrote:

Case in point: As bad as you want to see things, Cotton futures were trading in the mid-high 80’s. That’s 80 cents a pound. 33% above what the cash price has been for the last 10 years I have been in business. On top of that, wheat is going for about $13.00 per bushel. Compare that with $2.60 per bushel 2 years ago.

So - in short - the worse things get for the dipshit city folk who bought more than they could afford, the better things get for us in the ag sector.

Do the folks in the ag sector ever borrow money? If no one will lend them money, they have to use their own capital. Farmers who are entirely self-sufficient and well-insulated from markets would do well, but I suspect that many farmers rely a lot on credit.

The banking/financial sector troubles are not isolated, like many industries are (autos, for ex). Banking is in every community. Furthermore, smaller banks often put deposits in big banks. If Citibank or Morgan goes down, the bank in your town can probably kiss itself goodbye.

If a depression does unfold, as we are due for, I suspect ag will be better than most. Realize however that farmers suffered horribly in the last depression. At least they won’t starve…

[/quote]

Most farmers get their money straight from the government through FSA loans. Or they get federally backed ag-loans from the local banks.

If prices hold for a couple of years, many of my farmers will no longer need the bank to operate. Currently, out of 300 farmers, I have 3 that farm out of their pocket. The rest need the banker.

The depression hit at about the same time the dust bowl did. farmers would have done just fine, had they been using proper soil conservation practices.

32

[quote]lixy wrote:
jp_dubya wrote:
The invisible hand. Let the market forces run. Intervention is counterproductive. Intervention extended the great depression.

And while you’re at it, please note that intervening in sovereign countries’ internal affairs is not only counterproductive, but very dangerous.

Remind me, how much money you lot spent on Iraq so far?[/quote]

You are a speed bump on the thread highway. What does this thread have to do with foreign affairs, wars, faith, etc.

33

I wonder how high government deficit spending will drive inflation.

34

I think the current oil prices, and the dramatic increase in grain prices have more to do with inflation than deficit spending.

35

[quote]rainjack wrote:
I think the current oil prices, and the dramatic increase in grain prices have more to do with inflation than deficit spending.

[/quote]

True.

36

I know I’m beating this thread to death but…history is of interest to me. I think we’re at an historical moment.

The feds are caught in a trap: if they make credit easy (lower interest rates), then investors shift from dollars to stronger currencies. This causes inflation of import prices, esp oil. Domestics will begin raising prices and inflation accelerates. Investors demand higher rates to compensate for inflation and the falling dollar. Economic bad news…

If they raise rates in the beginning, this also stifles the economy eventually.

We are at the mercy of foreign investors holding dollars. It stands to reason that these investors don’t enjoy subsidizing our spending and debasing of our currency, a ton of which they own.

Look out below…here comes the dollar…

37

[quote]Headhunter wrote:
…

We are at the mercy of foreign investors holding dollars. …[/quote]

They are at our mercy.

38

“Gee wiliker’s Batman, should we run to the hills? The up-coming depression/recession will throw Gotham into anarchy.”

39

[quote]Zap Branigan wrote:
Headhunter wrote:
…

We are at the mercy of foreign investors holding dollars. …

They are at our mercy.
[/quote]
Both of you are wrong. No one is at anyone’s mercy. It’s just business.

In a voluntary exchange both parties are dependent on each other to fulfill each other’s end of the contract. If one party is dissatisfied with the other’s end result then that party is free to walk away and do business with another party. It’s called free market competition and it is what makes goods and services better.

40

I believe there is a depression coming that will serve to weed out the weak and the stupid. This is what I am preparing for. The writing is on the wall but I can’t make you read it. Federal Reserve notes are worthless to me.

If you are not buying gold and silver you are missing out. I don’t really feel like posting a bunch of charts and graphs and links so either take my word for it or do your on research. The US empire is slowly spiraling down the drain and no amount of Mcmansions and ungodly expensive sports cars are going to serve as assets when the dollar collapses and people are looking to spend what little “money” they have left on commodities.

I would also suggest planting a garden and learning how to tend it. Skills like this will be invaluable in the years to come. Good luck to everyone.

oh and I won’t be reading this post again so please don’t get your panties in a bunch if I don’t reply again.