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On the financial markets that is. Whats your take on the Muni bonds situation?Investments that were suposed to be as good as cash are frozen a few guys in my office are in a real panick!
You may wish you never asked …
We should remember that long before we had this house price decline in the USA, there were already many States and municipalities with severe structural deficits.
What we haven’t yet seen, but will soon is weakness within the commercial real estate market in the USA and increased unemployment.
“Housing is in its “deepest, most rapid downswing since the Great Depression,” the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
“Nationally, property taxes equaled 31% of State and local own source revenue.” [ http://www.njslom.org/SG-Property_Taxes.html ] Since real estate prices continue to fall in most areas, wise homeowners will continue to have their homes reappraised to reflect that rapidly declining ‘value’ and municipalities will see less and less property taxes collected.
Isn’t it amazing that we now even have a word to describe where homeowners have mailed in the keys because they can’t make the payments and no longer have any equity in their homes?
“Jingle Mail.”
Needless to say, there will be more severe financial problems within municipalities where’s there’s significant “Jingle Mail.”
There will be less money collected, less available to invest in already crumbling infrastructure like schools, hospitals, roads and bridges.
“According to a report card released in 2005 by the American Society of Civil Engineers (ASCE), 160,570 bridges, or just over one-quarter of the nation’s 590,750 bridge inventory, were rated structurally deficient or functionally obsolete.” [ http://www.truthout.org/docs_2006/080307B.shtml ]
“In the United States, this new tipping point will translate into – get this – a collapse of the real economy, (the) final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the U.S. dollar fall. The collapse of U.S. real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down.” [ http://www.intelligencer.ca/PrintArticle.aspx?e=918803 ]
We should not make the mistake of thinking that we have been through these kinds of problems before – we have not! And tis is no longer just a US problem, this is global, catastrophic and systemic.
As you know from my ‘Perfect Storm’ article at [ https://www.welovecostarica.com/public/1543.cfm ] we probably we won’t see the peak of the mortgage problems until late this year but in my humble opinion, the US ‘system’ is bankrupt, it’s problems have infected the rest of the planet and I hate to say this but unless we make some revolutionary changes to the very structure of the country, it’s philosophy, it’s domestic and especially it’s foreign policy, it would not surprise me if the USA never recovers…
With two wonderful teenagers in the USA who carry my name and have their whole lives ahead of them, I really hope I am wrong.
Scott Oliver – Founder
WeLoveCostaRica.comThings will get seriously worse, no doubt. And all great world societies eventually dissipate and fall from their leading positions while others rise to replace them. I am still not convinced, though, that the current crisis is the one which finally knocks this country down for good. All of the points you list are valid. The conclusion you reach might not be. I am less sure now than I was last year about a possible recovery but that might be due to the fact that we are just now beginning the deep plunge. If facts alone could tell us what was going to happen next, wouldn’t the market have indicated this by now? In other words, we won’t know we are in a melt down until it happens all around us. In the meantime, it is speculation. The economy is still functioning an dthe market s are still open.When the Dow hits 9000, I will panic. Until then, I will nervously watch.
Edited on Mar 10, 2008 09:34
it would not surprise me if the USA never recovers…
scott.. your really a pip.. i know its your business to sell costa rica real estate.. 🙂
although i do not live in the U.S. i have 100% confidence that the United States of America will get through this like it always has.
Edited on Mar 11, 2008 03:07
Scott, Like you, I have two children who have to live and survive in the US. The “Perfect Storm” you warned of last year brought many claims that you were a Gloom and Doomer. Well, you’ve been around the block a time or two, and were able to read the signposts ahead of most of us here. It will be our kids that will suffer the most from economic policies that have been for the benefit of a few, and to the detriment of many.
This year’s presidential election campaign has shown the level of disgust with our present leaders. Our direction is uncertain, and there are people grasping at straws, hoping a new type of leader will pull our fat out of the fire. Our course was set long ago, and there will not be an easy solution, if there is one at all. There has to be a change of heart and mind for a long term solution. I don’t know if we are up to the task.
This country is more divided, thanks to our elected officials, than ever in our history. It will take more than a politician to unite us to bring about the changes we need. I haven’t a clue what will actually happen in the coming years, nor can I offer a sound solution, but it certainly does not look good.
alfred,
I agree that our course was set quite a while ago. It is still unwinding and it just feels as though the unwinding will be a lot faster than the winding…a slow march to the edge and then a quick fall. But Scott and many others are unclear as to specific consequences. They offer the general prognosis of a terminal patient at the end of this current fall in the economy. How long will this fall last? What is Scott’s time reference? At what future date can anyone confidently say”We have hit bottom and we will never rise again?”Macro economics is just too complicated hence the various opinions out there from knowledgeable sources. There are two sides to this argument; we will look at this time in history as the moment we held off an inevitable end for another decade or more, or as the moment it all slid into the ravine and was washed away for good. I am still watching an inordinate amount of international trade, mostly on the export side due to a weak dollar. I am seeing american Tech companies holding their own, many even increasing their bottom lines. It is too early to write this country off for the immediate future. I would not, however, bet the farm on a continued U.S. dominance 15 years from now.
Edited on Mar 11, 2008 04:25
Edited on Mar 11, 2008 04:26
I have to agree with Scott on this one. The end of the US economy as we know is near. The only people making REAL money right now are the govenors and directors of the Federal reserve (privately owned… Not by the government).
With the foreign policies as they are (WAR in Afghanistan and Iraq… possibly more to come…Iran? Lebanon?) the US is spending money like it is confetti. There is over 700 trillion dollar bills in circulation (physical bills) and the Federal reserve has sole right to make them. They SELL them to the US Government for face value plus interest (instant debt!) The more there is in circulation the lower the dollar falls against other currencies.
Once the dollar reaches a certain point in value (unknown to me) a “solution” will become evident. Create a “North American Union” to stabalize the area economically. This is already in motion. A new currency will be introduced along the line of the Euro called the Amero. The strength of the US, Mexico and Canada together will be the force behind this “recovery”.
How long this takes … I don’t know… but it is coming!I am not sure it will work, but it just might…The Fed decided today to pump a huge amount of money into the market to assure liquidity and the market responded. It was a co-ordinated event with the Bank of Canada and the Bank of England joining in as well. And more help was promised. This was the biggest move up for the Dow in five years. The Nasdaq popped up 4.6%.
All this may sell off tomorrow,,,,or not. But either way, it is surely evidence that the goose isn’t cooked yet and that we are now talking about a world economy, not just a U.S. economy. When Europe pitches in to help the Fed NOT cut interest rates in order to get oil prices back down, that is evidence that cooperative efforts are being focused like never before in history. Everybody working together just might pull this off and keep a violent economic downturn at bay for a long time to come.
Quote :”The Fed decided today to pump a huge amount of money into the market to assure liquidity”
More money means more inflation… and more profits for the Corporate owners of the Fed…
The end picture of this is 4 world trading blocks… NAU, EU, UAS (Union of African states) and the Asian block (not sure what they call themselves) which will eventually become ONE world block with one currency… not sure that’s an equitable way to go… we’ll have to wait and see
Any interest rate cut IMMEDIATELY deflates the dollar. They may still do that but the action they took yesterday won’t cause the dollar to drop quite as quickly as a large rate drop would have. They are playing a game which they can only win if the value of our homes starts to rise again before inflation and recession can cripple the economy. They are playing for time.
Enduro, Exactly the thought I had when they injected that liquidity into the market. As if we don’t have bad enough inflation now. Food price increases are off the charts already. Gasoline and fuel oil are still going up. They are trying to play both ends against the middle, and guess who is going to get squeezed?
Check today’s market numbers and you will see how much euphoria was created by the liquididty. It’s now about 3:45 New York EST and the market is down around 40 points. I guess next will be the rate cut, and that should be another nail in the coffin. Little too late, reactionary policies, are going to sink us in the mud quicker than they think.
Sprite, If they are gambling on home values rising, they are at least a year and a half off. The inventory of unsold homes is still rising, Banks are sitting with real estate they never wanted to own through foreclosure, and there are places in Florida where almost entire communities have abandoned homes. Credit is tightening up as well. Some guesstimates are for a twenty percent price correction by the time this is over in 2009. Some places have gotten hit that hard already.
Jobs aren’t even being created fast enough to give us a market of potential buyers. In fact, we’re going backwards in the job creation area.
I keep looking for the bright spot here, but I just can’t find it.
Things are expected to stay bad for another year and a half.
That’s not the same thing as saying the end is near.Edited on Mar 12, 2008 15:08
Sprite, The end might not be near, but, if the gov’t is relying on a real estate value increase, a recovery in value is far enough away that their efforts to save the dollar and improve the economy, is at best pure speculation. We may not see a recovery in home prices for longer than a year and a half. Nobody’s crystal ball seems to be working this time.
Last night overseas markets had taken a hit again. There is no stability in any of the markets.
It may be a long slow slide down. We are carrying way too much national debt, and the slowing economy is not helping the governments revenue any. I just don’t see a silver lining in the near future.
Many U.S. areas are flooded with homes for sale and foreclosed on, and many more homes are in jeopardy of foreclosure. Last month, the government reported a net loss of 63,000 jobs nationwide. A gain of 63,000 jobs would not be encouraging, but a loss of that many is a dire indicator indeed.
So the question we must address is just what will fuel the recovery in real estate values? Unless and until the existing stocks of unsold/unoccupied homes are purchased, what demand will drive prices up? And with tightening credit and a contracting job market, how will aspiring purchasers pay? What jobs will provide the income to pay those mortgages?
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