Tuesday, July 27, 2010

Dire outlook for US economy and house market as long as the banks hold sway

A decade of declining house prices

The housing depression will last for a decade or more. This is by design. The Fed has been working with the banks to withhold inventory so prices do not fall too fast or too far. That way the banks can manage their write-downs without slipping into insolvency. But what's good for the banks is bad for the country. Capital impairment at the banks means no credit expansion in the near-term. It means the economy will continue to contract, unemployment will remain high, and deflation will push down wages and prices. Everyone will pay for the mortgage-backed securities scam that was engineered by the banks.

Posted by icarus @ 07:34 PM (1496 views)
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6 thoughts on “Dire outlook for US economy and house market as long as the banks hold sway

  • And the UK hasn’t even entered that decade of pain yet.

    I’ve been on this site for longer than I can remember anyone else being here – since sometime in 2004. I do remember one poster (maybe it was surfgatinho, or Japanese Uncle) saying that by the time the fallout from the housing boom is done, legislation would be brought in to make sure it never happens again, such would be the pain resulting from the gambles taken with the economy by the government in cahoots with banksters.

    It is worth considering that we haven’t yet even entered the period when we will receive that wisdom or get that moment of clarity to realise what an utter mess has been made of the economy in the long run.

    In truth, the UK’s fate to follow Japan’s lost decade was sealed in back in 2006. Only short-sighted central bankers, economists and amateur economics journalists (of which there are many masquerading as professional commentators) couldn’t see it.

    The only option we have is whether we want stagflation or stagnation, because inflation can only be created artificially by moneyprinting there is no corresponding rise in wage settlements and homeowners are stretched even further on repayments, savers are further impoverished and the whole country becomes a little poorer (again).

    Our esteemed central bank really has messed up bigtime and if you can’t see that yet, that’s because you haven’t seen it before like I have in Japan. Oh well.

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  • @paul, I too have been on this site a very long time and can see that we will now probably enter a lost decade. The only thing that may prevent this is if salaries keep on falling year on year. They are currently falling quite quickly and so we might just get to a point where we become competitive again with China/India if average salaries drop to below 15k. For savers the fall in salaries is a good thing since it eventually makes their money worth so much more in my opinion. Obviously provided inflation doesn’t get out of control and negate the fall in salaries.

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  • mountain goat says:

    Icarus – good post, really nails it.

    Propping up house prices to save the financial industry wrecking the economy. But letting banks fail would have done the same. Between a rock and a hard place.

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  • mountain goat says:

    But with Vince Cable threatening banks to lend more and the BoE coming in with the next nuclear option : banks able to submit almost all forms of consumer credit as collateral for liquidity loans, the can will be kicked a bit further down the road.

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  • ‘What this spells out is that the bursting of the housing bubble wiped out the middle class. The nest-eggs they had stored up in the valuations of their properties volatilized in the crash. Now–even in the best case scenario–private sector deleveraging will continue for years to come. Baby boomers are not nearly as wealthy as they believed’

    OK, so little sympathy on this site perhaps, so let’s just cheer for Marxism and the deconstruction of what once used to be a superpower

    that stood for Liberty & Justice.

    RIP JFK. You were too American and way too late for the global invaders.

    The war on terror is the war within.

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  • I saw this 3 months ago. If the government let house prices find a natural level, it would bankrupt UK banks.
    The same applies to Spain, at least. As European banks are inter-linked, a few more banks would fail and the Governments would have to find another trillion to help their poor mates, the Bankers.

    My IT business is on the verge of collapse, anyone got a few grand…? No point in asking the banks, they don’t lend to industry any more, they force up commodity prices by casino speculation, so we pay more on energy, oil, gas, food et al.

    Boy, how I love those bankers…cute and cuddly in their little bowler hats…not!

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