Economic Crisis

[rameumptom]

Companies aren't buying into these investment losers because there is no money to buy such things with! It is all invested into infrastructure. If GM's stock is $50 one day and $10 the next, then they have lost 80% of their purchasing power. They can't borrow from a bank to buy a bank, because there is no money available to borrow.

There is a crisis. It is based on many factors that are all coming together in one shot. We are seeing big similarities now with 1929 crash or with Russia's 1989 crash. Will ours be the 2009 crash? It will lead to a recession at best, a depression if worse. As mentioned, it is the first step in a recovery. Company values have to get back to a real value in people's minds before they will spend again. It also takes time for debt to be devalued enough so as to make the markets liquid with cash again.

No, money doesn't really disappear. But it does devalue compare to other currencies and also to purchasing power. Do you spend the same amount on gasoline now as you did 5 years ago, adjusting for inflation? No? Where did that value in your money go? The value disappeared. And it can take years to recover that lost value. Same thing happens with stocks, etc. It all has to do with supply and demand.

We've supplied so much money for housing in the last decade that it has devalued our money to the point we risk losing our international rating for the dollar. Our nation's on the verge of having its rating turned to junk bond rating, which means it will be harder to finance national debt and at higher interest rates. Our money devalues, our groceries and utilities go up in price. Thank God we haven't experienced hyper-inflation or hyper-deflation yet! Imagine the gas prices jumping to $20 a gallon in a year - that would be hyper.

Is there fear involved? Of course. But it is fear based upon historical evidence. We've seen our own nation go through recessions and depressions. We've seen other nations do the same. We can see what caused those previous drops, and see that the same issues affect us today.

The issue will not be if we have a recession. The issue is how hard we crash the plane on landing.

[rameumptom]

I'm curious about what will happen to home prices. Do you think they will continue to go down? I've seen people speculate that they will go back up within a year, but I can't really imagine that happening.

The housing prices will not go back up until people are willing and able to buy houses again. That means that the credit crunch and money devaluation has to come to an end first.

As it is, there will be empty homes for a long time, because there will no longer be sub prime loans made. thousands of homes were sold to poor risk families, which will not be sold to them again. So, there will be thousands of homes left empty for several years to come. In a worse case scenario, the $700B bailout does not work, and it could be a decade before the housing market comes back.

[Hemidakota]

The next consumer market that will be effected is vehicle buying; if not already by some leading banks.

[kona0197]

So are you saying that the only reason Americans in mass are unable to pay their mortgages is because they are afraid? You don't think it has anything to do with getting into too much debt?

That "debt" you talk about wasn't forced on anyone...

It WAS a choice. People CHOOSE to live above their means.

That being said I'm finding no problem paying MY bills...

[BenRaines]

Me either, no problem paying the bills. I don't like spending so much for gasoline so I drive less. Keep the house a little cooler or warmer depending on the season.

I have edible food storage but haven't tapped it yet.

Of course if you had asked me these things when I was 30 I would have said No.

One of the things I have noticed over the last ten years is that the kids entering their 20's have wanted then what it took their parents 30 years to get. So to do that they have borrowed and used their homes as an ATM. This debt will lead to their financial destruction.

Ben Raines

[WANDERER]

I think that it will be fairly slow and ongoing. I tend to use tinned food as my measure for how bad things are (it's a drought habit): size and/or content dimishes and price stays the same for a short while (usually marked as a sale item, regardless of the fact that it now weighs less)...exported from developing nations...shelf runouts happening and not restocked for a while...limited range...even the expensive brands don't match up to the quality that the cheapest brands once had...and long queues...understaffed. Same sort of things with fresh food and whatever else you spend your money on. Doesn't matter whether you are in debt or not. And that from a place that is a major exporter of fresh food...LOL...eating what can't be exported to anywhere else.

It looks like things are pretty much the same on the surface of things...as it will.

[a-train]

That "debt" you talk about wasn't forced on anyone...

It WAS a choice. People CHOOSE to live above their means.

I wish that were true of the bailouts. Now, every American is several thousand dollars more in debt because of them, and we had no choice in the matter. Write your Congressman and tell him/her to give not another dime to the bailouts. It will only make our troubles worse.

-a-train

[Traveler]

Several years ago I read an article that I have now lost. The basis of the article was the great depression and the concept that it was caused. The article claimed that most of the nation's wealth was in its farm land which was owned by individual familes. After the depression 50% of the farm land was lost by single families and was owned by large corporations. I think it is like 80% today.

The article pointed out that the land grab allowed the land to come under control of individuals that did not work the land but were able to extract the most profit from it - rather than those that work the land.

It is my personal observation that this has carried over into most business. Rather than the small business where owners actually work and take in the fruit of their labor the great profit is made by individuals that never work in the actual business.

It will be interesting to me to see over the next 5 years what happens to small business.

The Traveler

[a-train]

If it ain't local, I don't go in the door.

-a-train

[Rico]

I am all for bailouts. Make government money available to those who want to refinance their homes. Let the loans be for no more than 105% of the value of the homes. At least the banks will get something above the value of the homes. It will be their choice to take it or foreclose. Set up a credit fund that will provide immediately redeemable tax credits to start up a small business. Let small businessmen either start up a business with the money or use it a down payment on government guaranteed loans.

Problem sorted.

[kona0197]

Write your Congressman

It has no effect. I wrote them regarding changing the marriage law involving Social Security and they blew me off.

[a-train]

It has no effect. I wrote them regarding changing the marriage law involving Social Security and they blew me off.

And somehow I'm the pessimist. If your Congressman is blowing you off, then you need to start campaigning for a new Congressman that supports your principles.

-a-train

[a-train]

Let the loans be for no more than 105% of the value of the homes.

There is the trouble, many people currently owe more than 120% on their home and some are up to double! A home that sold or $300,000 in a nearby neighborhood went into foreclosure and a man in my ward was able to get it for $180,000. The poor bloke that bought it for $300,000 owed 166% of the market value on the house. This is why money down is so important.

-a-train

[a-train]

The next consumer market that will be effected is vehicle buying; if not already by some leading banks.

Definitely already. As a seller of cars, I can tell you that it has begun. People are able to borrow less for the same vehicle than they could last spring. Persons looking to carry large inequities to a new vehicle loan are being turned away or are paying that iniquity down with large down payments. Company lenders are restricting their financing to their own brand (Hyundai will only do a loan on a Hyundai, Toyota will only do a loan on a Toyota). This was not the case just 60 days ago.

The coming car situtation will be just as it was in the 80's. You are going to need 20% down. The current bailout also has buried in it a bailout for GM. While I appreciate the need for U.S. jobs, upholding failing business ventures will render us as vulnerable as a helpless babe in the global economy. We need to get the idiots in Washington who have not a clue what they are doing out of the way so the true businessmen and women of America can go to work and solve this problem.

The so called "bailout" is only another loan and more debt. Debt is never the solution to the problem of indebtedness. The U.S. empire is coming to an end, we can do this graciously, or go out like the many prideful empires that have fallen before us.

-a-train

Edited September 25, 2008 by a-train

[a-train]

Oh and also, I love how Bush and many Republicrats have recently maintained that our economy is "sound" and "strong". We have been screaming at D.C. about all of this for a over a year and now they suddenly believe us. According to them we have been wrong about all of this until this week and we are supposed to believe they have a clue how to solve it! They couldn't even see the problem until this week! And they don't even see the problem! They only see the effects! Youtube has some nice vids of Bush and his cronies (some who cannot be mentioned because they are running for political office) saying how great the economy is doing as recent as a month ago.

-a-train

[Hemidakota]

I don't want to be unenthusiastic but I don't expect any recovering but a change how we will conduct business with each other. People I do know seemed very tired to the point in giving up the American dream and seeking becoming debtless. This means, no home ownership with not being tied down to materials things of the world. No credit cards or other such consumer loans. This spell trouble if this thought is conveyed across this nation. Understand! We spend about 9-trillion dollars annually compared to China’s 1-trillion. If the consumers stop spending, the global economy suffers.

A-Train, I have been blogging for an American brand for the last four years and now seeing up to 40-percent on 2008 models. I never had seen this in many years [70's]. Brands that have diversity beside automobile manufacture may survive while others may have to give the vehicles away at cost to keep the factories open. People have no confidence in the economy or the government lately and backing away in borrowing or buying large items.

[tefor]

Bumper Sticker Alert:

"Don't Blame Me--I Rent!"

[BenRaines]

Hemi,

The problem with American brand cars is the unions, with their cradle to grave benefits, the most of a car is more for the labor to build it than the raw materials to make it. This is from parts manufacture to assembly, etc.

To be clear I am not against anyone making a profit. As a matter of fact I am all for it.

Some people do not understand that the more demanded at the beginning the greater the end result cost. Which then requires to demand more at the beginning. An endless cycle.

Ben Raines

[Fiannan]

Oh and also, I love how Bush and many Republicrats have recently maintained that our economy is "sound" and "strong". We have been screaming at D.C. about all of this for a over a year and now they suddenly believe us. According to them we have been wrong about all of this until this week and we are supposed to believe they have a clue how to solve it! They couldn't even see the problem until this week! And they don't even see the problem! They only see the effects! Youtube has some nice vids of Bush and his cronies (some who cannot be mentioned because they are running for political office) saying how great the economy is doing as recent as a month ago.

-a-train

Don't blame all the Republicans in the senate since there are some (including one I cannot mention) that have been warning about this for some time. Also, there are several Democrats in the senate that have taken in a lot of money from the firms that are now going belly up.

[BenRaines]

I don't know about the economy. I am not an economist. I do know that when I travel to Southern California there are more cars on the road than I care to see at that was with $4 per gallon gasoline and higher. I know when I drive by a WalMart, Home Depot, etc that the parking lots are full. I know when I drive by the mall it is full. Maybe everyone is there so they can use the mall's air conditioning. I know that every night the line outside of Famous Dave's is so long that I won't be eating there for some time.

Yes cars are not selling, homes are not selling but there sure is a lot of other stuff going on.

After years and years of more and more people going to Las Vegas, quarterly increases since 9/11 slowdown and they panic because there is a drop of 3% in visitors. Guess what? It can't go up every quarter year after year. There are pauses and there are drops. It is an economic cycle.

Ben Raines

[lilered]

I am all for bailouts. Make government money available to those who want to refinance their homes. Let the loans be for no more than 105% of the value of the homes. At least the banks will get something above the value of the homes. It will be their choice to take it or foreclose. Set up a credit fund that will provide immediately redeemable tax credits to start up a small business. Let small businessmen either start up a business with the money or use it a down payment on government guaranteed loans.

Problem sorted.

Rico - You advocate borrowing 105% of the value of the home for those who want to re-finance. Please explain why that would be effective in doing anything but place the home owner in a position of owing more than the home is worth which is one reason we are in the pickle we are in. Why wouldn't be more prudent for a home owner to have an investment of at least 10% -15% of their own money before they qualify for ouside financing. Then they have their own money invested as well. If they can't then they need to get a less expensive home that they can qualify for.

The second condition ought to be the ability to pay the loan back, which again is another reason we are in the pickle when folksw defaulted on loans they should never have received to begin with.

Edited September 25, 2008 by lilered

[funkymonkey]

One word for the mess we're in... GREED

[Rico]

Revelation 18

1 And after these things I saw another angel come down from heaven, having great power; and the earth was lightened with his glory.

2 And he cried mightily with a strong voice, saying, Babylon the great is fallen, is fallen, and is become the habitation of devils, and the hold of every foul spirit, and a cage of every unclean and hateful bird.

3 For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies.

...

14 And the fruits that thy soul lusted after are departed from thee, and all things which were dainty and goodly are departed from thee, and thou shalt find them no more at all.

15 The merchants of these things, which were made rich by her, shall stand far off for the fear of her torment, weeping and wailing,

16 And saying, Alas, alas, that great city, that was clothed in fine linen, and purple, and scarlet, and decked with gold, and precious stones, and pearls!

17 For in one hour so great riches is come to nought. And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off,

18 And cried when they saw the smoke of her burning, saying, What city is like unto this great city!

19 And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas, that great city, wherein were made rich all that had ships in the sea by reason of her costliness! for in one hour is she made desolate.

20 Rejoice over her, thou heaven, and ye holy apostles and prophets; for God hath avenged you on her.

[WANDERER]

Makes sense to me: bail out the mortgage companies and keep them afloat so that the home owners who are responsible can continue to pay off excessive and over-valued mortgages to the end of their days and compensate for those that defaulted. Where is their bail-out plan.

Edit: Actually, news today, Rudd's UN speech on what financial regulation and disclosure should look like (y'all know what influences are likely):

Kevin Rudd's full speech to the UN | The Australian

Edited September 26, 2008 by WANDERER