Econ 2009

[ewmayer]

The Economy in Pop Culture: Comic Art - Get Fuzzy, 14 May:

[ewmayer]

The Economy in Pop Culture: Comic Art - Dilbert, 9 May:

[garo]

Latest "green shoots" quip:

"Reality is now going around spraying Roundup on those green shoots."

[Fusion_power]

The worldwide economy reminds me of a sci-fi story I read years ago about a ship going to Venus where they found a very stable and stagnant culture. The culture had done the same things the same way for thousands of years. Circumstances forced the ship crew to introduce a change to this stable system in the form of a stimulant (like caffeine) that would allow individuals to increase their production beyond norms. The net effect was to destabilize the stagnant society so much that the powers in control had to act to save their culture.

The parallel with the worldwide economy is that we have used stimulants to increase production for so many years that we can no longer function without stimulants. Lack of stimulants (ready credit, lots of borrowing and spending) is now destabilizing the entire system.


DarJones

[__HRB__]

Originally Posted by Fusion_power

The parallel with the worldwide economy is that we have used stimulants to increase production for so many years that we can no longer function without stimulants. Lack of stimulants (ready credit, lots of borrowing and spending) is now destabilizing the entire system.

It's called "withdrawal". The system is not destabilized and quite the contrary is true: it is returning to a stable state, as all Martingale-Strategies will eventually fail.

[ewmayer]

Consumer price drop is biggest since '55: Government says 0.7% annual decline is the largest in nearly 54 years. Monthly prices unchanged.

On a monthly basis, consumer prices were unchanged, in line with the consensus estimate of economists surveyed by Briefing.com.

The overall index was affected by a sharp decline in energy prices, which fell 2.4% in April, and are down 25.2% on an annual basis.

Oil prices averaged about $50 a barrel in April, down 55% from an average of about $112 a barrel in April of 2008.

My Comment: Everyone but gasoline retailers seems to be getting the deflationary message - Oil down 55% YoY, but gas prices at my local Valero station have only dropped 40%. Nothing like a little sticky-pricing ... anyway, The real danger of inflation resulting from the flood of e-money "printed" by the Fed over the past year won`t hit until the economy starts to genuinely recover, or at least genuinely hits bottom. For now, ongoing price deflation (and note the govt doesn`t measure housing prices in their consumer-price stats, so missed both the huge in-and-deflation in asset values there in the past 10 years) due to demand destruction is the modus operandi.


GM whacks 1,100 dealers: Automaker makes big cut as part of plan to drop 40% of dealer network. Many are expected to leave the business this year.

Click-bait alert on this next one - suggest you turn off your flash/javascript/image-display if you want to read the content sans distraction:

Hard times on dealer row: Chrysler shuttered 789 dealerships nationwide. Now these dealers and their employees are recovering from the shock and looking to the future.

[Fusion_power]

While economic hard times are hitting on many fronts, underwater mortgages will be a major concern for many years. The government assistance programs that were supposed to help refinance mortgages are limited to those that have at most a 105% differential (property value vs mortgage amount). In other words, relatively high potential to repay and a good probability the underlying property value will recover. The problem with this is that many mortgages are at 130%. These homeowners have very little incentive to refinance and lots of reasons to just walk away from the mortgage. What would you do if you owed $200,000 on a home valued at $140,000?

So why is this important? Well, figures released today indicate that about 5% more homeowners are underwater now than at the end of 2008. This translates to an ongoing slide in market value. The underlying real estate market has flattened out from the precipitous slide of 2008, but is still declining. The cities with the most underwater mortgages are located in California, Nevada, and Florida. These are the markets that saw the greatest increase in home sale prices over the last 10 years.

As of today, about 22% of mortgages U.S. wide are underwater and of that, roughly half are beyond 130% deep. This will translate to an incredible number of foreclosures over the next year and will drain the economy until the underlying property vaues stabilize. It is mind boggling to think that up to 10% of all mortgages existing at the end of 2008 will terminate in foreclosure.

Do your due diligence and you will see that the overall economy can't truly recover until systemic issues such as this have finished resetting.

DarJones

[R.D. Silverman]

Originally Posted by Fusion_power

These homeowners have very little incentive to refinance and lots of reasons to just walk away from the mortgage. What would you do if you owed $200,000 on a home valued at $140,000?

So let's bring back debtor's prison. Make it a criminal act to walk away.

Noone guaranteed property values when they bought the home.

[__HRB__]

Originally Posted by R.D. Silverman

So let's bring back debtor's prison. Make it a criminal act to walk away.

Noone guaranteed property values when they bought the home.

Why not put them in concentration camps and gas them? Then the society wouldn't even have to pay to lock them up!! And the stimulus!!! Create jobs making crematoria & Zyklon B!!!! Let's conduct medical experiments on divorcees with Asberger's!!!!! Health plan to cure cancer!!!!!!

The solution is to make declaring bankruptcy very easy, so losses can be written off quickly, and go on from there. A financial intermediary's job is to figure out which business or individual deserves credit and if the financial intermediary isn't any good at doing his job, he should lose money. Dumbass.

[ewmayer]

Originally Posted by __HRB__

The solution is to make declaring bankruptcy very easy, so losses can be written off quickly, and go on from there.

If you make it too easy, credit markets will shut down, because no with money and in possession of their wits will want to lend money. Oh wait, that's exactly what's been happening for the past 2 years...

When someone defaults (e.g. bankruptcy), what do you think happens to the debt? The magic "debt writeoff fairy" waves its magic wand and makes the debt go "poof", and some accountant marks an red X in a dusty ledger and no one is the worse off?

[Uncwilly]

Originally Posted by R.D. Silverman

So let's bring back debtor's prison.
Noone guaranteed property values when they bought the home.

Many of theses folks had no ablity to buy. The lenders got greedy. They made fast money on them. So did loan brokers, as did real estate agents. All of them are supposed to act as a sanity check. Auto dealerships run ones credit before selling.

Those in professional positions that took greed over their knowledge and training are the guilty ones.