Skip to comments.Economic Meltdown 2009 is Worse than the Great Depression
Posted on 04/13/2009 6:36:53 PM PDT by An Old Man
It's been 21 months since two Bear Stearns hedge funds defaulted setting off a series of events which have led to the gravest economic crisis since the Great Depression. No one expected the financial meltdown to hit this hard or spread this fast. The failure at Bear triggered a freeze in the secondary market where mortgage loans are repackaged into securities and sold to investors. That market is now completely paralyzed cutting off 40 percent of funding for consumer and business loans and thrusting the broader economy into a deep recession.
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The economy is now in a downward spiral. Tightening in the credit markets has made it harder for consumers to borrow or businesses to expand. Overextended financial institutions are forced to shed assets at firesale prices to meet margin calls from the banks. Asset deflation is ongoing with no end in sight. Price declines in housing have reached 30 percent already and are now accelerating on the downside. This is the nightmare scenario that Bernanke hoped to avoid; a capitulation in real estate that drags the rest of economy into a black hole. Economist Nouriel Roubini and market analyst Meredith Whitney predict that housing prices will drop another 20 percent before they hit bottom. Nearly half of all homeowners will be underwater and owe more on their mortgages than the current value of their homes. That will increase the foreclosures and push scores of banks into default. According to Merrill Lynch's economist David Rosenberg:
"It would take over three years to achieve price stability (in housing) The problem is that prices do not begin to stabilize until we break below eight months' supply and they tend to deflate 3% per quarter until that happens. So as impressive as it is that the builders have taken single-family starts below underlying sales, their efforts are just not sufficient to prevent real estate prices from falling further. In fact, even if the builders were to declare a moratorium immediately, that is, taking starts to zero, demand is so weak and the unsold inventory so intractable that it would now take over three years to achieve the holy grail of price stability in the residential real estate market."
The main economic indicators all point to a long period of retrenchment ahead. The slowdown in global trade has hit Germany, Japan, and most of Asia particularly hard. The export-driven model of growth has suffered a major setback and won't rebound for some time to come. With the US consumer unable to continue his debt-fueled spending spree, surplus countries will have to develop domestic markets for growth, but it won't be easy. Chinese workers save 50 percent of what they earn and German workers already have a comfortable life without increasing personal consumption. Higher wages and lower interest rates can help stimulate demand, but cultural influences make it difficult to change spending habits. Meanwhile, the economy will continue to languish operating well below its optimum capacity.
Read more at the Market Oracle.
Mike has the story prety much on target. The only thing missing is the exact timing of the events.
Tuesday, April 7th, 2009 | By Mr. Mortgage
Foreclosures About to Soar Near-Term Easily Back to All-Time Highs
Are you ready to see the future? Tens of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season - great timing!
For months prior to March, banks/servicers were on and off of foreclosure moratoria with many on a complete hold awaiting Pres. Obamas plan to save the housing market and homeowners. We track each foreclosure start through the entire foreclosure process individually and in aggregate also by originator and servicer and as soon as the Obama plan was made known, banks/servicers shifted their Notice-of-Default and Notice-of-Trustee Sale machines into overdrive.
Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days.
Hunger does a man good, especially if he's been fat, dumb and happy all his life.
We'll all be eating trash!
A very, very good time to be armed, and alert.
Hunger does a man good, especially if he’s been fat, dumb and happy all his life.
We’ll all be eating trash!
Hey buddy, stay away from my dumpster. The food in there is all mine.
Thanks for posting. Very interesting.
Got a call just today from a buddy of mine in Reno, NV, one of the most bubbly of the housng markets. He and his wife bought a townhome for $225,000 three years ago or so. No money down, etc. (Countrywide mortgage) They want to sell. The realtor recommended a price of $75,000.
We’ll be paying for that one.
When you get tired of eating like that, come on over to our house. We can sit out on the back porch where we can discuss the finer points of growing a garden, or reloading home made ammunition.
If you get tired of that, we can always shoot and skin one of the many deer that wonder across the lawn.
Here’s a paper examining/comparing our debt deflation and finance/banking implosion to those that happened in other countries:
Summary: three to four years, 7% additional unemployment from the onset of the crisis, about a doubling in the national debt.
We’re nowhere close to ‘over’ for any definition of the word ‘over.’ Worse, the Obama administration (as well as the Fed) appear intent on a) studying all the mistakes of the Japanese in the 1990’s, and b) repeating them.
People on FR who have been paying attention to the housing bubble posts for the last two to three years have seen me thumping the table, saying that double-digit percentage declines in the value of housing was not impossible. I’ve pointed out repeatedly that housing is like any other asset class — it is possible to over or under-value it.
THE market that made me such a whinge on the subject of home prices was Reno. When we’d drive into Reno from our farm 250 miles to the east in the middle of nowheresville, NV, I’d see these developments going up like boxes of schlock California tract housing. Then about 2006, when I’d be driving through some of these developments during the day, I’d notice very few “For Sale” signs - yet, there were some developments where 50% or more of the houses appeared to be unoccupied.
Upon stopping and talking to people in a couple of these developments, I learned that people with NO experience in real estate development, investing, etc - had decided a) that they liked their house so much, they’d b) buy the houses on either side of them - with a down payment of equity cashed out of their owner-occupied house, and they’d then use that on a low-down or funky loan to buy the house (or houses - nb plural) on either side of them for speculation.
These were just Joe Bob Homeowners, speculating on residential real estate.
That’s when I knew this crap was going to hit the fan. I liken that moment to ones like Bernard Baruch getting stock tips on Wall St. from the shoeshine boy — it tells you that you’re near or at the top of the market.
I have been busy the last few weeks getting ready for the spring planting. From the looks of things it will be a few more weeks before the ground can be worked. How are things going where you live?
I have tomatos and peppers (from seeds) that are seven inches high, onions out of the ground about three inches and corn in the next field is already a good six inches high too. We've had a very wet spring so far. Overall doing good.
I'm not planting a big full garden until necessary. I have food stored that can get me through harvest when that decision is made.
Brother-in-law says if it stays cold in S. Oklahoma much longer this spring ...he’s moving!
‘Bout the coldest spring we’ve had in memory in the Arkansas River Valley.
use it up wear it out make it do or do without
I grew up with that mantra- served my parents well. Big garden, alot of canning, alot of really nice home-sewn clothing, out of chicken feed sacks to a large degree...
You said — Brother-in-law says if it stays cold in S. Oklahoma much longer this spring ...hes moving!
I’ve been saying if it gets any hotter in Oklahoma, I’m gonna move... :-)
Of course, I’m sorta used to Oregon temperatures...
This week the TV weather girl is predicting nighttime temperatures in the high 20's tonight, and two nights following.
I guess it must be true. We only have two seasons here! Winter and the 4th of July.
I bet your mom used to make dresses for the girls out of those patterned flour sacks also. Mine did!
Yep dresses from the patterned flour sacks, although she bought the chicken feed six 50 pound sacks at a time so she had enough material. Alot of the flour sacks were made into sheets with a flat felled seam nobody would make today without a computerized sewing machine. When they wore out, they turned into pillow cases and when those wore out they became nice soft handkerchiefs, and finally, clean white clothes before the day of band-aides.
Never felt poor. We had a huge garden and did very well.
That reminds me I need to make a trip to the garden store for some seeds and such. Trouble is, the soil here, what there is of it, stinks. Very shallow layer of clay over a soft crumbly rock base.
Might have to move back to my Mom's house, she'd not using it at the moment, where the topsoil is several feet deep, and which had never felt the plow before it was turned into '50s suburban housing. (it did feel the plow or at least the disk and rotortiller, after we moved in, I even ran the tiller some years, as well as planted most of the garden (Dad insisted on doing the tomatoes and peppers himself). I know about the non plow part, because my Dad had hayed the area with his uncles back before WW-II, and knew the history of the area. Or better yet, up to my mother-in-law's farm, which she and her sharecropper are using, but not living on. It's already got a couple of good garden spots, a nice shelter-grove of mixed hardwoods, and where the deepest creek bottoms are still in the topsoil, blown in there after the last ice age.
Only bad thing is, when I was up there this weekend, there was still what my wife calls, that ugly white stuff, in the drift areas. Nice clean snow though.
Hard facts but true. We has an nation have been riding high on the hog and have enjoyed feasting off the fat of the land for a long time. With little gratitude for what a miracle this era in history this truly is.
Get ready for a lesson on humility. It is long overdue and only by the grace of a loving God has tolerated our ungratefulness.
You are exactly right.
Don’t think so. It was only made to appear that way temporarily in order to usher Zero into office. It will miraculously come back quickly. Watch.
That's my story too. It took me nearly 60 years to realize that our family had little or no money when I was a child. However we had everything necessary for a wonderful childhood, and a great education in how to survive adverse times.
Don't bet the farm on that! My spies tell me it will be much longer than most here believe.
I did have one mishap-in about the 7th grade a farm kid who was as shy as I was (at that time) came to school wearing a shirt that exactly matched my skirt. We both knew where his shirt and my skirt came from. He never saw my skirt (very well made as was his shirt I might add) again and I never saw his shirt again. Yes of course I wore it, but not to school. And yes one does need to gain some years to really appreciate what is good.
You and I were fortunate.
Well, try telling that to some in these small towns in Texas. You’ll be shown the door. They simply do NOT believe it is going to affect THEIR town. And, they mean it. It is real interesting to watch.
One of the hottest places on the face of the earth is ...ready for this? Tulsa, Oklahoma. With the lakes and the heat it can get mighty uncomfortable.
Just know this, no matter how hot it is I’d trade places with you any day compared to where I am.
What area of the country are you in?
We plant every year for the last ten or so years. Tomatos, peppers, onions, strawberries. This year we added corn, watermelon and cantaloupe. Plan to grow a bunch, eat what we can and sell the rest. Have a neighborhood coop going where we trade fish, wild pig, venison, vegetables, yard work, carpentry, plumbing whatever. We live on a dead end street and every other house is well armed with lots of ammo and lots of know how. We may have been hit in the wallet hard, but we are not going down, period. During the last hurricane, my kids learned how to wash dishes and clothes the old way. No machines. Making them tend to the crops so they will appreciate what it takes to be self reliant. Taught them to cook by ten years old. Both kids can handle a shotgun well. I am not a survivalist, but I believe in self reliance. If you know how to take care of your self, then you can care for others. If you are a welfare slug, you can’t even take care of yourself. What a waste of a human life. God gave us all talents and it is our job to find out what those talents are and put them to good use to serve our neighbors, not to be a burden on others. Help your friends, pray a lot and believe in your own abilities. No one else will help you and this obambi govt is going to try to crush the self reliant.
Quiet Defiance. Do what you can. Pray to whoever you pray to. God Bless America. Not Amerika.
Would you like a vision of the American future? Picture Detroit... everywhere.
You said — One of the hottest places on the face of the earth is ...ready for this? Tulsa, Oklahoma. With the lakes and the heat it can get mighty uncomfortable.
Hmmmm..., that’s where I am now, and I didn’t know that... LOL..
But, I do have to disagree a bit here, at least from the standpoint of some limited experience that I have. I was traveling quite a bit between Dallas and Tulsa, for a while there — and — it always seemed like Dallas was about 10 degrees hotter than Tulsa on any particular day.
Still, both Dallas and Tulsa are too hot for me, compared to Oregon, but I’m here now... so I’ll have to tough it out... :-)
BUT..., Tulsa always seemed to have more tornadoes than Dallas did... LOL..
But we are scheduled for a rise in the markets Tuesday. It is pretty well coordinated if Wells Fargo tells us anything.
The Obammunist is on the tube early to connect his Cuba initiative with economic growth. This just after Goldman Sachs announces a banner quarter.
The curse of Hussein on TV and a falling market will be declared over. His praises will be sung for another week while they work behind the scenes in Congress to socialize the nation.
The bad news for us: Chinese save a much larger percentage of their income than we do.
The good news for us: We earn far more than the Chinese.
China vs. USA is like apple vs. orange. The fact that such an obvious egregious error is in here makes me wonder about egregious errors that aren’t so obvious.
One of the problems of a garden, as I see it, is that people who are starving will come steal your food. You can’t guard it ALL the time.
Same here. Never knew hunger in my life and had no idea we were economically poor until adolescence. Then came some pretty good years. Now, look at what we have to deal with. But we have plenty of space, good soil, and abundant water to grow food.
“One of the problems of a garden, as I see it, is that people who are starving will come steal your food. You cant guard it ALL the time.”
That is why you breed your own army. If for a few reasons that wasn’t possible than you move in with family or neighbors. Either that band together with neighbors to stand watch and share land resources.
For those wondering, a flat-felled seam is what you see on your jeans. It will never fray and is not uncomfortable next to the skin.
Here is a tutorial:
Click on tutorial link and a complete set of instructions with pictures will open within the loaded page.
I taught myself to sew with a book and a borrowed machine back in the late 60s. My grandmother was a tailor and I was totally spoiled. Since she could do everything imaginable to make the necessities and some luxuries of life, I had no reason to learn. I began to sew in order to have the trendy Carnaby Street clothes that were not available in the US. Within a year, I was sewing for other people for payment.
Actually, I _hate_ sewing after making my living at it for about 5 years or so at the beginning and again in the 1980s when I designed, manufactured and sold designer clothing from my own handwoven fabric. My husband recently purchased an industrial machine (they scare me) to make sails for the boat he is building. He likes to sew! So, between my old, non-computerized Bernina and his industrial machine and an antique treadle machine from the 30s with extra belts and attachments, we have several projects planned for next winter and feel we are set for whatever the future holds.
It can be done by anyone. I don’t think feed sacks are reusable any longer, though. Anyone know of an affordable fabric source?
This week the TV weather girl is predicting nighttime temperatures in the high 20's tonight, and two nights following.
I guess it must be true. We only have two seasons here! Winter and the 4th of July.
It's True! Last night we got another 8" of fresh snow, and it is still coming down as I type this message. With only a little more than 60 days or so till the 4th of July surely the snow will quit falling.
The snowplow driver just passed again so it probably is safe to make a trip down to the mailbox. Does anyone know where I can get a hold of that Al Gore fella?
Dave, something that I’ve realized some time after absorbing those papers... None of those financial crises (except the GD) were truly global in nature, meaning that while in every one of those crises a country had exports to help drive recovery, the entire world can’t net-export itself into recovery in 2009.
Another thing that has recently penetrated my skull is the Triffin Paradox, namely that in times of severe crisis like this, the policy required for domestic US recovery are diametrically opposite to the policy required to maintain a global financial system based on dollar reserves and dollar-based oil trade.
That first realization makes one pessimistic. The second makes one run to the store for the proverbial canned goods and ammunition.
You’ve put into words much more capably than I have to date why “this time it is different.” Every time I’ve been getting into one of these circular arguments with people using post-WWII data, I keep saying “Yea, *but* — those post-WWII were not widespread (much less globally interconnected) debt deflations.” And at this, many people pushing back on that say “so what?”
The export/import paradox you speak of is exactly THE nut of why this is different. Consider this on manifestation of the different you speak in the Triffin Paradox:
One of the indicators that some analysts are saying is positive is our shrinking trade deficit. OK, that’s true.
But this very fact is pummeling Japan into a no-foolin’ depression as we speak. China isn’t there yet, what with their vast cash reserves and outlets for domestic development, they can prevent their GDP from being completely sunk by a shrinking US consumption level, but Japan is in dire, dire straights.
OK, so what does Japan’s lack of exports mean? Well, at some point, if their exports don’t pick up, they’re going to run out of ability to buy US debt with a trade/current account surplus, because they’ll not have any. I suspect that this point will approach rapidly if oil prices go back up. If that happens, there’s only two scenarios I can see: a) China picks up the slack in US debt buys, or b) interest rates have to go up to attract other capital into buying US debt.
And then we’re in a world of hurt - high interest rates, anemic growth means more anemic growth.
Thanks... I’m continuing my train of thought here, if you want to chime in...