From Mike Whitney’s latest article: http://onlinejournal.com/artman/publish/article_1635.shtml
“The “sunny Jim” reports in the media about a “soft landing” will have no effect on the impending housing collapse or on America’s downward economic spiral; the numbers are simply too enormous. By spring 2007, the Fed will have to lower rates to stop the hemorrhaging and to avoid a full-blown depression. When that happens, the last wobbly bit of scaffolding that’s propping up the greenback will be kicked-out and the dollar will slip into oblivion.”
Chicken Smith View:
I think it’s all been said before, but just in case you haven’t put it all together yet, it goes a little something like this (many other factors conveniently left out, but none of them significant enough to drastically alter the forthcoming scenario by more than a few years):
1. 2000-2001 We have a slight recession due to a market correction (ie, dot bomb). 9/11 doesn’t help.
2. 2001-2006 Fed continually lowers interest rates to “stimulate” economy.
3. 2001-2006 House buying frenzy ensues. Sub-prime, zero down, ARMs, interest-only, no credit check, have a pulse, etc. loans. Fed trick works… for now.
4. 2002-2006 Economy rebounds and does “wonderfully”. You know, houses need to get furnished, painted, remodeled, you have to pay the movers, landscapers, contractors, lawyers, accountants, brokers, agents, inspectors, Home Depot, you have to get a new car to go along with the new house, might as well get a whole new wardrobe, not enough money? heck, just max out your 8 credit cards, apply for 8 more, repeat, “buy” a boat, take out a home equity loan, “justify” the equity loan by making a $120k “investment” in a brand new kitchen, spend the rest frivolously, yaddy, yaddy, yaddy, then sit back and relax, you earned it, screw that, you deserve it, after all, you’ve been bustin’ yer hump for all this time, the least you can do is enjoy it.
5. 2006-2007 Fed commences raising of interest rates. New mortgages, which had almost single-handedly fueled this bubble, begin to decline.
6. 2006-2007 Housing sales drop dramatically due to increase in interest rates (not to mention the totally ridiculous prices making them unaffordable to all but the rich and/or anyone who can fill out a home loan application). Oh yeah, and the record number of foreclosures (remember those sub-prime, zero down, ARMs, interest-only, no credit check, etc. loans?) causes a glut in housing, further lowering housing prices to pre-turn-of-the-century levels. The market, economy, dollar, all begin to head south.
7. 2007-2010 Americans struggle to make their rising adjustable rate mortgage payments, hence making the Mercedes payments difficult as well, heck, those credit cards can wait a few extra months to get paid too, now if I could only sell the house, I could payoff the boat and the trip to Australia. Massive layoffs and outsourcing ensue. No job means, no payments of any kind, and the economy begins collapsing. Dollar worth “pennies on the dollar”. A
recession, heck, let’s go all the way, a Depression state arrives. I mean, this is really just the recession that got postponed by seven years (except that it grew a bit). Ok, so it’s not all housing’s fault, but you keep thinking that those job numbers are all an accurate reflection of our economy, but they’re not. Take Joe-Six-Pack for instance, he gets laid off from a full-time job at Ford making $75k/year, so he now has to work 3 part-time jobs. All of a sudden, now Wendy’s, Stop&Shop, and WalMart all report, via payroll, 3 new jobs, which makes him about $50k a year. That’s a net of a whole 2 new jobs!! Wow!! Our economy is really booming now!! Oh yeah, and he can’t afford to keep the housekeeper, gardner, pool boy, Mercedes, or the house for that matter, he’s lucky he can still feed Johnny and Timmy. And by the way, the stock market is all a bunch of hooey, so you keep hanging on to Apple, ’cause magically, maybe due to Steve Jobs reality distortion field, it’ll go up while the rest of the economy takes it in the rear.
8. 2007-2012 Fed desperately pulls the interest lever back and forth trying to stimulate the economy out of its hole. All to no avail. People start wondering how this “Fed” thing got started anyway, and what good has it brought anyone.
9. 2010-2015 Soft landing is still anticipated by the media.
10. you get the idea…
…ok, so not everyone has an ARM, not everyone helped make this mess, however, we’re all on the same boat. The USS Sinking Ship. So some will come out of this unscathed or even better off than before, the majority won’t.