Real US Housing Losses Are $6 Trillion
Daniel R. Amerman, CFA,
InflationIntoWealth.com
http://the-great-retirement-experiment.com/Products/
Six%20Trillion%20Losses.htm
Overview
Actual losses in the US real estate market are much higher than what you have been reading in the newspapers recently. Using a combination of official government statistics and the most widely used index of housing values, we will demonstrate that the US real estate market has lost a total of $6 trillion in value in the last two years. We will show that an average house that was worth about $226,000 in 2006 is, once you adjust for inflation, down to a real value of only about $160,000. To put what a $6 trillion loss is into perspective, we will show that when all factors are taken into account, the two year drop in US real estate values is equivalent to wiping out the entire retirement savings of all 78 million Baby Boomers, and annual housing losses are close to the annual GDP of China. We will close by talking about how this national disaster creates major personal profit opportunities for people who can learn to look beyond the false number of nominal dollars and into the reality of how wealth is rapidly redistributed during times of economic turmoil.
Four Steps To Finding Total Real Estate Losses
To understand the full extent of US real estate value losses requires a four step process: 1) Find the average loss in dollar terms for single family homes; 2) Find the decline in the value of a dollar during the same period; 3) Combine the fall in housing values with the fall in the value of the dollar to find the real housing loss, not in dollars, but in purchasing power, or what a dollar will buy for you; and 4) Determine the loss for the US economy as a whole.
Step 1: Average Loss Per Home (Simple Dollars)
Step 2: Decline In The Value Of A Dollar
Step 3: Adjust Housing Decline For Loss In Value Of Dollar
Step 4: Add Up Losses For All US Households
What Happens When 50 Million Boomers Try To Cash Out $44 Trillion In Paper Wealth?
http://the-great-retirement-experiment.com/
Saturday, September 6, 2008
Friday, September 5, 2008
Gold demand soars. Price falls. What's going wrong?
Gold demand soars. Price falls. What's going wrong?
Lawrence Williams
Sep 03, 2008
http://www.mineweb.com/mineweb/view/
mineweb/en/page33?oid=61431&sn=Detail
LONDON - Physical demand for gold is surging but the price keeps taking serious knocks. What's happening.
Gold market manipulation conspiracy theorists should be having a field day. The past few weeks have seen solid evidence that physical gold demand from individuals is soaring. We have seen the U.S. Mint having to suspend one ounce Gold Eagle coin sales because of what it terms ‘unprecedented demand', Indian gold sales have picked up enormously in the past few weeks leading to purchasers having to wait several days for deliveries as the traditional sellers are short of gold, while yesterday we hear that Abu Dhabi, a major trading centre for precious metals, has seen gold sales rise by 300 percent in volume and 250 percent in value in August compared with a year ago.
According to a Reuters report quoting Abu Dhabi Gold and Jewellery Group Chairman Tushar Patni "It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year. We had never expected that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday."
Lawrence Williams
Sep 03, 2008
http://www.mineweb.com/mineweb/view/
mineweb/en/page33?oid=61431&sn=Detail
LONDON - Physical demand for gold is surging but the price keeps taking serious knocks. What's happening.
Gold market manipulation conspiracy theorists should be having a field day. The past few weeks have seen solid evidence that physical gold demand from individuals is soaring. We have seen the U.S. Mint having to suspend one ounce Gold Eagle coin sales because of what it terms ‘unprecedented demand', Indian gold sales have picked up enormously in the past few weeks leading to purchasers having to wait several days for deliveries as the traditional sellers are short of gold, while yesterday we hear that Abu Dhabi, a major trading centre for precious metals, has seen gold sales rise by 300 percent in volume and 250 percent in value in August compared with a year ago.
According to a Reuters report quoting Abu Dhabi Gold and Jewellery Group Chairman Tushar Patni "It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year. We had never expected that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday."
Thursday, September 4, 2008
Is the 2007 U.S. Sub-Prime Financial Crisis So Different?
Is the 2007 U.S. Sub-Prime Financial Crisis So Different?
An International Historical Comparison*
Carmen M. Reinhart
University of Maryland and the NBER
and
Kenneth S. Rogoff
Harvard University and the NBER
Feb 5, 2008
http://www.economics.harvard.edu/faculty/rogoff/files/
Is_The_US_Subprime_Crisis_So_Different.pdf (PDF, 40 KB)
As a benchmark for the 2007 U.S. sub-prime crisis, we draw on data from the eighteen bank-centered financial crises from the post-War period, as identified by Kaminsky and Reinhart (1999) and Gerard Caprio et. al. (2005):
These crisis episodes include:
The Five Big Five Crises: Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992), where the starting year is in parenthesis.
Other Banking and Financial Crises: Australia (1989), Canada (1983), Denmark (1987), France (1994), Germany (1977), Greece (1991), Iceland (1985), and Italy (1990), and New Zealand (1987), United Kingdom (1974, 1991, 1995), and United States (1984).
The "Big Five" crises are all protracted large scale financial crises that are associated with major declines in economic performance for an extended period. Japan (1992), of course, is the start of the "lost decade," although the others all left deep marks as well.
The remaining rich country financial crises represent a broad range of lesser events. The 1984 U.S. crisis, for example, is the savings and loan crisis. In terms of fiscal costs (3.2 percent of GDP), it is just a notch below the "Big Five". Some of the other 13 crisis are relatively minor affairs, such as the 1995 Barings (investment) bank crisis in the United Kingdom or the 1994 Credit Lyonnaise bailout in France. Excluding these smaller crises would certainly not weaken our results, as the imbalances in the run-sup were minor compared to the larger blowouts.
An International Historical Comparison*
Carmen M. Reinhart
University of Maryland and the NBER
and
Kenneth S. Rogoff
Harvard University and the NBER
Feb 5, 2008
http://www.economics.harvard.edu/faculty/rogoff/files/
Is_The_US_Subprime_Crisis_So_Different.pdf (PDF, 40 KB)
As a benchmark for the 2007 U.S. sub-prime crisis, we draw on data from the eighteen bank-centered financial crises from the post-War period, as identified by Kaminsky and Reinhart (1999) and Gerard Caprio et. al. (2005):
These crisis episodes include:
The Five Big Five Crises: Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992), where the starting year is in parenthesis.
Other Banking and Financial Crises: Australia (1989), Canada (1983), Denmark (1987), France (1994), Germany (1977), Greece (1991), Iceland (1985), and Italy (1990), and New Zealand (1987), United Kingdom (1974, 1991, 1995), and United States (1984).
The "Big Five" crises are all protracted large scale financial crises that are associated with major declines in economic performance for an extended period. Japan (1992), of course, is the start of the "lost decade," although the others all left deep marks as well.
The remaining rich country financial crises represent a broad range of lesser events. The 1984 U.S. crisis, for example, is the savings and loan crisis. In terms of fiscal costs (3.2 percent of GDP), it is just a notch below the "Big Five". Some of the other 13 crisis are relatively minor affairs, such as the 1995 Barings (investment) bank crisis in the United Kingdom or the 1994 Credit Lyonnaise bailout in France. Excluding these smaller crises would certainly not weaken our results, as the imbalances in the run-sup were minor compared to the larger blowouts.
Wednesday, September 3, 2008
Did You Ever Think A Financial Crisis Would Feel Like This?
Did You Ever Think A Financial Crisis Would Feel Like This?
By Vadim Pokhlebkin
Fri, 29 Aug 2008 11:00:00 ET
http://www.elliottwave.com/freeupdates/archives/2008/08/29/
Did-You-Ever-Think-A-Financial-Crisis-Would-Feel-Like-This.aspx
The credit crunch has already been more damaging than any of the financial crises of the past two decades.
But it's amazing how fast the seeming normalcy of our present situation disappears once you scratch the surface. Just try typing "great depression" into Google News. Then, you get:
"Slowdown echoes Great Depression, says Bank's deputy chief."
"S&P on track for 4th-most volatile year since Great Depression."
"...the US housing market currently suffering the worst downturn since the Great Depression."
And these are just the most recent news reports. On top of that, take a look at this chart The Economist published in its May 15 article, "Paradise lost":
http://www.economist.com/specialreports/displayStory.cfm?story_id=11325347
It's a real eye-opener, isn't it: Through April of this year, the credit crunch had already caused more monetary harm than any of the notable financial crises of the past two decades, including the proverbial stock market crash of 1987 and the dotcom bubble!
One estimate for the damage from the ongoing liquidity crisis says that, "The global financial crisis could lead to losses of 1,600 billion dollars for financial institutes." (SonntagsZeitung)
By Vadim Pokhlebkin
Fri, 29 Aug 2008 11:00:00 ET
http://www.elliottwave.com/freeupdates/archives/2008/08/29/
Did-You-Ever-Think-A-Financial-Crisis-Would-Feel-Like-This.aspx
The credit crunch has already been more damaging than any of the financial crises of the past two decades.
But it's amazing how fast the seeming normalcy of our present situation disappears once you scratch the surface. Just try typing "great depression" into Google News. Then, you get:
"Slowdown echoes Great Depression, says Bank's deputy chief."
"S&P on track for 4th-most volatile year since Great Depression."
"...the US housing market currently suffering the worst downturn since the Great Depression."
And these are just the most recent news reports. On top of that, take a look at this chart The Economist published in its May 15 article, "Paradise lost":
http://www.economist.com/specialreports/displayStory.cfm?story_id=11325347
It's a real eye-opener, isn't it: Through April of this year, the credit crunch had already caused more monetary harm than any of the notable financial crises of the past two decades, including the proverbial stock market crash of 1987 and the dotcom bubble!
One estimate for the damage from the ongoing liquidity crisis says that, "The global financial crisis could lead to losses of 1,600 billion dollars for financial institutes." (SonntagsZeitung)
Tuesday, September 2, 2008
The End of Neo-liberalism?
The End of Neo-liberalism?
by Joseph E. Stiglitz
Project Syndicate
July 01, 2008
http://www.project-syndicate.org/commentary/stiglitz101
NEW YORK - The world has not been kind to neo-liberalism, that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well. It was this market fundamentalism that underlay Thatcherism, Reaganomics, and the so-called "Washington Consensus" in favor of privatization, liberalization, and independent central banks focusing single-mindedly on inflation.
For a quarter-century, there has been a contest among developing countries, and the losers are clear: countries that pursued neo-liberal policies not only lost the growth sweepstakes; when they did grow, the benefits accrued disproportionately to those at the top.
Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.
by Joseph E. Stiglitz
Project Syndicate
July 01, 2008
http://www.project-syndicate.org/commentary/stiglitz101
NEW YORK - The world has not been kind to neo-liberalism, that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well. It was this market fundamentalism that underlay Thatcherism, Reaganomics, and the so-called "Washington Consensus" in favor of privatization, liberalization, and independent central banks focusing single-mindedly on inflation.
For a quarter-century, there has been a contest among developing countries, and the losers are clear: countries that pursued neo-liberal policies not only lost the growth sweepstakes; when they did grow, the benefits accrued disproportionately to those at the top.
Neo-liberal market fundamentalism was always a political doctrine serving certain interests. It was never supported by economic theory. Nor, it should now be clear, is it supported by historical experience. Learning this lesson may be the silver lining in the cloud now hanging over the global economy.
Monday, September 1, 2008
The Death of the Credit Card Economy
The Death of the Credit Card Economy
By Daniel Gross
Aug 30, 2008
http://www.slate.com/id/2198942/
It wasn't until Bank of America began carpet-bombing California with credit-card applications in the 1960s that the debt wave started in earnest.
In the decades since, consumer credit became so pervasive that paying cash became passé. Whip out that plastic. It was this behavior - the endless willingness of lenders to lend and borrowers to borrow - that kept the consumer economy humming uninterrupted from the early 1990s, straight through the brief recession of 2001, until the credit meltdown of 2007.
This shock to the system may further damage the already-fragile psychology of the consumer. Leverage is an appropriate synonym for credit because it allows you to lift more than you could with simply your own financial muscle. Take away the leverage, and the power lifter becomes a 98-pound weakling.
That's clearly a factor in the housing market. In 2007, according to the National Association of Realtors, 45 percent of first-time homebuyers put no money down, and the median first-time homebuyer financed a massive 98 percent of the purchase. But no-money-down mortgages, like Rudy Giuliani's presidential candidacy, began fading in late 2007 and largely disappeared in the cruel winter of 2008. No wonder existing home sales fell 13.2 percent in July from last year while new home sales plummeted 35.3 percent.
By Daniel Gross
Aug 30, 2008
http://www.slate.com/id/2198942/
It wasn't until Bank of America began carpet-bombing California with credit-card applications in the 1960s that the debt wave started in earnest.
In the decades since, consumer credit became so pervasive that paying cash became passé. Whip out that plastic. It was this behavior - the endless willingness of lenders to lend and borrowers to borrow - that kept the consumer economy humming uninterrupted from the early 1990s, straight through the brief recession of 2001, until the credit meltdown of 2007.
This shock to the system may further damage the already-fragile psychology of the consumer. Leverage is an appropriate synonym for credit because it allows you to lift more than you could with simply your own financial muscle. Take away the leverage, and the power lifter becomes a 98-pound weakling.
That's clearly a factor in the housing market. In 2007, according to the National Association of Realtors, 45 percent of first-time homebuyers put no money down, and the median first-time homebuyer financed a massive 98 percent of the purchase. But no-money-down mortgages, like Rudy Giuliani's presidential candidacy, began fading in late 2007 and largely disappeared in the cruel winter of 2008. No wonder existing home sales fell 13.2 percent in July from last year while new home sales plummeted 35.3 percent.
Sunday, August 31, 2008
Who Will Suffer Least From Depression?
Who Will Suffer Least From Depression?
John Browne
Euro Pacific Capital
August 27, 2008
http://www.europac.net/externalframeset.asp?from=home&id=13828
Though few may have noticed, the past few weeks may be regarded as a global economic turning point. Evidence is mounting that the United States is entering a recession, with increasing signs that it could morph into a depression. While the current Administration appears resigned to bail out or nationalize large tracts of American commerce, the presidential candidates drift towards Great Society era spending proposals. At the same time, America’s principal economic rivals appear to be charting courses that are not in line with U.S. interests.
For two years I have warned readers of a severe, real estate led recession and encouraged extreme asset allocations to cash, particularly short-term, hard currency government bonds, and gold. Last year, I urged short positions in financials and U.S. stock markets. Some ridiculed me. The financials are currently down some 84 percent. Apparently, the real estate crash is biting deeper than just about any market "expert" had imagined.
The size of the problem is enormous. A fall of just 20 percent in U.S. house values, (which is confirmed by the latest Case Shiller data release) wipes almost $5 trillion from the wealth of American consumers and businesses. This amounts to more than one third of America’s GDP and half of the total U.S. Government debt! How could the fallout be anything less than systemic?
John Browne
Euro Pacific Capital
August 27, 2008
http://www.europac.net/externalframeset.asp?from=home&id=13828
Though few may have noticed, the past few weeks may be regarded as a global economic turning point. Evidence is mounting that the United States is entering a recession, with increasing signs that it could morph into a depression. While the current Administration appears resigned to bail out or nationalize large tracts of American commerce, the presidential candidates drift towards Great Society era spending proposals. At the same time, America’s principal economic rivals appear to be charting courses that are not in line with U.S. interests.
For two years I have warned readers of a severe, real estate led recession and encouraged extreme asset allocations to cash, particularly short-term, hard currency government bonds, and gold. Last year, I urged short positions in financials and U.S. stock markets. Some ridiculed me. The financials are currently down some 84 percent. Apparently, the real estate crash is biting deeper than just about any market "expert" had imagined.
The size of the problem is enormous. A fall of just 20 percent in U.S. house values, (which is confirmed by the latest Case Shiller data release) wipes almost $5 trillion from the wealth of American consumers and businesses. This amounts to more than one third of America’s GDP and half of the total U.S. Government debt! How could the fallout be anything less than systemic?
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