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Wednesday, March 23, 2011
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14 comments:
HB Says
"I'm pretty sure that Bernanke does not have the right to chose to enforce or not enforce laws. That is up to the people who make laws, the police and the judicial system. "
Bernanke may not legally have the right, but, he's the Cop, and he's sitting there eating donuts and having a coffee instead of going out and shaking down those suspicious characters under the street lights.
The Banks are supposed to move inventory fast. Something goes into default, they are supposed to throw a NOD, take a reserve, move to trustee sale, and get out fast.
Instead the banks have been dallying. which is unfortunate. it's causing things to strangle slowly.
Japan tried this strategy in the 90's, it's still not working.
Fukushima may be the only thing to restart their economy.
Cheryl
I think there are 3 wild cards locally, 2 probable, one low probability.
1) Inventory: We all wonder what the real levels are of shadow inventory and what. I found some solid data indicating it had tripled from 2000, but, what it really is, is uncertain.
2) Interest rates: They've been crashing short term rates to drag down long term rates, recently long term rates have jumped a point and that has caused a jump into ARMS again. If rates rise, it makes it harder to drive organic sales.
3) Federal spending: If the feds actually start trimming, it hits here. I was at a DoD conference last week, only 30% the usual suspects showed, because the major primes had no travel money.
Pat-
I think the demographic problems in Japan are probably more to blame than the way banks were handled. Japan's population was increasing at ~1%/year from 1960s through the early 1990s. Over the last two decades there population has only increased 3%. Going from a growing growing population to a flat population puts a lot of deflationary pressure on prices, because supply continues to grow through gains in efficiency, but demand does not grow.
HB
Japan had a large vigorous export sector, it was what drove things, so any productivity improvements were soaked up by the markets they were exploiting.
Remember Japan invented the market of Light armored vehicles by welding machine guns into the beds of toyota pickups.
What hosed them IMHO was they had a massive real estate bubble and they
instead of letting it pop and bankrupt the banks and debtors they kept letting banks flip and repackage dead loans.
So you have people paying on 100 year mortgages on wildly underwater properties.
Japan poured out money on Zero Interest and Negative Interest with zero results.
pat,
1. A triple from 2000 is not that surprising given what housing has been through in the past 4+ years. Locally, reo's are down over 30% YOY (per FX CTY).
2. I haven't heard anyone predict a significant change in interest rates near term. We have seen some fluctuation due to the rush to treasuries caused by geopolitical events and now a reversal due to a perceived over-reaction.
3. Spending. I'd bet we are the least affected by any spending cut-backs. Hard to cut defense in light of current events.
Pat-
Japan's current account surplus has remained pretty flat at ~3% since the 1980s, so the percent of their GDP being exported has remained pretty flat so the weak internal consumption is a problem.
You are correct that Japan had a terrible real estate bubble and as the bubble slowly popped it caused economic weakness for a long time; however, I don't know why you think it would have been better to let prices fully deflate immediately. In the few examples where the government let prices crumble the economy also suffered for very long periods of time. If you don't support prices than all the banks become insolvent, loans can not be made so employees can not be paid so goods are not bought... Deflationary cycles tend to be absolutely terrible for economies and last a long time without support e.g. the long depression lasted 25 years and the great depression lasted 10-15 years and only ended, because there was a world war. If you think that if housing prices fell 50-75% and all banks failed wouldn't have caused another depression I think you are mistaken and should do some research on how interconnected the economy and businesses.
"Pat said...Instead the banks have been dallying. which is unfortunate. it's causing things to strangle slowly."
It depends doesnt it? Nationally? I suppose it is strangling slowly. Then again, thats their only choice itnt it? Now that MTM accounting is relaxed, they will only take so large a monthly loss as they can offset via incoming profits. Banks will not want to risk being insolvent and potentially nationalized as they were in early 2009.
Also, not everywhere is "strangling slowly". Here, drip drip drip has been the policy since 2009 and prices have been rising ever since...
"housebuyer said...
Pat-
I think the demographic problems in Japan are probably more to blame than the way banks were handled."
Agreed. Frankly, im so sick of everyone making comparisons to Japan when their demographics are totally different than here in the US.
They say that demographics is destiny, and no where is that more true than in Japan. If their population declines as projected, they face another 20-30 even 40 years of deflation as there are fewer and fewer people out there to continue to circulate money throughout their economy.
That in and of itself is going to be crushing to their economy. I mean, think about it for a second -- Japan has roughly 125 million people, and a 8 trillion dollar debt (64K per person). Imagine how bad its gonna suck when there are only 110 million people to support that same 8 trillion debt (72K per person)?
That said, even with the Boomer die off, the US does NOT have population loss in its future. Thus, to continue to compare our situation with that of Japan, while completely ignoring the massive demographics differences is pure folly.
Anon,
On a related note, I was reading an article the other day that was discussing the consumption of electronic goods in Japan vs the US. There was an overriding theme that in Japan the oldest generation is really sitting on a ton of wealth unwilling to spend it. They were discussing how there needs to be a generational shift of this wealth for certain markets to open up.
This is a window into a vast cultural difference between the US and Japan.
Heck, on yet another related note, even CNN HL News was commenting on how orderly and polite the desperate lines for fresh food and water were, people calmly waiting for hours, in the wake of the disaster. Totally different culture.
My $0.02
"contrarian said...
federalnewsradio.com
There were no COLAs in 2010 or 2011 because inflation was flat, and there were several months when the CPI-W dropped because of deflation."
Thats right -- there "were" several months of deflation -- not that there "are" but there "were" as in past tense:
http://www.ssa.gov/OACT/STATS/cpiw_graph.html
Deflation has now been over for 2+ years now. Dont you forget that...
Per today's Washington Business Journal:
The DC area gained 40,800 jobs in January, well exceeding National numbers.
(YOY) twice the national average.
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