A major factor that gets overlooked is consumer confidence in the economy.  If this thread, and certain individual's "only focus on the bad" blinders, is any indication of that confidence, we are in a world of sh!te.

 

Consumer Confidence is clearly important.

 

In Sept. 2007 before the recession started Consumer Confidence Index was about 110 (100 is the base). Sept. 2010 CCI is at 48.5 (a drop of 4.7 from Aug.). It has not been this low since the benchmark year for the index was set in 1985.

 

I think this thread is right with the average opinion of Main Street on our current economy. It sucks.

Private sector sheds 39,000 jobs in Sept: ADP

 

"WASHINGTON (MarketWatch) -- Employment in the U.S. private sector fell by 39,000 in September, the first drop since January, according to the ADP employment report released Wednesday.

 

Oh boy...but isn't there always a dropoff in September as the peak tourism season comes to a close?

 

 

Yes,

But this was not expected. It also put employment numbers down significantly from September of 2009 and 2008 (the so called heart of the recession). YOY continues to get worse, not better. This is one major reason having the recession called over is useless. On the street things have not improved, and on the private sector employment side they continue to deteriorate.

http://www.adpemploymentreport.com/

 

I also think this continuing lose in the private sector job world is going to put a lot more pressure on commercial and office real estate.

 

From Gramarye:

  "Therefore, to continue high levels of employment, we need a level of growth and job creation sufficient to match the jobs that are made redundant or automated, as well as to handle our population growth."

 

    Reminds me of economist Karl Marx. Didn't Marx say that capitalism requires growth, and since the economy can't grow forever, capitalism is doomed eventually?

 

    Textbook economics says that there are three components to the economy: Land, labor, and capital. Perhaps a more appropriate description would be Natural Resources, Labor, and Capital. Of those 3, Natural Resources are limited, at least on earth.

 

    There is no such thing as sustainable growth, at least on earth. Even steady 1% growth will end eventually.

 

    Whether we are at a peak, or THE peak, has yet to be seen. It is NOT a given that the economy will ever again experience the same sustained growth rates of the last century.

 

From Gramarye:

  "Therefore, to continue high levels of employment, we need a level of growth and job creation sufficient to match the jobs that are made redundant or automated, as well as to handle our population growth."

 

Reminds me of economist Karl Marx. Didn't Marx say that capitalism requires growth, and since the economy can't grow forever, capitalism is doomed eventually?

 

Marx was wrong about the limits to growth, however.  The world economy has grown beyond the wildest dreams of even the optimists of Marx' day, let alone the pessimists who believed that basically the world's wealth had already been created and that the focus should shift to distributing it.  It's easy to lose sight of that in the midst of the recession, but that hasn't changed.

 

Marx was also wrong about his notion that it would be possible to build an alternative model that did not require growth, to the extent that he posited that his system would accomplish that.  (I admit that I have not read the Communist Manifesto.)  The requirement of economic growth would be implicit in the mere existence of population growth, so unless he promised to both squelch population growth and technological growth (in order to choke off the potential for automation), his system (and anyone else's) would have to deal with that reality.

 

Textbook economics says that there are three components to the economy: Land, labor, and capital. Perhaps a more appropriate description would be Natural Resources, Labor, and Capital. Of those 3, Natural Resources are limited, at least on earth.

 

Natural resources are more commonly designated as a form of capital, not a form of land, I think.  In truth, it would be possible to collapse land and capital into one category, capital, and ignore where natural resources should fall as between the two of them.  I believe that most businesses count land as just another capital cost, in practice.

 

All natural resources are theoretically limited in their availability, though the natural resource of sunlight is much less limited than the natural resource of uranium.  However, those limits do not impose hard limits, or even very much in the way of soft limits, on real growth.  For example, for all that land is theoretically finite, there are certainly places where it can be obtained in abundant quantities cheaply, if one can be even moderately flexible about one's location.  (More "land" can be created by building vertically, of course.)  Witness the collapse of the real estate markets--residential and commercial, now.  Similarly, for all that iron, nickel, copper, zinc, etc. are theoretically finite, we are in no danger of running out of them, even without recycling existing products containing those materials.  The spikes in prices for most of those commodities in the middle of this decade were driven by monetary factors, not underlying fundamentals (which was illustrated starkly when the monetary situation changed).

 

There is no such thing as sustainable growth, at least on earth. Even steady 1% growth will end eventually.

 

This is an extremely defeatist, cynical, and unsupportable assertion.  Two years of recession and you give up on the future of the world economy?  I'm sure that there were people saying the same thing throughout the Great Depression.  They were probably far more likely to remain left behind in the postwar economic boom than those who maintained their optimism through the economic turbulence.

 

Regardless of your time horizon--ten years, a thousand years, a million--there are no limits to the creative potential of humanity.  Since that is what really drives the economy, there is no reason to think that we're somehow close to having produced all the wealth that there is to produce.  That's even further from being true today than it was in Marx', because there are more innovative people in the world today than there were then.

 

Whether we are at a peak, or THE peak, has yet to be seen. It is NOT a given that the economy will ever again experience the same sustained growth rates of the last century.

 

I actually consider it by far more likely that we will experience real rates of growth--in terms of the actual, material increases in standard of living that indicate real wealth, not the nominal figures in our bank accounts, though I imagine those will increase, too--that are astronomical in comparison to the rates of growth we have experienced over the past 100 years.  In large part, this will be due to growth in our technological capabilities, which has historically been <a href="http://www.kurzweilai.net/the-law-of-accelerating-returns">exponential, not linear</a>.  However, that technological growth is highly likely to translate into broad economic growth as well; indeed, it has consistently done so ever since the Industrial Revolution, and even before, though more slowly.

 

Ask yourself this: Even now, in the midst of the recession, are you better off than your parents were at your age?  For the vast majority of Americans, the answer is yes.  For my own sake, the answer is "hell yes."  For billions beyond America's borders, the answer is an even more resounding yes.

 

The only thing that could really check economic growth over the long term would be a genuine shooting war between the industrialized nations--WWIII.

Our ability to automate jobs also continues to grow.  Therefore, to continue high levels of employment, we need a level of growth and job creation sufficient to match the jobs that are made redundant or automated, as well as to handle our population growth.

 

The Chicago Fed has a running economics commentary (similar to what the Cleveland Fed has), and they discuss that increase in productivity...in manufacturing:

 

"By 2006, the U.S. economy employed about as many workers in manufacturing as in 1950, just over 14 million. And so, looking at manufacturing employment alone leads one to believe that the sector is in decline or at best stagnant.

 

However, a very different conclusion emerges if you focus on the amount of goods being produced by the manufacturing sector. While employment has changed very little over the past 60 years,[3] output in manufacturing has increased at an annual rate of 3.4%. Manufacturing output in 2007 (the recent peak in manufacturing output) was over 600% higher than in 1950. "

 

Bill Testa on the Midwest Economy ...scroll down to the August 19th entry entitled "Is Manufacturing Dissappearing"?

 

 

Reminds me of economist Karl Marx. Didn't Marx say that capitalism requires growth, and since the economy can't grow forever, capitalism is doomed eventually?

 

Marx also commented about needing a "reserve army of the unemployed" to hold down wages.  Which is a good thing if you are worried about the wage-price spiral as a contributor to inflation.

 

* * * *

 

Back to the economy.  That Bill Testa blog I linked to in the previous post has some interesting info on exports, how they seem to be doing pretty good....

 

 

"Looking out over the longer term, many analysts foresee a fundamental reorientation of the U.S. economy toward production and exports—led by a shift in demand by developing nations for U.S. products and services....tomorrow’s realignments may include a U.S. economy that shifts its production capabilities toward serving overseas markets."

 

 

"may include"....if there is maybe a trade policy in place to encourage and facilitate this. 

So a recession ends with permanent 9%+ unemployment rate?? Or more than when the recession started. It don't make sense

 

That was the trend.

 

Back in the 1950s/1960s, 3% to 4% was considered full employment and 6% -7% was considered recessionary levels of unemployment.

 

Then, in the later 1980s the assumption changed to 6% being full employment.

 

Then, in the later 1990s we were back to around 4% unemployment, equivilant to the postwar boom years. 

 

Don't recall what the numbers were for the 2000s, but we seem to be moving back to the 1980s, where 6%..or maybe higher as you suspect...is considered "normal" non-recession unemployment rates. 

 

In reality the actual jobless number will be higher since the unemployment figure doesnt count everyone who doesnt have a job or has stopped looking for a job.  That's why I and some others look at the "employment" number, to see how many jobs an economy is producing. That "employment" number has fallen a huge amount during this recession and it will be years to recover from the drop, even if the ecomomy itself grows in production, GDP, etc...

A quick look at what is going on the world economic stage. Its a race to create jobs to head off unrest within a country.

 

China Asks The World Not To Beat The Yuan

 

"China’s Premier Wen Jiabao has told European leaders that if they join the US in an effort to devalue the yuan that all will regret the decision. “I say to Europe’s leaders: don’t join the chorus pressing [China] to revalue the yuan,” Wen said."

 

Read more: China Asks The World Not To Beat The Yuan - 24/7 Wall St. http://247wallst.com/2010/10/07/china-asks-the-world-not-to-beat-the-yuan/#ixzz11ggWcw2A

 

IMF chief warns about lack of cooperation

Strauss-Kahn says currency war bad for global economy

 

"WASHINGTON (MarketWatch) -- Cooperation on the global economy is “decreasing,” the head of the International Monetary Fund said Thursday, as he warned countries about the risks of a so-called currency war."

http://www.marketwatch.com/story/imf-chief-says-global-cooperation-falling-2010-10-07

 

Race to the bottom in currency markets

Commentary: Just another form of protectionism

 

"SAN FRANCISCO (MarketWatch) — Avoid protectionism.

 

If there’s been one mantra among political and economic leaders since the financial crisis rocked the world two years ago, it’s been to avoid protectionist policies at all costs.

 

History tells us, if not Federal Reserve Chairman Ben Bernanke, that it was the headlong rush among countries into protectionist trade policies after the stock market crash of 1929 and subsequent financial crisis that sent the world spiraling into the Great Depression in the 1930s."

http://www.marketwatch.com/story/race-to-the-bottom-in-currency-markets-2010-10-07

 

  "Are you better off than your parents were at your age?"

 

  Depends on what you are measuring, but all in all, probably so. But that's not the point. The question is whether or not the next generation will be better off than this one.

 

    I concede that this country has had widespread economic growth for the last century, and especially for the decades of the 40's, 50's, and 60's. However, the rate of growth declined starting in the 1970's.

 

    There was a time when my grandfather received 18% interest on municipal bonds. So, he was able to retire comfortably at age 50. How many people can expect that kind of return today?

   

Do you really think the country would be better off if all of our various government units were paying 18% interest on their debts?  Those debts are paid with your tax dollars, you know--and the more the government (any government) has to pay in interest, the more constrained its options are for necessary public improvements.  Obviously, as a libertarian, I imagine my vision of how many public programs are necessary differs from yours--but I nevertheless still concede that some are necessary, and would much rather see the government borrowing at 1% or 3% than 18%.

 

As to whether the next generation will be better off than this one: In absolute terms, count on it.  In relative terms, count against it; other parts of the globe, less encumbered by our tax and regulatory burdens, are apt to grow faster.  When you're #1, it doesn't take the whole rest of the world to pass you in order for you to lose your perch; it only takes one.  That said, the next generation will still be better off than we are because America is still a good place to do business and bring innovative ideas from concept to prototype to mainstream.  The Kurzweil essay I posted above is highly plausible, and the man has had an uncanny knack for predicting the pace of future technological developments.

 

The rate of growth started declining in the 1970s, but it picked up again in the 1980s and lasted for basically a quarter century.  Maybe this recession will have us lose a decade, but I doubt that, honestly.  I think we're going to be growing at a moderate, sustainable upward clip again even in 2011, let alone 2012.

History tells us, if not Federal Reserve Chairman Ben Bernanke, that it was the headlong rush among countries into protectionist trade policies after the stock market crash of 1929 and subsequent financial crisis that sent the world spiraling into the Great Depression in the 1930s."

 

The experience of the 1930s was one of the reasons thay tried to do economic coordination via the Bretton Woods agreements after WWII.  But that was a different world.

 

Depends on what you are measuring, but all in all, probably so. But that's not the point. The question is whether or not the next generation will be better off than this one.

 

This is in relative terms.  What we are seeing is the benefits of growth (in the US) getting concentrated into the professional/managerial/owning classess...actually to people most likely to post on this very message board (so perhaps a skewed POV at UO).

 

In the 1950s and 1960s into the 1970s a bit the benefits of growth where distributed more generally in society, in part due to the sucess of the union movement (but I don't think that's the entire story).  After 1970 one saw the erosion of purchasing power due to inflation (during the 1970s) and the drop in wages due to the disappearance of manufacturing work and higher levels of joblessness depressing wages in general.  There was also an ongoing uptick in poverty (which has reached postwar highs during this recession).  This was concentrated in some places more than others, and with some groups more than others.  Blacks, for example, were hit hard by this economic shift (a good discussion is in the first chaper of "The Making of the Urban Crisis", but see also the work or Willaim Julius Wilson).

 

We are converging more to the Latin American model.  In Latin America, in some cases, they are seeing the benefits of their growth becoming more widely distributed.  I think this is what's happening in places like Brazil. 

 

But this isn't a big deal if you are a  "winner" in the winner-take-all society.  From the winners' POV, sure the future's so bright you've got to wear shades. 

 

 

 

 

 

 

It is true that parts of Latin America are seeing relatively equitable growth, but I would argue that is from a situation in which their poor are much worse off relative to our poor. Our problem is that the rich are zooming away from the rest of the society (toward the Latin American model), but the middle and working classes are feeling the threat of poverty in a way they haven't probably since the early 90s or even the early 80s.

"There was a time when my grandfather received 18% interest on municipal bonds. "

 

A very rare occurance in history, and he probably lost that interest rates within 2 years.....

 

Volker stopped stagflation in 1981 by raising interest rates very sharply.  But it only lasted a month or 2.  After that, rates began to drop very quickly, back to the 8-10% range, and then continued down to much lower rates. 

 

So the opportunity to buy bonds at 12-18% interest rates was a super-short spike and lasted only a couple of months.  Before that, you got 10%.  3 months later, probably 10%.

 

But here's the kicker... those institutions that had to borrow at that time added a 'recall' feature to their bonds that allowed them to recall the bonds before maturity and to re-issue at the prevailing market rate at that time.

 

So 2 years later, a LOT of corporate and government agencies recalled those 18% bonds and re-issued then at 8%. 

 

If your grandfather bought a long-term recallable bond in 1981 with an 18% interest rate, he probably did not get all the interest he planned on.

 

(note - my year may be off by 1, and my interest rate numbers may not be preceise, but they do convey the point of the spike and the later recalling of a substantial amount of bonds issued during the time-period)

Economy loses jobs at faster pace in September

Nonfarm payrolls down 95,000 as governments reduce rolls

 

"WASHINGTON (MarketWatch) — The U.S. economy lost 95,000 nonfarm jobs in September as local and state governments shed positions at a faster rate than the private sector was adding, the Labor Department reported Friday."

http://www.marketwatch.com/story/us-economy-sheds-95000-jobs-in-sept-2010-10-08?dist=countdown

 

And the ADP report showed that the private sector was losing jobs as well. Add in the growing foreclosure numbers, and the race around the world to devalue currency and we are clearly going to see more significant stimulus and QE.

 

You know its a pretty bad job market when the birth/death model doesn't save the day right before an election.

 

The good news is, the recession is over.

I think the increase in private sector employment is actually a positive sign; it might be muted by the one-time discharge of a large number of census workers, but everyone knew those jobs were temporary anyway.

You couldn't make this stuff up, even if you tried. What's a few more trillion and they usually estimate low. I am sure record Wall Street bonuses will also apply.

 

Banks' $4 trillion debts are 'Achilles’ heel of the economic recovery', warns IMF

 

"More taxpayer support is needed to ensure global financial stability despite the billions already pledged, the International Monetary Fund has warned, as banks remain the “achilles heel” of the economic recovery."

http://www.telegraph.co.uk/finance/economics/8043800/Banks-4-trillion-debts-are-Achilles-heel-of-the-economic-recovery-warns-IMF.html

  "Do you really think the country would be better off if all of our various government units were paying 18% interest on their debts?"

 

  Maybe 18% was a fluke; I don't know. But it seems that the overall growth rate was high in the 1940's, 50's, and 60's, much higher than today.

 

  The reason why municipalities could afford to pay high interest rates during that era is that they were growing at an unprecendented rate. Utility lines were being extended, flood control works were built, transportation infrastructure was improved, and so on. Municipalities would invest in infrastructure, and make a return on their investment through increased taxes, user fees, etc. It's no different than a private company taking out a loan, except that municipalities invested in public infrastructure and municipal bonds enjoyed tax-free status.

 

    This business model doesn't work anymore, at least in Ohio. Cities are still investing in infrastructure, but the growth just isn't there. New development is offset by decline somewhere else. One could argue that cities have overshot the market, and are stuck with the bill of maintaining too much infrastructure.

 

    Underlying the economy are natural resources. As the industrial revolution began in England and swept the world, natural resources have been depleted, or are on the way to becoming depleted, one by one. No longer can venture into the wilderness and trade in animal resources with the natives; no longer can one purchase land from the government and sell timber; the best farmland is already taken; the best mineral deposits have already been mined out, or at least are active now.

 

    Some parts of the world got a later start, and are still in the phase of rapid growth. China, besides being located as far as possible from England, had it's growth suppressed by uncooperative governments for many years. Some places, such as most of Africa, simply lack natural resources. Get a map of hydrocarbon resources and productive farmland of the world. The developed parts of the world coorelate very well with either farmland or hydrocarbons, or both.

 

    Compare a person starting a business in 1960 with one today. In 1960, population was growing rapidly, and so was income. If you managed to make a profit, chances are that your profits would only grow along with the greater economy. Today, in an economy that is barely growing at best, it is much harder to start a business. When your customers die of old age, they are not replaced by new ones. When your custmer loses his job, he stops buying your products. In a zero-sum economy, the only way to get ahead is to displace someone else.

 

    In 1960, the pie was getting bigger, so everyone got more pie. Today the pie is barely changing, so to get more pie you have to take some from someone else. The hardest working, smartest, or luckiest, as the case may be, are doing better all the time, but look at the masses that are losing ground!

 

   

Municipalities don't pay high interest rates because they can "afford" to do so; they pay high interest rates because they are forced to do so, just like any other borrower.

I think the increase in private sector employment is actually a positive sign; it might be muted by the one-time discharge of a large number of census workers, but everyone knew those jobs were temporary anyway.

 

Agreed. 

 

When I look at employment numbers I look at the private sector numbers to see how the economy is doing.  This public sector stuff is "superstructure".

 

What we are seeing is the effect, in part, of reduced revenue due to the recession.  Seems to be a lag between public sector layoffs vs a vis private sector, probably due to fiscal year lags in revenue shorfalls translating to layoffs.  And there is that census stuff, too.  But more the effect of revenue shortfalls, methinks.

 

 

Here's a fun toy:

 

http://www.msnbc.msn.com/id/29976394/ns/business-stocks_and_economy

 

It shows the general trends of the economy going back to 1994 by state. If you click on each state you can get a list of the metros and some basic statistics like employment, housing starts, and industrial production.

I'd add that a large percentage of the stimulus money actually went to state and local gov'ts to prevent mass layoffs at the same time that the private sector was crashing (obviously w/ the hope that local tax revenues would rebound from the private sector as the feds shipped less money to the localities). I'll be honest so of the gov't layoffs are probably not good, but state and even some local gov'ts got rather fat over the last generation or so and I can't say that I'm sad that they will come out of this leaner (and hopefully more focused on core competencies). I'd argue that we are also seeing the pension problems come home to roost in that many localities are realizing that they will have to make massive payments into their pension plans to keep them solvent in a declining tax environment and poor investment returns - much of this can be laid at the feet of gov't unions over the last generation, who made civil servants ever better remunerated in cash as well as benefits. Whatever one thinks of private sector unions (I think they have their place in a market economy), public sector unions are an abomination upon the earth.

 

  "Municipalities don't pay high interest rates because they can "afford" to do so; they pay high interest rates because they are forced to do so, just like any other borrower."

 

    In terms of borrowing, municpalities follow the same economic laws as every one else (neglecting artificial tax advantages).  Bonds are rated by commercial rating agencies, and investors have to balance the effects of interest rates and risk.

 

    Suppose a city is extending water mains at a rate of 10 miles of pipe per year, and their water revenues are increasing by 10% per year. Another city is extending water mains at a rate of 10 miles per year, and their water revenues are increasing by 5% per year. Which one would you invest in? Even worse, what if the city is extending water mains and receiving declining revenues?

 

    In the 1940's, 50's, and 60's, cities were recieving increasing revenues. Now, they are stagnant if not decreasing. That's why cities could afford to pay high interest rates in the 1940's, 50's, and 60's and they cannot today.

 

    If you don't like my use of the words "afford to pay higher interest rates," perhaps you could suggest another phrase.

Forced.  They were forced to pay higher interest rates (and, as previously noted, 18% was a fleeting historical anomaly).  This was not a good thing at all.  The one saving grace of the current fiscal situation is that interest rates are low, and unfortunately, most of that low interest debt is also short term debt.  When it is compulsorily refinanced at higher interest rates later, it will not be a net benefit to society that some bond investors (institutional or consumer) will be able to get higher interest rates on that debt; the rest of us will be stuck paying those higher payments through our taxes.

 

Note that in your situation, it's the good credit risk (i.e., the one with more rapidly rising revenue) that could "afford" to pay more, but it is actually the one with lower quality credit that would have to pay the higher interest rate.  Like you said, governments follow the same economic laws as everyone else on this front.  (Or, as James Carville said, it would be great to die and come back to life as the bond market so you could intimidate everybody.)

 

  In a market economy, no one is "forced" to purchase anything. If a municipality wants to borrow money at a certain interest rate but cannot find a market for it, then the municipality simply won't borrow the money and won't build the project.

 

  Borrowers with unrealistic expectations are turned down all the time.

 

 

Very interesting conversation, guys.  You all clearly know what you're talking about.

 

From my rather lay perspective, terms like recession and depression are completely antiquated.  When it comes down to it, jobs are the only thing that matter, and there simply aren't any outside of a handful and decreasing number of fields, at least well paying ones.  And I am aware that jobs take a while to recover, but things are just terrible and there is really no reason to believe we'll ever get out of this rut.

Whatever one thinks of private sector unions (I think they have their place in a market economy), public sector unions are an abomination upon the earth.

 

You are only focusing on the benefits those unions get for their members (which is their duty).  What you may not realize is the constant battle between, for example, fire unions and the cities over minimum manning or equipment or minimally acceptable response time..... or police unions that fight city hall tooth and nail when the administration and council want to slash police presence in lieu of cutting their own bloated salaries.

 

Keep in mind also that the safety force unions are strike prohibited.  They can only "hard-bargain" to a point and then a neutral third party decides how the contract will read.

 

  In a market economy, no one is "forced" to purchase anything. If a municipality wants to borrow money at a certain interest rate but cannot find a market for it, then the municipality simply won't borrow the money and won't build the project.

 

Fair enough.  But nevertheless, they were "forced" in the sense that they were not given the option of borrowing at 3%.  They were not giving out 18% bonds out of the goodness of their hearts or because they wanted consumers to be able to buy high-yielding investments.

 

  In my field, we started using some new electronic equipment that resulted in doubling production in just one year, at a cost of just $300 per person and some training time. This was in 1996.

 

  So, for a given workload, our employment was cut in half.

 

  But did those remaining workers make twice as much pay as before? No. They made the same pay, with a slight inflationary raise. In fact, I think they took a pay cut in actual purchasing power, if not in nominal pay, due to inflation.

 

    Of course, the workload did not stay constant. For a while, we were producing twice as much as the previous year, with the same people. After a few years, the market changed, and half the company was laid off.

 

    Did the client and the overall economy benefit? Sure, because they ended up with more product for the same price. But at what point do those unemployed workers start to influence the economy because they are broke?

 

    Some refer to this as Marx's Capitalist Paradox.  Remember, Marx wrote the book on capitalism. If it wasn't for his later work, the Communist Manifesto, Marx would probably be more respected in the western world today.

 

    Basicly, Marx said, if companies keep replacing workers with machines, who is going to be left to buy the products? The answer, of course, is that the displaced workers go on to expand business in other areas. The key word is expand. Capitalism depends on growth.

 

    For many years, in fact, for over a century after Marx, the overall global economy has been expanding. Marx never dreamed of today's economy. Then again, the economy in Marx's time had not yet used many of earth's natural resources. Only a little bit of coal had been mined, petroleum had not been discovered in any appreciable amounts, and uranium hadn't been discovered yet. In Marx's day, there were still vast parts of the world with forest resources that had hardly been touched.

 

    Well, one by one the earth's vast resources have been depleted, or are on the way to becoming depleted.

 

    The 1700's in America were a period of unprecedented growth. The 1800's were likewise. The rate of growth slowed down around 1910, just about the same time that the world economy could be said to be global. The Great Depression of the 1930's were the first years that the economy in the United States had a substantial decline; the growth rates of the 1700's would never be seen again.

 

    During the 1930's, there was a renewed interest in Marx, and also in the Communist Party. Maybe Marx was right? However, with a return to growth after WWII, everyone was happy for a while again. Still, the growth of the 1940's, 50's, and 60's was not as rapid as it had been in the 1700's. The long term trend has been that growth is slowing.

 

    The mathematical projection of this long-term trend is that the economy will peak sometime this century.

 

    Does peak mean the end of the world? No, it does not. What it does mean is the end of economic growth. And the end of economic growth means the end of positive interest rates.

 

    My grandfather collected 18% interest on municipal bonds for a while. As I said before, maybe this was a fluke. Yet the average interest during my grandfather's life was high by today's standards, maybe 6 or 8 percent. He was able to retire and live off of his savings.

 

    Today, young people don't have much incentive to save money. Why bother investing money when you get around 1%? Inflation is probably more than that. Why, put some money in the bank, and it will be smaller in a year, in terms of purchasing power. Yes, there are opportunities to grow, but the average growth rate is very low. One person can win big at the horse race, but everyone can't win big.

 

    Watch the economic programs and you will hear things like "As soon as the recession is over," "When interest rates go back up," and things of that nature. Some of these folks are old enough to remember the 40's, 50's, and 60's, and think that those times were "normal." Younger folks can't remember those good years.

 

    Lots of older folks are counting on social security for retirement. After all, it seemed like a good idea in 1965. Anyone born after 1970 would be foolish to count on Social Security. Social Security was based on the assumption of steady growth indefinitely. Well, it didn't work out that way.

 

    The same goes for retirement plans of all kinds. Teachers in Ohio, for example, are invested in a fund that owns Key Tower in Cleveland. The idea was that construction of a tower would provide income in the form of rent as long as that tower is standing, which presumably will be for at least a hundred years. The assumption of course is that the tower will remain rented. If the tower goes vacant, Ohio's teachers will not be able to collect anticipated retirement benefits.

 

    Continued, steady growth far into the future is NOT a foregone conclusion! It is an assumption that may or may not happen.

 

    All of the present signs seem to conclude that our economy is peaking, or is at least slowing to no net growth. In the 1960's, the number of automobiles on the road was doubling every ten years; today, the number of miles driven is actually declining.

 

    Airline passenger miles peaked in the year 2000, and that was BEFORE 911!

 

    Ohio has lost an awful lot of jobs in the last 10 years. I know lots of people who are underemployed: folks who used to have high-paying full time professional jobs that are now working as part-time help in service jobs.

 

    Now Gramarye, I have heard your projection about technology. Yes, I agree that electronics have been enormously productive, and are likely to become even more so. My parent's didn't have cell phones or the internet when they were my age. But what they DID have was the ability to put their savings in a standard savings acount and earn 6% interest on it. They DO have some hope of retiring and living well off of their savings, plus interest.

 

    There is a widespread belief that the workers of today will be able to retire like their parents and grandparents did. This is based on the belief that things will continue the way they are. Most Americans these days who were born after 1970 have virtually no savings, no retirement plan, no pension, and no hope of receiving any Social Security. Yes, a small number of them have done very well, and you Sir, are probably one of the ones who is doing well. The vast majority, though, have not. People are really hurting, and it's not because they didn't work as hard as you did. Not everyone can be a winner in a horse race.

 

 

Basicly, Marx said, if companies keep replacing workers with machines, who is going to be left to buy the products? The answer, of course, is that the displaced workers go on to expand business in other areas. The key word is expand. Capitalism depends on growth.

 

Capitalism does not "depend" on growth.  It is simply supposed to ensure more growth (or smaller losses) than an alternative model, including Marxism or other forms of state control of resources.  Perhaps you mean that the success of capitalist societies is largely measured by how much growth they generate; this would be true, but equally true for command-and-control economies as well.  China is not capitalist, but they are dependent on growth.  Saudi Arabia is not capitalist, but is highly dependent on growth because growth increases the price of the one major economic asset Saudi Arabia has.  The "social democratic" countries of Western Europe are no less dependent on economic growth than we are; in fact, the entire point of the EMU was to facilitate it.

 

For many years, in fact, for over a century after Marx, the overall global economy has been expanding. Marx never dreamed of today's economy. Then again, the economy in Marx's time had not yet used many of earth's natural resources. Only a little bit of coal had been mined, petroleum had not been discovered in any appreciable amounts, and uranium hadn't been discovered yet. In Marx's day, there were still vast parts of the world with forest resources that had hardly been touched.

 

    Well, one by one the earth's vast resources have been depleted, or are on the way to becoming depleted.

 

The world is a long, long way from running out of natural resources, and of course, natural resources are only one ingredient in economic growth.  This dystopian thinking of yours is foolhardy when it's harmless banter on the Internet and truly dangerous when it begins to color national policy.

 

  The 1700's in America were a period of unprecedented growth. The 1800's were likewise. The rate of growth slowed down around 1910, just about the same time that the world economy could be said to be global. The Great Depression of the 1930's were the first years that the economy in the United States had a substantial decline; the growth rates of the 1700's would never be seen again.

 

  During the 1930's, there was a renewed interest in Marx, and also in the Communist Party. Maybe Marx was right? However, with a return to growth after WWII, everyone was happy for a while again. Still, the growth of the 1940's, 50's, and 60's was not as rapid as it had been in the 1700's. The long term trend has been that growth is slowing.

 

The mathematical projection of this long-term trend is that the economy will peak sometime this century.

 

  Does peak mean the end of the world? No, it does not. What it does mean is the end of economic growth. And the end of economic growth means the end of positive interest rates.

 

You obviously have no interest in abandoning your jaded view of humanity's future, so I'm not going to waste time compiling my usual litany of links about the promise of even the first 20 years of the 21st century, let alone the remainder of it.  I will simply say that I am betting strongly against you on this, however.  We will whether it is the optimist or the pessimist who comes out ahead in 30 years.  End of economic growth?  Seriously?  I honestly cannot believe that you can write that with a straight face.

 

  My grandfather collected 18% interest on municipal bonds for a while. As I said before, maybe this was a fluke. Yet the average interest during my grandfather's life was high by today's standards, maybe 6 or 8 percent. He was able to retire and live off of his savings.

 

Why are 6% interest rates on savings accounts good things?  All that means is that the banks have to charge more than that to people trying to find credit to expand businesses, add an addition to their home, or what have you.

 

Also, I have a feeling you'll start seeing interest rates in those ranges on FDIC-insured investments sometime within the next five years again.  If nothing else, it will happen when we inevitably start monetizing the debt that the Bush II and Obama administrations have run up.

 

  Today, young people don't have much incentive to save money. Why bother investing money when you get around 1%? Inflation is probably more than that. Why, put some money in the bank, and it will be smaller in a year, in terms of purchasing power. Yes, there are opportunities to grow, but the average growth rate is very low. One person can win big at the horse race, but everyone can't win big.

 

First, throwing money into a savings account or even an FDIC-insured CD barely counts as "investing."  What you really should be asking is why bother leaving money in a checking, savings, or money market account, or in short term U.S. Treasury notes.  That is a very good question, to which I have no answer, which is why I seldom keep more in my checking account than I need to pay currently due bills.  I hold several stocks that pay dividends above 6%, however.

 

Second, we have incentive to save money because it will buy more in real terms later than it will today, as long as technological growth is positive.  The computer I bought in 1996 and the one I bought in 2010 both cost around $2000.  Yet the one I bought earlier this year is by far the better product.  That is a real increase in my purchasing power notwithstanding the identity of the dollar figure.  Even with respect to staple goods where there isn't a whole lot of room for technical improvement, the purchasing power of the dollar has been holding steady.  Inflation is <a href="http://www.inflationdata.com/inflation/inflation_rate/currentinflation.asp">not much above that 1% you mentioned</a>.  That is the one saving grace of our current situation.

 

Lots of older folks are counting on social security for retirement. After all, it seemed like a good idea in 1965. Anyone born after 1970 would be foolish to count on Social Security. Social Security was based on the assumption of steady growth indefinitely. Well, it didn't work out that way.

 

Social Security is collapsing more for demographic than economic reasons.  Longer life expectancy (overall a very good thing) has meant that there are many fewer workers supporting each retiree.  The ratio was in the neighborhood of 30 to 1 when the system was implemented; it's close to 3 to 1 now.  If it hadn't been for prodigious efficiency gains over the past two generations, it would already have collapsed.

 

All of the present signs seem to conclude that our economy is peaking, or is at least slowing to no net growth.

 

No matter how many signs to contrary I cite, you're going to continue to believe this.

 

Now Gramarye, I have heard your projection about technology. Yes, I agree that electronics have been enormously productive, and are likely to become even more so. My parent's didn't have cell phones or the internet when they were my age. But what they DID have was the ability to put their savings in a standard savings acount and earn 6% interest on it. They DO have some hope of retiring and living well off of their savings, plus interest.

 

It is true that this is unlikely to hold true for future generations.  I don't consider that a particularly bad thing, for the reasons I stated earlier: it's at best a mixed blessing when standard savings accounts are paying 6%+.

 

There is a widespread belief that the workers of today will be able to retire like their parents and grandparents did. This is based on the belief that things will continue the way they are. Most Americans these days who were born after 1970 have virtually no savings, no retirement plan, no pension, and no hope of receiving any Social Security. Yes, a small number of them have done very well, and you Sir, are probably one of the ones who is doing well. The vast majority, though, have not. People are really hurting, and it's not because they didn't work as hard as you did. Not everyone can be a winner in a horse race.

 

Yes, but the market is not a horse race, or any other zero-sum game.  It is a positive-sum game.  There can be many more winners than losers.

Keep in mind that the recession technically ended in June 2009 before the Stimulus had any effect.  Now we're in the 14th straight month of 9.5% unemployment with no real hope in sight. I could recount all the bad figures but what's the point

 

From the Daily Kos:

 

Job losses much worse than estimated

by Meteor Blades

Sat Oct 09, 2010 at 02:16:03 PM PDT

 

Unemployment for the year ending March 2010 was worse than previously stated, the Bureau of Labor Statistics announced Friday as part of its monthly jobs report. There were 366,000 more Americans who lost their jobs than previously counted. But those depressing numbers, or something close to them, won't be officially added to the final official count until the January 2011 monthly jobs report is released in February. Those aren't the only numbers that demonstrate the economy to be worse off than it appears. But let's go one step at a time.

 

The chart below includes the BLS's revision.

 

 

more: http://dailykos.com/storyonly/2010/10/9/908937/-Job-losses-much-worse-than-estimated

 

  "Capitalism does not depend on growth."

 

  Capitalism and growth are inseparable. If you borrow capital to purchase a machine in order to produce more than you did before and pay off the debt as well, that is the very definition of capitalism.

 

  Do not confuse economic systems with political systems. China today runs a capitalist economy; so did the Soviet Union in the 1950's. Capitalism is by definition investment in tools and machines; this is what China is doing today and what the Soviet Union did. Now the Soviet Union had a political party called the Communist Party that ran a command economy, but that command economy was capitalist. Capitalism does not equal free enterprise.

 

  "Throwing money into a savings account barely counts as investing."

 

    Banks operate a number of services, mostly to do with two things: bookkeeping and investing. A pure checking account with no interest is pure bookkeeping, and purchase of stocks is investing. Between there are innumerable combinations of checking accounts that also offer interest and so on. Obviously, banks pool resources from small investors and invest institutionally, and make a profit on their ability to secure different interest rates in different markets. 

 

    "The world is a long, long way from running out of natural resources."

 

    "Running out" is not a good phrase to describe resource depletion. If you start with a million tons of coal and you use one ton, are you "running out?" How about if you use 900,000 tons? The supply of coal can only move in one direction: down.

 

  Indeed, some resources, such as limestone, iron ore, aluminum ore, seawater, and so on are so plentiful that no one is even paying attention to them. However, many precious resources have peaked, or are near peak. Wildlife resources in this country were depleted almost as soon as the settlers arrived. Old growth forest resources peaked around 1920. Gold and Silver extraction peaked around 1915. Whaling is practically non-existant, and fishing has seen substantial declines. Petroleum peaked in this country about 1970.

 

    It takes 4 main resources to refine steel: Iron ore, limestone, water, and coal. Of these 4, coal is the most precious. It doesn't matter if we have 1000 times as much iron ore, because coal is going to be the limiting resource. Yes, I know it's possible to produce steel in an electric-arc furnace powered by nuclear power instead of coal, but nuclear power is a step down in energy economics, not up!

 

    No amount of fixed resources can keep up with exponential growth.

 

    "Why are 6% interest rates on savings accounts good things?"

 

    As you know, the interest rate can be said to be the price of borrowing money. Lenders want high interest rates; borrowers want low interest rates. That's the market. Please do not get worked up over interest rates on savings accounts versus other forms of investing. If you take a composite interest rate over all forms of capital over the long term, then that, my friend, corresponds to growth in the economy. A high interest rate coorreponds to high growth; a low interest rate cooresponds to low growth, and a negative interest rate cooresponds to decline.

 

  "Social Security is collapsing more for demographic than economic reasons."

 

    Demographic reasons and economic reasons are part of the same system. The assumptions in 1965 were that existing trends would continue; the founders of the social security system were wrong on many counts.

 

    "The market is not a horse race, or any other zero-sum game.  It is a positive-sum game."

 

    It was for the last two centuries, but who knows what it will be in the future? Population is stagnant, and natural resource reserves are not getting any bigger. Growth itself is still positive, but the rate of growth is slowing.

 

    This is not to say that there will not be technological innovations, or that life will be any worse in the future. It may very well get better even in the face of economic decline.

 

    The GNP is one attempt to assess the size of the national economy. It measures output, in dollar value. It does not measure efficiency, productivity, population, or happiness. If the Ford company produces an automobile worth $25,000, then the GNP increases by $25,000.

 

    If Ford produced 100,000 of these vehicles in 2009 and produces 99,999 of them in 2010, then that is a decline in GNP. Perhaps the 2010 models came with GPS navigation, automatic driving systems, fancy stereos, higher efficiency engines, and many other things that were not available in the previous model. Sure, the customer benefits. But it is still a decline in GNP.

 

    Is better fuel efficiency a positive thing? Of course it is. But one less automobile is still a decline in GNP.

 

      GNP is about VOLUME. So is natural resource depletion. It is not about effienciency or happiness.

 

    "Your jaded view of humanity's future."

 

      I hope I am not projected a jaded view. I am excited about the future. If it wasn't for the sour economic reports that continuously tell how many jobs were lost last quarter and things like that, then maybe no one would even notice the recession. Does it personally make you happy that the number of jobs in this county is large or small, or that the GNP is larger or smaller than last year? For me it does not. For me, my own life matters more than any economic report. I am blessed to have a cell phone and the use of the internet, things that my parents never dreamed of when they were my age.

 

  I do expect substantial decline in many measurements, however. Why, I have seen it in my own neighborhood in my own lifetime. After all, it might not be so bad to live in a world without quite as many automobiles.

 

 

 

   

Keep in mind that the recession technically ended in June 2009 before the Stimulus had any effect.  Now we're in the 14th straight month of 9.5% unemployment with no real hope in sight. I could recount all the bad figures but what's the point

 

From the Daily Kos:

 

Job losses much worse than estimated

by Meteor Blades

Sat Oct 09, 2010 at 02:16:03 PM PDT

 

Unemployment for the year ending March 2010 was worse than previously stated, the Bureau of Labor Statistics announced Friday as part of its monthly jobs report. There were 366,000 more Americans who lost their jobs than previously counted. But those depressing numbers, or something close to them, won't be officially added to the final official count until the January 2011 monthly jobs report is released in February. Those aren't the only numbers that demonstrate the economy to be worse off than it appears. But let's go one step at a time.

 

The chart below includes the BLS's revision.

 

 

more: http://dailykos.com/storyonly/2010/10/9/908937/-Job-losses-much-worse-than-estimated

 

Thanks for the chart.

 

I think this chart shows visually why we are seeing a greater potential for a currency war. At the beginning of all of this it was about 'saving the banks' and many of the world banks 'needed' saving. So we saw more cooperation on the international scene to work together since many nations had bank problems and still do.

 

Now we are seeing the shift to what is considered the next big problem, jobs. Europe is starting to see some noticeable unrest in certain countries and a lot of it has to do with unemployment. The US is starting to feel the need to take a more proactive stand to help create jobs locally as well. One way for a nation to potentially create jobs is to create a currency situation that make its goods more affordable on the national and international market. If China won't reset the value of the Yuan, then other countries are going to take steps to lower the value of their currency to compete (Japan has been very active of late in this effort). This process will grow if/when internal pressure from citizens grow. A currency war and the devaluing of a nations money has its own problems, but the flip side might outway it, especially for short term politics.

Thanks for posting that chart, Scrabble.

 

That big red line that plunges and thne pretty much bounces along the bottom sure looks like Depression numbers to me.

 

What this chart does not reflect is that a higher percent of jobs today are commissioned base than during any of those other depressions (think RE agents, Mortgage brokers, etc.).  While a lot of those jobs still technically exist, they sure don't pay what they used to.  For all practical purposes, I suspect you could add another big chunck of 'functionally unemployed' to those numbers.

 

And for a lot of people still working, there is some sort of financial bonus component to their annual salary.  For most people not working on Wall Street, that component has been compromised/eliminated.  That does not show up in that chart either.

 

I also like how that chart shows that it takes longer and longer to recover jobs from each succeeding recssion (starting in 1981). 

 

We've discussed this on the thread before, but it's interesting to see it so sharply displayed here.

http://www.wcpo.com/dpp/marketplace/real_estate/Foreclosure-FreezeOutlook_49468036-wxyz1286851556888

 

Allegations of possible mortgage fraud against financial giants GMAC, JPMorgan Chase and Bank of America read like a corporate thriller: forged documents, faked Social Security numbers, phantom titles, disappearing paper trails, "robo-signers" and mortgages sliced and diced so many times that nobody really knows who owns them.

 

On Friday, PNC and mortgage servicer Litton Loan Servicing joined those three financial institutions in suspending some foreclosures while they review how documents were handled. Bank of America, which had already announced a halt for 23 states, expanded the suspension to cover the whole nation. If other banks follow suit, it raises the specter of a national foreclosure moratorium.

 

In all, the banks will have to review the paperwork for hundreds of thousands of mortgages. On top of that, class action lawyers and state attorneys general have filed lawsuits and called for foreclosure moratoriums.

 

 

Suing will not make things better. This is a total mess.

^ but wait!  I'm sure somewhere in my financial holdings (401k stuff, wife's pension, etc) I hold some mortgaged-back securities.

 

I'm going to sue to force the foreclosures to go forward so that I can get some of my money back!

 

Agreed - this is a total mess and could get worse.

Suing will not make things better?  If secured lenders are foreclosing based on defective documents, it certainly makes things better to apply the brakes, hard.  That's part of what the law is there for.

 

We can't sue our way out of the foreclosure crisis, true.  That's far too large an ambition to rest on the back of a group of lawsuits.  So what?  People are allowed to have more modest aims--i.e., making sure that they are not kicked out of their homes by people without the legal right to do so.  One can ensure that without discharging a debtor on underlying debts, voiding liens, getting them a new job, renegotiating the loan, or anything else that would actually solve the problem more permanently.

Instead of suing they should start putting people to jail. Anyone goto jail yet besides Madoff??

^I read unusualfire's comment as the suing and rumor of suing as a result of the banks halting foreclosures is what won't help the situation. People suing because they were wrongfully evicted is warranted.

Do people have rights, yes. So if illegal activities took place during the foreclosure process, then that needs to be dealt with.

 

Will it prolong the housing downturn. Yes.

 

I would say that most people were not 'wrongfully evicted', they were evicted because they were not making their mortgage payments. That is part of the loan contract, if you stop making payments the bank has the right to take control of the house and remove it occupants.

 

At the end of these lawsuits, etc. the results will still be the same, if you are not paying for the house then you have to get out.

 

What will result from these lawsuits:

- Some people will get to stay in their house mortgage free for a little longer;

- Banks will hopefully get an ugly black eye.

Must be nice to be a Lawyer these days.

I don't think that dragging out a moderate number of foreclosures will prolong the housing downturn.  Home prices could easily rise again during the foreclosure process, if it drags out for a very long time.  Those prices are set by supply and demand.  Supply is already high.  Rapid foreclosures would increase that supply still further, given the current environment.

 

Don't forget that the most common buyer at foreclosure auctions is the bank itself.  Simply changing a large queue of foreclosures into a large stockpile of bank-owned homes wouldn't really have all that much impact on whether we say, colloquially, that the crisis has passed.

Can't you guys read the sarcasm between the lines?

 

Of course suing to make the foreclosures go forward is absolutely rediculous and counter-productive.  I was just trying to add some more rediculous possibilities to the foreclosure equation.

 

I suppose if I were a holder of  a large number of MBS, and was inclined to do something, I might be able to sue the servicing companies for their fiduciary failure (to me) of not keeping their records legal.  But then again, if I sued the servicers, no one would deal with me in the future, and the case would probably be thrown out of court on any number of grounds.

 

If you want to think of ways this could get messier, I suppose the servicers could be attacked from the other side as well.

 

Next time I'll start such posts with /sacrcasm and end that way as well.

 

I don't think that dragging out a moderate number of foreclosures will prolong the housing downturn.  Home prices could easily rise again during the foreclosure process, if it drags out for a very long time.  Those prices are set by supply and demand.  Supply is already high.  Rapid foreclosures would increase that supply still further, given the current environment.

 

Don't forget that the most common buyer at foreclosure auctions is the bank itself.  Simply changing a large queue of foreclosures into a large stockpile of bank-owned homes wouldn't really have all that much impact on whether we say, colloquially, that the crisis has passed.

 

Part of what will help start 'healing' the housing bust is getting people out of homes they can't afford to be in. This will then allow those individuals to start on the path of potentially becoming a future buyer down the road, which will increase demand in the future. The longer this process takes the further down the road the recovery for housing will be.

 

Delaying the ability to readjust supply and demand will also increase the time frame for the construction/RE industry to heal itself.

 

I also think that having an even longer period of time, before we work through the foreclosures, will give buyers the feeling that potentially cheaper prices will be available down the road (and may very well be). This will delay purchases and add even more pressure on supply and demand.

 

These are just some of the items that I believe, this delay in foreclosures, will weaken the recovery of the demand side.

 

What this process does do, is allow banks to hold onto fantasy mark to market prices on their books for a longer period of time (Once they foreclosure and resale they must then show the losses on the books). Depending on your point of view, this could be a good or bad thing.

Just so you know i was in the Fort myers area, and they have 14,000 foreclosures down there. WOW The deals you could get for 40k is amazing. Just watch out for Chinese drywall.

Just so you know i was in the Fort myers area, and they have 14,000 foreclosures down there. WOW The deals you could get for 40k is amazing. Just watch out for Chinese drywall.

 

The Chinese drywall issues is really and ugly one. Have family in that area that had to deal with that.

 

Southwest Florida, Phoenix, Las Vegas and parts on the Inland Empire are going to stay in a housing bust for years to come. Supply and Demand in these locations are just completely out of control and future job growth in many of these locations give little hope to consume the supply anytime in the future.

(this is not sarcasm)

 

http://nationalmortgageprofessional.com/news-ticker/10/10/mortgage-flaws-may-lead-investors-challenge-13-trillion-securities

 

(also possibly linked to from Bloomberg.com, but the page keeps freezing on that site)

 

UPDATE - finally got the link from Bloomberg to work.  It has the full story:

http://www.bloomberg.com/news/2010-10-13/mortgage-flaws-may-lead-investors-to-challenge-1-3-trillion-of-securities.html

 

 

Mortgage Flaws May Lead Investors to Challenge $1.3 Trillion of Securities

 

...Some loans to borrowers with poor credit before 2007 may not have been transferred to mortgage trusts in the manner required by their pooling and servicing agreements. That raises questions about the ownership of the loans and may allow investors to force lenders to buy back the securities, Rosner wrote yesterday in a note to clients...

 

...The best scenario is that the disputes are deemed as legal technicalities, which would cause a one-year delay in foreclosures. In the medium case, years of litigation will ensue. In the worst case, the problem becomes systemic, causing “the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”...

(this is not sarcasm)

 

http://nationalmortgageprofessional.com/news-ticker/10/10/mortgage-flaws-may-lead-investors-challenge-13-trillion-securities

 

(also possibly linked to from Bloomberg.com, but the page keeps freezing on that site)

 

UPDATE - finally got the link from Bloomberg to work.  It has the full story:

http://www.bloomberg.com/news/2010-10-13/mortgage-flaws-may-lead-investors-to-challenge-1-3-trillion-of-securities.html

 

 

Mortgage Flaws May Lead Investors to Challenge $1.3 Trillion of Securities

 

...Some loans to borrowers with poor credit before 2007 may not have been transferred to mortgage trusts in the manner required by their pooling and servicing agreements. That raises questions about the ownership of the loans and may allow investors to force lenders to buy back the securities, Rosner wrote yesterday in a note to clients...

 

...The best scenario is that the disputes are deemed as legal technicalities, which would cause a one-year delay in foreclosures. In the medium case, years of litigation will ensue. In the worst case, the problem becomes systemic, causing the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes....

 

Every once in a while we get a comment that this thread is to negative. So, I would like to put a positive spin on the above information.

 

Since JPMorgan has halted foreclosures (and may be halted for a long time to come), its allowing them to set aside less money for foreclosures losses on their balance sheets, sliding that large chunk of money into the income column and getting an nice bounce for their stocks.

 

When it comes to Wall Street, its all about now and me, no thought for the future or the American economy. Which is becoming clear and clear as more and more information comes to light on how they have been doing business.

 

It will be interesting to see if the elephant in the middle of the room turns into a T-rex some where down the road.

"Since JPMorgan has halted foreclosures (and may be halted for a long time to come), its allowing them to set aside less money for foreclosures losses on their balance sheets, sliding that large chunk of money into the income column and getting an nice bounce for their stocks. "

 

That was my exact first thought when I read this morning that JP Morgan Chase had a blow-out quarter but they only set aside $1.5Billion dollars for loss reserves, down substantially from the previous quarter.

 

I don't think real analyst will be foolled (their revenue declined noticably) but this sets up nice bonuses for themselves. They can kick the can down the road just a little further until they reach that QE2 start-line, after which they can re-strategize.

 

"Since JPMorgan has halted foreclosures (and may be halted for a long time to come), its allowing them to set aside less money for foreclosures losses on their balance sheets, sliding that large chunk of money into the income column and getting an nice bounce for their stocks. "

 

That was my exact first thought when I read this morning that JP Morgan Chase had a blow-out quarter but they only set aside $1.5Billion dollars for loss reserves, down substantially from the previous quarter.

 

I don't think real analyst will be foolled (their revenue declined noticably) but this sets up nice bonuses for themselves. They can kick the can down the road just a little further until they reach that QE2 start-line, after which they can re-strategize.

 

 

There is less cards in the deck and they shuffed them differently.

 

"J.P. Morgan reported a third-quarter profit of $4.42 billion, or $1.01 a share, up from $3.59 billion, or 82 cents a share, a year earlier. Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, dropped 15% to $24.34 billion."

http://m.foxbusiness.com/quickPage.html?page=19453&content=43666491&pageNum=-1