It’s Official: The Crash Of The U.S. Economy Has Begun

[Admiral Valdemar]

There are places in California where the monthly mortgage cost is over $1500,

That's not very expensive. $1500 a month? I pay more than that. That's relatively cheap for a mortgage. That's a good price to get if you live on LI. But to contrast this there are people in the midwest and rural south that pay like 300-500.

Then it may have been higher. I can't find the article again given the sheer number of housing pieces around now, though I do know this was for a house worth over $500k, so whether it was that much cash a month or not depends on your mortgage I guess.

Yes it does take them into account.

http://www.bls.gov/cpi/cpifaq.htm#Question_4

Bolded/underlined part mine.

4. Is the CPI a cost-of-living index?
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework.

Not all the time it doesn't, you'll see many economists drop food and energy and even gov't reports. They now stick with the Core Inflation model, which most certainly does rule out energy and food because they feel the price shocks would blur the data somewhat. So when the CPI is mentioned in the media instead of the Core number, they often leave out food and energy to keep with what the Core figure says more closely.

[Uraniun235]

4.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The New Deal was, above all else, intended to stimulate and enhance consumer purchasing power. But I thought Americans buying too much stuff was the problem here?

The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Again, what is the solution - government or otherwise - to trade and fiscal deficits? Last time I asked here, people seemed to just shrug their shoulders. Was this crash inevitable then?

[Mobiboros]

Then it may have been higher. I can't find the article again given the sheer number of housing pieces around now, though I do know this was for a house worth over $500k, so whether it was that much cash a month or not depends on your mortgage I guess.

$1500 a month for a house worth over 500K!? Holy crap I will move to wherever that is. That's beyond ridiculously cheap. It is literally twice that + for most 500K homes I've seen.

So when the CPI is mentioned in the media instead of the Core number, they often leave out food and energy to keep with what the Core figure says more closely.

According to the Dept of Labor site, question 13, the one used by the media is often the broadest CPI (CPI-U). It's sometimes restricted by date or seasonally adjusted but they don't exclude food or energy costs according to the dept of labor.

[Admiral Valdemar]

$1500 a month for a house worth over 500K!? Holy crap I will move to wherever that is. That's beyond ridiculously cheap. It is literally twice that + for most 500K homes I've seen.

Which is why it must be wrong, because the article was using that base price as an illustration of a place not to go. It was likely $1500 a week, but as I say, I can't find the article. It was on The Daily Reckoning though.

According to the Dept of Labor site, question 13, the one used by the media is often the broadest CPI (CPI-U). It's sometimes restricted by date or seasonally adjusted but they don't exclude food or energy costs according to the dept of labor.

Then someone doesn't want to admit that most all instances of the CPI being used instead of Core tends to omit those values, or at least hide them more. The Core figure is the common gauge now for inflation, so reporting the original CPI figure isn't even needed then. There is debate over whether this whole system is a sham or not within economist circles, there was a USA Today piece on it recently, IIRC.

[The Duchess of Zeon]

As someone with no debt load whatsoever, living with someone with no debt load whatsoever, and both of us thus having positive assets, I am not in a particular position to panic about this.

Leaving the country would be utterly useless anyway; the US economy is so huge that if it goes it will drag the rest of the world down with it.

[brianeyci]

To address the student loans, that's part of the reason why the government's taken over student loans in Canada. Oh yeah, you still can't discharge student loans with bankrupcy. But if you're going bankrupt, you probably have extremely low income, and can apply for complete debt reduction or debt relief. The most someone here can be in debt is maybe... ten years? I don't know how long, but there is a rather hard limit, and after that the government will just forgive large portions of your debt entirely. On the other hand I have very little sympathy for people who are making loads of money and still go bankrupt.

The you can't declare bankrupcy is a bandaid solution to stop the bleeding from poor degrees which don't pay anything back at all. A real solution will be to suck up losses, because the people you loaned the money to were children, and fix the education system. But of course capitalism always cares about the bottom line, so who cares if you rip off children then when they realize as adults it's already too late for them and you can suck them dry for their entire lives? Fucking corporate banking bullshit.

It should be lender beware, not buyer beware. In a truly progressive country, bankrupcy would erase all debt whatsoever, and be legislated to be easily done. That way lenders would be scared shitless lending large sums of money to people with no ability to pay back and have to do huge background checks before trapping the stupid poor. Garnishing wages is bullshit, and so is permanent debt.

[Ender]

There are places in California where the monthly mortgage cost is over $1500,

That's not very expensive. $1500 a month? I pay more than that. That's relatively cheap for a mortgage. That's a good price to get if you live on LI. But to contrast this there are people in the midwest and rural south that pay like 300-500.

That's half a month's pay for a lot of people. Yes, it is a considerable amount of money. Don't let your own luck blind you to the lives of other people.


While I do not doubt that the economy is at a tipping point and that things are going to go south very fast here in the next 6-24 months, the article strikes me as being full of extremist rhetoric. Is there a different, less alarmist source that will back it?

[Sturmfalke]

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So the problem is that there is no expansive monetary policy on part of the FED. The text says that such a policy would be warranted, because contrary to the FED's claims inflation is low. But as everyone here seems to agree, inflation, especially when taking into account energy and food, is not low at all. The FED's decision to sit thight is the right one.

4.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

Since when is deficit spending considered monetary policy?
It is clear that it would only inrease the inflation problem.

I'm not a native speaker, is it right that he suggests to end the independency of the Federal Reserve System in order to force it to engage in expansive monetary policy? If yes, that would be very stupid, to say the least, because such a step is going to destroy the last shred of credibility the dollar has.

[Mobiboros]

That's half a month's pay for a lot of people. Yes, it is a considerable amount of money. Don't let your own luck blind you to the lives of other people.

I don't. That's why I note it's cheap for where I live. Long Island (And for California). And that that rate is not indicative of much of the country which is paying lower rates.

Then someone doesn't want to admit that most all instances of the CPI being used instead of Core tends to omit those values, or at least hide them more. The Core figure is the common gauge now for inflation, so reporting the original CPI figure isn't even needed then. There is debate over whether this whole system is a sham or not within economist circles, there was a USA Today piece on it recently, IIRC.

Core Inflation is now based on a model different from CPI that doesn't include energy or food costs that is true. However the CPI is still used for shorter term inflation models. Neither model is really the 'common' gauge as both are used by different groups for different reasons. And the Fed has said there's no long term difference or accuracy in use of either as an inflation predictor.

So really, the end result is inflation models sometimes do or sometimes don't take into account food and energy as a concern.

[Erik von Nein]

Again, what is the solution - government or otherwise - to trade and fiscal deficits? Last time I asked here, people seemed to just shrug their shoulders. Was this crash inevitable then?

It's really something that could have been avoided back in the 80s when the twin ideas of cost-cutting via firing your workforce and acquisitions become more popular. The 90s is when it really took off (causing one MSNBC financial show host to refer to mondays as "Merger Monday" due to the sheer number of them all every single week) and, by 1998 or so it was pretty much inevitable. There could have been things done to mitigate it, but not enough people did or said anything to stop it.

It didn't help that not a single person learned a lesson from the tech bubble explosion. They said "We'll never do that again!" and went right back to doing it. Granted, some of them went to real estate, instead. Of course, that just caused the same damn problem of hyperinflating the market well past what it was all actually worth.

What's making it all so much worse is that all the industry is leaving and the service sector is taking the jobs, instead. Now that it's all collapsing what are people going to turn to? Service jobs will be the first things to go, like the fashion industry.

It's all rather depressing, but this whole collapse has been in the works for nearly two decades. That's a lot of momentum to stop.

[Edi]

Just to put things in perspective for those Americans claiming $1500 is a cheap monthly payment and why it sounds completely ridicuolous to many of us non-Americans, I make roughly €1700 a month, which would be around $2200. After taxes, food and other such (not counting maintenance fees on the flat I own), I'd have around $1300 left, then, if I was really paying a mortgage on my current flat in a manner that was going to see it gone in a few years instead of stretched out for a ridiculous length of time, I'd have essentially 0$/€ left for discretionary spending. Make that a two person household with both having a similar income, it'd still be harsh enough.

My job doesn't have stellar pay, but neither is it of the very low end either. Salary of €2500 or up is actually a very good one hereabouts. I know how Finland and the US really aren't comparable and after cost f living is subtracted from pay after taxes, Finns have almost the lowest buying power in the EU, but that's just to give you an idea. So you will forgive me if I call the glib dismissals of these news as groundless doomsaying complete bullshit.

[Aeolus]

Then it may have been higher. I can't find the article again given the sheer number of housing pieces around now, though I do know this was for a house worth over $500k, so whether it was that much cash a month or not depends on your mortgage I guess.

$1500 a month for a house worth over 500K!? Holy crap I will move to wherever that is. That's beyond ridiculously cheap. It is literally twice that + for most 500K homes I've seen.

So when the CPI is mentioned in the media instead of the Core number, they often leave out food and energy to keep with what the Core figure says more closely.

According to the Dept of Labor site, question 13, the one used by the media is often the broadest CPI (CPI-U). It's sometimes restricted by date or seasonally adjusted but they don't exclude food or energy costs according to the dept of labor.

My sister is paying about that for a 300k house.

[Aeolus]

Just to put things in perspective for those Americans claiming $1500 is a cheap monthly payment and why it sounds completely ridicuolous to many of us non-Americans, I make roughly €1700 a month, which would be around $2200. After taxes, food and other such (not counting maintenance fees on the flat I own), I'd have around $1300 left, then, if I was really paying a mortgage on my current flat in a manner that was going to see it gone in a few years instead of stretched out for a ridiculous length of time, I'd have essentially 0$/€ left for discretionary spending. Make that a two person household with both having a similar income, it'd still be harsh enough.

My job doesn't have stellar pay, but neither is it of the very low end either. Salary of €2500 or up is actually a very good one hereabouts. I know how Finland and the US really aren't comparable and after cost f living is subtracted from pay after taxes, Finns have almost the lowest buying power in the EU, but that's just to give you an idea. So you will forgive me if I call the glib dismissals of these news as groundless doomsaying complete bullshit.

Single income familes usually don't buy houses. 1500 a month for a house is really not a bad deal, assuming a decent neighborhood. As I said in my last post my sister has a 300k house in South Carolina and she pays about 1500 a month. She thinks it's a reasonable price and thats in South Carolina. In Dallas that would be a really good deal. I can't even imagine what a steal that would be in California or New York. My ex lives in Manhatten and his 1 bedroom 5th floor walk up is 1200 a month the entire flat is smaller than my living room.

[Aeolus]

Oh I bartend and wait tables so I only make around 2000 a month so I could not afford a 1500 a month morgage but if I was married to someone makeing around what I make I could probably handle it.

[Ma Deuce]

Just to give an idea of what mortgages are like in my area of Canada (one of the municipalities neighbouring Toronto) at the moment, we live in a a 4+1 bedroom house with a ~160 x 50 foot lot that was $295K (probably worth more now, especially given it backs a conservation area) when we bought it in 2002 that's about half paid-off now, and we're paying about $850 a month in mortgage, plus another $400 or so a month in property taxes and insurance. However, a house comparable to this would probably be at least twice as expensive to buy and live in in some parts of Toronto.

[Admiral Valdemar]

It does depend on circumstance and if the US is anything like the UK, you'll have plenty of people priced out of the housing market simply because the bubble has grown to bursting point. There is an abundance of land and housing projects in the US, whereas over here, while the shortfall of 700k homes is readily available, it is dotted around areas that aren't all that ideal for daily commutes to work, or even desirable to live in. There are essential services workers, paramedics, doctors, firemen etc. who cannot afford to live in the same town as their workplace because of estate agents thriving off handing over a second or third property to rich developers. Where I live, a 50-year-old two bedroom detached house can cost the best part of £500k if it also has a 1/3 of an acre plot of land. That's $1M, by the way. The newer, larger houses, they go for more. And we're not even in a high price band territory. Looking at property when I was down in Cambridgeshire for an interview recently, the same house would set you back only £250k and renting is a lot cheaper.

The article above? I don't agree with all of it either; I've read better. What would be better, is a piece that details how the dollar's predicament, the inflation happening globally and the inevitable peaking and then decline in cheap oil will converge and cause something never before seen. I'm not worried about a recession, I've lived through two and I'm only 23. What would keep me awake at night, is a recession followed by a ditching of the dollar followed by a total period of chaos in the markets over the most essential resource for society getting scarcer and more expensive all bang in a time of increasing geo-political instability and with more than enough nukes left around to cause alarm.

[Thirdfain]

I'm so unconcerned about this alarmist bullshit that I still have all my money in stocks. Every investment firm worth anything is forcasting continued fantastic growth- they've been right about it for the last sixty years, and I'm pretty sure they are correct now.

[MKSheppard]

Excellent. This means that when the collapse occurs, it will be blamed on the democrat president in power

[Darth Wong]

You know, I'm not an economist myself (although it's not as if those guys have a stellar record of prediction anyway) so I don't know how accurate that article is, but the objections that I'm seeing to it are utterly pathetic. They all seem to be variations upon the same basic handful of themes:

1) "I just don't buy it" - appeal to incredulity.

2) "If it's true, why isn't everyone talking about it?" - appeal to popularity.

3) "Investment firms whose bottom line depends upon a continued stream of investor dollars and high consumer confidence are telling everyone that everything is OK!" - appeal to authority, and a rather questionable authority at that.

4) "I've heard bad predictions before, and they didn't turn out, therefore this one won't either, and I don't have to worry about its particular justification or details" - hasty generalization fallacy.

After running all of the rebuttals to this piece through those four filters, I find ... nothing. So if the piece is so fucking stupid, why don't some of you geniuses explain why? With real reasoning this time?

[Patrick Degan]

Excellent. This means that when the collapse occurs, it will be blamed on the democrat president in power

Which will put back in power... the fuckup greedheads who actually helped bring it about —the Republicans.

[Admiral Valdemar]

I'm so unconcerned about this alarmist bullshit that I still have all my money in stocks. Every investment firm worth anything is forcasting continued fantastic growth- they've been right about it for the last sixty years, and I'm pretty sure they are correct now.

The same investment firms that say we have a record worth talking about with the Dow breaking 14k points? The same firms that think we have unlimited oil? The same firms that believe Yergin at CERA's claims of oil dropping to thirty bucks in the near future?

Boy, you're gullible. I've watched these people on Bloomberg, CNBC, MSNBC and CNN. If one could personify lying sacks of shit with no grasp of the real-world, economists and investment bankers would be right up there with politicians. But don't listen to me, I'm not an MBA in the field and I'm sure as hell not working with Goldman or Lloyds, pushing an agenda that aims to grab venture capital. I seem to remember the same bullshit "Everything's fine!" coming out as Katrina hit and hours before the stock markets died in '29 and '87. You sure you want to trust these people that much? They can't predict shit, much like meteorologists.

Consider this. Economics is based on infinite growth. Think about that for a second. Try and see the flaw there.

[Thirdfain]

Consider this. Economics is based on infinite growth. Think about that for a second. Try and see the flaw there.

What does that even mean? "Economics are based on infinite growth?" If you imply that economic theory requires a system in which growth is infinite, than you are simply wrong.

I seem to remember the same bullshit "Everything's fine!" coming out as Katrina hit and hours before the stock markets died in '29 and '87. You sure you want to trust these people that much?

Both those events were followed shortly by periods of unprecedented growth and prosperity. If another '87 is the concern, then I'm... not concerned.

Boy, you're gullible. I've watched these people on Bloomberg, CNBC, MSNBC and CNN. If one could personify lying sacks of shit with no grasp of the real-world, economists and investment bankers would be right up there with politicians.

The history of modern economics has been one of constant and excellent growth, and I see no reason to stop trusting these gentlemen simply because they remind you of republicans or something. The decisions I've made up to now have been very lucrative, and every indication points to that trend continuing.

[Lonestar]

Excellent. This means that when the collapse occurs, it will be blamed on the democrat president in power

People say "Are you better off now than 4 years ago", the odds are that the answer will continue to be yes.

[Admiral Valdemar]

What does that even mean? "Economics are based on infinite growth?" If you imply that economic theory requires a system in which growth is infinite, than you are simply wrong.

Then I suggest you let the global market know this, because without growth, you do not get a return on investment.

Both those events were followed shortly by periods of unprecedented growth and prosperity. If another '87 is the concern, then I'm... not concerned.

I seem to recall '29 led to a bit of a ruckus involving a mad Austrian that ended with two A-bombs going off in the Pacific. 1987, bad as it was, was nothing like '29.

The history of modern economics has been one of constant and excellent growth, and I see no reason to stop trusting these gentlemen simply because they remind you of republicans or something. The decisions I've made up to now have been very lucrative, and every indication points to that trend continuing.

What a coincidence. The ignorant, greedy fuckwits of the world who cannot grasp basic ecology also happen to be rich Republicans. I guess that's why the people who see nothing wrong with America also happen to be rich, white, middle-aged male conservatives. I see a trend.

And your naïvety is alarming. You think constant, excellent growth is going to happen in an age of falling energy output? Good luck with that. I also have this seaside real estate in Arizona I think you'll find is quite reasonable.

Incidentally, the US is currently masturbating furiously over ethanol. Anyone with half a brain can see this is going to end in tears, and even some of the investors are having doubts now. I guess when you have to decide over whether to drive or eat, there's a conflict of interest.

Off I go again, conflicting with the powers that be who know better, heh.

[Erik von Nein]

Good crap. I wish all those investors got hit by a club-by-four over ethanol. They should be investing in something like rail, or, at least, electric vehicles. If you're going to lose energy on changing energy states it might as well be with something that doesn't require a shit load of agricultural land.