And we're probably about to get smacked by Robert just for talking about something other than economics, but what the hey:
Reverse the rule of law. Subsidarity first, Solidarity second.
That is, make the neighborhood association ordinance the absolute, unapealable rule of law. For that which the neighborhood association can't provide, let the city make an ordinance about. Then the county, then the state. Finally, no law at the federal level can countermand a law at a lower level.
That brings the "local" and "small" back. And it means that if Wal*Mart wants to build a store in your town, they have to pay the local protectionist tariffs to bring in their goods, protecting the small shopkeeper whose relatives on the neighborhood council set the tariffs to begin with.
I agree that this could take a decade or longer. Pricing will only go up if the demand exceeds consumption. If inventories continue to swell, there is very few ways that pricing will move higher.
How will inventories shrink? Here are a few possibilities. Credit (lending liquidity) is the first step as you pointed out. Next, buyers will have to be qualified...but, many have ruined credit now due to walk outs. Next, an influx of foreigners causing a housing demand. Next, people must have jobs. So on and so forth. So, right now the situation looks bad and no end in sight. The obama admin won't be able to keep up with the lack of demand for production. We don't produce anything like we used to. White collar jobs are now shipped overseas.
Obama wants to add 2.2 million jobs by 2011. Well, that is still eclipsed by the 3 million jobs that will be lost by 2010. Talking about creating 2.2 million jobs and doing it are 2 different things. We shall see.
--------
Obama wants to save or create 2.2M jobs
December 7, 2008
WASHINGTON --President-elect Barack Obama told the nation Saturday that he has asked his economic team for a recovery plan that saves or creates 2.2 million jobs, a day after the Labor Department announced the economy is losing jobs at an alarming rate....
Some analysts predict 3 million more jobs will be lost between now and the spring of 2010 -- and that the once-humming U.S. economy could stagger backward at a shocking 6 percent rate for the current three-month quarter.
And here's why: Housing is just the straw that broke the camel's back. The *real* problem is a solvency trap: the world's assets are worth about 120 times the amount of actual *real* money out there, and we've borrowed 600 times that in interest payments to get those assets.
What that argues for is *either* massive deflation all around, or a MAJOR need for M1 stimulus to the tune of about 10x the United States's GDP.
While yes, there's a deficit in production, that deficit will NOT affect housing values one whit, not until the debt bubble has been destroyed.
At which point, the house that I paid $142,000 for in 1998, will be worth about $60,000.
...and it is one that 'classical' economists make also.
My other comments and posts about what it means for a hairy hominid who spent millions of years evolving in groups of 50 to assemble in hordes in the hundreds of millions raise this question also.
But the fact remains that we are assembled into these large groups. The challenge is to find a way to do this without destroying ourselves or the planet.
'The Rule of Law' is just such an effort. 'The Enlightenment' also. We see attacks on both these by individuals and groups who would put their gains above others. That they have been successful, to me, means the average citizen isn't paying attention. A problem when we have such a distraction oriented society and no accident that.
My self I like small groups but the absolute necessity for finding a way for large groups to live in harmony remains.
In no year since WWII have enough new living units, apts. plus SFR, come on line to meet the demand for same created by that year's growth in households.
This is why folks were willing to sign 'bad' paper to get into a house. They viewed it as their only chance to own a home. Locked out of the market by corporate America's refusal to share a fair share of the profits by paying a fair income to folks since 1972, real income has dropped every year since then, they jumped at the chance.
If the mortgages had not be 'financialized' much of this mess might have been avoided.
Be that at is may two things are evident. The nation needs more housing and much, not all, of that housing that is in place is located on land that is irreplaceable. Close in to business centers, cities and existing towns. I contend that housing values will stabilize and start to rise one the large numbers of foreclosures work themselves out of the system and credit becomes available. I do not believe, given the attitude so far shown by the Obama admin, that this will take that long.
The need for new housing is there and the value for existing housing continues to rise as long as there is a deficit in production. This may sound nuts but it has been ever thus and this downturn will not last.
In my area people are still breaking ground on units that are in highly urban areas. Are these folks nuts. I doubt it.
First of all, most of the statistics that I relied on 20 years ago are no longer available - either not being tracked, or have been privatized and thus far too costly for news sources, let alone brave, iconoclastic bloggers. Google "Statistical Abstract" and compare the chapter on Manufacturing in the 2007 edition, with what that chapter used to have 20 or 30 years ago. It's really shameful.
Even the trade associations have changed. I used to get the American Iron & Steel Institute's annual report, which included all the industry's statistics, for free, but now they want nearly $300 for it. Damn, there's some weeks I don't even sell that much in books!
Second, that leaves the Purchasing Managers Index, and both of those indeed show that the bottom has dropped out of the industrial economy. I'm not sure we're there yet, either, but I am dead on certain that another six weeks of Bush and his merry band of asswipes will get us there.
Third, I very strongly believe that U.S. manufacturing has never really recovered from the oil and Volcker interest rate shocks of the 1970s-80s. Some specific industries have almost entirely disappeared, such as printing equipment, foundries and foundry equipment, mining equipment, consumer electronics, shoe making, commercial shipbuilding, power generation and distribution equipment, pressure vessels, and so on. The fact that U.S. manufacturing never really recovered is especially clear when industry statistics are presented on a per capita basis, which of course shows the inter-generational disinvestment that has occurred for nearly three full decades now.
Only about 2/3 of residences are houses vs. apartments.
Put those figures together and we can estimate that about 1.2 million new places for shelter are needed each year to keep up with population growth, of which about 800,000 would be new houses (see my prior diary where I drew a trend line about this through Mike Larson's graph).
At peak, about 3 years ago, nearly 1.4 million units a year were being constructed. Now only 450,000 per year are being constructed. At some point in the not distant future, the glut will have been worked through and an upturn will commence. Ironically, the more new home sales continue to cliff-dive now, the sooner that date - where volume, not price of new homes turns up - will be.
Will it be next year? Possibly, but I won't disagree with those commenting here saying that's not going to happen. And it wouldn't surprise me if prices declined for another 5 years -- although, again harkening back to Russ Winter's guillotine, then sandpaper analogy -- I suspect the transition from the first phase to the second may happen in the next 12-18 months.
Also I don't disagree with LillithMc's point, but I think her point explains the tremendous collapse in both volume and price, without negating the essence of Leamer's timing argument. Residential investment is still most likely to be what turns up first before the end of the recession.
See my explanation above on why price recovery is going to lag construction volume recovery in housing.
On a personal note, I'm hoping I'm able to keep my job over the next two years- if so, I'll get to take advantage of cheap labor to get my master bath renovated (and it needs it, we're battling mildew in there constantly).
NDD mentioned that he's talking about construction volume recovery, not price recovery. While they are linked, price recovery's going to lag behind volume recovery by quite a bit. Easily a decade or longer.
If you think about it a little- you'll see why. Housing is subject to entropy, which means eventually we'll see a turnaround on construction volume if for no other reason than to tear down all of those crappy McMansions that went up. But this won't exceed necessary maintenance and replacement- there's not going to be a huge number of buyers until the credit bubble finishes popping and all of the bankruptcies are discharged- which will take a decade or more.
NDD, I like the fact that you do your best to see the good in people like Leamer. You make valid points about him, ie: "divorced from reality". Regarding housing, I think the term "bottom" is relative in some respects. Yes, we could be getting close to a bottom, but as referenced earlier, that "bottom" will likely be long and drawn out. Unfortunately, housing starts are a leading indicator which means more economic woes ahead. Hopefully, this does not cause a snowball effect (which I think is likely to happen). I don't have the case-shiller index, but my friend said that Schiller said that we must get back to '85 prices or something to that nature. Then he went on to say that if that is true, look for another 30% decline. Ouch. I hope my friend is wrong, or reading the index wrong.
My impression is that, if you look at the Schiller index (and think about how much housing prices skyrocketed the past few years), that there is no way that prices will start going up for many years, if not for over a decade. I remember, at least in NYC, when a real estate bubble popped at the end of the 1980s it took about 10 years to recover. So I don't see how to force housing prices to recover; the recovery will have to come from some other sector (er, manufacturing, for instance).
Yeah, mine is close. Only difference is instead of dedicated windfarms- I'd like to see generators on every floor of every high rise, some wind, some solar, some geothermal, a few (on coastlines, mainly) Deep Water & Wave generators. Plug that all into a North American grid, with everybody selling their surplus, and we'll never actually exceed baseload.
Yeah, for shorter term, though, the ASCE list is pretty darn good- for a list of stuff we need to do NOW anyway and should have done 5 years ago.
After 35 years in real estate and a recession the beginning of each decade where I worked and lived, this is the first time I have seen mortgages created by people who knew nothing about mortgages and have been exempted from both state and federal laws. Had I brokered mortgages of the type created especially by Wall Street, I would currently be in jail. The poor quality of the underlying paper would be obvious to anyone with common sense. Add in the side bets they placed and the lack of a legal paper trail for judges to follow in court in terms of who owns the mortgages and we have a global disaster. There is good reason these people playing at real estate knew they needed legal protection before they began their large game of "21st Century" financing. Main Street is now paying big time for their ideological idiocy and greed. I see no end in sight.
Seebert, you might want to have a look-see at this Stanford study which proposes that a national system of wind farms, integrated through a high voltage dc grid, could provide that allusive goal, renewable baseload, that is, there's always enough electricity to power most of what we need all of the time. And your list sounds good to me -- and come to think of the it, the American Society of Civil Engineer's report card is basically a plan for a 1.6 trillion dollar rebuild of the infrastructure is a five year plan.
But based on the falling PMI, we're definitely heading that direction.
Due to the fact we're heading that direction, I'd personally like to see 25-50 year commitments to stimulus- including replacing the national electric grid with local ambient energy sources (leaving the grid as a mere backup- a huge battery to which local generators feed when they can and take from when they must), major broadband installation nationwide (rural FiOS act!), a true universal health care system (rural hospitalization act, maybe based on WalMart's ideal plan of always a store within walking distance), and of course, high speed rail to get the goods to where they need to be.
I consider ALL of that to be basic infrastructure of the type we need if we're ever going to re-enter the global marketplace as an equal player.
Why would we expect *ANY* other behavior from a people descended from those who proclaimed for all the world to see that individualism and individual liberty was more important than life itself?
It's not to hard to see when liberty became profit- and profit became king above all else. If you can't pay for your liberty you're just another wage slave, so building a for profit business became a part of liberty. It's just a short step from there to deciding that YOUR liberty (profit) is more important than anybody else's, and base you choices on that.
Part of this mirrors an assertion I've made recently: that macro economics in general simply breaks down past two degrees of separation between participants. Any more than two degrees of separation between producer and consumer invites all sorts of fraud to spring up between them; the anonymity of the stock market is often a barrier to proper assignment of moral blame and credit.
Bhutan, being such a small country, just might be succeeding in this because they *are* a small country- a half-million inhabitants (ok, plus 100k) would indicate no more than three degrees of separation to begin with- and the very real chance that the con artist will find among his in-laws people he has conned, which would make family reunions very hard.
I've seen far too many economists label this as a liquidity crisis- when in reality it's a SOLVENCY crisis. We let the cancer go for 70 years, and now we're treating the cancer instead of the patient because we can't even see the patient.
Housing is NOT the foundation of the issue, housing is just the most visible symptom of a general systemic problem of relying too much on credit and not enough on assets.
Although you could create some of them with the style buttons.
Currently these are not supported in the rich-text editor.
So, rich text editor support for CSS classes is now a feature request that I will have to do at a later date.
(that's what these will be).
I'm just playing around with the look of the site at the moment and #1 is readability although I have a special request to have "no blue" since you can choose Amadou as the "blue" experience. ;)
Unless, of course, housing prices fall to around 3x poverty level. Which is what I see as the natural bottoming out.
And we're probably about to get smacked by Robert just for talking about something other than economics, but what the hey:
Reverse the rule of law. Subsidarity first, Solidarity second.
That is, make the neighborhood association ordinance the absolute, unapealable rule of law. For that which the neighborhood association can't provide, let the city make an ordinance about. Then the county, then the state. Finally, no law at the federal level can countermand a law at a lower level.
That brings the "local" and "small" back. And it means that if Wal*Mart wants to build a store in your town, they have to pay the local protectionist tariffs to bring in their goods, protecting the small shopkeeper whose relatives on the neighborhood council set the tariffs to begin with.
I agree that this could take a decade or longer. Pricing will only go up if the demand exceeds consumption. If inventories continue to swell, there is very few ways that pricing will move higher.
How will inventories shrink? Here are a few possibilities. Credit (lending liquidity) is the first step as you pointed out. Next, buyers will have to be qualified...but, many have ruined credit now due to walk outs. Next, an influx of foreigners causing a housing demand. Next, people must have jobs. So on and so forth. So, right now the situation looks bad and no end in sight. The obama admin won't be able to keep up with the lack of demand for production. We don't produce anything like we used to. White collar jobs are now shipped overseas.
Obama wants to add 2.2 million jobs by 2011. Well, that is still eclipsed by the 3 million jobs that will be lost by 2010. Talking about creating 2.2 million jobs and doing it are 2 different things. We shall see.
--------
Obama wants to save or create 2.2M jobs
December 7, 2008
WASHINGTON --President-elect Barack Obama told the nation Saturday that he has asked his economic team for a recovery plan that saves or creates 2.2 million jobs, a day after the Labor Department announced the economy is losing jobs at an alarming rate....
Some analysts predict 3 million more jobs will be lost between now and the spring of 2010 -- and that the once-humming U.S. economy could stagger backward at a shocking 6 percent rate for the current three-month quarter.
http://www.montgomeryadvertiser.com/article/20081207/NEWS02/812070323/10...
And here's why: Housing is just the straw that broke the camel's back. The *real* problem is a solvency trap: the world's assets are worth about 120 times the amount of actual *real* money out there, and we've borrowed 600 times that in interest payments to get those assets.
What that argues for is *either* massive deflation all around, or a MAJOR need for M1 stimulus to the tune of about 10x the United States's GDP.
While yes, there's a deficit in production, that deficit will NOT affect housing values one whit, not until the debt bubble has been destroyed.
At which point, the house that I paid $142,000 for in 1998, will be worth about $60,000.
...and it is one that 'classical' economists make also.
My other comments and posts about what it means for a hairy hominid who spent millions of years evolving in groups of 50 to assemble in hordes in the hundreds of millions raise this question also.
But the fact remains that we are assembled into these large groups. The challenge is to find a way to do this without destroying ourselves or the planet.
'The Rule of Law' is just such an effort. 'The Enlightenment' also. We see attacks on both these by individuals and groups who would put their gains above others. That they have been successful, to me, means the average citizen isn't paying attention. A problem when we have such a distraction oriented society and no accident that.
My self I like small groups but the absolute necessity for finding a way for large groups to live in harmony remains.
....this bubble and it's resolution.
In no year since WWII have enough new living units, apts. plus SFR, come on line to meet the demand for same created by that year's growth in households.
This is why folks were willing to sign 'bad' paper to get into a house. They viewed it as their only chance to own a home. Locked out of the market by corporate America's refusal to share a fair share of the profits by paying a fair income to folks since 1972, real income has dropped every year since then, they jumped at the chance.
If the mortgages had not be 'financialized' much of this mess might have been avoided.
Be that at is may two things are evident. The nation needs more housing and much, not all, of that housing that is in place is located on land that is irreplaceable. Close in to business centers, cities and existing towns. I contend that housing values will stabilize and start to rise one the large numbers of foreclosures work themselves out of the system and credit becomes available. I do not believe, given the attitude so far shown by the Obama admin, that this will take that long.
The need for new housing is there and the value for existing housing continues to rise as long as there is a deficit in production. This may sound nuts but it has been ever thus and this downturn will not last.
In my area people are still breaking ground on units that are in highly urban areas. Are these folks nuts. I doubt it.
First of all, most of the statistics that I relied on 20 years ago are no longer available - either not being tracked, or have been privatized and thus far too costly for news sources, let alone brave, iconoclastic bloggers. Google "Statistical Abstract" and compare the chapter on Manufacturing in the 2007 edition, with what that chapter used to have 20 or 30 years ago. It's really shameful.
Even the trade associations have changed. I used to get the American Iron & Steel Institute's annual report, which included all the industry's statistics, for free, but now they want nearly $300 for it. Damn, there's some weeks I don't even sell that much in books!
Second, that leaves the Purchasing Managers Index, and both of those indeed show that the bottom has dropped out of the industrial economy. I'm not sure we're there yet, either, but I am dead on certain that another six weeks of Bush and his merry band of asswipes will get us there.
Third, I very strongly believe that U.S. manufacturing has never really recovered from the oil and Volcker interest rate shocks of the 1970s-80s. Some specific industries have almost entirely disappeared, such as printing equipment, foundries and foundry equipment, mining equipment, consumer electronics, shoe making, commercial shipbuilding, power generation and distribution equipment, pressure vessels, and so on. The fact that U.S. manufacturing never really recovered is especially clear when industry statistics are presented on a per capita basis, which of course shows the inter-generational disinvestment that has occurred for nearly three full decades now.
US population is a little over 300 million and growing by about 3,3 million a year.
Average household size is about 2.6 people per household.
Only about 2/3 of residences are houses vs. apartments.
Put those figures together and we can estimate that about 1.2 million new places for shelter are needed each year to keep up with population growth, of which about 800,000 would be new houses (see my prior diary where I drew a trend line about this through Mike Larson's graph).
At peak, about 3 years ago, nearly 1.4 million units a year were being constructed. Now only 450,000 per year are being constructed. At some point in the not distant future, the glut will have been worked through and an upturn will commence. Ironically, the more new home sales continue to cliff-dive now, the sooner that date - where volume, not price of new homes turns up - will be.
Will it be next year? Possibly, but I won't disagree with those commenting here saying that's not going to happen. And it wouldn't surprise me if prices declined for another 5 years -- although, again harkening back to Russ Winter's guillotine, then sandpaper analogy -- I suspect the transition from the first phase to the second may happen in the next 12-18 months.
Also I don't disagree with LillithMc's point, but I think her point explains the tremendous collapse in both volume and price, without negating the essence of Leamer's timing argument. Residential investment is still most likely to be what turns up first before the end of the recession.
See my explanation above on why price recovery is going to lag construction volume recovery in housing.
On a personal note, I'm hoping I'm able to keep my job over the next two years- if so, I'll get to take advantage of cheap labor to get my master bath renovated (and it needs it, we're battling mildew in there constantly).
NDD mentioned that he's talking about construction volume recovery, not price recovery. While they are linked, price recovery's going to lag behind volume recovery by quite a bit. Easily a decade or longer.
If you think about it a little- you'll see why. Housing is subject to entropy, which means eventually we'll see a turnaround on construction volume if for no other reason than to tear down all of those crappy McMansions that went up. But this won't exceed necessary maintenance and replacement- there's not going to be a huge number of buyers until the credit bubble finishes popping and all of the bankruptcies are discharged- which will take a decade or more.
NDD, I like the fact that you do your best to see the good in people like Leamer. You make valid points about him, ie: "divorced from reality". Regarding housing, I think the term "bottom" is relative in some respects. Yes, we could be getting close to a bottom, but as referenced earlier, that "bottom" will likely be long and drawn out. Unfortunately, housing starts are a leading indicator which means more economic woes ahead. Hopefully, this does not cause a snowball effect (which I think is likely to happen). I don't have the case-shiller index, but my friend said that Schiller said that we must get back to '85 prices or something to that nature. Then he went on to say that if that is true, look for another 30% decline. Ouch. I hope my friend is wrong, or reading the index wrong.
My impression is that, if you look at the Schiller index (and think about how much housing prices skyrocketed the past few years), that there is no way that prices will start going up for many years, if not for over a decade. I remember, at least in NYC, when a real estate bubble popped at the end of the 1980s it took about 10 years to recover. So I don't see how to force housing prices to recover; the recovery will have to come from some other sector (er, manufacturing, for instance).
JR on Grist
Yeah, mine is close. Only difference is instead of dedicated windfarms- I'd like to see generators on every floor of every high rise, some wind, some solar, some geothermal, a few (on coastlines, mainly) Deep Water & Wave generators. Plug that all into a North American grid, with everybody selling their surplus, and we'll never actually exceed baseload.
Yeah, for shorter term, though, the ASCE list is pretty darn good- for a list of stuff we need to do NOW anyway and should have done 5 years ago.
After 35 years in real estate and a recession the beginning of each decade where I worked and lived, this is the first time I have seen mortgages created by people who knew nothing about mortgages and have been exempted from both state and federal laws. Had I brokered mortgages of the type created especially by Wall Street, I would currently be in jail. The poor quality of the underlying paper would be obvious to anyone with common sense. Add in the side bets they placed and the lack of a legal paper trail for judges to follow in court in terms of who owns the mortgages and we have a global disaster. There is good reason these people playing at real estate knew they needed legal protection before they began their large game of "21st Century" financing. Main Street is now paying big time for their ideological idiocy and greed. I see no end in sight.
Seebert, you might want to have a look-see at this Stanford study which proposes that a national system of wind farms, integrated through a high voltage dc grid, could provide that allusive goal, renewable baseload, that is, there's always enough electricity to power most of what we need all of the time. And your list sounds good to me -- and come to think of the it, the American Society of Civil Engineer's report card is basically a plan for a 1.6 trillion dollar rebuild of the infrastructure is a five year plan.
JR on Grist
But based on the falling PMI, we're definitely heading that direction.
Due to the fact we're heading that direction, I'd personally like to see 25-50 year commitments to stimulus- including replacing the national electric grid with local ambient energy sources (leaving the grid as a mere backup- a huge battery to which local generators feed when they can and take from when they must), major broadband installation nationwide (rural FiOS act!), a true universal health care system (rural hospitalization act, maybe based on WalMart's ideal plan of always a store within walking distance), and of course, high speed rail to get the goods to where they need to be.
I consider ALL of that to be basic infrastructure of the type we need if we're ever going to re-enter the global marketplace as an equal player.
"Give me Liberty or Give Me Death"
Why would we expect *ANY* other behavior from a people descended from those who proclaimed for all the world to see that individualism and individual liberty was more important than life itself?
It's not to hard to see when liberty became profit- and profit became king above all else. If you can't pay for your liberty you're just another wage slave, so building a for profit business became a part of liberty. It's just a short step from there to deciding that YOUR liberty (profit) is more important than anybody else's, and base you choices on that.
2nd response after reading the Bhutan article:
Part of this mirrors an assertion I've made recently: that macro economics in general simply breaks down past two degrees of separation between participants. Any more than two degrees of separation between producer and consumer invites all sorts of fraud to spring up between them; the anonymity of the stock market is often a barrier to proper assignment of moral blame and credit.
Bhutan, being such a small country, just might be succeeding in this because they *are* a small country- a half-million inhabitants (ok, plus 100k) would indicate no more than three degrees of separation to begin with- and the very real chance that the con artist will find among his in-laws people he has conned, which would make family reunions very hard.
because we're looking at the wrong patient.
I've seen far too many economists label this as a liquidity crisis- when in reality it's a SOLVENCY crisis. We let the cancer go for 70 years, and now we're treating the cancer instead of the patient because we can't even see the patient.
Housing is NOT the foundation of the issue, housing is just the most visible symptom of a general systemic problem of relying too much on credit and not enough on assets.
Although you could create some of them with the style buttons.
Currently these are not supported in the rich-text editor.
So, rich text editor support for CSS classes is now a feature request that I will have to do at a later date.
(that's what these will be).
I'm just playing around with the look of the site at the moment and #1 is readability although I have a special request to have "no blue" since you can choose Amadou as the "blue" experience. ;)
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