Housing Doom

I hesitate to disagree with a proven seer like Nouriel Roubini, but in a Bloomberg interview, he was asked the following question:

If President-elect Barack Obama was to call you today and say ‘Nouriel, how are we going to get ourselves out of this mess,’ What would you tell him?

Roubini surprised me by advocating a massive and expensive government intervention .  He is advocating, in a nutshell:

1. $700B stimulus package
2. Recapitalization of banks
3. Reducing the debt burden of households
4. Ease money supply and restore liquidity

I’m of the opinion that our economy is too dependent on housing and construction, and only a basic retooling and rethinking of our economy will bring about recovery.  No amount of spending will put the current system back together again. I don’t believe his solutions will "get us out of this mess".

You can listen to the interview here though, and tell us what you think.

"The overall picture now bears more resemblance to the early industrial economy of the mid-to-late-19th century - when industries such as automobiles, chemicals and electronics were just emerging - than to the relatively mature industrial economy of the 1930s."

… I should add, again. Over two years ago Professor Florida’s name came up in connection with some crack-pot theory on why San Diego’s house prices would stay permanently inflated, and I spent a day or so swatting down some transparently bogus statistics and heat charts he’d perpetrated on some ignoramus of an editor at The Atlantic.

Now he’s saturating the CBC and other Canadian media with articles and interviews, and seems to have landed on a pretty substantial perch as Academic Director of Toronto’s new Martin Prosperity Institute.[1] What got me going was the above letters-of-fire quote from his article [2] in today’s Globe & Mail. Out of the mouths of babes indeed. Astute Doomers may have already noticed that Florida accidentally provided another data point indicating how we are actually replaying the Panic of 1873. I wonder if Florida has even heard of Scott Nelson. I suspect not.

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It seems like however much "liquidity" goes in the doors of the banks, not much comes out the other side: [Thanks L!]

WASHINGTON – The Federal Reserve boosted its lending to commercial banks and investment firms over the past week, indicating that a severe credit crisis was still squeezing the financial system.

The Fed released a report Friday saying commercial banks averaged $93.6 billion in daily borrowing for the week ending Wednesday. That was up from an average of $91.6 billion for the week ending Nov. 19.

The report also said investment firms borrowed an average of $52.4 billion from the Fed’s emergency loan program over the week ending Wednesday, up from an average of $50.2 billion the previous week.

The Fed said its net holdings of business loans known as commercial paper over the week ending Wednesday averaged $282.2 billion, an increase of $16.5 billion from the previous week.

Financial firms are borrowing from the Fed because they are having trouble raising money through normal channels as the financial system endures its worst crisis since the Great Depression.

Banks are hoarding cash rather than making loans out of fear that they won’t be repaid. The Fed and the Treasury have been flooding the financial system with money in hopes that banks can return lending operations to more normal levels.

Maybe the Fed should consider bypassing the banks and lending directly to consumers- at least then the money wouldn’t have to pass through a black hole first. Consumers can’t afford to pay them back, but how is that different from the banks?

"New intrigue will arrive in the late afternoon when the Fed releases its balance sheet, an exercise it does usually every Thursday at 4:30 p.m., but will instead do so today [Friday]."

A few more mainstream people are starting to pick up on the importance of these weekly H.4.1 updates. The above was from a Friday article [1] at CNBC, which put readers on the lookout for …

… Foreign central bank holdings of agencies: For the past 7 weeks, foreign central banks have sold U.S. agency securities bringing the Fed’s holdings of these securities on behalf of foreign central banks down $93 billion to $891 billion. These sales coincided with a sharp widening in credit spreads between agency debt and Treasuries. The widening prompted the Fed to announce that it will begin purchasing $100 billion of agencies beginning next week. Yield spreads have tightened sharply since the announcement, helping to drive mortgage rates down and the stock market up.

And this week makes it 8. Reuters reports [2] an even bigger $13.29 billion net sale of Agency Debt held by foreign central banks than last week, dispite all the noise and fury of Fed and Treasury support for the stuff. Interestingly, Reuters omitted almost all context (that’s why you’ve come here to look at twist’s charts, right? ), although the deterioration of the numbers was significant week-over-week. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[3] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[4]

This week’s agencies sell-off puts us almost into Doom Top 10 territory, and remember that most of those were buy moves.

The cenbank buy of treasuries shrank a bit to $5.81 billion, thus pushing the reduction in total US obligations held by foreign central banks to a formidable $7.48 billion, up from a $5.30 billion reduction last week. Reuters notes that "Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries", but if this keeps up they may have to change that to "had".

Twist’s ratio graphs have Agency Debt as a fraction of Treasury Debt held by foreign central banks continuing to plummet. Doom will be watching this trend closely over the coming weeks to see if all the US official action can slow down or reverse this cliff-dive. What you are seeing here is a sort of proxy for the whole post-7/7 financial meltdown.

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I’ve heard a lot of scary comments from Treasury Secretary Hank Paulson, but this one ranks near the top: [Thanks L!]

"Millions of Americans cannot find affordable financing for their basic credit needs. And credit card rates are climbing, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending; as a result, it weakens our economy."

What in heck are Americans doing financing their "everyday purchases"? Credit should never be for the "everyday" stuff, that would mean you are borrowing money EVERY DAY.

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"Given a story like this, the media will always try to depict it as the apocalypse on roller blades, but the general public didn’t buy it." - about 7/7 2005

This tough old warrior is usually good for some sense.  Another must-read.[1]

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As the retail and commercial real estate domino falls, we are about to enter a whole new mortgage default crises that was never planned for; but one that a smart third grader could have seen coming.

Doom friend Mike sends along these happy thoughts to kick off the Holiday Shopping Season — including a special offer on his self-published bubble book.

The Next Domino to Tumble

by Mike Folkerth

As America’s shoppers hit the stores for the traditional Black Friday sales, the mood is somewhat more reserved than in years past. Most shoppers are searching for deep discounts and will leave the store with only the most frugal purchases; I hope.

The retailers have made no bones about the fact that they are in trouble by discounting nearly everything in an effort to reduce inventory rather than to make profits. When discounts reach the 45% to 70% level, there is precious little profit left to pay overhead.

I suspicion that there are some companies that are secretly planning a last hurrah before exiting their mall spaces permanently.

I wrote a couple of pieces a while back saying that commercial real estate was the next domino to tumble. This morning the “Main Stream News” (MSN) got around to reporting the nearly unthinkable phenomenon that the residential mortgage crisis has now spread to commercial real estate. Who would have ever imagined?

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but … "Great Britain’s main city has the best infrastructure of lawyers, accountants and financial experts in the world. "

…

Crina Boros: There are still issues to be discussed about the economic crisis.

George Iacobescu: They cut down forests to write about it. I believe that such an economic crisis had never happened before. The entire mankind lives in the fear and surprise of this economic crisis. Practically, it will last for at least three or four years. It is only in 2011 that the values will begin to look familiar with the 2008 siblings.

…

Oh, heck. Just read the whole thing.[1]

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Doomers please adjust your tin-foil hats — we’re going deep.

Thank-you, I think, to Doom friend W.C. Varones, whose comment — "… The Conservatives are not neo-cons. They are common-sense centrists, …" — got me going. Pardon me if I get touchy whenever our present government starts messing around with the franchise.

The Civitas speech remains elusive, but something like its reputed contents came up in the campaign leading up to the January 23, 2006 Federal Election. The fun bit was preserved on Wayback from the Liberal Party’s home page as of December 17, 2005.

The article link isn’t live, but the speech link is. You can still find brief reference to the file

/http://www.liberal.ca/images/dir/PDFs/harper_speech_txt_only.pdf

on Wayback.

Although most of the evidence from this brief political episode was scrubbed off the internet, there remains this Dec 15. 2005 commentary [1] by the then-President of the Liberal’s BC Chapter. He also provides a handy list of some of the "good bits,"including …

• First, facts about Canada. Canada is a Northern European welfare state in the worst sense of the term, and very proud of it. Canadians make no connection between the fact that they are a Northern European welfare state and the fact that we have very low economic growth, a standard of living substantially lower than yours, a massive brain drain of young professionals to your country, and double the unemployment rate of the United States.
• In terms of the unemployed, of which we have over a million-and-a-half, don’t feel particularly bad for many of these people. They don’t feel bad about it themselves, as long as they’re receiving generous social assistance and unemployment insurance.
• …
• A country like Canada will never have as strong a national identity as you do in the United States. You just have to accept that and get questions of ethnicity out of the national government. It’s just a recipe for disaster otherwise.

I’m re-posting the whole speech (as once rendered by LPC) below. If this is the view from 24 Sussex, it sure doesn’t look like common-sense centrism to me.

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It’s not a holiday up here, so with the American MSM stuffed with turkey, what better time to foment a small coup?

An economic crisis is a fine time to suppress the opposition.  This just in from CBC World Report (last story on the 8AM AST package — later: Fitz-Morris’ story squeezed out of the final version of the package):

Dwight Smith [10:50]: CBC News has learned that one of the programs first in line to get chopped today is the funding subsidy for political parties that’s based on the number of electoral votes they earned.  James Fitz-Morris has more details. … Fitz-Morris: "In a time of such economic uncertainty, who would taxpayers rather see take it on the chin than politicians?  Conservative politicians have been hinting for days they’ve found a way to save C$10s millions, and that other parties probably wouldn’t like it.  Now CBC News has learned that the government will eliminate a C$30 million / year subsidy to political parties.  And Conservatives were right about the reaction.  … Green Party leader Elizabeth May: ‘This is the time for us not be be playing silly political games like canceling this relatively small amount of funding.’ … and NDP MP Thomas Mulcair says this move will do nothing to boost the economy, and is designed only to help Steven Harper’s Conservatives.  … ‘He’s taking the pretext of the economic crisis to move into an area that would have no effect on jobs, on families, on the real economy …’ the subsidy was created when large political donations by corporations were outlawed.  It gives political parties C$1.95 for every vote they received in the previous election.  The Conservatives stand to lose the largest subsidy, about C$10 million.  But they are also best positioned to cope with this loss.  Conservatives outpaced their opponents in fund-raising by a margin of almost 4 to 1.  James Fitz-Morris, CBC News, Ottawa."

Silent on this question are the Liberals.  They stand as a sort-of "Democratic Party" in Canada against the so-called "Conservatives," really a re-branded Reform Party that exists as a pale imitation of today’s neo-con infested US Republican Party.  Like them, they are presently in office, but have better prospects of clinging to (minority) power.  Complicating the mix is the Bloc Québécois, a separatist party.

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