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Thread: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

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    Default economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    (snip)"WASHINGTON - Home construction plunged last month and building permits also fell, the latest signs that the construction industry won't fuel the economic recovery.

    Builders are scaling back now that government incentives have expired. The biggest evidence of that trend: single-family homes tumbled 17 percent, the largest monthly drop since January 1991. The struggle in the housing industry is a concern for the broader economy because fewer homes mean fewer jobs across various sectors.

    Overall new homes and apartments fell 10 percent in May to a seasonally adjusted annual rate of 593,000, the Commerce Department said Wednesday. April's figure was revised downward to 659,000. Applications for new building permits — a sign of future activity — sank 5.9 percent to an annual rate of 574,000. That was the lowest level in a year.

    "The tax credit was never intended to be a permanent driver of housing activity and has simply shifted sales forward," wrote James Marple, senior U.S. economist with T.D. Bank. "Sales will almost certainly fall in the months ahead and take some steam out of housing recovery." "(snip)

    from


    The important take-away is that the US taxpayer funded first time home buyer / new home buyer tax credits were responsible for slowing an earlier decline in new home sales and home prices. Now that the tax credit has expired, the US housing market is arguably returning to its 'real' level ... which is much lower. Additionally, it appears that these tax credits artificially 'sucked' future new home purchases forward to take advantage of the 'free' US taxpayer money ... meaning that actual future new home purchases will be even further reduced.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    I was just about to post this but you beat me to it.

    Would Eagle or one of the other Obama fans and apologists please point to one economic positive over the past year or so that was NOT a direct result of some sort of Federal subsidy, tax break or other incentive ? I'll give them an even tougher one : Please name an area of the economy that benefitted from such a program and then kept going ( did not fall off ) AFTER the incentive program ran out ?

    Do Obama and the Dems have any answer other than MORE government stimulus ? Not that I've seen or heard.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    ^^^ well, they're going to have to come up with yet another US taxpayer funded bailout where gov't subsidized home mortgages are concerned ...


    (snip)"As wards of the state, Fannie and Freddie are insuring three out of every four mortgages. Most of the remaining 25 percent are being guaranteed by the F.H.A. As much as you might resent the fact that the taxpayers now have to pick up behind new Fannie and Freddie, the sad truth is that without them, no one in America would be able to buy a home.

    Literally 99% of the mortgages are government-backed: With a big boost from the Feds, investors again like securities backed by assets:

    (In 2009), government-backed loans have accounted for 99%, or $1.5 trillion, of mortgage securities. Banks and other private firms have issued a mere $15 billion. In addition, the Federal Reserve and Treasury have spent nearly $1.25 trillion buying those bonds to support the housing and broader credit markets. "The government is literally plowing trillions of dollars into the U.S. mortgage market to keep it afloat," says Guy D. Cecala, publisher of Inside Mortgage Finance.

    Meanwhile, the costs of this unprecedented subsidy of housing may cost $1 trillion in losses on Fannie and Freddie alone."(snip) from


    By 'pure coincidence' Fannie and Freddie shares were both de-listed from the NYSE today !!! However, there is plenty of spin in regard to news reports on this ...


    (snip)"The Federal Housing Finance Agency, the conservator for both Fannie and Freddie, has directed both to delist their common stock and their preferred stock, the agency announced Wednesday in a press release.

    Both companies stock, however, will continue to trade, but will be quoted on the Over-the-Counter Bulletin Board, according to the press release.

    "FHFA’s determination to direct each company to delist does not constitute any reflection on either Enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator," Edward J. DeMarco, the FHFA Acting Director, stated in a press release. “The determination to direct delisting is related to stock exchange requirements for maintaining price levels and curing deficiencies.”(snip)

    from


    returning to economic facts that can't be spun, the following graph clearly illustrates that America is about to enter a 'second round' of mortgage interest rate resets over the course of the next two years ...



    ... this is particularly noteworthy given that the 'current' FHA mortgage default rate is already near 20% per year !!!

    (snip)"The default rate on low-down-payment FHA loans is a staggering 20% on loans written in 2008--after the housing bust had already unfolded and the risk was undeniable: F.H.A. Problems Raising Concern of Policy Makers:

    F.H.A. commissioner, David H. Stevens, acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure.

    The problem with that willingness to absorb risk for the sake of incentivizing borrowing for home ownership is that next year another 20% will default, and then the following year another 20% will default, and by year Five the vast majority of those loans backed by FHA will be in default."(snip)


    Also, keep in mind that the FHA allowed the $8000 home buyer tax credit to be used as a down payment on newly issued mortgages over the past year in place of actual homebuyer cash. See . The implication of course is that a large number of home buyers over the past year have next to nothing in terms of their own money 'invested' in their new home purchase / equity ( the down payment was made by US taxpayers ), and as such their probability of future default logically resembles the zero down payment mortgages that existed in 2006.

    In addition, reference the mortgage interest rate reset graph. The single largest area of growth is in so-called Option ARM's. Up until this first reset, holders of these mortgages have had the Option of making monthly payments that are so low that they don't even cover the interest due ( = outstanding principal balance is not being reduced or in fact is still rising ! ). Logic similarly dictates that once forced to start making significantly larger mortgage payments that cover all interest due plus some amount of principal repayment, that the default rate on Option ARMS will increase significantly.



    ~
    Last edited by Melonie; 06-16-2010 at 03:54 PM.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by Eric Stoner View Post
    I was just about to post this but you beat me to it.

    Would Eagle or one of the other Obama fans and apologists please point to one economic positive over the past year or so that was NOT a direct result of some sort of Federal subsidy, tax break or other incentive ? I'll give them an even tougher one : Please name an area of the economy that benefitted from such a program and then kept going ( did not fall off ) AFTER the incentive program ran out ?

    Do Obama and the Dems have any answer other than MORE government stimulus ? Not that I've seen or heard.
    From the article:

    (snip)
    The rate of home building is still up about 41 percent from the bottom in April 2009.
    (snip)

    Also from the article:

    (snip)
    Output at the nation's factories, mines and utilities climbed 1.2 percent in May, the Federal Reserve said Wednesday. Factory production rose 0.9 percent. Utility production jumped 4.8 percent, thanks to warm weather that prompted people to crank up their air conditioners. Mining was the only component that lagged.

    Wholesale prices actually fell for a second straight month in May. But the 0.3 percent dip was pulled down by a 7 percent drop in gasoline prices and a 7.4 percent fall in home heating oil prices. Core inflation, which excludes energy and food, rose 0.2 percent in May. It is up just 1.3 percent over the past 12 months.
    (snip)

    The stimulus is working. The downward spiral of the economy we were in when Obama became President has stopped. The inflation you and Melonie were predicting is non-existent.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Fannie and Freddie delisted. I think I see a comet in the sky up there...

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    (snip)"Wholesale prices actually fell for a second straight month in May. But the 0.3 percent dip was pulled down by a 7 percent drop in gasoline prices and a 7.4 percent fall in home heating oil prices. Core inflation, which excludes energy and food, rose 0.2 percent in May. It is up just 1.3 percent over the past 12 months.(snip)

    I didn't quote these references because they are so easy to spin ... as you have just attempted to do. All of these have been directly impacted by the unexpected strengthening of the US dollar's exchange rate in the aftermath of the EU's Greek bailout ... which has essentially made every worldwide commodity 5% less expensive in terms of US dollars on a temporary basis. However, the US dollar's role in an international 'flight to safety' is already reversing.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    There is no surprise here. The Economic Reinvestment and Recovery Act(ERRA) is pretty much in full swing now, as contracts have been drawn up and infrastructure is being improved and construction people are being put to work. In my opinion this is a much better way of pumping money into the economy than by giving people money to spend at Walmart on Chinese junk. And it is most certainly better than doing nothing at all and hoping that the Conservative's economic god, Adam Smith, will come to our rescue; i.e., the Christian Science curative method chapter of his economic theory book.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by threlayer View Post
    There is no surprise here. The Economic Reinvestment and Recovery Act(ERRA) is pretty much in full swing now, as contracts have been drawn up and infrastructure is being improved and construction people are being put to work. In my opinion this is a much better way of pumping money into the economy than by giving people money to spend at Walmart on Chinese junk. And it is most certainly better than doing nothing at all and hoping that the Conservative's economic god, Adam Smith, will come to our rescue; i.e., the Christian Science curative method chapter of his economic theory book.
    "Construction people are being put to work" ! ? ! ? Where did you get THAT from ?
    The employment numbers from this year show increasing UNemployment in construction. When the Fed funds for infrastructure run out, then what ? Most cities and states are broke. If they don't finish these projects on time and within budget, they won't get finished. UNLESS there are subsequent Federal bail-out packages.
    Last edited by Eric Stoner; 06-18-2010 at 07:05 AM.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by eagle2 View Post
    From the article:

    (snip)
    The rate of home building is still up about 41 percent from the bottom in April 2009.
    (snip)

    Also from the article:

    (snip)
    Output at the nation's factories, mines and utilities climbed 1.2 percent in May, the Federal Reserve said Wednesday. Factory production rose 0.9 percent. Utility production jumped 4.8 percent, thanks to warm weather that prompted people to crank up their air conditioners. Mining was the only component that lagged.

    Wholesale prices actually fell for a second straight month in May. But the 0.3 percent dip was pulled down by a 7 percent drop in gasoline prices and a 7.4 percent fall in home heating oil prices. Core inflation, which excludes energy and food, rose 0.2 percent in May. It is up just 1.3 percent over the past 12 months.
    (snip)

    The stimulus is working. The downward spiral of the economy we were in when Obama became President has stopped. The inflation you and Melonie were predicting is non-existent.
    Yes but so what ? The rate of GDP growth is puny compared to almost every other recovery on record and new jobless claims increased again last week.

    It is looking more and more that this year's economic upticks are being driven by a rush to take profits and make money THIS year anticipating NEXT year's tax increases.

    Mel and I NEVER predicted inflation tomorrow or even next year. Based on history, it will take years for it to develop and it will hang around for a long and painful time. The inflation of the late 70's and early 80's was created in the late 60's and mid-70's by the same or similar fiscal and Fed policies we are seeing now.
    Last edited by Eric Stoner; 06-18-2010 at 07:05 AM.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    The rate of GDP growth is puny compared to almost every other recovery on record
    ^^^ and if you subtract that portion of official GDP which is directly attributable to gov't borrowing for stimulus spending, the 'private sector' GDP isn't really growing at all. Yes there was a small 'pop' in private sector activities over the past couple of months as depleted inventories were somewhat replenished. However this has just about run its course, as evidenced by most recent private sector unemployment claims increasing again.

    In terms of relevance to this particular thread, as Eric points out the construction segment of the 'private sector' economy continues to lead the negative employment numbers. This is partially offset by 'public sector' stimulus funded construction. However, as Eric also points out, unless another major federal stimulus borrowing / printing and spending package is approved by Washington the 'public sector' construction activity will drop like a stone once the 2010 summer construction season is over.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by Eric Stoner View Post
    Yes but so what ? The rate of GDP growth is puny compared to almost every other recovery on record and new jobless claims increased again last week.
    You are greatly oversimplifying things. Not all recessions are the same. This past recession was far worse than anything we've had since the Great Depression. We're not going to turn around overnight.


    Quote Originally Posted by Eric Stoner View Post
    Mel and I NEVER predicted inflation tomorrow or even next year. Based on history, it will take years for it to develop and it will hang around for a long and painful time. The inflation of the late 70's and early 80's was created in the late
    60's and mid-70's by the same or similar fiscal and Fed policies we are seeing now.

    In the 1960's our economy was at full employment. We have 10% unemployment now. There's no comparison between the two.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    ^^^ actually there are a great number of similarities between the profilgate gov't spending / gov't employment growth / gov't borrowing of the LBJ era, and the profilgate gov't spending / gov't employment growth / gov't borrowing of the present day. This is particularly the case if one uses the date of the November 2006 elections / January 2007 new Democratic congress as a 'turning point' ...

    (snip)"Almost 44 years ago to this day, swaggering Lyndon Baines Johnson made "his pledge to wipe out poverty and unemployment in the land," as it described by a newspaper the day after. Johnson made his grand pronouncement from the front porch of Thomas Fletcher's house in Inez, the seat of Martin county in eastern Kentucky.

    Forty four years and $10 trillion dollars later, eastern Kentucky is still poor, and just as on the day LBJ came to town, Thomas Fletcher is still struggling to make a living."(snip)

    If a person cannot or will not understand the similarities, then they will also not understand that when gov't attempts to provide 'guns and butter' via spending borrowed money, that the eventual costs of servicing that debt on top of current year gov't spending become unsustainable. In LBJ's case, the deficit spending commitments and resulting debt servicing costs of his 'great society' programs forced the US dollar off the gold standard in 1971 in order to allow the gov't to 'pay back' gov't debts via devalued dollars ( as opposed to defaulting on those repayments in dollars of 'equal' purchasing power value). This in turn led to US dollar denominated price inflation plus reductions in private sector economic activities to the point where the US had serious 'stagflation' during the late 70's Carter years.

    Arguably, exactly the same sort of economic forces are again being unleashed today by the creation of unprecedented levels of new US gov't debt and the enacting of a new generation of 'great society' programs i.e. national health care so far. However, then as now, the end result of setting such economic forces in motion won't be seen or undeniably recognized as cause and effect for several years. And then as now, there will also be a certain number of individuals who will refuse to acknowledge that cause and effect relationship, and who will again attempt to explain the resulting economic 'malaise' in terms of random events / bad luck / exploitation.

    In keeping with the thread topic, if late 70's history replays itself several years from now we could again see 15% mortgage interest rates but another 40% decline in typical housing prices as a result of the after tax income + interest rate = affordable monthly mortgage payment = realistic sale price for housing equation again rebalancing itself. Of course, over the course of the last 15 years, gov't subsidies re interest rates / down payment money have attempted to alter this basic equation. It remains to be seen whether or not US taxpayers are willing to continue paying for said gov't subsidies for housing going forward.

    ~
    Last edited by Melonie; 06-17-2010 at 10:59 PM.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by eagle2 View Post
    You are greatly oversimplifying things. Not all recessions are the same. This past recession was far worse than anything we've had since the Great Depression. We're not going to turn around overnight.





    In the 1960's our economy was at full employment. We have 10% unemployment now. There's no comparison between the two.
    You keep trying to state that this recession is somehow unique and the worst since the Great Depression. In 1982, unemployment hit 10.8 % WITH high inflation. The Roosevelt Recession of 1938 saw 18 %.

    What DOES make this recession somewhat unique is that when it hit, the Fed already had interest rates artificially low.
    And still managed to create an inverted yield curve ( short term rates higher than long term.)

    And as Mel and I have pointed out, the REAL unemployment rate now is closer to 20 % when you add up all the underemployed and discouraged workers.

    I think you might be repeating the cardinal error of automatically connecting inflation to the unemployment rate. They really have very little to do with each other. We have had high unemployment with high inflation and low unemployment with low inflation. Inflation is a MONETARY phenomenon when too much money is chasing too few goods and services. You tell me : When has any country run huge deficits and had its central bank pump out trillions of new dollars and been able to avoid inflation ? Weimar Germany couldn't do it. Argentina couldn't do it. Israel couldn't. Brazil couldn't.
    Last edited by Eric Stoner; 06-18-2010 at 07:29 AM.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by Eric Stoner View Post
    "Construction people are being put to work" ! ? ! ? Where did you get THAT from ?
    The employment numbers from this year show increasing UNemployment in construction. When the Fed funds for infrastructure run out, then what ? Most cities and states are broke. If they don't finish these projects on time and within budget, they won't get finished. UNLESS there are subsequent Federal bail-out packages.
    Maybe this is not your style of gathering information, but I got it from direct observation (lots of big projects getting done this year too), not from reading some biased conservative rag.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    a picture is worth 1000 words ... in this case Construction worker unemployment rates for the month of April



    Source: U.S. Bureau of Labor Statistics. Construction Unemployment Rate for April


    I got it from direct observation (lots of big projects getting done this year
    Unfortunately, what you don't see can be just as important as what you do see - i.e. that 50 'new' workers repaving an interstate highway in one particular location does not offset the loss of 100 workers formerly paving driveways and parking lots at many small home / business projects.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by threlayer View Post
    Maybe this is not your style of gathering information, but I got it from direct observation (lots of big projects getting done this year too), not from reading some biased conservative rag.
    I see. Anecdotal evidence ( i.e. YOUR personal observations ) trumps actual official facts and figures. That's just like saying the recession will be officially over when your unemployed neighbor gets a job and the guy on the next block buys a brand new car. Who knew ?

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    More evidence Obama's stimulus is "working" ? - Existing home sales for May are DOWN 2.2 %.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    More good news : New Home Sales are DOWN 33 %. Can you say : "Double Dip Recession in the housing market " ?

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    ^^^ actually, this is just one component of a double dip recession involving the entire US economy according to many supposed 'experts' ... among them George Soros, Meredith Whitney and Jim Rogers.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Quote Originally Posted by Melonie View Post
    ^^^ actually, this is just one component of a double dip recession involving the entire US economy according to many supposed 'experts' ... among them George Soros, Meredith Whitney and Jim Rogers.
    I don't know. Maybe. There is evidence on both sides. Even without a "double -dip", there is nothing to indicate healthy growth or a serious reduction in unemployment.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Housing construction is down, no doubt. Who's going to finance such projects. Housing purchases predictably are also down because of the ending of the homebuyers' credit. But these do not portend the future as the stimulus, TARP etc do their work. Recall that the problem was illiquidity in the credit supply. What other entity can make the correction if not the central bank And if ill-advised tax decreases and bribery refunds were not the case in American politics, chances are quite high that things would not have taken such a drastic turn 2 years ago.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    Recall that the problem was illiquidity in the credit supply. What other entity can make the correction if not the central bank
    Actually I recall that the true problem is a lack of solvency, leading to an extreme reluctance on the part of lenders to provide liquidity dollars that had little chance of ever being paid back in full by high risk technically insolvent would-be borrowers. As a result, the central bank purchased these shaky liquidity loan assets from the lenders at full face value ... and transferred the high probability risk of non-repayment in full to the US taxpayer.


    But these do not portend the future as the stimulus, TARP etc do their work
    Indeed TARP and stimulus spending will continue to 'do their work' for many years to come ... as an increasing number of banks fail to make timely TARP interest payments / repayments, and as an increasing percentage of future US tax revenues must be diverted to making principal and interest payments on the ~$1 Trillion dollars of new US treasury bonds issued to fund the stimulus package ( almost all of which will have been spent thus any stimulus effect exhausted before election day ).

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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    ^^ Yes, originated by predatory lending and Vegas-like games played on Wall Street. The bonds will be a big future problem id tax revenues do not greatly increase, not necessarily by onerous tax rate increases, but by profits and income down the line. So we hope. All these government inducements have always been done in hope they will succeed. Nothing new there.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

  24. #24
    Banned Melonie's Avatar
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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    and who says that the 'housing segment' isn't adding jobs ....

    (snip)"Bank of America Corp., the second- largest U.S. home lender, added 2,000 employees since April to work with borrowers having trouble paying their mortgages, a senior executive said.

    The lender now has more than 18,000 workers in “default management,” a 60 percent increase since January 2009, Barbara Desoer, president of Bank of America’s home-loan and insurance unit, said in testimony prepared for a congressional hearing on U.S. housing policy tomorrow. Those workers handle 100,000 calls a day, she said. Wells Fargo & Co., the largest U.S. home lender, Bank of America and other companies have hired thousands of employees or shifted staff from other departments to work with borrowers who have lost jobs or experienced declining incomes. Banks repossessed a record 257,944 homes in the first quarter, 35 percent more than a year earlier, according to Irvine, California-based RealtyTrac Inc. More than a fifth of U.S. mortgage holders owed more than their homes were worth, Seattle- based real estate data provider Zillow.com reported last month. "(snip)

    from

  25. #25
    Banned Eric Stoner's Avatar
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    Default Re: economic facts that can't be spun part 3 - New Home Sales Drop like a Stone !

    MOOSE- MUFFINS ! This is really getting out of control. Corporations are sitting on $1.5 Trillion in cash; commercial banks have trillions in Federal debt and hedge funds are sitting on at least $500 billion in cash. And you think the housing downturn is from a lack of "Liquidity" ?
    Are you serious ? It's from a lack of lending. It's from a lack of being able to put up a 20% down payment and a lack of a good enough paying job and a failure to repair a damaged credit rating.

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