US housing slump fuels crash fears --Guardian/Observer

[Demeter]

http://observer.guardian.co.uk/business/story/0,,1859024,00.html?gusrc=rss&feed=24

Foundering American property market could spark global slowdown worse than dotcom collapse

Heather Stewart, economics correspondent
Sunday August 27, 2006
The Observer


The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year and could be more damaging to the world economy than the dotcom crash, economists have warned.
After official figures last week showed that the number of new homes sold in July was 22 per cent lower than a year earlier, while prices were almost flat, fears are mounting that the 'orderly' housing slowdown predicted by the Federal Reserve will become a full-blown crash....'Things do seem to be getting worse very quickly. Freefall is a strong word, but I think it's the right one to use here,' said Paul Ashworth, chief US economist at Capital Economics.

House prices have been rising at unprecedented double-digit rates in recent years, giving homeowners massive windfalls and supporting a wave of investment in new construction. However, the number of unsold new homes is now at a 10-year high...Ashworth reckons 30 per cent of all the jobs created since the end of the last recession in 2001 - 1.4 million - have been in sectors related to the housing market boom, from construction to DIY stores. As the boom runs out of steam, Capital calculates that 73,000 jobs a month will be lost.

The Federal Reserve left interest rates unchanged for the first time in 18 meetings earlier this month, as chairman Ben Bernanke weighed the risks of high inflation and the threat to growth from the long-expected housing market crunch....Stephen Roach, chief economist at Morgan Stanley, predicts that the property slowdown will shave at least 2 percentage points off GDP growth next year, taking the US perilously close to recession, as construction spending plummets and homeowners lose the cushion of extra wealth that comes from rapid price rises.

'For a wealth-dependent US economy, the bursting of another major asset bubble is likely to be a very big deal,' he said, warning that, with US fiscal and trade imbalances now larger than five years ago, the fallout for the rest of the world could be more devastating than the aftermath of the dotcom boom. 'A bursting of the property bubble poses equally serious risks for America's key trading partners and for the rest of an increasingly integrated global economy,' he added.

[IChing]

1. "73,000 jobs a month will be lost"

Which will be the real terror which will effect families, businesses, and communities
in at least 5 times the numbers than the 73,000 jobs suggests.

[Zenlitened]

2. And to think, the whole "we must raise interest rates" routine...

... has been a sham, anyway.

"The Fed is trying to keep the economy from overheating."

*snort* Like there was ever any danger of that.

But it sure makes for some nice propaganda: "The Prezdent's so good at prezidentin' that, by golly, the economy is almost TOO strong!"

Riiight.

[ozone_man]

3. They should never have lowered them

in the first place. The FED created the housing bubble by lowering rates to unprecedented levels. The debt has to go through a purge cycle now. Lots of foreclosures and bankruptsies before there can be new growth. Rather than let the stock market reach a bottom, they created a new asset bubble in housing, which is even bigger than the SM bubble was. There are no more bubbles to inflate now, and that means a return to that which must not be named (deflation). We have a few bubbles to pop first.

[Demeter]

4. There's the Oil Bubble

I recently repeated the report from NPR that pension funds were buying oil futures (commodity speculation) because of "guaranteed" 14% return in 6 months. One expert said that removing these investors would lower the price of oil $20/barrel overnight.

As long as the money just sloshes around from speculation to speculation, so that it can be stolen or wasted, instead of being collected as taxes and recycled into the economy, things are not going to improve.

[ozone_man]

19. True. The commodities bubble,

which includes oil and precious metals, will have to pop also as the other markets begin to fall. I think this time all markets will move down together. Oil and gold will have their day again long term, but not during a deflationary period. We'll see in the next two years whether it is just a bad recession or the beginning of something bigger, a deflationary depression. An opportunity for an FDR type Democrat in 2008. Bush will be the Hoover of the 21st century.

[DoYouEverWonder]

14. The interest rates were insanely low

at least now I'm earning some interest on my savings again. Oh right, what's that? Most Americans don't have savings. Some can't afford it, but there are too many others that must have everything and max out their credit because whatever it is they want, it's not enough.

[ama]

17. who owns the federal reserve bank?

The Federal Reserve Banks are nominally "owned" by the private member banks (see below). In Lewis v. United States, 680 F.2d 1239 (9th Cir. 1982), the United States Court of Appeals for the Ninth Circuit stated that the "the Reserve Banks are not federal instrumentalities for purposes of the FTCA , but are independent, privately owned and locally controlled corporations."
http://en.wikipedia.org/wiki/Federal_Reserve_Bank
so i guess they´ll make a profit when peoples debt on thier house is greater than its value
in the 80´s interest was up to 28%

[ozone_man]

20. Wouldn't it be nice to abolish the FED someday.

"I believe that banking institutions are more dangerous to our liberties than standing armies."
- Thomas Jefferson

[Greyhound]

29. That's why it took them nearly a hundred years to steal this vital

right from the people. The corrosive effects of interest (initially banned from the beginning here) are the chief cause of economic woes in our society.

[Tesha]

25. It was necessary to prevent a full-scale disaster after Bush was elected.

> They should never have lowered them in the first place.

The Fed was busy raising rates on Clinton/Gore in the run-up
to the election of 2000, creating an environment where the
economy was being deliberately cooled and the rich folks
would be more willing to help throw the Democrats out and
put "the grownups" back in charge.

But when the election turned into a debacle and Bush actually
was selected in the Coup, it was then necessary to immediately
start lowering rates to prevent the full-scale disaster that
might otherwise have occurred. Eventually, the Fed played their
hand out (as Fed interest rates reached near 0%) and the Bush
recession was still lolling along, waiting to strike. I think
the Fed is now trying to put a few of the cards back in their
hands, but the result is that the long-postponed full-scale
Bush economic disaster is now upon us.

Tesha

[ozone_man]

27. Except this time the bubble has become much worse.

It would have been better to have let the economy bottom out. Now the bubble is much bigger and will lead to a bigger fall. It couldn't happen to a better president. In another few years we'll all be experts at bubble economics. A year ago, the topic was unmentionable.

[Tesha]

28. Better for you; not better for Bush and his friends! (NT)

[ihelpu2see]

5. I don't doubt a housing slump. And I followed the link and wow the

Observer is missing quite a spelling error "Foundering American...." don't they mean Floundering. I know I'm not the one to talk. I wear out my computers dictionary and spell checker but I am always amazed at what gets by editors.....

[nealmhughes]

6. Dude, it's the Gaurdian...part of its charm.

[ms liberty]

7. no not a spelling error...

to founder is to fail, break down, or come to grief, as in "George forced the horse to gallop without rest through the night. He was not surprised when the horse foundered before dawn."

[bhikkhu]

8. Founder, according to Oxford:

to fill with water and sink. Probably equally appropriate to the situation as flounder.

[ixion]

11. actually, the word usage is correct

maybe you need a new dictionary. :-)

http://dictionary.reference.com/search?q=Foundering&x=30&y=11

[ochazuke]

12. as in HMS Titanic

A rarely used word, founder. But, if you can stand to sit through the movie "Titanic" once more, you'll see it used there.

Brits love the nautical terms.

[Coventina]

13. No, they do mean "foundering". One of the definitions of founder is to

fall or sink.

[ihelpu2see]

21. Thanks to all, I missed that one on the Toilet Paper Word of the Day! nt

[Greyhound]

30. It's also a deadly condition that horses get. If left unattended their

hooves (the wall, or bony part) will actually fall off. Many horses are killed if they founder. No hoof, no horse.

[cliss]

9. Hang on tight, kids. We're in for a wild ride.

I would like to suggest that everyone

a) cut back on their expenses. Be as frugal as you possibly can.

b) Try to pay off any debts especially credit card debt. Don't charge anything more until everything is paid off.

c) If you have car payments, get rid of the car & go buy one for cash. It's a much better way to live.

d) If you commute a really long way to work (like more than 30 minutes each way), consider getting rid of your house and moving closer to your work place. Houses which are in 'bedroom communities', anything further out will become an albatross. As the price of gas goes up in the next few years, no one will want to buy an expensive, outlying house.

e) Pay off your home improvement loan....any other loans associated with your mortgage. This is not the time to be burdened with additional debt....

[DoYouEverWonder]

15. Lot's of good suggestions

Here in the US there is so much that we can do easily to cut back on our energy usage, that we don't even need new technology to make a significant dent and still live a nice life.

[InkAddict]

22. Uh, how 'bout some jobs

so I can take up those recommendations ASAP.

[truthisfreedom]

10. oh, don't worry. all of those new houses will be sold when Greenland melts

and slides into the ocean, destroying millions of homes in the process. we're going to be juuust fiiiiine.

[oneinok]

16. It's the Oklahoma dust bowl again

Banks here in Oklahoma are buying up houses at a record pace. We will soon be a state of renters. The American Dream of home ownership will be just that...a dream.

[lovuian]

18. Economics 101 when90% of country's assets owned by a few

that causes Depressions

and it causes
Socialism

[Demeter]

23. Isn't It Amazing How American Press/Media Hasn't Picked Up on This?

Oh, there's the whispers about sales of new and existing housing sales slumps. And the low-key layoff notices. But nobody's tying it up in a neat, gift-wrapped bundle to pass on to the Pres. and the public.

[Tesha]

26. Actually, our local press has been covering this.

But it'd be kind of hard to have kept the secret in our area,
when you see the same old houses still for sale going on
six or more months in some cases.

No good local jobs + houses that are too big and over-valued +
failed local government = no sales.

Tesha

[gasperc]

24. w/ how totally out of touch the Bush admin is

they will have a totally do-nothing attitude and if the dems take over congress they will likely take a political blame the democrats approach to not doing anything about the issue