San Diego Housing Market News and Analysis

I've always thought that Japan is viewed as the successful model for dealing with a complete implosion of a country's banking system. A lost decade or two is preferrable to a severe depression?

What's the choice? Let the banks fail and the priviledged bond holder lose money or the sheeple lose a decade or two? Bond holders and bankers lose...OR...sheeple lose, hmmmmm, what will they chose?

I'm surprised by people that think we can't have housing falling for 15 years here in the US. Despite all the arguements that say we aren't going to end up like Japan, our Gov. keeps inching closer and following the same play book.

I've read stories of people in Japan who have kept up on mortgage payments for 15 years hoping to recover losses and they are still upside down. To me, that is a bankers wet dream at this point in the game.

I think we'll be lucky to have the Japanese scenario unfold here in the US. Dont forget, Japan was still selling a lot of their products to the world as their credit markets were zombified. We dont have that luxury. We have wage arbitration keeping a solid lid on income/job growth in the US while at the same time credit is being constricted.

Put those two factors together when considering the future of home prices in the US. Income stagnation or loss with the constriction of credit. This will probably keep downward pressure on home prices for quite a while.

I want to say one word to you. Just one word. Are you listening?

Inflation.

Inflation has always been the wildcard in this equation. It is by no means guaranteed. The level of inflation is not yet in even the tea leaves. We have been experiencing moderate deflation for the past six or so months. I wouldn't bet my farm on inflation at this point in time. Better to wait until a trend establishes itself.

Inflation as it relates to price increases is by no means a lock right now. Maybe in a few years, but not now. The velocity of money is tanking. Credit being pulled and unemployment rising. There's no where for the money to go. J6p is saturated with debt and the USG is getting there real fast as well.

Hyperinflation is a currency event due to non-confidence in the implied economy vis-a-vis it's currency. All past hyperinflations have started in the trough of a deflationary trend. Wiemar actually had two troughs, a double bottom, and then it was a hockey stick to irrelevancy. Hyperinflations are actually better termed hyperdevaluations.

Using current readings of inflation or deflation as indicators of what will happen in the next 5-10 years is as helpful as using home price trends in 2000-2007 was in judging the long term future of house prices.

US public debt is 61% of GDP. Japan's public debt is 171% of GDP. Quantitative easing in Japan, QE in the US.

in Japan 20 years and counting and no inflation to speak of aside from brief spurts that quickly retraced.

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Larry Greenberg
"And then there is Japan’s experience. The same inflation fears were voiced when Japan implemented numerous huge fiscal packages in the 1990’s and then instituted a policy of aggressive quantitative monetary easing during the five years to March 2006. The central bank key interest rate has not exceeded 0.5% since August 1995, and public debt is climbing to 200% of GDP, far beyond the U.S. situation. Instead of inflation, Japan remains in a state of deflation."

Rt 66, do you think American borrowers will vote to pay off their personal debts in full, or vote to pay back less than they personally borrowed (and have the rest of the real burden of debt reduction covered by the general taxpayer and by domestic/foreign savers through inflation/currency devaluation)?

I have an idea myself, but I am curious what you think the voters at large will choose to do.

We won't get to vote on it.

More and more people are chosing to default on all kinds of loans, so I guess that's a form of voting with your wallet.

If we could vote I'd bet F@cked Borrowers would chose inflation, allthough any dollars they have outside of their house will lose value. Another example of how the FB crowd's wants and needs evolve around their bad decision and turn out bad for the rest of us.

For me, I want deflation, so my dollars buy more. We've have enough inflation, time for some sanity to return.

Rt 66: "We won't get to vote on it.... If we could vote I'd bet .... Borrowers would chose inflation..."

I think you are right about the way voters will choose. I think you are wrong about not getting to vote. I know there's a desire to be more cynical than thou sometimes about our democracy, and to pretend that the majority of voters cannot influence political decisions. But I think that's way too extreme a view. And besides, there is a whole collection of 800-pound gorilla special interests who favor inflation over deflation: banking, RE, investment managers, most highly leveraged companies.... Put the general public's preference for not repaying its debts in full together with all those special interests and I think you get one unstoppable force.

Some aspects of the credit crisis are similar to japans biut with one big difference: they are a net creditor and we are a net debtor. As a predictable result the policy reponses in each case have been vastly different, as decribed in the japan article linked at the upper right of the page.

Rich

sweden was. banks imploded, government took over.