San Diego Housing Bubble News and Analysis

Along similar lines, here's a copy of Thomas Friedman's piece in the NY Times yesterday -

May 4, 2008
Op-Ed Columnist
Who Will Tell the People?
By THOMAS L. FRIEDMAN

Traveling the country these past five months while writing a book, I’ve had my own opportunity to take the pulse, far from the campaign crowds. My own totally unscientific polling has left me feeling that if there is one overwhelming hunger in our country today it’s this: People want to do nation-building. They really do. But they want to do nation-building in America.

They are not only tired of nation-building in Iraq and in Afghanistan, with so little to show for it. They sense something deeper — that we’re just not that strong anymore. We’re borrowing money to shore up our banks from city-states called Dubai and Singapore. Our generals regularly tell us that Iran is subverting our efforts in Iraq, but they do nothing about it because we have no leverage — as long as our forces are pinned down in Baghdad and our economy is pinned to Middle East oil.

Our president’s latest energy initiative was to go to Saudi Arabia and beg King Abdullah to give us a little relief on gasoline prices. I guess there was some justice in that. When you, the president, after 9/11, tell the country to go shopping instead of buckling down to break our addiction to oil, it ends with you, the president, shopping the world for discount gasoline.

We are not as powerful as we used to be because over the past three decades, the Asian values of our parents’ generation — work hard, study, save, invest, live within your means — have given way to subprime values: “You can have the American dream — a house — with no money down and no payments for two years.”

That’s why Donald Rumsfeld’s infamous defense of why he did not originally send more troops to Iraq is the mantra of our times: “You go to war with the army you have.” Hey, you march into the future with the country you have — not the one that you need, not the one you want, not the best you could have.

A few weeks ago, my wife and I flew from New York’s Kennedy Airport to Singapore. In J.F.K.’s waiting lounge we could barely find a place to sit. Eighteen hours later, we landed at Singapore’s ultramodern airport, with free Internet portals and children’s play zones throughout. We felt, as we have before, like we had just flown from the Flintstones to the Jetsons. If all Americans could compare Berlin’s luxurious central train station today with the grimy, decrepit Penn Station in New York City, they would swear we were the ones who lost World War II.

How could this be? We are a great power. How could we be borrowing money from Singapore? Maybe it’s because Singapore is investing billions of dollars, from its own savings, into infrastructure and scientific research to attract the world’s best talent — including Americans.

And us? Harvard’s president, Drew Faust, just told a Senate hearing that cutbacks in government research funds were resulting in “downsized labs, layoffs of post docs, slipping morale and more conservative science that shies away from the big research questions.” Today, she added, “China, India, Singapore ... have adopted biomedical research and the building of biotechnology clusters as national goals. Suddenly, those who train in America have significant options elsewhere.”

Much nonsense has been written about how Hillary Clinton is “toughening up” Barack Obama so he’ll be tough enough to withstand Republican attacks. Sorry, we don’t need a president who is tough enough to withstand the lies of his opponents. We need a president who is tough enough to tell the truth to the American people. Any one of the candidates can answer the Red Phone at 3 a.m. in the White House bedroom. I’m voting for the one who can talk straight to the American people on national TV — at 8 p.m. — from the White House East Room.

Who will tell the people? We are not who we think we are. We are living on borrowed time and borrowed dimes. We still have all the potential for greatness, but only if we get back to work on our country.

I don’t know if Barack Obama can lead that, but the notion that the idealism he has inspired in so many young people doesn’t matter is dead wrong. “Of course, hope alone is not enough,” says Tim Shriver, chairman of Special Olympics, “but it’s not trivial. It’s not trivial to inspire people to want to get up and do something with someone else.”

It is especially not trivial now, because millions of Americans are dying to be enlisted — enlisted to fix education, enlisted to research renewable energy, enlisted to repair our infrastructure, enlisted to help others. Look at the kids lining up to join Teach for America. They want our country to matter again. They want it to be about building wealth and dignity — big profits and big purposes. When we just do one, we are less than the sum of our parts. When we do both, said Shriver, “no one can touch us.”

Wow great articles.

I travel a lot and have seen first-hand how behind the times things are in America. I don't think it's due to lack of American willingness to pioneer the future, but rather it is due to American's lack of planning for it. They vote for the wrong reasons and choose immediate gratification instead of long-term solutions to societal issues. Politicians play on this and have been slowly whittling away at the things which made our nation great.

The article doesn't seem to drill down to the root causes clearly enough:

1. The (misguided) Iraq war has caused skyrocketing oil prices, in turn causing commodity inflation. This makes Americans particularly poorer and commodity producers richer. The war induced oil price increase from probably around $40 to $120 is the largest transfer of wealth from US to the rest of the world. May be more than the cost of the war itself. As a secondary effect, this devalues US $ that makes Americans feel poorer due to inflation.

2. The (Greenspan induced) cheap loans - housing bubble mania has caused a great waste of capital due to misdirected use of wealth (to build unnecessary mansions). This loss of capital is now causing near or real bankruptcies, rising unemployment, inflation, devaluation of $ etc., making Americans poorer.

So, it is more a case of US screwing up on a grand scale as a nation than a big "Rise of the Rest" story.

Tell me: who cares about the tallest building, largest mall/casino/ferris wheel etc.,?

The (misguided) Iraq war has caused skyrocketing oil prices, in turn causing commodity inflation.

Gas prices increase when measured in dollars. If you measure in euros, pounds, swiss francs, yen, etc... they haven't increased substantially since the start of the war. The war has had very little effect on oil production. Iraq was limited in how much it could sell before the war by sanctions and now they are limited by damaged infrastructure, terrorism, etc...

Our gas prices here in the US are a reflection of the diminished purchasing power of our dollars. Because everyone buys oil, we compete with the rest of the world and when our currency sinks, oil becomes more pricey.

Maybe we should stop sending our tax dollars overseas to pay for things like: the African AIDS problem, building democracy in Iraq and Afghanistan, food to people who hate us, factories to Indonesia and China, protection for S. Korea etc...
It's time for Atlas to shrug.
Personally, I don't give a crap what the rest of the world (dictators and commies) thinks of us. Especially the Europeans. They have no sense, as history has proved many times.

bsrsharma,

You bring up a couple of good points, but I disagree with you about your last point " Who cares about the tallest building, largest mall/casino/....?"

I'd say WE ( the US) did care for many years (except the last few - since we're falling behind on infrastracture projects due to local governments deep in debt). In other words - there is nothing to brag about. In fact, that's what we were known for around the world (everything big - "a la Trump style")...that's fading big time... In my mind we are neither perceived as "what power we used to be" or "what the US stood for".....). This was part of the big marketing/PR campaign that won wars....and buying into capitalism, democracy, freedom of any kind.... "The land of the free".......now we're more like "The land of the debters".

Me too, Brutus. Charitable giving begins at home.

. The (misguided) Iraq war has caused skyrocketing oil prices, in turn causing commodity inflation. This makes Americans particularly poorer and commodity producers richer. The war induced oil price increase from probably around $40 to $120 is the largest transfer of wealth from US to the rest of the world. May be more than the cost of the war itself. As a secondary effect, this devalues US $ that makes Americans feel poorer due to inflation.

Your thesis regarding higher oil prices caused by the Iraq war is lacking numbers. How much production was taken off the market from the war and where would production be if there was no war? The advent of global world oil production peaking much more likely the cause. Supply and demand is not that difficult a concept.

You are correct the the skyrocketing oil prices are the primary cause of the commodity inflation. This is a permanent affair. Though the complete collapse of china or the US economy would mitigate this for some time.

Either way, if China and the US continue on the path with no scaleable alternatives to oil. Their will be mass starvation like the world has never seen, which apparently has already started. Connect the dots...

As misguided as the Iraq war is. It needs to be recognized for what it is. The greatest resource grab in history. It's easy to see if you calculate the cost of the war verse the oil booty gained. It was a very good score at $100 oil. That puts the value of the heist between 15 and 30 trillion. That can be recirculated through defense contractors and oil companies till it runs out. Besides the control factor of cutting oil off to non-friendly states. Great scam when you think about it. Keep a police state in perpetual war while extracting ever increasing in value resources while at the same time knocking down and rebuilding infrastructure. Predatory disaster capitalism at it's best. Welcome to the new world.

Gas prices increase when measured in dollars. If you measure in euros, pounds, swiss francs, yen, etc... they haven't

Oil was below $40 per bbl in 2003; $120 in 2008

Euro was between USD 1.1 to 1.2 in 2003; $1.6 in 2008

Obviously, US $ depreciation is only part of the story.

More interestingly, I think, at least part of $ devaluation is DUE to increase in trade deficits due to rise in oil prices. These two have been mutually reinforcing each other's instability - leading to a vicious cycle.

Euro was between USD 1.1 to 1.2 in 2003; $1.6 in 2008
Obviously, US $ depreciation is only part of the story.

Good point -- depreciation is only part of it, maybe increased demand worldwide is also a factor. But we probably both agree that it isn't the war...

A chart from the Economist depicts an interesting correlation between $/Euro & Oil. My limited guess is that the US was predicting a tremendous pressure in the future/strategic supply chain of the oil due to the emerging markets - so it started a war to secure a strong hold/lion's share on the futures oil supply chain. If you read other reports, we're already involved in Africa by training certain governments to protect "America's interest in the distribution of oil".....there was a report in the news last week. NO we have NOT gone there to support the poor - we just have a presence where there is oil. Reality, as Bush claims it " we are addicted to oil".

http://www.economist.com/daily/news/disp...

Vicious Circle

As a frequent traveler, I echo Fareed Zakaria's feelings on the rise of the rest.

The problem with Americans is that we don't travel enough so we don't see the world. We should bring back the draft and/or have young Americans serve in the Peace Corps for a year.

Look at Israel, almost all Israeli service-members take 6-months off to travel the world when they are done with military service. They are very interesting and creative people to talk to. For such a small country, Israeli companies are extremely creative and dynamic.

America's trump card is that we can easily welcome new immigrants and integrate them into out society. That will be the challenge of the 21st century.

All the great emerging cities in the world are free-trade zones (Dubai, Singapore, HK, Shanghai). San Diego and Miami are the perfect locations for such free-trade zones and to keep Latin America firmly under the US sphere of influence.

How much production was taken off the market from the war and where would production be if there was no war?

See Summary of Reserve Data as of 2007 in

http://en.wikipedia.org/wiki/Oil_reserves 

If, instead of war/sanctions etc, Iraq and Iran were somehow well integrated into oil markets (just like Saudis, Russia, Libya, Venizuela who are no angels either!), the oil price can easily come down to $50 per bbl. A lot of pricing potential is at the margins.

Our leaders are fighting to save us 12 cents of tax when we are probably paying $2 too much for our foreign policy incompetence.

patientlywaiting, as a frequent traveler myself and also as an immigrant who washed up to these shores a few years ago, I have never encountered a more free, open society which is tolerant to change as the one I am living in now. Apologies for not buying into this doom & gloom crap which seems to be the theme of the week here.

Seriously, why would anybody compare this economy with a bunch of city states living off of innovations from here AND off the magnanimity of the tax payers here who are subsidizing their security? How come I never hear of people packing off to go live in Israel, Singapore, Abu Dhabi or whatever if things are so good over there?

Things only "look" bad here because everything is out in the open unlike other countries. If I were betting on economies, I would be a fool to short this one.

Great point about the Iraq War and the housing bubbles. Probably the two greatest mal-investments in the history of this country.

At least when the housing bubble is over there will be lots of cheap houses for sale. I'm not sure what good will come from the Iraq war.

IMHO, the reason for the "doom and gloom" is the accelerated decline in the standard of living in the U.S.

Don't be fooled by the SUVs and McMansions. These are the result of a credit market that was allowed to run wild (the main culprit behind most of our problems, IMO). This has only increased debt loads, it has not increased wealth for most people.

Forty years ago, more people had job security, employer-paid healthcare and defined-benefit pension plans. They might not have made tons of money, but they took pride in themselves and their jobs -- they were part of their company's family, and employees sacrificed (took pay cuts and even worked for free when necessary) when times were bad, with the implicit/explicit expectation that employers would sacrifice (reward employees) when times were good. They knew that their employer's strength was their strength. Employers knew the company was only as good as its employees.

Families could buy a modest house (even in the "good" parts of town!) and car, have medical care and a pension, take an annual vacation, etc. on one salary -- and they still saved.

Humans have a basic need for belonging to something greater than themselves, and they have a strong need for security. When you take these things away, people can become panicked and they begin taking more risks and hoarding more -- a natural survival instinct. The well-being of the individual trumps the well-being of society, and most people end up losing because the slightest glitch in the best-laid plans can cause a person to lose everything he/she's worked and saved for all their lives.

This will be controversial, but I also believe the "multi-cultural" push is largely responsible for the apathy and lack of patriotism over the past couple of decades. We don't have anything to belong to anymore -- nothing to support or cheer for. No unity (united we stand, divided we fall), and it shows. That's not to say we can't have immigrants (my mother was an immigrant), but that we need to have a common culture as Americans. Yes, we need to assimilate into the existing culture and work together to build something greater than ourselves.

Americans still consume more, per capita, than anyone else.

We need to downsize our lifestyles. We'll live. Everyone else does.

"multi-cultural" push is largely responsible for the apathy and lack of patriotism over the past couple of decades

You make many good points, but I have to disagree with the above. If you look at the two costliest blunders in our nation's history, (The Iraq war and Housing Bubble disaster), most of the leadership - the Wall Streeters, Congress, Fed, Federal & State regulators are all pretty "uni-cultural". I think it is their collective incompetence rather than a sudden change to apathy and treason that caused this catastrophe

bsrsharma,

I agree with your points about Wall Street, etc. Personally, I think most of our "ills" can be traced to the mega-banks and corporations that run our country. Under no circumstances do I think the middle-class has any power over how this country is run anymore, and I think that's where the doom-and-gloom is coming from. It's why I'm very pro-union and favor a government very much run by "the people" and for "the people".

I also think the PTB (mega-banks & corporations) have been allowed to take further control over our country's power (read: money) because they've managed to distract the American citizenry by trying to create arbitrary divisions between people (Republican vs. Democrat; white vs. black; immigrant vs. native; rich vs. poor; pro-union/socialist vs. "wanna be" capitalist; right vs. left; liberal vs. conservative; etc.).

Most **thinking** people I know don't fit into any of those categories, but the PTB are busy trying to convince us all that we must be on one side or the other -- always bickering amongst ourselves while they're left to manipulate the flow of money and power, without any oversight by "we the people".

The credit bubble is just the latest manifestation of their accrued/accruing power. Look at who the winners are. Some people did exceedingly well during the past few years, and have very little fear of being held accountable for thier involvement. IMO, Greenspan was one of their tools. There's no way he didn't know what was going on, and what the end result would be.

The more I learn, the tighter I wrap that tin foil around my head. ;-)

Here's a review of Fareed Zakaria's book in the NY Times.

http://www.nytimes.com/2008/05/06/books/...

I agree with the comments about the two costliest blunders -- the Iraq war and Housing Bubble disaster.

The middle class does shoulder responsibility for those blunders. People elected a moron because they don't bother to learn about the world. They supported Bush after 9/11 because misguided nationalism and revenge are what they cared about.

America will be fine but we just won't be #1 in everything anymore. We won't be the richest anymore. That will be a painful adjustment -- a little like a well-off family having to move from Fairbanks to Mira Mesa.

It will take some hard work to rebuild the country.

If we are not #1 someone else will be. Unfortunately, they will undoubtedly NOT be as nice as we are, even if you take the Iraq debacle into consideration. Not all powerful countries (that might have a shot at becoming #1) believe in the concept of human rights on ANY level. Remember how China handles dissent and compare that to the US. We're not even talking about the same ballgame.

People elected a moron because they don't bother to learn about the world....

That is a popular view and only partly true. In my opinion, the single greatest cancer on US today is our Congress. Their ability to face up to the existential threats facing us is zero. They rubber stamped the War Resolution mainly based on political survivability. They vote on every War appropriation based on which way the winds are blowing. They find time to hold Hearings on Baseball players alleged drug use when we are sinking into national bankruptcy. We have a Congress fit for a banana republic when the problems are those of a superpower.

Thanks for being a breath of fresh air DumbRenter.

It must be hard to go through life with no historical frame of reference. Ah yes, the good old days, when government worked. If one desires to find the source of our cultural rot, it isn't in the Executive or Legislative branches, although the last inhabitant of the White House did his best to leave a steaming heap of junk in his wake. We live in an age where government intrudes into every nook and cranny of our lives, all in the name of molifying the agrieved. Thank FDR, and all the "do-gooders" of the left. We no longer have a constitution that means anything.

As for Iraq being a costly blunder, not opposing evil in the world is much more costly. If you doubt this, go read Churchill's commentaries on WWII. Even with all of the to and fro, geopoliticially it makes a lot of sense.

bsrsharma, this this a link to an interesting article on Kuwait and how they believe that their parliament is holding them back.

http://www.nytimes.com/2008/05/06/world/...

“Kuwait used to be No. 1 in the economy, in politics, in sports, in culture, in everything,” he said, his voice floating out in the warm evening air to hundreds of potential voters seated on white damask-lined chairs. “What happened?”

It is a question many people are asking as this tiny, oil-rich nation of 2.6 million people approaches its latest round of elections. And the unlikely answer being whispered around, both here and in neighboring countries on the Persian Gulf: too much democracy.

brssharma, if we are looking for the single biggest reason for this mess, you are right, it is the congress. They are well on their way to making themselves irrelevant. I find it amazing that the same set of politicians (especially Dems) who voted for the war are now against it.

If I am not mistaken, the employer withholding of taxes, social security, employer sponsored medical plans all happened at pretty much at the same time in response to certain stresses imposed on the system. These stresses have been removed/subsided for a long time now, but these plans still remain. I am afraid the same will happen for new laws implemented after 9/11. The government has already encroached on the domain of personal responsibility. Now they are engaging in wealth distribution (bailouts). What next, a list of approved words to use in our vocabulary?

Submitted by dumbrenter on May 5, 2008 - 2:23pm:
How come I never hear of people packing off to go live in Israel, Singapore, Abu Dhabi or whatever if things are so good over there?
--------

How about Halliburton?

American engineers, architects are moving to the Middle East in droves. Europeans are flipping condos and making fortunes in Dubai.

American pilots are clamoring for jobs with Emirates, Cathay Pacific, Etihad, and Qatar Airways because their salaries have been cut by 1/3 at home.

American architectural firms are making the payroll thanks to work in China.

The workforce in free-trade zones is incredibly diverse.

Warren Buffet is investing in companies whose revenues are not denominated in dollars.

I'm not saying that it's over for America, far from it. But we need to recognize the warning signs and fix what's wrong before it's too late.

It's healthy to be a little paranoid. It keeps you from losing sight of the competition.

This is a good article, if a little overly upbeat. It attempts to appease the uneasiness that many American's may feel towards current trends in globalization, by pointing out they are inherently benign, and that global shifts have an historical inevitability. However, to overlook potential friction, especially when world resources are under pressure, seems to me a little foolhardy. The article pulls no punches when it comes to America's greatest weaknesses; parochial attitudes that shape foreign policy, and an easily bruised national ego. The Iraq war was a mistake, and many of the symbols of American success and dominance have been overshadowed by the new kids on the block. The author seems to be saying that these sentiments are misplaced in a truly global economy, and that by focusing on its inherent strengths (multi-cultural population and high tech industries), the US will cure itself of it's current gloom.

Funny

The South Koreans would love to throw out the US from the military bases.

Why would people hate Americans who (like yourself) don't give a crap what the rest of the world (dictators and commies) thinks of you?

My advice to you is follow the money. Not a lot of money goes to democracy-building anywhere. It goes to companies.

BTW I lived in Europe. The Europeans don't believe they owe you anything. Deal with it.

The South Koreans would love to throw out the US from the military bases.

I think so do UK, Germany, Italy, Japan etc, too.

Can anyone think of a good reason for these bases 18 years after end of Cold War? Or for NATO for that matter?

Just shows what a mindless beast our government is.

(ha!)

The bases were pretty useful during the Iraq wars. :-)