I was in Europe for a month and got a global look at what this real estate catastrophe is going to do to the entire globe. It seemed like just about every country in western and central Europe has really felt the impact of this problem and you can see by watching local news in every country how this trickle down effect has begun.
At this point it looks as though England has really taken one in the shorts, but it obviously it is much more than a housing and lending problem. All these issues are intertwined with so much more than our minds can comprehend. The dollar was so weak in Europe so be proud to spend the measly $2 for a cup of coffee because it costs about $5 abroad. We may not feel the pain of a weaker dollar right now, but it will have a long term affect.
While over in Europe I pondered the 1/2 point percentage cut and thought it was such a bad idea. I understand they are trying to curb the lending issue, but it seems as though we are only adding time to the dilemma. We should have kept the rates the same in my mind or even raised them to speed up the process of foreclosures and allow this market to get back on track. Greenspan is getting press like a hero, but in my perception he had a lot more negative impact to this global problem.
This is going to be so much uglier than we all anticipated. That rate cut just gave the feds a little room to breathe before it all comes burning down.
My son spent a couple of weeks in Europe this summer and I learnt what it feels to be poor. When $200 vanishes from your wallet in a day and you don't even know. Same when I was in Japan in the nineties. Spent cash so fast that I almost figured out how to use (Japanese) ATM blindfolded. We should start seeing similar things here in a few years.
Just got back from Eastern EU last night. I spent some time(3 weeks) in Hungary and Romania. I can’t tell you that I spent 2.2 EURO/a bottle of water in Budapest or about $3.08 (at 1.4 to 1 conversion rate). The $ is getting killed and traveling costs for the regular American are skyrocketing.
I can not begin to tell you the real estate bubble inflating daily in Romania (I’ve heard/read Bulgaria too). Prices are extremly high vs. incomes and most of the buyers are:(1) other transplants working in the Western EU, (2) flippers, and (3) people lying to banks about their income to qualify for a easy loan. I was fairly shocked to see banks paying these prices for some below mediocre places (old communist like apartments).
Anyway, as long as credit is cheap or available (at least initially), people will continue buying (or stretching to buy). I laugh when I hear EVERYONE talking about RE investments and secure/high returns in short time. I guess S&P or Moody’s can’t rate risk properly in these countries yet. One would think they learn fast, but I guess RE in the emerging markets it is a “new economic model”….
I can not wait to see how these newly adopted econmic & RE standards hold up. I don’t think the Eastern Block has an economic model for recovery since they did not experience a true economic cycles in their newly open markets (so called capitalist market models).
Actually, I saw a report from “The Economist”, that puts Eastern Europe (and Russia to a smaller extent) in the same high growth category as China & India. I think the Eastern Europeans are getting the outsourced industries & some services from Western European nations (similar to our relation with China/Mexico/India etc.,). Probably in another 20 years they will be so integrated as to become just “Europeans”. (By then we will be “North Americans” or “Camerixans”?)
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