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patientrenter
ParticipantRt 66, all you’re seeing on credit is some retrenchment toward historical norms. On housing, the biggest user of credit in our economy, the govt continues to allow vast amounts of truly incredibly easy and cheap money.
Check this story from the Housing Wire:
http://www.housingwire.com/2009/05/29/hud-details-use-of-tax-credit-toward-closing-costs/
Apparently 3.5% downpayments were too high. I think downpayments of less than 30% or so in an environment of severe price drops in RE are ludicrously small. And 20% is an historical minimum standard for most people.
ParticipantRt 66, all you’re seeing on credit is some retrenchment toward historical norms. On housing, the biggest user of credit in our economy, the govt continues to allow vast amounts of truly incredibly easy and cheap money.
Check this story from the Housing Wire:
http://www.housingwire.com/2009/05/29/hud-details-use-of-tax-credit-toward-closing-costs/
Apparently 3.5% downpayments were too high. I think downpayments of less than 30% or so in an environment of severe price drops in RE are ludicrously small. And 20% is an historical minimum standard for most people.
ParticipantRt 66, all you’re seeing on credit is some retrenchment toward historical norms. On housing, the biggest user of credit in our economy, the govt continues to allow vast amounts of truly incredibly easy and cheap money.
Check this story from the Housing Wire:
http://www.housingwire.com/2009/05/29/hud-details-use-of-tax-credit-toward-closing-costs/
Apparently 3.5% downpayments were too high. I think downpayments of less than 30% or so in an environment of severe price drops in RE are ludicrously small. And 20% is an historical minimum standard for most people.
Participant[quote=Rt.66]Krugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
[/quote]We can all see the current credit situation: A few pockets of tight money, a lot of normalcy, in the sense of a return to historical averages (beyond just the last 5-8 years of amazingly loose money), and then a continuing river of easy govt money for housing.
Just because total lending now may be less than it was at the height of once-in-a-hundred year credit bubble doesn’t mean money is tight in any absolute sense. And the history of our govt is that once it starts to spend to solve a temporary problem, it cannot be stopped. So the easy credit the govt is perpetuating now through a host of existing and new programs will continue when economic activity picks up again, as it always does in economic cycles.
Participant[quote=Rt.66]Krugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
[/quote]We can all see the current credit situation: A few pockets of tight money, a lot of normalcy, in the sense of a return to historical averages (beyond just the last 5-8 years of amazingly loose money), and then a continuing river of easy govt money for housing.
Just because total lending now may be less than it was at the height of once-in-a-hundred year credit bubble doesn’t mean money is tight in any absolute sense. And the history of our govt is that once it starts to spend to solve a temporary problem, it cannot be stopped. So the easy credit the govt is perpetuating now through a host of existing and new programs will continue when economic activity picks up again, as it always does in economic cycles.
Participant[quote=Rt.66]Krugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
[/quote]We can all see the current credit situation: A few pockets of tight money, a lot of normalcy, in the sense of a return to historical averages (beyond just the last 5-8 years of amazingly loose money), and then a continuing river of easy govt money for housing.
Just because total lending now may be less than it was at the height of once-in-a-hundred year credit bubble doesn’t mean money is tight in any absolute sense. And the history of our govt is that once it starts to spend to solve a temporary problem, it cannot be stopped. So the easy credit the govt is perpetuating now through a host of existing and new programs will continue when economic activity picks up again, as it always does in economic cycles.
Participant[quote=Rt.66]Krugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
[/quote]We can all see the current credit situation: A few pockets of tight money, a lot of normalcy, in the sense of a return to historical averages (beyond just the last 5-8 years of amazingly loose money), and then a continuing river of easy govt money for housing.
Just because total lending now may be less than it was at the height of once-in-a-hundred year credit bubble doesn’t mean money is tight in any absolute sense. And the history of our govt is that once it starts to spend to solve a temporary problem, it cannot be stopped. So the easy credit the govt is perpetuating now through a host of existing and new programs will continue when economic activity picks up again, as it always does in economic cycles.
Participant[quote=Rt.66]Krugman in inflation
“Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.
But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
——————Personally I’ve seen a shrinking of credit available. Card companies are canceling zero balance cards I’ve had for 10 years. BofAssholes raised the rate on one with a balance to 18.73%. Had the card since 1991 never a late pay. I called them as they ussually lower the rate when asked, but this time they told me to suck an egg and then reduced my limit to drive the point home. They do not want to lend money.
Only one card still sends out promotional checks.
[/quote]We can all see the current credit situation: A few pockets of tight money, a lot of normalcy, in the sense of a return to historical averages (beyond just the last 5-8 years of amazingly loose money), and then a continuing river of easy govt money for housing.
Just because total lending now may be less than it was at the height of once-in-a-hundred year credit bubble doesn’t mean money is tight in any absolute sense. And the history of our govt is that once it starts to spend to solve a temporary problem, it cannot be stopped. So the easy credit the govt is perpetuating now through a host of existing and new programs will continue when economic activity picks up again, as it always does in economic cycles.
ParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
ParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
ParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
ParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
ParticipantInterest rates can be high in a sluggish economy… if inflation is high too. It’s not impossible, just check the 1970’s. Rising nomimal incomes, rising prices, rising interest rates, lower real incomes, fixed income assets declined a lot in value, equity assets declined less, and housing rose.
How can real housing prices rise in stagflation? In an inflationary environment, assets that can be bought using very high leverage, at fixed rates of interest with many years to repayment, will go up. Why? Because you can use your $1 to buy $10 of assets with a $9 loan, and in 10 years time you will have a debt that is only worth $4 in real terms. Your asset could drop in price by 50% in real terms and you’d be no worse off. if it drops by less in real terms, you have a gain. With the leverage, that gain could be massive. That’s what happened to people who bought housing in the 1970’s and 1980’s. Huge real gains. And even if the prices drop by more than 60% in real terms over the 10 years, so your $10 asset is now worth less than $4 in real terms, less than the debt, you only lose $1. In the US, almost no one is really held liable for mortgage debt in excess of the value of the property. With all that huge upside, and small downside, and other assets being eaten by inflation, everyone can see what a great deal buying houses on leverage is, and demand increases the prices. Can’t happen? Again, just check the 1970’s.
May 30, 2009 at 10:41 AM in reply to: The past doesn’t repeat but it Rhymes: Lessons from Japans Financial Crisis #408053ParticipantUsing 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.
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