Real Estate Market / Inflation / Recession / Depression (Grand Junction, Rifle: environment, credit, lender)

[jazzlover]

My prediction, which I fervently hope is wrong but I fear will be correct, is that by the end of 2008 the US economy, and Colorado's along with it, will be spiraling into a depression the likes of which has not been seen in any living American's lifetime. It will be caused by the convergence of excess demand for depleting critical natural resources and America's wicked latter-day obsession with speculation in non-productive economic nonsense--most notably of late in residential real estate.

It is amazing that a whole population, along with their economic and political leadership is so clueless about the latter. First and foremost, residential property, excepting income rental property, does not and never did create "real" wealth. At its very root, a home is a physically and functionally depreciating property from the moment of its completion. It does not produce wealth--in fact, it is a dead expense to its owner (maintenance, taxes, interest), requiring continual inputs of income derived elsewhere to remain livable. Unlike a mine, a farm, a factory, it does not create new wealth. What it has created, especially in the last couple of decades, is a lot of "paper" wealth--inflated "paper" appreciation. What is beginning to implode the economy is that millions of Americans extracted that paper appreciation from their homes in the form of loans and spent the money--mostly on more dead weight consumption or purchase of more quickly depreciating assets. The loans used for that effectively turned paper appreciation into a "real" concrete liability which must be repaid from wealth derived from another source.

The problem is, that for the US, that "other source" of wealth is drying up--in part because we have so "mis-invested" in non-productive things like consumption and non-productive assets (residential realty being a major one), that the US has an increasingly non-productive and non-competitive economy. Soaring trade deficits, exploding levels of public and private debt, a declining currency, and increasing inflation of costs for basic things like food and fuel are the result of the folly.

Despite the Fed's efforts and all nature of political hand wringing that may come, the deflation of this last huge bubble is all but inevitable. The Pollyannas on this board may wish it otherwise, but the damage has already been done--the only question is when and how big the crash will be. I have used this analogy before: A friend of mine likes to hunt antelope in Wyoming. Now an antelope can run like the wind when frightened--its body releases huge amounts of adrenalin to spur it to run from danger. An antelope can be shot in the heart and it often will run for a considerable distance on that adrenalin before collapsing, even though--technically--it was "dead" the moment it was shot. I think the American economy is in the same state. It's technically "dead," but still running on that last shot of adrenalin. We are in that "lagging" state right now--economic numbers don't look terrible just yet, but we don't have long to run.

In Colorado, I have said before, and I will repeat, we are headed for big trouble because so much of the economy of this state is mis-invested in the non-productive arenas of residential and recreational real estate, is so heavily reliant on the associated construction and real estate "industries," and so much of the remainder of the economy is reliant on tapping the now disappearing paper wealth from that activity (including, but not limited to, those out-of-state "equity locusts" Bob refers to).

Soon, a lot of Coloradans may not be worrying about growth, but how to find a U-Haul truck to move what remains of their household effects out of the state. (This is no joke--in the last, much more mild "crash" in the early 1980's, it was hard to get a rental truck in Colorado for quite a time.)

If you want some more "grist" to chew on, read Kunstler's May 19th blog ("Far From Normal") here: James Howard Kunstler

And, "have a nice day."

[Bagz]

Originally Posted by jazzlover

So, those people who think that population growth is good, or even a "necessary evil" for economic growth are in for a big surprise. It shouldn't be a surprise at all--after all, the countries worldwide that generally have the highest per capita standard of living are not the ones with the highest population growth rates, they are the ones with the lowest. If Colorado's population growth rate went to zero, or even negative, it would be--in the long run--a positive development, both economically and environmentally.

The low growth rates are a symptom of economic prosperity - not the other way around, and within a country, the effect is opposite. Your conclusion is dead wrong here.

Originally Posted by Bob from down south

Is it "fearmongering" to issue a hurricane advisory for an area that only has a 5% probability of getting hit 5 days from now?

Yes, because people see so many of those advisories that they start to ignore them. Katrina would not have been so bad if people would have evacuated sooner, but in many of the interviews, people didn't see any difference between these warnings and the fearmongering warnings of the past. The media has a tendancy to exagerate weather events for ratings.

Is it "fearmongering" to have a "critical" fire alert level posted at the entrance to the National Park campgrounds?

It is when the sign doesn't change all summer (including after a snow storm) and poeple stop believing it. In that case, the effect is actually detrimental.

There's a Cat 5 financial storm just offshore, and all they have to say is "Dude! Surf's up!"

That's not all I would say, but it would be part of it. Why ignore the positive?



especially when

Future's so bright

[jazzlover]

Originally Posted by Bagz

The low growth rates are a symptom of economic prosperity - not the other way around, and within a country, the effect is opposite. Your conclusion is dead wrong here.

So, from your logic, it would be reasonable to conclude that birth and population growth rates in the United States would have been highest during the Great Depression (they weren't), population growth rates would have dipped in the post-WWII period of prosperity from the late 1940's-1960's (they obviously didn't), and growth rates would have dropped during the years of growing prosperity of the early to mid-1990's (they didn't then, either).

See a chart here: US Historical Population, by Year

[brightdoglover]

Are growth rates absolute, or are they in correlation with existing population? I'm thinking that economic/growth rate correlations are changed by the evolution of effective and available birth control, so growth rates before, say, 1960, would reflect differently than those when people had more control over reproduction. Also, the baby boom bulge would have already been born by the time the 1990s came around, and reproducing, so even if the absolute rate was lower, the basic number is higher, an aberration of the baby boom.
Certainly now the most prosperous countries have the lowest birth rates, western Europe, Scandanavia, etc. Oh, and Ireland seems to have really gotten economic steam up, while birth rates there have collapsed (except for immigrants).

[vegaspilgrim]

Originally Posted by jazzlover

My prediction, which I fervently hope is wrong but I fear will be correct, is that by the end of 2008 the US economy, and Colorado's along with it, will be spiraling into a depression the likes of which has not been seen in any living American's lifetime.

Actually, I think you've made it quite clear from your previous diatribes that you HOPE we go into a depression. You can't even wait for it to happen soon enough! A few weeks ago you were saying doomsday was coming about a year from now, now Mr. Nostradamus here has moved the date to the end of this year! You would love nothing more than to see millions of people move out of here so you can have the state all to yourself. By the information you've slipped to us in your posts, it sounds like you are in pretty good shape financially, that you might actually stand to gain from an economic downturn.

Either that, or you are one sick man, and actually gain some kind of guilty pleasure and a rush of adrenaline from using this forum as your soapbox prophecizing doom. You are sounding increasingly like a disturbed circle of Rocky Mountain isolationists, a la Ted Kaczynski. Everything with you is becoming increasingly black and white. Your statements of opinion are taking a quasi-religious tone. One thing's for sure-- nobody knows exactly where we're headed. Certainly not the bumbling ideologue James Kunstler. But regardless, even if we are headed for some troubled economic times (and I agree that the "funny money" economy of generating income from speculative assets has got to end; I think that's patently obvious now), neither your self-serving tirades on this forum nor the crap spewing from Kunstler's blog are going to help one bit. What we need right now are innovative, creative thinkers, problem solvers, and pragmatists-- not self-flagellants who get a kick out of their daily soapbox on an internet forum.

[Bob from down south]

Bagz, you apparently think any kind of predictive warning system that isn't near perfect is "fearmongering." Over the course of many thousands of hours flying jet aircraft, I have made precautionary diverts and landed many times for warning indications that later proved false. You sound like the kind of guy that would rather take all the bulbs out of the caution and warning lights so he can fly around feeling good about things. That, of course, only works until something bad really does go wrong, he fails to get any sort of warning, and then finds himself wondering why things suddenly just got so quiet up there.

For those that won't heed the warnings on the economy, I encourage you to go out now, take out the biggest mortgage you can get away with (that might be a little hard right now) and buy yourself the biggest house which that amount of money will buy. There's still time to set yourself up for foreclosure...in high style, of course. Of if you already have a McMansion and a whopper of a mortgage you can barely pay...bank on a super-bright future despite all the indications to the contrary and take out a second or third on your house and get yourself a nice new Bentley Continental. It has a nice big trunk that you can use to haul your stuff to the EZ-Storage lot, and you can sleep in it if you sit just right.

The population growth issue is more complex than just aggregate growth rates. I don't think there's a definitive connection between population growth and prosperity. Canada, for example, has serious limits on its potential due to underpopulation. Saudia Arabia thrives despite its low population density. The Germans are headed for big trouble as a result of a serious inversion of their population distribution produced by many years of low birth rates. Conversely, a good part of subsaharan Africa has a flattened population distribution caused by AIDS that has a debilitating overabundance of the young, orphaned, and uneducated, ripe for recruitment by destabilizing elements like gangs, warlords, and pirates. Rwanda is, literally, dirt poor in no small part to its overpopulation. Taiwan, OTOH, which is a teeming overcrowded mass of humanity, flourishes despite its high population density. Sorry, Jazz, I'm not seeing a correlation--positive or negative between prosperity and population or population growth rates.

[jazzlover]

Originally Posted by Bob from down south

The population growth issue is more complex than just aggregate growth rates. I don't think there's a definitive connection between population growth and prosperity. Canada, for example, has serious limits on its potential due to underpopulation. Saudia Arabia thrives despite its low population density. The Germans are headed for big trouble as a result of a serious inversion of their population distribution produced by many years of low birth rates. Conversely, a good part of subsaharan Africa has a flattened population distribution caused by AIDS that has a debilitating overabundance of the young, orphaned, and uneducated, ripe for recruitment by destabilizing elements like gangs, warlords, and pirates. Rwanda is, literally, dirt poor in no small part to its overpopulation. Taiwan, OTOH, which is a teeming overcrowded mass of humanity, flourishes despite its high population density. Sorry, Jazz, I'm not seeing a correlation--positive or negative between prosperity and population or population growth rates.

The correlation is the relationship to the availability--or the wealth to be able to acquire--natural resources. Canada is one of the few countries that actually has natural resources in excess supply compared to its population. Of course, we would love to get our hands on those resources. And we probably could--if our financial wealth holds out--which we are doing our damnedest to see that it doesn't. Countries--like Japan in the 1970-early 1990's and China today, which are producing wealth like crazy from their manufacturing and industrial economies--can afford to buy the resources they need with the money they are getting from their exports. The US--having exported much of its wealth-producing industry overseas, and having significantly depleted a lot of its domestic natural resources--may have one hell of a time competing with the emerging industrial powerhouses.

As to vegaspilgrim's rather "personal" comments, I will admit that seeing some of the people whose speculation and waste is helping to lead us to the edge of the abyss get their collective ***es kicked wouldn't hurt my feelings. Am I OK financially? That's relative, I guess, but what I have I got through hard work, not being wasteful, saving money (what a concept!), and keeping myself economically marketable. I am also not a "Rocky Mountain isolationist." I think those "hole-up on top of the mountain" ding-dongs with their arsenals of weapons will be some of the first to fail in the rough times ahead. We are going to need viable communities (and a lot of what we have built in the last 30 years or so are not), people with varied work skills (not just moneychangers and dot.commers), a revived industrial and agricultural base, and a national mindset of thrift and conservation. That ain't what we've got now--either in US generally or Colorado specifically--and if you want a positive suggestion, we had better figure out how to start building that--starting, like, yesterday.

As far as being "sick," were the people of the late 1930's who warned of Hitler's grandiose vision of world domination and his "final solution" called "sick" because they dared warn a world of something ahead which that world did not want to see? Actually, those people who sounded that warning were often called "sick" or "misguided" at the time. They were also right.

[LBear]

I can see this topic is continuing to go one with the same heated debating.

One thing I did notice is that some people here will gain financially IF the USA goes through a collapse. So, just a word of caution to everyone who reads these posts every day. In the end, time will show who was right or wrong. Don't believe everything you read. Do research and make an informed decision. Don't make decisions based on fear.

People are still buying houses, cars, etc., and while troubled, the economy & country continues to move along. I am starting to see more housing purchases. People are beginning to buy again. Just be wise and live life....

[Bob from down south]

Originally Posted by LBear

I can see this topic is continuing to go one with the same heated debating.

One thing I did notice is that some people here will gain financially IF the USA goes through a collapse. So, just a word of caution to everyone who reads these posts every day. In the end, time will show who was right or wrong. Don't believe everything you read. Do research and make an informed decision. Don't make decisions based on fear.

People are still buying houses, cars, etc., and while troubled, the economy & country continues to move along. I am starting to see more housing purchases. People are beginning to buy again. Just be wise and live life....

And I would add that now is a good time to question everything. Everything. House size. The need for two cars in the garage. How much goes into savings vs the local restaurant's cash register. How far you live from work. Vacations. Where the thermostat might be set if you wear a sweater instead of gym shorts in the house on a 15-degree winter morning. Everything.

Fear is not necessary, but a healthy respect for the possibilities is necessary. Now is not a time to be neck-deep in consumer debt, or without savings, or to be making commitments that put you at risk in the event of a downturn. Come to think of it, there's never a good time to be in that situation. If that describes you, may I suggest heading over to Dave Ramsey's website to begin to understand that it does not have to be that way.

As to people here gaining financially in a major collapse...I think it's more like some won't lose nearly as much as others if it happens. Unless you have an 8+ digit net worth, there will be pain. I don't like pain, and I don't think Jazz does, either.

The economy and the country continued to move along throughout the 1930s, too. People bought houses and cars then, too. It just didn't move along very well. There wasn't a lot of buying going on. But the Depression was not Armageddon (unless you or yours happened to be a European Jew). Jazz has a first-person account of a much lesser, but still ugly downturn in Colorado in the 1980s that is relevant if you want to assess how bad things could get up Colorado way. Planning for the worst does not mean hoping for it. And ignoring the possibilities like an ostrich with its head in the sand won't help you if another Depression occurs.

There is still major bad news lurking. Reading what the ECB chief just said about the worst of the credit market failure still being in front of us tells me that my concerns are not a fringe position at all. Seeing the FDIC engaged in a frenzied mass recall of retired banking examiners specializing in bank insolvencies tells me that my concerns are not just unwarranted manic fears. There is real risk here.

Oil hit $129.60/bbl earlier today.

[jazzlover]

There are plenty of signs on the national level like what Bob describes in post above to make one very nervous. But you don't have to just rely on those--a little intuitive thinking can shed some real light on the emerging new world out there. Here are a few examples from my little corner of the world (a semi-rural Colorado town):

I'm seeing something at the retailers--both the "independents" and the "big-boxes": empty shelves. They are not from having big sales--it's because the "warehouse-on-wheels" distribution system they rely upon is choking on high fuel prices. A retailer friend of mine tells me that distributors are quietly cutting down on delivery frequency in order to save fuel.

My friendly UPS driver is making his rounds quicker these days. He tells me volume is down considerably overall. Interestingly, more people are buying online and getting goods delivered by UPS, but business delivery volume is "seriously down," according to him. The FedEx guy says the same thing. Transit times are also starting to stretch out--probably because of the same logistical issues of fuel costs that are affecting retail store distribution systems.

Sales of both new and used trucks and 4x4's (this is a popular area for both) have essentially collapsed. Local dealers really don't even want to take them in on trade. The only cars really selling are economy cars. The local banks have seriously curtailed lending on big cars, pickups, and 4x4's, unless the buyer can put down a very substantial down payment. The days of a 22-year old with a job getting a loan for a $40K pickup are over.

The local banks are seriously reigning in on new loans--subprime lending is history. Some banks are even calling credit lines in on some "shaky" commercial borrowers. Real estate sales volume has dropped--a bunch. Foreclosures are seriously up, and are expected to grow significantly more by year-end.

Job advertisements--many "entry level" which often went begging with no applicants--now usually get dozens of applicants, many "overqualified," as well as larger numbers of retirees who have figured out that they must re-enter the workforce to supplement a retirement income that is no longer adequate to meet their needs.

Pretty good evidence, I think, that things are indeed a'changin'. All of this, by the way, in one of the supposed "more healthy" parts of Colorado economically.

Bob is absolutely right--the world did not end during the Great Depression, although it is fair to say that it got pretty damned uncomfortable for just about everybody for quite awhile. The problem today is expectations--especially in the "younger set." Having known nothing else, they expect things like umpteen electronic gadgets, a car for everyone over 16 in the house, a private bedroom for every kid in the house, regular cross-country travel and vacations, eating out several times a week, lots of fancy clothes--they expect all of that, essentially as an entitlement or a birthright. Well, all of those things are not a birthright, or an entitlement, or even a necessity--they actually are LUXURIES. And luxuries may or may not stay affordable to most people--and, in the current economic environment, are very likely NOT to stay affordable. That is going to be a real bitter pill for that group to swallow, and they may just "act out" a little about it. If people on this board get so twisted off about being warned that things might get a little bit ugly for them (and everybody else) economically, I wonder how they will act when it actually happens.