patrick.net

Tax payer money should not be wasted like this. Goverment should pay down debt and increase lending to profitable industries that produce value that we can export.

Shouldn't this have the immediate effect of freezing ALL POTENTIAL housing sales from now until this goes through congress. Who in their right mind would buy a house now, knowing they could get 7K or 15K more money once this goes into effect. Also I'd guess this wouldn't even start until December when the first one runs out.

Dumb congress ...

If it goes through as envisioned, then house prices may start to (dare I say it) rise again.

I’ve never heard such rubbish from a Republican, I’ll give them that much credit. (But that’s all the credit I can muster for them, so lets be clear)

You clearly weren't alive in 1992 or 1996 when Ross Perot was vilified.

Talk like this is pointless. Blaming 'liberals', 'democrats', 'conservatives', or 'republicans' is just amplifying the problem. There are real issues that need to be focused on, and bitching about what a politician does is useless without action.

Do you guys know why economists never agree? Because there is no economic theory that has been proven consistently correct. For all the complaints about the Keynesians running the show today, it's easy to neglect to mention serfdom, slavery, child labor, and indentured servitude, food safety issues prior to the establishment of organizations like the FDA, or highly destructive social constructs like Henry Ford's latex city.

Really, in all areas of life a moderate approach almost always prevails, and both sides of any debate almost always have a good point. Those who benefit from one system over another are simply more likely to favor that particular system. Instead of blindly railing against political parties or ideologies, try to examine the reasons why someone might believe differently from you.

Shouldn’t this have the immediate effect of freezing ALL POTENTIAL housing sales from now until this goes through congress. Who in their right mind would buy a house now, knowing they could get 7K or 15K more money once this goes into effect. Also I’d guess this wouldn’t even start until December when the first one runs out.

Dumb congress …

It's almost a certainty that they would make the credit retroactive to the same date as the current credit started. The only thing it might boost is those buyers who want to use the 'credit advance' to get a larger down payment.

I’m not holding my breath. Even with 25% unemployment, double-digit inflation will still make a house you buy today seem very cheap in a decade. We had stagflation throughout the 70s, and people who bought in 71 were doing quite well by 79, even if they ‘overpaid’ in 71.

I wasn't born until the mid-70's but I was talking to my Dad the other day and he confirmed that there WAS a wage-price spiral in the 70's which went along w/ the inflation. So far we do NOT have a wage-price spiral so deflation is ruling the day. Until I see wages rising I don't see how housing prices will go up.

Folks from the old forum will start rolling their eyes now but there is no way you are going to wake up one Tuesday morning and eggs will cost $3,000. There will be PLENTY of warning that things are turning towards the inflation end of the spectrum.

I agree w/ the others that this will do nothing but cause sellers to hold off pricing their houses correctly while the govt gives my tax dollars to greedy sellers.

Folks from the old forum will start rolling their eyes now but there is no way you are going to wake up one Tuesday morning and eggs will cost $3,000. There will be PLENTY of warning that things are turning towards the inflation end of the spectrum.

Why do people think that we need such high levels of inflation to make house prices make sense? A 100% inflation rate over 10 years (that's a little over 7% annually) with zero appreciation in prices will make houses cheap. A 15% rate will get the job done in 5 years.

Despite what they're claiming, I believe this is exactly what Bernanke and Geitner are going for right now. If they can keep inflation in the 5-10% range from 2010 through 2016 (assuming Obama gets re elected and doesn't fire them), they will actually manage to eliminate most of the national debt, most of the private sector debt, and will make American exports more competitive globally.

The potential downsides if they're successful?

- Less interest in foreign buyers owning our debt (a good thing, IMO -- it might force our government to have balanced budgets and make the tough calls between taxation and spending).

- A big hit to savers (but nobody in the US saves anyway)

- Maybe a loss as the global reserve currency. This actually doesn't mean all that much -- people won't stop accepting dollars as payments all of a sudden, they will simply prefer Euros or something else instead.

- Increased cost of imports

If they're not successful, then we'll probably wind up in a situation like Japan had. I have a hard time seeing how they won't be successful though, given the sheer volume of money that they're pumping into the system.

As Monty Python said: "Nobody expects the Spanish Inquisition"

The problem with those who think that the Fed and Treasury can control inflation is that these organizations are the same ones which created the bubble.

Are you then saying that the bubble was 'controlled' in its ridiculous boom for which we are now experiencing the bust?

Secondly the idea that a Japan style deflation won't be so bad in the US confuses two entirely dissimilar situations. Japan was a net creditor and also had a currency account surplus. This matters because their debt is owned primarily by themselves, furthermore Japanese exports exceeding imports (until this year) meant the exchange rate of yen vs. dollars or euro or oil was largely irrelevant from a financing perspective.

As a net debtor nation and a currency deficit nation, the US must constantly borrow more money.

4 years ago the interest costs were $1B/day, with CAD of another $1B/day.

Today the interest costs are headed for $2B/day, with CAD still $1B/day after last years $2B/day CAD. On top of that add extra debt accumulation on the order of $6B/day this year. At which point do you consider a problem to start?

The scenario which is not well understood by ANYONE is where a US refusal to act on its creditors demands leads to a cutoff on credit.

This is one path by which hyperinflation can occur: the printing - er 'quantitative easing' done thus far has been supported by other nation's central banks, but should this stop then either the private investors must take up the slack (a 100% turnaround from the past 18 months of trend) or else a Zimbabwe style synergy starts.

Another path is interest rates: if outright printing is not done, then the massive ongoing funding needs will either tank the dollar or spike interest rates. A spike in interest rates - say 50% jump (as opposed to 300% in 1980s) would mean the $2B/day becomes $3B/day. That itself would be bad.

So while hyperinflation is absolutely not that easy to accomplish - the road to having hyperinflation is long - nonetheless we're still firmly on it.

It’s almost a certainty that they would make the credit retroactive to the same date as the current credit started. The only thing it might boost is those buyers who want to use the ‘credit advance’ to get a larger down payment.

I wonder how this will play out with the recent "concerns" of the administration that we are now spending too much money and all new bills need to be funded through increased taxes or alternative savings. And to make this retroactive wouldn't that mean this bill would be in 100's of billions?- every house sold in the last 7 months would be instantly available for 15K tax break?

It will be interesting (scary?) to see what the geniuses come up with on the hill.

If they can keep inflation in the 5-10% range from 2010 through 2016 (assuming Obama gets re elected and doesn’t fire them), they will actually manage to eliminate most of the national debt, most of the private sector debt

Only if we were to stop any further debt incursions. Then it would take about 7 years of wage/price inflation of 10% just to cut it in half.

We already have a historical example to test your premise: For the period 1974 to 1985, inflation averaged about 8% During that time, the national debt increased from about $700 billion to over $2,600 billion. For a 11 year period like that, the debt could have risen only to about $1,600 billion 1985 dollars to equal $700 billion 1974 dollars. The debt increased by $1,000 billion over the inflation adjusted value.

Let's get the housing issue behind us. Let 's give them the 15,000 to get the house sold fast and move on. And then next spring will be in a better place in the housing market .imho

I plan to take every tax break that I can. I am building my first home soon and know I will get socked with sky high taxes down the road. Take what you can get when you can get it.

welcome back, nutty!

Debts owed to external vs. internal creditors make all the difference in the world.

Internal debts can be controlled - Japan has a monstrous debt to GDP yet has low interest rates. How? Because their government policy has internal interest rates set to almost 0 - thus the trillions of dollars that Japanese citizens have invested in Japan Post Office savings accounts yield almost nothing and the Japanese government gets a free ride with new debt.

Would this be possible with external creditors?

As for China being forced to service the US in order to protect its trade thus everything is fine - this is also wrong.

The reality is that the US must borrow far more than China can lend.

The Treasury must sell several trillion dollars worth of Treasury bonds this year.

http://www.outsidethebeltway.com/archives/chinese_trade_surplus_with_u_s_increases/

China's trade surplus with the US will net between $100B and $300B this year.

Where will the remaining $1.5T+ come from? Most of China's savings is already in dollars and Treasury bonds.

Try looking at the facts instead of reading the MSM/CFR hype.

The rest of the world is also unable and unwilling to pony up. The game prior to the Ponzi real estate bubble collapse was that the ROW was willing to buy 'AAA' rated mortgage securities and thus provide the financing...well we know how that is turning out. What can be done to sucker them again?

The consensus appears to be for foreign CBs to buy some small amount of dollar Treasury bonds but to let the US choke on its own mountain of debt if fiscal discipline is not restored.

If they can keep inflation in the 5-10% range from 2010 through 2016 (assuming Obama gets re elected and doesn’t fire them), they will actually manage to eliminate most of the national debt, most of the private sector debt
Only if we were to stop any further debt incursions. Then it would take about 7 years of wage/price inflation of 10% just to cut it in half.
We already have a historical example to test your premise: For the period 1974 to 1985, inflation averaged about 8% During that time, the national debt increased from about $700 billion to over $2,600 billion. For a 11 year period like that, the debt could have risen only to about $1,600 billion 1985 dollars to equal $700 billion 1974 dollars. The debt increased by $1,000 billion over the inflation adjusted value.

Yes, but debt as a percentage of GDP stayed flat. Once the recession of the early 80s was over and inflation was brought 'under control', our debt skyrocketed while inflation stayed low.

The same thing happened from 2000-present.

The government has two ways to pay the bills:

1. Debt

2. Inflation

The obvious alternatives like 'increase taxes' and 'reduce spending' are out of the question, because anyone who does either of those things has a hard time getting re elected. The American people want to have their cake (benefits) and eat it too (not pay for it). With debt quickly approaching a limit that will make it no longer an option, inflation is the only choice that politicians have.

Following WWII the debt was 120% of GDP. By 1975 that was down to less than 45% of GDP, almost entirely through outrageously high taxes (at one point our highest tax bracket was the highest in the world).

It is worth mentioning here that almost half of the total debt is intragovernmental debt, primarily that owed to the social security administration. We do actually have the option of defaulting on that with very little consequence except for needing to raise the SS tax (most likely by removing the contribution ceiling).

Less than 30% of the total debt is owed to foreigners. Of that, China owns about 24%. In other words, China owns about 7% of all US debt (specifically, $740b of our $11t+ debt). A lot of money, to be sure, but a figure that is grossly exaggerated in both size and significance by far too many people.

I do also fully expect taxes to go up significantly in the coming years. Even if the federal income tax stays the same, I'd bet anything that SS and Medicare taxes will go up significantly (my guess is a 1% increase in both with the cap on SS eliminated entirely). State and local taxes will definitely go up significantly, especially in dumb shit stupid states like California.

http://rivkahsphotos.blogspot.com/2009_05_01_archive.html

Debts owed to external vs. internal creditors make all the difference in the world.

Internal debts can be controlled - Japan has a monstrous debt to GDP yet has low interest rates. How? Because their government policy has internal interest rates set to almost 0 - thus the trillions of dollars that Japanese citizens have invested in Japan Post Office savings accounts yield almost nothing and the Japanese government gets a free ride with new debt.

Would this be possible with external creditors?

I disagree. W/ globalization govts have to compete for cash in a global market. If the govt won't pay enough interest on its debt then investors will go elsewhere. Japan is a little different as they are an incredibly insular and xenophobic society so they may be more apt to invest at home even if that means earning less from that savings but that is counter to their self-interest so is IMO an outlier. Rational people wouldn't have such qualms.

I’m not holding my breath. Even with 25% unemployment, double-digit inflation will still make a house you buy today seem very cheap in a decade. We had stagflation throughout the 70s, and people who bought in 71 were doing quite well by 79, even if they ‘overpaid’ in 71.

This is where it would be really nice to be able to post images. If you take a look at the Shiller chart, you will see that the run-up and decline in the 70’s is nothing - a mere bump in the road, compared to what we have now. If you bought exactly in 1971 and sold exactly in 1979, you would have made a little money, but if you held it until 1984 you’d be right back where you started. There is no way in hell we are going to be back to the 2006-2007 price peak in ten years. No way in hell.

I agree -- but that doesn't mean that prices are necessarily going to fall substantially from where they are now, either. If we get 15-20% inflation rates (which are highly likely, IMO), a return to those nominal prices is actually somewhat likely.

Don't underestimate the threat of inflation, especially not when there's a $12t national debt and a real risk of riots in the streets if too many more people lose their homes.

If you can only afford $3000 a month, the bank won’t approve you for more than that (at least not anymore).

Actually, yeah - they still will, if you have a good credit score. Wells Fargo is still using close to a 50% income to payment ratio. This meme that “banks aren’t lending” is bullshit. Paulson made that up as an excuse to funnel billions of dollars to his buddies. Period. Besides which, people are simply plunking down all cash for houses now. I know - I’ve been outbid at least 10 times. Whenever the government gets involved in the market, it just makes prices go up, but as soon as they stop, prices will go back down.

Income caps are accurate for conventional loans, but the BIG difference is the down payment requirement. You simply can not get a conventional mortgage right now unless you have 20% down. The FHA is the only option if you can't pony up 20%, and the FHA has a hard limit of 38% of gross income.

My friends just sold their home for $175k. I just looked on the assessor's site, the loan amount was the amount of purchase price. Seriously.

My friends just sold their home for $175k. I just looked on the assessor’s site, the loan amount was the amount of purchase price. Seriously.

Was it a VA loan?

I agree — but that doesn’t mean that prices are necessarily going to fall substantially from where they are now, either. If we get 15-20% inflation rates (which are highly likely, IMO), a return to those nominal prices is actually somewhat likely.

I didn’t say prices are going to fall substantially. YOU said houses bought today will seem “very cheap” in a decade. I disagree. Wages are going down, not up. How are people going to afford prices that make today’s prices look “very cheap”? And just for the sake of argument, if wages DO go up, then we’ll all be making more money and be able to afford the price increase anyway. So who cares? The only scenario where it makes sense to buy now as a hedge against inflation is if home prices skyrocket and wages do not, and that’s not going to happen.

That doesn't make any sense whatsoever, unless house prices were the only asset class that did not get affected by inflation, but that's just not likely. For 9 out of 10 american cities, a 50% decrease in the value of the dollar would correlate to a 100% increase in nominal prices for everything, housing included. Some places will have house price growth below inflation (because they're still overpriced, like the bay area), but if inflation is truly in the double digit range, even those house prices will rise.

Don’t underestimate the threat of inflation, especially not when there’s a $12t national debt and a real risk of riots in the streets if too many more people lose their homes.

The sheep who bought into the bubble because everyone else was doing it are not going to riot. What are they “losing”? Making interest-only payments on an overpriced home with nothing down? They were essentially renting those houses. They’re going to walk away, not riot. The people who are TRULY disenfranchised now are renters who were priced out of the market for 10 years, and are STILL priced out of the market because the government can’t keep their paws out of it. And even THEY haven’t rioted.

They don't have to literally riot, they just have to elect other people. As more and more people lose their homes, they will vote out the people in office now, and that is why those in power now will do everything that they can to make sure that people keep their homes. 75% of American families are home owners, and 90% of voters are home owners. It doesn't matter if it is a bad policy, politicians are always going to follow the course of action that keeps them in power.

You seem to have this strange idea that just because we renters have been disenfranchised that we're going to see some "fairness". There's really just no reason to expect that to ever happen. The government wants home ownership, and because they want home ownership the policies will always favor it.

Income caps are accurate for conventional loans, but the BIG difference is the down payment requirement. You simply can not get a conventional mortgage right now unless you have 20% down. The FHA is the only option if you can’t pony up 20%, and the FHA has a hard limit of 38% of gross income.

But 20% down SHOULD be the norm. The bubble years were the anomaly. You’re not SUPPOSED to be able to get an interest-only, no downpayment loan that’s impossible to ever pay back.
Note to Patrick: Quoting in this new forum is a major pain in the butt.

Obviously -- but this is what they mean when they say that credit is 'still tight'. They want a return to 2005 when credit was flowing like cheap beer at a frat party. The fact that we're never getting back to that kind of easy credit is beyond them, and as we're seeing today credit is only going to be more expensive from here on out (a 30 year mortgage is up over one and a half points in the last month, and it has a long way to go up from here once the inflation kicks in).

My friends just sold their home for $175k. I just looked on the assessor’s site, the loan amount was the amount of purchase price. Seriously.

Was it a VA loan?

I don't see how it could be. Unless she's gained ALOT of weight since she left the military.

I know three people in three different states that bought homes recently and all of them used FHA loans so they only need 3.5% down AND used 6% seller assist. Add in the $8,000 credit and it becomes clear that lending is still as ridiculous as it was at the peak of the bubble.