Boom about to go Bust?

[Toedancer]

Isn't this strong language for the staid WashPost

It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.
   
But the damage won't be limited to Wall Street and its investors. For if we've learned one thing in the past 20 years, it is that what happens on financial markets, in booms and in busts, can have a big impact on the rest of the economy.

Without the billions of dollars flowing each year to financiers and corporate executives, there will be less money to trickle down to car salesmen, yacht makers, real estate agents, third-home builders and busboys at luxury resorts.

Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines.

And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption.

It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.

The recent decline in home prices and the meltdown in the market for subprime mortgages are the first signs that the air is coming out of the credit bubble. Already, those factors have shaved half a percentage point off the economic growth rate. And you can be sure that there will be a much larger impact on jobs and incomes from a broad decline in stock and bond prices, a sharp tightening of credit and the turmoil that both of those will create in the murky derivatives markets.

Who knows about these things anyway? I don't know nuthing. But sheesh reading that felt like batten down the hatches!

[kuri]

Well, IANAE (I am not an Economist) but I read everything circulated by my employer's economists, and it seems to me that things have just spiked so much: house prices up so much, inflation (although I gather this is only in AB), etc. etc. that it has to come down.  In particular the debts are so high in the US, that the correction will hit them bad. And then the demand for oil will drop out and all these people here in AB that laugh at the idea of preparing for the future won't be too happy.

[Bacchus]

The Harpers stat that scared me the most recently (I love their stats page) is that 16% of americans are carrying a negative morgage. That is the amount they owe is more than the value of the home

[kuri]

Aieeee... how do they get insured for that?

[Bacchus]

I dunno. The thought of it chills me and the pace of foreclosures is really ramping up there. And I fear we are next (we as in Canada, not me personally, my house is completely paid off).

And with our nearly par dollar the hit will be a double whammy

[Toedancer]

Well this seems to say be warned, at least that's what I got out of it. But I want to know how it will affect those living in near poverty. I guess I need to start paying more attention to the 'economy' ewww, but I need to.

[fern hill]

Fear-mongering. No link, but from my munnee guy: Canadian stock market since 1972, best year 1979 +44.7%, worst year 1974 -25 9%. Average rate of return since 1972 -- 10.9%,

Natch, there will be individual disasters. And the mortgage policy in the USA is criminal, in my ultra-lefty mind.

But major melt-down? I don't think so. Big swinging dicks have too much to lose.

[Toedancer]

Well that is very cheerful fern. Big swinging dicks don't fill me with much confidence actually. Perhaps I am taking this too seriously, I dunno, but what would happen if during this (let's call it a recession for now) suddenly bird flu hit us at the same time? Whoa!

[brebis noire]

oh god, fern, what an image to start my day at the clinic with.  :lol: Good thing dogs and cats don't have big swinging dicks. They are much too discreet and careful.
I tend to agree with you, even though I've been expecting the big meltdown all my life, as kind of an aftershock from 1929 (my parents still live with vague memories of that and lived their entire lives in fear of it...)

[arborman]

Gilded ages do eventually end, and with the top 1% owning almost 50% of the wealth in the USA, something will eventually give.  THose big swingers are powerful, but cannot bend reality.

I expect a crash will come from outside - the dollar will decline (it is), interest will then have to go up (it is), bankruptcies & foreclosures will spike (they are).

The very rich can and likely will just move their money elsewhere.  

Reading all this stuff does give me further incentive to pay down our mortgage and other debts more quickly, as if I needed more incentive (debt sucks).

[Toedancer]

To hear the banking industry tell it, Canadians are reliving the miracle of the loaves and fishes. Each year we buy more expensive homes, drive more expensive cars and generally spend more money than we earn.

Yet the average take-home pay in Canada remains essentially unchanged. Since 1991, inflation-adjusted hourly wages have risen just 10 cents.

Of course that's a story in itself. Imagine, we've slogged 15 years -- a third of a working career -- and all we're ahead by is a dime an hour.

But let's stay with the juggling act. In the past 15 years, the price of an average home in Victoria doubled.

The cost of a new car soared from $20,000 to $32,000, a 60-per-cent increase.

With incomes barely higher, how can that be? A small amount of the extra money has come from women increasing their hours of paid work.

We've also cashed in whatever nest eggs we had. Two decades ago the average Canadian family saved nearly 20 per cent of take-home pay. Today, that figure is zero.

And apparently working families are also drawing down their pension savings to make ends meet -- a dangerous scenario. With life expectancy rates continually growing, we'll need more pension funds, not less, to cover those extra years.

The elephant in this room is debt. Mountains of it. As big-ticket items take more of our pay packet, and that pay packet doesn't expand, we turn to borrowing.

At the national level, the amounts involved are hard to comprehend. Canadians collectively owe three quarters of a trillion dollars in personal debt.

But at the household level, our whole way of life is changing.

snip

Meanwhile, the bankers who make all this possible are telling us not to worry. But can we really go on this way?

snip

If the financial sector won't act responsibly, government may need to lend a hand. In 2002, when the future of medicare was being debated, the Senate issued a report on the health of Canadians.

This would be a good occasion to bring down a companion piece -- on the health of family finances.

VicTimes

Goodness look at the weather in Vic, hard rain and only 14, we need some of that here, oh and take some of the heat too.

[kuri]

Yeah, I can see it's getting bad in Canada, too. 40 year mortgages available. Only 20% down for conventional mortgages (used to be 25% down was the minimum). We're definately encouraged to take on more debt.

Myself, I've been resisting the urge to dip into a line of credit to get home renos down faster.

[skdadl]

Myself, I've been resisting the urge to dip into a line of credit to get home renos down faster.

Yeah ... sometimes I lie there at night thinking, "But really, I need a bathtub." And I do. But you know where that would lead. Drat.

[Debra]

Where would it lead? Needing a waterproof laptop?  :mrgreen:

[Toedancer]

Oh boyo, couldn't resist, middle-class in U.K. lament It's Not Fair!

"It's not fair" is the indignant cry, and out tumbles a self-pitying litany of dispossession and deprivation. The middle classes, normally a bastion of effortless entitlement, are feeling very hard done by. It's the struggle to scrape together the half a million required for a modest south-east house with some cash spare to pay the childcare; the scramble for a half-decent school; the prospect of pathetic pensions; and the impossibility of easing their own children's university debts, let alone their entry into the London housing market. These last, assistance to the next generation, were key to how the middle class reproduced itself so successfully - but no longer.

snip -  Richistan - cool word

Some of you old class warriors will be saying poor diddums to the middle-class whingers who are still doing substantially better than the hefty, and increasing, chunk of the population living in absolute poverty - now running at 7.4 million. But don't scorn such useful allies; if the "hard-working families" of middle England can be recruited to campaign for a hike in tax rates for the rich (say, those with annual incomes over £100,000) and closure of tax loopholes, Brown might actually do something.

The charge sheet is being assembled. A super-elite rachets up social comparisons, leaving everyone lower down the pecking order disgruntled - the US economist Robert Frank argues that the relationship between inequality and lower rates of happiness is now well established. His new book, Falling Behind, examines the phenomenon in the US, where the middle classes are now working harder than ever to pay exorbitant mortgages on incomes that have stagnated while the wealth of the super-rich has ballooned.

http://www.guardian.co.uk/commentisfree ... 50,00.html

Cluebats needed - to pound the poli's that allowed this here, there.......