From the FT:
Housebuilders hit by US tax credit hangover
The last day of April and the end of the first-time buyer tax holiday was expected to be a dark day for US housebuilders. Yet few anticipated just how sharply activity levels would fall once government support for the industry was removed.
As housebuilders prepare to release second-quarter earnings over the next fortnight, industry observers are warning that the fallout from the tax credit hangover could force the sector into another round of writedowns.
“The market is saying that the housebuilding model is broken right now,” says Josh Levin, an analyst at Citigroup.
“Many housebuilders and investors expected things to be bad after the tax credit expired, but they did not expect it to get as bad as it has.”
Since the expiration of the tax credit, which offered would-be homeowners an $8,000 cash boost, shares in the leading housebuilders have dropped 27 per cent – one of the sharpest falls since the financial crisis.
…
Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm, says the stark change in activity levels has caused housebuilders to reassess the extent to which the tax credit helped drive sales.“[Housebuilders] were prepared for a short-lived 10 to 15 per cent correction after the tax credit expired. What they got has been a 35 per cent correction, which has already lasted for two months,” Ms Zelman explains.
…
Paul Dales at Capital Economics is also pessimistic and has warned that the expiry of the tax credit had “triggered a double-dip in activity” in the homebuying market.
…
The increasing number of distressed properties for sale, many of which are sold for less than the cost of construction, is also a concern for the industry.About 1.65m homes received foreclosure filings during the first six months of 2010, according to Realtytrac, the data company. Analysts estimate 7m foreclosed homes could still come up for sale.
…
In spite of the positive start to the year, the housebuilders appear to be feeling the strain of lacklustre buyer interest and the over-supplied property market.The most recent reading of the National Association of Homebuilders’ index of builder sentiment showed a fall from 16 to 14 in July – the lowest it has been since April 2009.
From the WSJ:
Doubling Down on Housing
The housing crash has left at least 11 million people in the unenviable position of owing more on their homes than they are worth—and many more millions with properties worth far less than they paid for them.
But some might not be as trapped as they think.
Record-low mortgage rates and a new slump in home prices are presenting unusual opportunities in the housing market these days—even for so-called underwater borrowers.
Some intrepid homeowners are intentionally taking a loss on their current house—and writing a big check to retire their old mortgage—in order to buy twice the home for not much more money. Others, eschewing conventional personal-finance advice, are even opting for “cash-in” refinancings, paying thousands of dollars out of pocket to settle old loans—and then taking out new mortgages with lower payments, shorter durations or both.
Katie Everett, a real-estate broker in Denver, says none of her clients kicked in cash when selling their homes last year. This year, “about half are willing to bring money to closing, anywhere from $5,000 to $45,000,” she says.
Are these people crazy to be tying up even more of their cash in their homes, in effect doubling down on what has been a losing bet thus far? After all, any number of variables, from the employment picture to the credit markets, could weigh on housing for years to come.
From the Philly Inquirer:
Economy just right for some to build a home
Forget the still-sputtering economy, tight credit, and all the other reasons not to take that giant leap of real estate faith right now.
For some people, now is precisely the right time to build the house they want.
…
And why not, with builders so eager to deal they’re offering incentives and discounts and faster move-ins? After the latest round of tax credits for home buyers expired April 30, new-home sales nationwide for May plunged to a seasonally adjusted annual rate of 300,000, the lowest since recordkeeping began in 1963.
“Buyers might do as well or better now than when the tax credit was available, since some builders may need to move inventory that did not sell in March and April,” said Wayne Norris, regional sales manager for Hanley Wood Market Intelligence, which tracks U.S. new-home sales.
From the NY Daily News:
Homeowner victimized by broker promising to trim loan using Obama’s foreclosure prevention plan
Brooklyn homeowner Angela Neysmith scraped up $1,500 when real estate broker Lavette Bills promised to trim her loan payments via President Obama’s foreclosure prevention plan.
“She said she could put me into the Obama program,” Neysmith said, recalling Bills told her, “I could get a fixed rate and everything would be good for me.”
Everything was not so good.
Neysmith, 50, did not get the promised loan modification to bail her out of the foreclosure she was facing on her Midwood St. home, but Bills managed to jack up her fee to $3,000.
Neysmith says she was forced to send papers to the bank to process her modification application because Bills failed to do so.
It was rejected after the bank said the numbers did not add up.
…
What Neysmith didn’t know was that a month before Bills began dealing with her, she and three others were indicted in a $3 million mortgage fraud scheme. Bills pleaded not guilty and is awaiting trial, free on $250,000 bond.
No Money? No Job? No Problem!
From MarketWatch:
Bank reform brings mortgage aid for the unemployed
More help is on the way for unemployed homeowners struggling to make their mortgage payments, thanks to funding tucked into the financial reform legislation signed by President Obama on Wednesday.
Although the U.S. Department of Housing and Urban Development hasn’t released the details of exactly how the $1 billion emergency homeowners’ relief fund will be distributed, legislation dictates that the program start by Oct. 1.
…
The relief-fund program is similar to a Pennsylvania program that provides financial assistance to out-of-work homeowners so they can keep up with their housing costs, said John Dodds, director of the Philadelphia Unemployment Project. The money has been available to residents since the 1983 recession, he said.
…
“The Home Affordable Modification Program was designed to work for the subprime problem. It was really never designed for the unemployed,” Dodds said. Under HAMP, mortgages are modified so that monthly payments are affordable. For those with no income, however, options are limited.
Currently, unemployed homeowners are granted at least three months’ forbearance on their mortgage loans through the Home Affordable Unemployment Program. Some states hardest hit by the foreclosure crisis received extra federal funds for foreclosure prevention, and some states offer assistance for unemployed homeowners.
Transfuse-the-corpse, Euro-style:
“On a day (and week) when every European TV station is and will be blaring how safe Europe once again is because the Rock said so, and to ignore the liquidity bogeyman in the closet, the market has once again spoken. The result: benchmark 3 Month Euribor is wider at 0.889% versus 0.885% previously. We will bring you 3 Month European Libor as soon as we get it: somehow we doubt a massive contraction in those particular rates either. All those expecting that the European liquidity market would unlock overnight with the farce finally over, are in for a disappointment. And unlike their US equivalents, which trade on nothing but machine language momentum, European stocks, on a day when European banks passed their dodecatuple secret probation with flying colors, are flat to down. Looks like even an perfectly inefficient market wont fall for the same Geithneresque ruse twice in a row.”
http://www.zerohedge.com/article/so-much-restoring-confidence-benchmark-3-month-euribor-wider-post-stress-test
Frist!
Sorry if this was posted already
http://finance.yahoo.com/tech-ticker/the-u.s.-middle-class-is-being-wiped-out-here%27s-the-stats-to-prove-it-520657.html?tickers=^DJI,^GSPC,SPY,MCD,WMT,XRT,DIA
highlights:
• In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
• As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
• The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
• Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
• In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.
“Experts and officials have begun to say it more clearly: There is no way New Jersey will ever be able to pay for the promises it has made to current and retired workers.
http://www.app.com/article/20100725/NEWS03/7250330/Can-NJ-keep-its-pension-promises-No-way-many-officials-concede
don’t know if this was posted or not
Nom/Ket,
Yesterday was great. Thanks for having us over. Back to the grind I suppose.
Nom
Thanks for having the hyde clan!!!! Hyde Jr passed out in about 2 minutes and wants to know when we he can play with Nom Jr again!
Stu,
Thanks for the tasty beer!
No problem Ket. Little Gator could not get up this morning. When I went to wake him at 7am for camp, in his tired stupor he uttered, “I’m a turtle and I’m going back in my shell.” It was pretty funny.
re #8 Xroads – Christie is going to let it blow. The state is skipping its 3 Billion contribution this year the next and the year after. Most municipalities have been gorging themselves on a pension contributions they were allowed to skip for the last two decades since former governors Florio, Whitman, DiFrancesco and Corzine each declared it overfunded to skip the contributions to fun pork and cronyism.
The State now says the pensions are underfunded by $47 billion but that figure includes 8.25 percent CAGR pension into the liability calculation. If you figure in growth properly it is more like 150 billion and that does not include the health care liabilities.
Right now the cash burn rate is 6 billion a year and with little contributions it will dwindle quickly, the state employees will be hit first. Perhaps in the next 5 years
as they all rush to the exits to collect.
8.Xroads says:
July 26, 2010 at 9:00 am
“Experts and officials have begun to say it more clearly: There is no way New Jersey will ever be able to pay for the promises it has made to current and retired workers.
http://www.app.com/article/20100725/NEWS03/7250330/Can-NJ-keep-its-pension-promises-No-way-many-officials-concede
don’t know if this was posted or not
Interesting, it only took the experts twenty years to figure out what the average person already knew? The Private Sector started cutting Medical & Pensions in the 1980′s.
Is it possible to see what lender holds the mortgage note on a piece of property? Would that be done via a title search or something else?
Thanks
From the APP article dumb bunny making 75K and thinks people would leave if it was changed
She said the pension was a big draw for her, and she thinks changes to the pension system will dissuade bright teachers from entering the field.
“Take away that pension and you’ll take away the draw to those careers,” Pape said. “Every teacher loves their job, and every cop loves their job. But the shadow of it is: that pension is there.”
Pain
U have mail!!!!
16
They love their job… because of the pension. I love when people give a self-serving speech and contradict themselves in the same sentence.
EPA whistle blower claiming That the toxicity of the dispersants are known and being ignored
People who work near it are hemorrhaging internally. And that’s what dispersants are supposed to do. EPA now is taking the position that they really don’t know how dangerous it is, even though if you read the label, it tells you how dangerous it is
http://www.democracynow.org/2010/7/20/epa_whistleblower_accuses_agency_of_covering#
First and foremost, it is a borrower’s inability to make the loan payments to pushes them to foreclosures NOT the value of the property.
Joyce –
The mortgage holder is available in public records. Some counties make it easier than others to access.
Do you have a particular address in mind ?
Annie 20
Historical you are correct, but the game has changed. Now people have begun to act like corporations do and look at it from the financial perspective. In some cases it makes more financial sense to stop paying the mortgage even if you are financially capable of doing so when you weight all the factors involved. heck if the bank takes 1-2 years to foreclose and you fight it, then you could easily see 2 years of living rent/mortgage free. Assuming that you do not have a HELOC or second mortgage then in NJ it is a non-recourse loan and they cant come after you for walking away.
if you have a second mortgage or HELOC its a different story as those are recourse loans in NJ.
(21) Fiddy –
Yes, 15 Midwood Dr, Florham Park, Morris County… thanks
Joye – Thanks for the laugh someone actually paid $825k for a cape?
Mr Hyde-
I believe NJ is a recourse state.
http://www.forecloseddreams.com/recourse_states
NJ Coast
Clot, or Grim would have a more definitive answer, but i am fairly sure that primary mortgage sin NJ are non recourse, but that second mortgages and HELOCS ARE recourse.
So for the majority of home owners in NJ they are probably carrying both a recourse and on recourse loans, with the primary loan being non recourse and the second being a recourse loan.
Any of the guru’s int he board feel free to correct me.
NJ Coast
I may be off on this one, but i believe that this:
2A:50-1. No personal deficiency judgment in foreclosure actions or execution thereon for balance due
No judgment shall be rendered in any action to foreclose a mortgage for any balance which may be due plaintiff over and above the proceeds of the sale of the mortgaged property, and no execution shall issue therein for the collection of any such balance.
Is at least one of the relevant portions of the law.
15 midwood, florham park –
So somebody paid $825K in 2006, “fully renovated” it….and it’s currently Under Contract for $749K ?!?!?! OUCH !!
Listing says the price includes the furniture and appliances
(28)
Yeah haha. I was wondering what the outstanding balance was, curious to know if it was 800+ or if the buyers (@825) put down 20% or something.
I don’t have real easy access to Morgages in Morris county….perhaps one of our other citizens of NJRE does? I just checked their deed on-line and no mention of finance. The purchase in 2006 was an Estate Sale.
Do you know why the furnishings (includes lawn mower & snow blower) would be included in this sale ???
This one gets curiouser and curiouser.
Joyce search here just need the homeowners name.
http://mcclerkweb.co.morris.nj.us/or_wb1/or_sch_1.asp
31 – thanks
30 – If I’m not mistaken, someone a few months ago posted this house on here so we could all laugh. And at first, along with the furniture and lawn mower HAHA), they were throwing in a ’06 BMW. Anyone else remember?
“Do you know why the furnishings (includes lawn mower & snow blower) would be included in this sale ??”
It makes it easier to sell to the Justice Dept forr purposes of the Witness Protection Program.
Joyce (32),
I remember that.
In other news, check out the housing recovery. Better start another homebuyer tax credit and quick.
http://bloomberg.econoday.com/showimage.asp?imageid=19477
Oh yeah, when questioning the credibility of June’s new home sales, keep in mind that the May numbers, the worst on record, 300,000 was revised down to 267,000 with today’s report.
YOU KNOW YOU ARE IN A DEPRESSION WHEN …
“Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.
The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.
The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.
You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!
Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.
You also know it’s a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion.
What did the banks do this past week? They replaced cash with government securities – the $47.5 billion net buying was the second largest in the past three years. As the banks find few opportunities to lend – households are either not creditworthy enough to lend to or are busy paying off debts and companies that do have any expansion plans have enough cash on their balance sheet to finance their initiatives – they are likely to use their $1 trillion in excess reserves buying government and related securities, especially with the yield curve so steep and the Fed ensuring that it has no intention of taking the ‘carry’ away for a long, long time.
Did we mention that you also know you are in some sort of depression when after two years of record $1+ trillion deficit financing to kick-start the economy, the yield on the 5-year note is sitting at 1.8%? What do you think that tells you? It tells you that the private credit market is basically defunct, especially when it comes to the securitized loans, which played such a critical role in promoting leveraged economic growth from 2001 to 2007 – the amount of securitized credit that has vanished since the credit bubble burst two years ago is $1.4 trillion – 40% of this market is gone. And what replaced it was this rampant government intervention into the economy – aimed at putting a floor under the economy. But insofar as the government stimulus fades and the contraction in credit persists, it will be interesting to see what sort of spending, output and income growth we are going to see in the near- and intermediate-term.”
http://www.zerohedge.com/article/ever-wondered-how-you-know-you-are-depression-david-rosenberg-explains
Fiddy start with the title then you have to learn to search and read through the public records. you’ll find it if it is there. the process just takes time
Hyde – you’ve got response!
I shoulda guessed — Wells Fargo was involved.
Mortgage amount was $660K. At least they put 20% down, that’s all gone now. $165K DP plus the cost of the kitchen renovation……Gone like the wind.
I think you are mistaken, there is a way for NJ to be able to pay for the promises to its current and retired workers. For example, the state of NJ could invest in some highly trained assassins and problem solved.
Come on people, you need to start thinking outside of the box here. These so-called experts really are not putting their noodles to good use.
“Experts and officials have begun to say it more clearly: There is no way New Jersey will ever be able to pay for the promises it has made to current and retired workers.
http://www.app.com/article/20100725/NEWS03/7250330/Can-NJ-keep-its-pension-promises-No-way-many-officials-concede
don’t know if this was posted or not
http://dghm.com/review_market.asp
friend thought a mortgage modification was a slam dunk … but was recently rejected (by whatever group 0bama set up).
so their next option is going to be directly with BOA. Question: Anyone attempt a modification with BOA? Any tips/strategies going in?
(quick recap: This person got a 30 yr loan, put down around 15-20% on the house, and the plan was to retire there. but due to crummy circumstances – 2 hospital stays in two years, loss of income – things are simply untenable. mortgage is about 2k per month; income is about $2900 per month.)
Anything would be much appreciated.
(longtime reader, i comment regularly under a different name)
Clot,
And yet the market rallies on the basis of last quarters earnings. There’s going to be some sad sacks in a few months.
Well, we can trust our government when they tell us that CRA had absolutely nothing to do with causing the housing bubble because the governemtn would never interfere or pressure banks to make bad businees decisions about loans that are almost certainly unlikely to repaid on time. Just like this instance:
“The U.S. Department of Housing and Urban Development will initiate an investigation of mortgage lenders that discriminate against potential borrowers who are pregnant or experiencing a short term disability,”
http://blogs.wsj.com/developments/2010/07/23/hud-warns-lenders-on-discrimination-of-expectant-mothers/
[42] con’t:
“many brokers and mortgage bankers say that the pendulum has swung too far in the other direction, with underwriters using irrational caution.”
A) Brokers and motrgage banker have ANY credibilty left?
B) “Irrational caution” What does this even mean? How can it be nearly as omminous as the cited ‘brokers and mortgage bankers’ want us to think it is?
If we want to jump start the economy, we need to look beyond extended unemployment benefits and priming the pump by filling potholes.
To increase employment, we need to have businesses hiring. So, let us ask ourselves, what are we doing to discourage firms from hiring, and remove as many disincentives as possible. Let usalso look to emerging power-supply technologies and support growth of tose industries by moving the government to 100% alternative power and require any governmebt contractor who receives above some given amount in government contracts to get X% of their power from alternative sources.
Then remove the mortgage-interest deduction and state property-tax deduction from any homeowner who does not get at least Y% of their home power/heat from alternative energy sources.
Scr-ew looking to the past, let’s look forward and this is as good a place to start as any.
Shore that is the most logical thing I have ever seen now we just need to find ways to graft said proposed system so we can profit off of it.
RE: “mortgage is about 2k per month; income is about $2900 per month”
Jinglemail?
DD 46
15-20% down…. plus payments to date = lost equity?
Second mortgage – suck as much equity out of the house, then default.
Not that I’d ever suggest such a conniving plan….
sl
44- So they earn their unemployment checks, I say make the unemployed run on treadmills that generate electricity. They get exercise. We get power that doesn’t come from coal or terrorists. The unemployed get healthy. Medical costs go down. Everbody wins!
Shore,
Great plan, but you will build a great big green bubble if you dont generate systemic changes in american culture at the same time. Consumerism has got to go and subsidies have got to be pulled as well for everything from corn to corporate offshoring. Nothing that a little war time spirit couldnt handle ;)
Shore,
Can we fix the tax code while we are at it. Perhaps tax purchases rather than work? Close a couple thousand loopholes? Make it so Corzine pays more taxes than me.
Lib,
“Make it so Corzine pays more taxes than me.” That would be unfair, no?
Flat tax, tax dividends as income(they really are when you look at the definition of income) Repael the estate tax and all the stupid deductions.
Remove all subsidies, lilke Hyde said. then we will see a real free market economy
44: Shore,
“But if dreams came true, oh, wouldn’t that be nice”
I know you’re familiar with the author.
Joyce 32 – I was the one who posted that house. Do I get a prize?
Until consumers decide it’s ok to buy again and purchase goods and services employers don’t need to hire. They will make do with the staff they have, even if it’s lean and mean.
53 – NJ Gator
On behalf of all of us and our continued laughter, I thank you.
What would really be super is if you could post a link again, that way I can save it and see what it closes for. I’m dying to know…
Joyce…
Cape fear?
“But if dreams came true, oh, wouldn’t that be nice”
But it was more ‘n all this that put that gun in my hand
56-
Touché
stinks (40)-
Short sale, then get out. Even if a mod could be arranged, it stands about a 90% chance of being a total screw job.
Cut losses. It’s the only viable plan these days.
In about three years, anyone not living in his car will be considered a modern American success story.
The oblivion is not coming anymore. It is here. No one will be spared.
Joyce 55 – The links I get from GSMLS listings expire after 90 days. But thankfully Morris County has all of their records online, so you can periodically check their info to get the sale price.
The blog’s “favorite” realtor also posts sales prices monthly, but unfortunately Florham Park is not one of the towns she watches. But if you are looking for info for Millburn, Maplewood, South Orange, Summit, Chatham, Madison, Livingston, Harding, Mendham, Basking Ridge, Bernards, West Orange, Montclair, Glen Ridge or Brigadoon info, get my email from Grim and I will send you the link.
61 Gator
I appreciate the information.
Lib/hyde
Good times. Glad to hear the kids were worn out. Would have been great if the spouses could have come.
60.
http://www.youtube.com/watch?v=m69FCeUXdkA
From JPM:
…One of the attendees is well-versed in both economics and taxation, having worked in and around DC for many years with politicians on both sides of the aisle. The conversation on the U.S. fiscal deficit was sobering:
* Next steps are likely to include removal of the tax cuts on the wealthy (through both higher rates and the reduction of allowable deductions). This would run counter to history, given the tendency for easier fiscal policy in year 3 of the Presidential cycle. But the current US public debt is at levels not seen in the last 60 years, with little improvement in sight.
* This is the first act of a well-rehearsed play. All of Washington knows that raising income and capital gains taxes on the wealthy won’t solve the deficit problem; there aren’t enough of them. Raising capital gains tax rates also runs into the problem of reduced gains realization, which happened in 1986 (gains realizations rose by 90% before the tax hike).
* The administration is considering changes to corporate taxes (e.g., tighter interest allocation rules which raise effective tax rates on multinationals). These changes run counter to what other countries are doing (lowering corporate tax rates, and encouraging overseas expansion).
* Tax increases are already underway at the state/local level, and are misleading some analysts into seeing cyclically-driven growth in state tax revenues. According to the Rockefeller Institute, after excluding the impact of legislated tax increases in NY and California, tax revenues across all states are still down 1.5% vs 2009.
* A Value Added Tax could raise revenue, stimulate investment and dampen consumption (150 other countries use them, the U.S. and Saudi Arabia being the only exceptions in the G-20). But a VAT has historically been opposed by Congress, in part since it’s harder to manipulate than income taxes to favor certain constituencies via exemptions, preferences and credits.
* The simplest and least economically distortive way to raise tax revenue is to raise all brackets by 3%-5%. But this is likely to be opposed for as long as possible. Why? Globalization (in particular, the rise of China and India beginning in the 1990s) set in motion an irreversible process of downward wage convergence of US workers with the rest of the world. Isolationism is a failed strategy, and worker retraining programs can only do so much. As a result, supporters of wealth redistribution see an (even) more progressive tax code as a critical part of maintaining the social fabric.
* The health care bill complicates the problem. The bill did not introduce any mechanisms for reducing future health care spending, and its “savings” come from promised reductions in future growth, making them highly suspect.
While none of this is groundbreaking, I was struck by the presumption of its inevitability. On the insufficiency of high net worth individuals to solve the deficit problem, we knew that already. A 5% tax increase on adjusted gross incomes over $250k barely makes a dent in the OMB’s deficit forecast.
On wage convergence and the decline in America’s advantage, per capita GDP relative to the rest of the world does show a declining trend beginning in the mid 1990s, coinciding with the rise of China and India. It’s the speed of the decline, rather than the level, that is the issue here.
The most jolting part of the discussion was about what’s not captured by the OMB: the impact of entitlements on future generations. A research paper prepared for the European Commission Directorate-General for Economic and Financial Affairs examined unfunded entitlements in both Europe and the U.S. This problem has been well-advertised, but has always existed in the abstract. Horizons are getting shorter, making near-term tax policy decisions hostage to promises made in the past.
Unfunded entitlements dwarf the size of today’s public debt (c), usually by a ratio of 8 or 9 to 1. How much might it cost to pay these entitlements when they come due?
* By 2020, the average EU country would need to raise its tax rate to 55 percent of national income to pay promised benefits
* The U.S. could fund its shortfall by doubling the 15.3 percent payroll tax on employers and employees (forever)
* Alternatively, the U.S. could reduce discretionary spending by 80%, on things like education, defense and environmental protection. Why so high? There’s not enough discretionary spending left (the OMB estimates that mandatory spending will make up 71% of government expenditures by 2016)
* Of course, the other option would be the printing press (inflation), which would be worse given how much would be needed.
Some politicians and think tanks (e.g. the Tax Policy Center) have argued that tax revenues and government spending as a % of US GDP are not that high, so there’s room for both to rise. The analysis above renders such claims disingenuous at best. Measures of current spending do not capture the scope and size of government programs that already exist, and which will have to be paid for, although no one knows how. Richard Fisher (Dallas Fed President) likens the US entitlement burden to German attacks on the UK in the 20th century, the costs of which eventually sunk the British pound; except this time, the wounds are self-inflicted. If actual Wall Street and oil industry misdeeds did not exist, politicians would have to invent them, so as to distract the public from what they have created, a leviathan of poorly-disclosed obligations which are 10 times the cost of all wars since the American Revolution.
Talking about the vapid Twilight film series over dinner was bad enough. Talking about the Twilight some of our children will inherit was far worse.
” But the current US public debt is at levels not seen in the last 60 years”
AND, at the end ow WWII, when our dent was also sky high, we had the best industrial infrastructure and the best national reputation of any nation. We were poised for takeoff at a time when everyone else needed what we could make and were inclined to buy from us.
The instant situation is very different.
Nom – Sorry I missed the festivities. I do know now that if I were the mother of twin 5 year old boys, that I would either be dead, or have developed a serious drinking problem by now.
Looking forward to next year’s BBQ.
Met with a guy today who’s living in his basement (hey, basements are cool). He’s lost three jobs- and his health- and is facing FK on a mortgage balance of only 60K.
Have to do a workup on the house, since it would be worth 220K or so in decent shape…but the place is trashed, because he rented the upstairs to a bunch of punks who partied it out and skipped. I think he can still gross 140K or so in a sale.
Funny thing, though: the guy was beaming with pride, because last week he got his certificate to teach in NJ. He whipped out the document, with Schundler’s signature still nice and shiny. From what he told me, he seems to think a teaching job is all but assured.
I just kept my mouth shut, except to encourage him to take “little daily steps” toward resolving his situation.
Gator (67)-
I’ll rent you my drinking problem, if you want.
http://blogs.wsj.com/developments/2010/07/26/report-foreclosures-reduce-home-values-by-27/
OT but totally entertaining and cool!
http://wimp.com/dolphinbubbles
sl
Doom, 69
I may need to lease your drinking problem for a while. Can you FedEx it?
sl
68. ahhhh warms the heart.
“In a credit-addicted economy, you don’t need credit to actually fall for there to be problems. All you need is a slowdown in the growth rate, and you get big problems. Now, the government and the Fed are aware of this, so they are creating debt through fiscal deficits and monetization. That creates a hugely volatile environment. In 2008, government credit creation was inferior to private credit contraction, and asset markets tanked. In 2009, government credit creation was higher than private contraction, and asset markets went ballistic. Lately, government credit creation has slowed, and asset markets have gone down. Now, the Fed is aware of this, and it’s only a matter of time before it throws more money into the system. I guarantee this.”
-Marc Faber
sl (72)-
I could FedEx you around 27 airplane bottles of Knob Creek. Would that work?
Clot,
It sounds like the friend of mine.
I had to rent a car for a few days. When I rented it, it was brought to me at the auto shop where I was having my regular car fixed.
When I returned it to Hertz today at their location near my house (typical 1,400 sf stripmall “bay”), there was one light on, front door open, a kiddie fence stretched across the front door, the A/C was off, there was a dog running around and a baby crawling around in the back. When I peered behind the partition to look into the back, I saw a dining room table, a microwave and a bed. The owner is living in the place.
Shore (76)-
I give lots of people my “little daily steps of progress” speech.
Today- honest to God- I wondered how this guy hasn’t already taken a few little steps off a very high bridge.
(7)
• The top 10 percent of Americans now earn around 50 percent of our national income.
Gee, I guess this is why the wealthy pay most of the income tax in this country – because they make most of the money. Mystery solved.
No one thought it would get this bad, yet here we are. Let’s just hope we pull out sooner than later!
Hope hasn’t gotten us real far yet, has it?
Hi fourrr(recesion)
No more hi five just hi four
79.wtf says:
July 26, 2010 at 6:39 pm
(7)
• The top 10 percent of Americans now earn around 50 percent of our national income.
Gee, I guess this is why the wealthy pay most of the income tax in this country – because they make most of the money. Mystery solved
Also why Clinton is spending $2M on his daughters wedding.
Doom, 75
I find they clink around too much in the center console.
I keep having this recurring nightmare of an ascot tightening around my neck while I am signing papers in front of me….Then I wake up. WTF is that about??
[note to self: stop Netflixing "24" episodes so late at night...]
sl
borat (83)-
There’s no shame in admitting here that Jamie Dimon took one of your fingers as collateral.
“No more hi five just hi four”
Accountant has just informed me that for the third year in a row, I’m worth more dead than alive.
“I could FedEx you around 27 airplane bottles of Knob Creek. Would that work?”
I have about one more shot of Knob Creek in the bottle. Could you send a small Airbus my way, too?
Confused #84
Must keep up appearances.
new (89)-
What makes me think a lot of that 2mm is campaign donor money?
Doesn’t Hillary have a team of leeches out flacking for donations to pay off her remaining campaign debts?
Honest to God, Bill and Hill remind me of a used car salesman and his trailer trash wife. Mutual loathing has to be the only thing keeping them together. I bet she beats the shit out of him in private.
How many 20-30K level donors aren’t invited to the wedding this weekend…and how do you think they feel right about now?
i got dibs on the suit of Armor.
http://tv.yahoo.com/blog/nj-housewife-teresa-auctions-off-contents-of-foreclosed-mansion–1417
Why pay for your own obligations when you can get someone else to do it for you?
I always wanted a suit of armor.
Up until I was about 12 years old.
See, they should of bought in Ridgewood or Allendale or Ho Ho Kus and they wouldn’t have had this problem. I hear they’re getting multiple offers over asking price within hours of listing. Towaco? What the f*ck were they thinking? Isn’t that just another name for Lincoln Park?
http://tv.yahoo.com/blog/nj-housewife-teresa-auctions-off-contents-of-foreclosed-mansion–1417
89.New in NJ says:
July 26, 2010 at 9:04 pm
Confused #84
Must keep up appearances
All the females have been warned to stay away from Bill if he has a unlit cigar. Wonder if Monica was invited?
The stakes go up as one gets older. Maybe the lit cigar is just the trick.
http://online.wsj.com/article/SB10001424052748704700404575391582687553008.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
O.K. Who’s minding the inventory? This stuff isn’t supposed to be publicized. Where are the angry advertisers?
Wait a minute, we’re trying for tax credit II. I forgot.
Hi three right backatcha, borat!!!