"This Recession won't be as Bad as Japan's 90's Recession" say mainstream economists...

[El Pinko]

They're right. It won't be as bad. It will be much, much worse.

They are fond of pointing out that US real estate was never as overvalued as Japanese real estate got.

That's debatable, since the insane prices were mostly only in Osaka and Tokyo. The US housing bubble encompassed most of California, Florida, DC Metro, Phoenix, Las Vegas, and to a lesser degree Seattle, Boston and even a few burgs in Idaho and Montana. And there was a little bit of bubble just about everywhere, translating into trillions in imaginary, speculation-produced "equity" which has now evaporated.

Why will it be worse in the US? Japan's bubble was a direct result of it's habit of SAVING money. After 2 prosperous decades, the Japanese middle class had built up sizeable nest eggs and were look for good places to invest them, so they looked to land, both in Japan and in the US.

Where did the capital for OUR real estate bubble come from? US savers? HA. It came from...yup - savers in Japan and new asian tiger China! Americans borrowed their money and bought houses they couldn't afford, or took out equity loans to buy plasma screens they didn't need, and when the air came out of it, the Asian investors were left empty-handed by American profligates.

When Japan's bubble deflated in the early 90s, Japanese banks were left with a lot of bad debt which they took FOREVER to get off their books, making it an unusually long recession.

But Japanese consumers still kept saving. And unlike America, Japan didn't do its damndest to offshore all of its manufacturing to the third world, so that even today, it still has a substantial manufacturing base, and a much broader middle class than the US, whose society is quickly being sorted into rich and poor only. Japan still has one of the largest public account surpluses in the world while the US has by far the largest current account deficit. (in other words, Japan continues to add real capital to its economy while the US continues to add nothing but debt)

Most Japanese have some savings to fall back on. The US savings rate is less than zero.


So here's why I think it will be so much worse in the US. Foreign savers' trust in the US as a place to invest will be so shaken by this debacle that their capital will not be coming back to American businesses for decades, if ever. Wealthy Americans have some capital, but most of it is probably already invested. And if there is anything left of the middle class in a couple of years, they will be just trying to stay afloat and will be in no position to invest in anything anymore. And the lower 40% have been barely hanging on for decades now.

I don't know if I stated this very coherently at all, but it just seems to me that there is nobody left to bail us out. It seems that when this is done, we'll be pretty much a third world country - basically another Mexico, with walled rich enclaves surrounded by sprawling slums.

But at some point our dollar will be so worthless and people so desperate, that foreign capital will start to come back in. And it will be the Japanese and the Chinese looking to us to provide THEM with cheap manufacturing labor.

Let's just hope that our future foreign overlords are kind enough to pay us in cash and not scrip for the "company store".

[Birthmark]

1. Now, are these the economists...

...who are consistently surprised? who said there wasn't a housing bubble? that there was only a 50-50 chance (or less) of a recession? Or is this a group of economists that knows what they're doing?

It doesn't sound like they know what they are talking about to me.

[hatrack]

2. The same economists who said there was no mortgage crisis . . .

And who then said that there might be a crisis, but confined to subprime . . .

And then they allowed that there might be a few problems spreading from subprime to alt-A, but really, nothing to worry about . . .

And then they said that there might be a slight increase in foreclosures and delinquencies, but that it would be confined to subprime and alt-A, with a little spillover to prime mortgages . . .

And the banks were all well-capitalized, and everyone had plenty of money, and the sun rose over dew-kissed meadows as happy bunnies and squirrels frolicked through the shining Morning In Permanently Prosperous America.

:puke:

[nashville_brook]

6. the bunnies and squirrels will still frolic while we clean up our new Great Depression...

they will still find plenty to eat and places to live. we won't fare as well.

[KharmaTrain]

3. Now How Many Homeowners Have Second Mortgages...

Remember that rage? Refi your house a second time for cash and get the money now while the getting was good. Houses that shot up from 100k to 250k sure were delicious targets as were the people inside who were promised that house values would always go up and here's a chance to cash in on the boom. Many of these were the first to get calls when the deck of cards began to collapse and is the next wave of foreclosures and default on the way.

I doubt Japan also had credit card debt anywhere near what we see in this country...a silent financial servitude millions are caught in...people who had protections stripped away a couple years ago in the bankrupcy bill that is the root of the sub-prime mess. It removed the last of the vapid regulation and now the same banks want their buddies in the beltway to save their asses.

Someone asked why should the government bail out the banks before the consumers/homeowners. Damn good question that can be debated around. It can be said that by propping up the banks it will keep the market from sliding much further thus retaining what equity people have left...but that theory only works if its followed by some regulation and/or consumer protection/relief that forces the banks to share the protection as much as they share the indenmnity. Freezes on certain types of interest rates, putting homes and other critical assets at the back of the line in a foreclosure/bankruptcy and then let the market find its bottom...it will anyway...better the sooner than the later.

Most important...this country needs to stop squandering billions each day in a war for profit that has destroyed this economy...and remove from power those who support and enable the profiteers.

[aquart]

4. I expect that economists are favored if they say the "right" things

Just as housing appraisers were favored if THEY gave the "right" appraisal.

But how a national economy that MANUFACTURES NOTHING IT NEEDS can recover is beyond me. I have yet to hear one word of a jobs program, or any stimulus to AMERICAN MANUFACTURING ON AMERICAN MAINLAND SOIL.

[nashville_brook]

5. you stated this wonderfully, and i think you're correct in your comparison

when the history books are written, the honest ones will note that our economic downfall was due to willfully offshoring our *production base" whether manufacturing or programming or call centers. there's no WORK left for americans. we're all supposed to be living off of "dead capital" from "investments" (read: bubbles).

what really offends me about this is that it goes against human nature. people naturally need to be productive. we need to make things, sell things, and build things. we crave innovation -- there's tons of "little guy" shops that are trying to get their creative ideas to market, but can't get traction in a marketplace dominated by corporate giants.

this further offends me because it's not The People who decided that they didn't want to work anymore -- it was the corporations using their power to change the rules of the game to take their production elsewhere.

it's my hope that this bottoming out provides the opportunity for real people to come back into the equation and participate as producers again.

[El Pinko]

7. A snapshot of Americans' savings rate...

[marmar]

8. Reminds me of the Go West song "King of Wishful Thinking".....

.... Mainstream economists are a deluded lot, aren't they?