Worse Case Scenario for US

[HoldAndBuy]

http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it

[sellnbama]

Yeah.I think that's worst case.I sure hope its all wrong.But if there is'nt some real changes with our govt. the timeline may not be acurate but I could see alot of that coming.I say cleanout congress 2010 and get rid of the socialist 2012(hopefully impeached sooner).And for god's sake people do some background checks on who you vote for!Not just two books you wrote about yourself!!!!!!!!!!!!!!!! 

[fdjake]

Propertymanager's going to love that article.

[propertymanager]

Yes, I agree with that article 100%.  We're past the point of no-return.  Obviously, the article only covered a small number of the reasons that a collapse is a certainty.  However, even without listing the majority of the reasons for a collapse, the conclusion is accurate.

Mike

[PositiveOutlook]

One thngs' for sure... it doesn't paint a pretty picture... 

[Vader]

I really feel that the US economy is on very shaky ground. Some of those scenarios might come to pass, or might not. The scary thing is that it is ALL PROBABLE, not impossible like most people believed a few years ago. Countries around the world have faith that the US has the most stable government and would be the least likely to fail, hence all the investments we're able to get.

People preached that the titanic was unsinkable and we know how that turned out... Bottom line is, if there is negligence at the helm(aka politicians making horrible decisions) any great economic system can decay and collapse. We'll all have to wait and see how this all shakes out. If some of the key dominoes start to fall, a collapse of the economic system would be inevitable and VERY UGLY to say the least.

[HoldAndBuy]

I thought people here would like that article 

The author makes a very good point about corruption that I hadn't thought much about. If it becomes the norm for police here to take bribes we're in deep doodoo.

[fdjake]

That's a scary article....My guess is we may see SOME of those things...But NO WAY ON EARTH... ALL of them.

Let's look at some FACTS here......These numbers are provided by the U.S Census Bureau and by Goldman Sacs.

There are approximately 109.6 million single family housing units in the U.S.A......  Out of that number approx. 75 milllion are owner occupied.
Out of that 75 million OVER 25,000,000 (that's 25 MILLION!!!) have NO MORTGAGES AT ALL!!!
Out of the remaining 50 milllion,  projections indicate that 10% of that 50 million will enter foreclosure TOTAL before this is over....That's means 5 million homes nationwide.  So far....that number is actually running at 5% or 2.5 million homes to date.

So there it is.........Out of 109 MILLION homes 2.5% (possibly going to 5%, out of 109 Mill total) are either IN foreclosure or are will enter foreclosure.

That leaves the following....

25 MILLION HOUSEHOLDS.........NOT Americans......Households......with NO MORTGAGE of any type.   Maybe those are the people WAITING to get into restaurants on Fridays and Saturdays in my area. Or maybe those folks are the people that have my friend (a REALTOR) in FLORIDA running around like CRAZY SELLING PROPERTY!!!!   OH yea......It's ALREADY started down there....Some of those 25,000,000 peole with NO MORTGAGES are scooping up WATER FRONT HOMES in Florida for 30 CENTS on the dollar!!!

50 million households that STILL have mortgages.....10% of those might go into foreclosure.  Now the question becomes out of 50 million houses, how many were purchased LONG BEFORE this BOOM.  I can tell you from MY neighborhood.........EVERY SINGLE HOME was purchased PRIOR to 1999....(I'm the new guy, but I'm one of the 25 million with NO MORTGAGE)

This recession has done NOTHING to my neighbors...Sure they're scared and have PULLED back on their spending and THAT is what we're seeing in the RETAIL NUMBERS, CAR SALES, ect......But I still see the landscapers are still out there every week.  They're still going to Florida in the winter.  My neighbor just had ALL the windows in his house replaced.  Talked to the contractor doing it, he said his phone is ringing again and he's backed up for 1 month!!!  I asked him HOW that could be?????   His answer was simple.......Lower MORTGAGE RATES....It's actually INCREASING families monthly income as they refi to LOWER FIXED rates and spend that extra income. (We ARE talking about AMERICANS HERE!)  Out of that 50 million homes MILLIONS have mortgages that are TINY compared to the value of the homes.

So there are BIG, BIG pockets,  MILLIONS of people, who have not been REALLY hurt by this recession at all.  I'm not talking about RICH people, I'm talking about a family that purchased their home in PRIOR to 2002.  Those folks got in BEFORE thngs went nuts and are STILL sitting on a PILE of equity....AND......They couldn't RENT a home for what their mortgage is!!!   Sure, MILLIONS of them acted like dopes and pulled that equity out during the BOOM.......But MILLIONS and MILLIONS never did.   The TRUTH is in the numbers.....If you pulled ALL the equity out of your home during the BOOM....YOU HAVE NO HOME NOW.....It's been FORECLOSED ON........Those foreclosures are part of the data provided above.

The bottom line is simple.........WATCH THOSE JOBLESS CLAIMS....
Those numbers are the KEY to what's going to happen over the next few years.  IF those numbers stabilize or start FALLING.... people who have been UNAFFECTED by the recession may feel that the worst may be over......The CONSUMER WILL COME BACK!!  When the consumer comes BACK so will the JOBS!!

People are SCARED......They're worried about the future.....There's NO BETTER example than that ARTICLE......The guy who wrote that must be crouched in the corner of a darkened BOMB SHELTER shaking like a leaf.
OR??????    Maybe he had an IDEA!!!!!

That ARTICLE got a LOT of peole talking!!!!!

GEE.......I wonder if that could be of some BENEFIT to the.... WRITER????

Folks........there ALWAYS people out there SELLING what the MASSES want to BUY.....Right now theres a HUGE DEMAND for this stuff....

Want proof???

LOOK AT GUN SALES!!!!!   OFF THE CHARTS!!!  PEOPLE ARE SCARED!!!

Want to know an interesting part of this???

World changing events people PLAN FOR.........almost NEVER occur!!!   Think about that.....If PEOPLE are so great at predicting the FUTURE....WHY DIDN'T they SEE this whole MESS coming years ago and BUY THEIR GUNS THEN???
At HALF PRICE????  How many people built ATOMIC BOMB shelters in their yards in the 1950's????   They turned out to be GREAT STORAGE SHEDS!!!!

No......people are people....THAT'S the BEAUTY of this.....The ONE single thing you can ALWAYS count on is............THE OVER REACTION OF THE SPECIES!!!!   The MAJORITY will buy GUNS......While the MINORITY buy BEACH FRONT FLORIDA HOMES for 30 cents on the DOLLAR!!!

Then GUESS what happens????   Just GUESS???

All the people who purchased their GUNS now,  at BOOM PRICING (because of DEMAND)  Those folks will end up SELLING ALL THOSE GUNS a few years from now (at 30 CENTS ON THE DOLLAR)  because things are "BETTER NOW" and they'll be buying BEACH FRONT FLORIDA HOMES for an "INVESTMENT." 

IT AIN'T ROCKET SCIENCE FOLKS!!!!! 

Some people just want you to THINK it is!!!!!

NOTHING EVER CHANGES BECAUSE PEOPLE NEVER CHANGE!!!


UPDATE....UPDATE.....UPDATE

JOBLESS CLAIMS.......DOWN.....30,000 from previous month Dow futures UP 76.

FORD UP......$6.41 premarket

[phlemboy]

Nice post FDJake, However, I think the people who were smart enough not to tap the equity in their homes should be smart enough to have a pile of CASH to spend instead of going into debt. In my experience, these people do just that. My inlaws are perfect examples. They have no debt and pay cash for everything. Even though they're sitting on a pile of cash, they have also cut back on spending during this economy. I suppose its hard to break habits. But those habits are the reason for their pile of cash.

[fdjake]

I agree with you 100%.....That's exactly what I was trying to say.

There are MILLIONS of people in this Country that DO NOT have mortgages and DID NOT pull all the equity out of their homes.  These people are SCARED.  These people also STILL have JOBS, they have money in the bank.  Once they STOP being scared.......They'll start BUYING again.  I don't mean the STUPID buying we saw during the boom I mean just NORMAL consumer buying.

This is how things ALWAYS happen......You get a boom where people spend like there's no tomorrow.....then you get the correct....People STOP spending and SAVE......This very event FUELS the recovery.

People are getting their finances in order.....At least to some degree.
That's a VERY GOOD thing.

[phlemboy]

I also think that a real increase in spending depends on credit markets. Consumers need that credit to spend because most can't pay cash for their purchases. When the credit markets thaw, the savings rate will freeze up again. The majority of savers will become borrow & spenders. There may be some that learned their lesson, but people are just looking for a reason to go back spending like drunken' sailors! . Unfortunatley, our economy is highly dependent on these drunken sailors to fall off the wagon.

[Bluemoon06]

The problem with America is that we are like a guy that jumps out of a 20 story building.  He hasn’t hit the ground yet but he is dead already.  We jumped in the 1990s.  The USA is like any other entity.  If it doesn’t earn money it is eventually going to fail.  We decided that we were going to be a “service economy” back in the 1990s.  That means that we don’t make anything.  We were just so big that it took a while for the momentum we gathered from the industrial revolution to wind down.  When we embraced globalism and send manufacturing to the lowest cost country we signed our own death warrant.  Being a service economy is like you and me deciding that we are going to quit our job and your son gets his money by cutting your lawn you pay him for that, and you get your money by washing your car and your wife pays you for that and your wife gets her money by cooking four you and your son and you pay her for that.  Eventually we will have to go outside of our own house to buy things (like GOODS) and we will eventually go broke.  We have a structural problem not a fiscal problem.

[christopher w]

I am on Jakes side of this argument. I just received an email from a friend in California (who I am trying to talk into buying a house instead of paying 2K a month in rent) and in the email was a link to a blog written about how now is a terrible time to buy in California because values have not hit bottom yet and even though rates are low right now it is better to pay a higher interest rate on a lower priced home than it is to pay a lower interest rate on a higher priced home. So I ran the numbers for him... on a 400K house at 4.5% it will cost you 16K more over 30 years than a 300K house at 5.5%. But when you break that down over 30 years that is $533 per year averaged which is not that big of a deal when you consider that you are paying $2000 a month in RENT for 12-24-36 months while you are waiting for the market to bottom out. That equates to 24k-48k-72k in rent that is paid out while you are waiting for the market to hit bottom and hoping that you are going to get a smoking deal.

I guess the question I have for all you "perma-bears" out there is... what do you suggest we do while we are waiting for the world to end? If all you out there are seriously convinced that we are all going to end up going to hell in a handbasket why are you continuing to go to work everyday? And why are you not out maxing out your credit cards? I mean you are never going to have to pay back the money because our financial system is going to implode long before those bills come in the mail?

Growing up I always used to hear this saying and I never fully realized what it really meant until recently.

AMERICA... Love it or leave it!!!

If it is really that bad here why are you all staying? Seriously.

[furnishedowner]

sellnbama,

If things were really going to get that bad, you all had better start passing around the purple Kool-Aide now!

Hey, this country has been through World Wars, Rationing, the Great Depression, the Flu of 1918, etc.

Most of us have enough clothes, shoes, dishes, linens and stuff in our houses that we don't even NEED to buy those things for several years. We all could cut WAY Back. We live like the rich used to live...us middle-class folks here eat out, go to movies, buy whatever trinket whenever we feel like it. WE AIN'T POOR!

Yes, the poor will get hit worst by an even larger economic slowdown  but most of us will just carry on like before. Personally, it might be nice if we were all digging in our necessary vegetable gardens and home-canning after work. We could sit on our front porches (open garages), greet our neighbors, and sip lemonade outside in the evenings, as the AC would be too expensive to run. But it would be lemonade, not Grape Kool-Aide that we'd be drinking. We're way too strong to go down without a fight.

Furnishedowner

[fdjake]

Chris mentioned something that truely amazes me about our society.

His friend NEVER ran the NUMBERS on his situation!! 

It took someone like Chris who KNEW the guy was making a mistake to step in, and show him with MATH, that he COULD buy the home he wanted and it would actually be PEANUTS when compared to the alternative.

It's always amazed me how people NEVER seem to just ADD UP THE NUMBERS!!

The other issue here just re-enforces Chris's advice to his friend to BUY instead of renting.

Could this guy buy a home and the prices CONTINUE to FALL???
ABSOLUTELY.........BUT.....the real question is.......DOES IT MATTER???

Let's llok at this........He buys a home now for $400K....California has had a MASSIVE price cut on homes already....Odds are the BULK of that decline is already in the bag......So......If that's the case.....What if he buys that house now and the market falls to $375K for that house?????
Unless he's going to SELL that house in the next year it will not matter to him.  He's IN the house.....He's paying a mortgage....NO ONE EVER gets in at the absolute bottom of anything.  But what's more likely to happen if he waits is......That $400K house start getting a lot of looks because mortgage rates are DIRT right now.  That house could easily see a bid come in at $410K or $420 next year....Then this guy is paralized......He CAN'T buy knowing he could have got the house for LESS last year........and the market just blows right past him.

My house is worth a LOT less than it was in 2006....It doesn't effect me in anyway.  It went UP, it went DOWN......I LIVE in it....I don't trade it weekly.

I with you Chris.....He should be buying.....right now.