The pundits can't seem to decide which it's going to be. Can you? Will commercial real estate collapse and bring banks back to the brink of insolvency (like they're not there already)? Sure would be a shame if those tasteless strip malls were abruptly abandoned. I'm gonna miss the Applebee's, A&W/KFC, Office Depot, Best Buy, Petsmart, Bed, Bath & Beyond, Verizon lineup. Where else can I get several shitty meals, buy gold fish and a toaster oven and get new cellular service all in one stop?
Will consumer debt (primarily credit card debt) put the final nail in the coffin? At $14 trillion and counting, it seems highly unlikely that US consumers will miraculously summon up the equivalent of the nation's entire economic output and settle their debts. Most Americans are struggling to meet minimum payments on the approximately $10,000 credit card debt averaged by each family. Ours is a nation of deadbeats and this mess shows no sign of abating soon. I can guarantee that within two years (probably less) the government will announce a credit card debtor bailout.
Many seem to think a new wave of Alt-A resets will really seal the deal and slam the lid shut on the cookie jar. Ironically, I'm still thinking that "worked out" foreclosures may be the next leg down.
New in this report are re-default rates on modified loans. The number of loans modified in the first quarter that were 30 or more days delinquent was 37 percent after three months and 55 percent after six months. The number of loans modified in the first quarter that were 60 or more days delinquent was 19 percent at three months and nearly 37 percent after six months.
“One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months,” said Comptroller of the Currency John C. Dugan. “This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable.”
Either way you slice it, we're in deep shit. The only solution to this rapidly expanding conundrum is reinflation of the housing bubble, which is precisely what got us into this mess in the first place. The problem confronting Uncle Sam is complicated: not only must foreclosures be halted, but home values must rebound to 2007 levels lest homeowners continue walking away from underwater debt. Who the hell will continue sinking money into a home that is not gaining in value, and possibly, depreciating? Watching the Obama administration devise new and clever ways of artificially inflating home values and stemming the tide of unemployment while the value of the dollar erodes and inflation begins chipping away at ever stagnating wages will be good for a few chuckles though. Oh, and that's if they don't prick the bond bubble first and send the global economy into the dark ages.
How is it possible that Americans have managed to fuck up nearly every sector of the economy? I'm hard pressed to think of one area that could be called healthy. To blame this on a credit crunch would be foolhardy. If companies (as well as individuals) are so reliant on credit that day to day operations are severely impeded, then one must call into question the soundness of their business practices. No, seems to me that all this is a systemic problem bourne out of avarice and pride. A cursory run down of the major economic sectors doesn't turn up much to be hopeful for.
Automotive industry? Life support; get the paddles and set at maximum
Financial sector? Practically insolvent; one major bank failure or Madoff incident away from total collapse
Construction? DOA - will not be resuscitated for another 3-4 years
Retail? Bankruptcies galore to follow bleak holiday sales
Tech? Breathing is labored and shallow but perhaps salvageable
Pharma? Weathering the storm but latest drugs will soon begin killing people as understaffed and underfunded FDA looks the other way.....then look out below!
Nope! Not one healthy, thriving sector to mention.
I am Mr.RICHARDS COLE
Posted by: richards cole | 01/10/2009 at 08:02 AM