Evening Edition

Calculated Risk - the place to be if you are interested in real estate - has a nice piece, with nice charts, on the National Association of Home Builders' (NAHBs') confidence index remaining at a record low for a second month in a row. Basically means builders are a depressed lot right now. I have a couple of neighbors who are in the trade and can confirm this is the sentiment. Then again, not too many people running around in smiles these days, builders or not.

As you read the piece you will see various records (all bad) are being set. There is a silver lining. Builders continue to build less homes than are being sold so the new home inventory is going down and has been for months. The bad news is that they are building less and less each quarter as sales continue to decline. It is hard to compete with bank fire sales. Why buy a new home when you can get a foreclosure for a fraction of the price.

http://www.calculatedriskblog.com/2008/12/nahb-index-stays-at-record-low.html

Ashes to Ashes, Debt to Dust

The following from Sudden Debt supports the prospect of just letting debt take the big dive and go belly up - in as orderly a fashion as possible. If I am reading it correctly, he wants us to stand back a bit, stop propping up the financial markets and let some fail. After Lehman, that is not going to happen, but it may be closer to the answer than what we are doing.

Personally, I believe they need to pick their companies wisely but the Fed or the FDIC or someone needs to pick the worst of the lot and take them down. Letting Lehman fall was perhaps the right idea with the wrong company, though it was not done in an orderly fashion no matter what the company. Nationalizing some of the financial institutions and doing an orderly liquidation is not the worst thing. Better than promoting mergers and letting these messes grow into ever larger problems that get too large to be saved. Again, the knock-on effect to the CDS market and otherwise needs to be considered. Those damn CDSs complicate everything, pardon the French.

Now the current administration is against nationalizing anything. Bush said so. That is, other than Freddie, Fannie and AIG. But hard times require some hard solutions. I am not saying to nationalize everything and keep it that way. I am saying that until we can restore some order to this chaos, we may need to do some things that in normal times would rub our free capitalistic society the wrong way generally. Just Get-R-Done and get on with it. We are spending too much time and money propping up failed institutions. There are, however, some institutions, like the Big Three, that may still be worth saving. Just too many jobs to lose at the moment. Some day it may be the right time to go to the Big Two or even the Big One, but right now this country cannot afford that level of job loss if it can be avoided at acceptable cost, and so far the cost for the Big Three is much more reasonable than our support for banks that are thumbing their noses at us. (Did I mention the money to the financial institutions really has me a tad upset).

http://suddendebt.blogspot.com/2008/12/zeroeing-in-on-deflation.html

Debt Shifting

From what I have read, despite our massive government spending spree we are not in too bad of shape deficit wise in relation to GDP. Certainly better than some other countries. So here is an idea, take a couple trillion dollars by issuing U.S. debt (Treasuries are flying off the shelf despite pretty much 0% interest) and give it to the people. That is thousands for every man, woman and child in the country. This is not so they spend it. This is so they pay off debt and save. They are going to do this anyway, so let's shift a good portion of the consumer debt to the U.S., so long as we can afford it, and help the consumer get on with it. Again, not spending excessively, just getting by and paying the bills.

Now Obama's plan to do infrastructure spending is a plan that I like as well. Gets money to the people, provides jobs, part of it goes back to the government in taxes, reduces unemployment payments that are a burden, and achieves something we need to achieve anyway - infrastructure improvements.

Either way we are talking about trickle-up economics. This may fly in the face of what some economists think, but in a society that is over two thirds based on consumer spending, the top cannot survive without the bottom being able to spend. I guess the guys making tens of millions in bonuses never quite got that picture, i.e. that their pay checks were dependent on the pay checks of those down the line. Bottom line, this recovery likely needs to start from the bottom line.

Go For It!!!!!!!!!!

According to a California law firm (what do they know) credit lines from credit companies could be reduced by nearly a trillion dollars if regulatory reform of the credit card industry takes place. Now this reform is largely about restricting what these companies can do to milk (I mean charge) their customers. And these folks want the milking machines on high during these distressed times. The higher the rates they can charge, the better they can fill voids left by customers who do not pay. The fact that they can no longer rape, I mean charge, their customers some very high rates and late charges is disturbing to them to say the least. So they warn of doom and gloom to card holders with nearly a trillion in cut credit lines.

Let's be real people, these companies are cutting lines left and right anyway and they are looking for a good government oriented excuse to do so. Either way, less credit from credit card companies is a very promising move in the right direction. I feel for those living off their credit cards (I am related to some of them) but the end is near any way you look at it if this is your lifestyle. Better to end the spending before you rack up big credit card debt. Yes, paying the mortgage with a credit card is NOT a good idea. Just kicking the can down the road and making it bigger.

Any hoot, anything that gets credit card companies to reduce available credit (debt for the card holders) is at the end of the day a good thing in my book. We need to hunker down, stop using debt of any form, pay off existing debt and start saving. I say this daily but it does not seem to be sinking in yet. It is a new world, so get used to it!

Seriously, this is going to be a new world order. This is going to be something very different. For perhaps the next decade, get used to the new order. It seems depressing and difficult, but the reality is that we are returning to reality. We were in a land of make believe for far too long. We just need to adapt to the new order, the new reality, the real reality. Think about it - living within our means. What a concept.

The problem is that our "means" have been stagnant or even going down for a long time. So we are facing the double whammy; living within means and paying off all the debt from when we didn't. I proposed earlier that the government help us with the past debt overload, so long as we spend it on debt payoff and not more reckless spending. Go figure, the government wants to give us more money to spend on reckless spending. Fools in my opinion.

Disclosure: None