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Housing bubble smack-down
Mike Whitney, Online Opinion
Give me five minutes and I’ll convince you that you should sell your house immediately and invest your life-savings in gold or a Swiss bank account.
Okay?
For some time now we’ve been hearing about the so-called housing bubble and what effect it could have on your net worth and future. Well, the numbers are finally in and you can decide for yourself whether its time to sell now or try to ride out the storm.
In 2000, the total value of homes in the US was $11.4 trillion. Today, that number has shot up to $20.3 trillion; nearly double.
At the same time, mortgage debt in 2000 was a trifling $4.8 trillion (about half) while in 2006 it skyrocketed to a whopping $9.3 trillion.
So, how do we explain these enormous increases in value? After all, wasn’t the housing boom just the natural outcome of “supply and demand?”
No it wasn’t. That’s an unfortunate myth that should be interred with the withered remains of Milton “free-market” Friedman.
If we really want to know what’s going on, we need to look back at the machinations at the Federal Reserve in 2001, that’s when Greenspan lowered interest rates to 1.5 percent to soften the blow from the stock market meltdown. Rather than tighten interest rates and let the country go through a period of recession, Greenspan lowered rates and ramped up the printing presses to full throttle.
Voila; the housing bubble! Or what the conservative “Economist” magazine calls “the largest equity bubble” in history.
(21 Nov 2006)
The Dark Side of the Looking Glass (online presentation)
Patrick Byrne, CEO of Overstock.com, Business Jive
Patrick Byrne, CEO of Overstock.com, wrote and narrated this presentation in order to give momentum to the market reform movement. It has now been downloaded nearly 250,000 times, and the pace of downloads is exploding.
Watch online or download a zipped version for offline viewing and redistribution.
(Nov 2006)
80 minute informative presentation. Byrne’s campaign against naked shortselling is controversial – read more at wikipedia.
Private equity – the purest capitalism
Stan Correy, Background Briefing
Andrew Sorkin: There is a new conglomerate, and the new conglomerate is private equity, because these big firms are joining up together and owning hundreds and hundreds of businesses all across main street and really kind of reshaping the way business is being conducted.
Stan Correy: This is how it works. A group of people pool their money, and go out looking for something to buy which will earn them lots more. Nothing wrong with that.
What’s new is that the group of people may not be pooling their own money. They have some, but they borrow the rest. In the financial media, you’ll hear these deals called LBOs, ‘Leveraged Buy-Outs’. It’s the technical jargon for borrowing billions.
These buy-out firms then find a likely looking company, buy it, and when the value goes up, they sell out at a nice profit. Nothing wrong with that either, in theory.
Until it all becomes too big, too fast, too secret, the fees too greedy. The loans involved can be gigantic, as large as some nations’ deficits. They’re different from the publicly listed companies in that they don’t have to give out very much information about their activities, and thereby hangs a tale as you’ll hear a little later. The fact is, there’s a global game of pass-the-debt-parcel that has the debtors, investors, and regulators spinning.
The pace of private equity investments is furious right now, and predictably, the sceptics in the markets say it can’t last. Early in November, the UK government regulator, the FSA, put out an important report warning people to take care.
(19 Nov 2006)
Excellent hour long show, available as mp3 audio or transcript. -AF
The biggest bubble of all – derivatives Trading Soars to $370 Trillion
Alan Hershey, India Daily
An interesting data came out from the Bank for International Settlements. The global market for derivatives soared to a record $370 trillion in the first half of 2006. It is the highest ever and the bubble is bigger than any one can imagine.
The kind of euphoria in derivative trading has never been seen before. The amount of outstanding credit-default swaps contracts jumped by 60% at the end of last year. This year the rise is even faster. It is a typical pyramiding technique. Money is creating false concept of money and that in turn is creating ever lager conceptual money. When the tide blow off and balloon bursts, the catastrophe will be unimaginable. The 1929 debacle and resulting depression will be miniscule to what is coming.
(17 Nov 2006)
The Return of M3
The Big Picture
Last year, we lamented the passing of M3 reporting. This broadest of money supply measures had shown a discomforting increase in liquidity, far greater than what M2 was revealing.
At the time of the M3 announcement, we suspected the Fed was attempting to cover their tracks, disguising an ongoing increase in money supply and an unstated “easing” in Fed bias. Since that time, we have learned: the Treasury Department was also adding liquidity — a duty they have assumed, in part, in addition to the same performed by the Fed. Indeed, based on the credit growth data Doug Noland published last month (October Credit Review), it appears that the Fed has – despite increasing interest rates – actually eased over the last two years.
In light of all this excess cash sloshing around, we wondered what M3 might look like if it were still being reported.
Wonder no more: We have located 2 separate sources for the reporting of M3. The first is Nowandfutures.com. As this article discusses, recreating M3 from publicly available data was relatively easy to do (to 5 nines accuracy).
As the chart below shows, M3 is alive and well and growing significantly.
(21 Nov 2006)
