Good ol' Katrina
economists be damned!
i am sure we have all heard the experts talking about the housing bubble and how it may or may not occur. Mr. Greenspan is the only one really talking about it as a true future occurance while the others are trying to talk it down so as to continue sucking money out of the machine.
well, i am here to talk a little about it. let's begin by what discussing what has been and is currently going on in the economy in general and the housing market in particular. we will begin with a little background.
First, the economical definition of inflation is "too many dollars chasing too few goods." Second, all inflation is caused by government programs. This isnt taught in school. But here is why that is true. think about what you know about government programs and how people respond to them. think about how most people see any government program or government dollar as "free money." this is how inflation is caused. if you are a business owner who sells widgets and the market rate is $4.00 per widget and your cost per widget is $2.40, you profit $1.60 per widget. all of a sudden you have a major purchaser who is willing to pay $12.00 per widget indiscrimately and indefinately, you will redirect, reduce, limit and/or eliminate all sales to any other purchaser to just this major purchaser. in turn, in order to get any widget from you, every other purchaser must now make it worth your time; in other words, they have to pay you at least $12.00 per widget-the same amount as the major purchaser. this is inflation to every other person in the chain and his/her subsequent downline. so hopefully this is a clear illustration for you to see how government programs cause inflation. (this is very similar to the Wal-mart effect and we will discuss the differences in a later posting.)
what has been happening in the housing market is available dollars. unless a person has absolutely terrible credit and no source of income, mortgages have been created to match just about every situation. so the money has been made available. and with the available money, demand has been up. and with the demand being up and the three componets of commerce existing (need, willingness and capacity to pay), housing prices have been skyrocketing.
only now have people began to realize that their mortgages are straining their budgets. and with outstanding debt, rising daily expenses (utilities, day care, etc) and stagnate (or in some cases, falling) incomes, most citizens (i hate the word CONSUMERS) are recognizing their difficult financial plights.
the mortgages that people are purchasing are funding the building spree across the country. and those purchasing existing homes are paying top dollar for homes that need updated. in both cases, they are funding the home item purchases from home depot, lowes, bed bath and beyond and the like.
california is ripe for the soon coming real estate devastation. follow this scenario....
a person purchases a 1000 sq ft home in california for $240,000 and carries a monthly mortgage of $2,400. this includes taxes and insurance. an additional payment of $132 is made monthly for the pmi. this is a monthly home expense of $2,532 or an fixed annual payment of $30,384. wow. if the lender's calculations are correct and living expenses accounts for 30% of a household's gross income, then that household grosses $91,152. by the way, after a collective tax rate of 40%, that net income is $54,691. subtract the living expenses of $30,384 and the household net income is $24,307. this is only$2,025. and this monthly amount must pay for debt, gasoline, day care, food, dining out, clothing, utilities, leisure and everything else. as i am sure you gather, this monthly amount to live on is nearly impossible. hey, the assumed income is nearly impossible!
now that the stage is set, anyone can see the pending doom. one can use any catalyst to begin the fall; increasing debt load, stagnate income, loss of job, increased medical expenses, increased property taxes, increased purchases. only by selling the house at a profit can one wash this away. and if the house IS sold, it must be considered that someone else has PURCHASED it. and can one assume the new owner is better off than the previous owner?
all one needs to begin the fall of the masses is to consider what IS and has the possibility of happening such as increased fuel costs, increased taxes, increased unemployment and the like. and as soon as it happens in a major state, it will snowball to the rest of the country. and as soon as any decrease in come and increase in expenses begins, imagine the first thing to go will be leisure spending (dining out, movies, theater, sport venues, music venues). as a result, leisure jobs will be eliminated. what follows is major spending such as appliances and entertainment equipment will decrease. layoffs from those producing industries occur. fear will cause a slowdown in housing purchases and debt accumulation (debt based spending as the usual mall runs are). more income will go to local taxes and utilities as they raise their rates to make up for the decrease in spending based taxes.
where does katrina fit into california? with the devastation of louisana, the production has been ceased. the economy of that area has taken a critcal blow and must transfer (remove) resources from other areas to be rebuilt and revived. so the builders and resources will cease activity from the profitable california and other hot real estate areas to the super profitable louisana area. profitable to superprofitable? let's say every builder in california made a profit of $14 per square foot because that is what the market could bear. all of a sudden federal funding allowed the builder to increase his profit (for just barely over his current effort, i.e. logistics, regulations, manpower, other associated costs) to $44 per square foot. now california and las vegas have a decrease in available builders to meet the demand. thus the remaining builders can (and probably will) increase prices due to the decrease in competition. also, the remaining builders have increased costs because the necessary resources are being demanded by the louisiana area. so instead of prices falling or even staying the same, prices have increased in the regions where demand has fallen. oops...
louisana will experience an increased economy. money for its rebuilding will be transferred from the government and insurance companies to the builders while the people who lost their jobs, livelihoods and homes have not been fully restituted. the average home insurance policy does not cover flood or water damage and even if the government creates a program to pay those affected, it will have to be created, developed, implemented and activated all of which takes time. until those affected receive their funds (which may or may not happen), they still have financial obligations and no place to live.
overall, it is all about money. count on the building other associated industries to exploit the situation and drain all the money from the people and government they can. this will increase inflation, prep the housing bubble and further exaberate the fuel crisis.
like dave chappelle told carson daly when dave had the future cam, "hey dude, save your money."
i am sure we have all heard the experts talking about the housing bubble and how it may or may not occur. Mr. Greenspan is the only one really talking about it as a true future occurance while the others are trying to talk it down so as to continue sucking money out of the machine.
well, i am here to talk a little about it. let's begin by what discussing what has been and is currently going on in the economy in general and the housing market in particular. we will begin with a little background.
First, the economical definition of inflation is "too many dollars chasing too few goods." Second, all inflation is caused by government programs. This isnt taught in school. But here is why that is true. think about what you know about government programs and how people respond to them. think about how most people see any government program or government dollar as "free money." this is how inflation is caused. if you are a business owner who sells widgets and the market rate is $4.00 per widget and your cost per widget is $2.40, you profit $1.60 per widget. all of a sudden you have a major purchaser who is willing to pay $12.00 per widget indiscrimately and indefinately, you will redirect, reduce, limit and/or eliminate all sales to any other purchaser to just this major purchaser. in turn, in order to get any widget from you, every other purchaser must now make it worth your time; in other words, they have to pay you at least $12.00 per widget-the same amount as the major purchaser. this is inflation to every other person in the chain and his/her subsequent downline. so hopefully this is a clear illustration for you to see how government programs cause inflation. (this is very similar to the Wal-mart effect and we will discuss the differences in a later posting.)
what has been happening in the housing market is available dollars. unless a person has absolutely terrible credit and no source of income, mortgages have been created to match just about every situation. so the money has been made available. and with the available money, demand has been up. and with the demand being up and the three componets of commerce existing (need, willingness and capacity to pay), housing prices have been skyrocketing.
only now have people began to realize that their mortgages are straining their budgets. and with outstanding debt, rising daily expenses (utilities, day care, etc) and stagnate (or in some cases, falling) incomes, most citizens (i hate the word CONSUMERS) are recognizing their difficult financial plights.
the mortgages that people are purchasing are funding the building spree across the country. and those purchasing existing homes are paying top dollar for homes that need updated. in both cases, they are funding the home item purchases from home depot, lowes, bed bath and beyond and the like.
california is ripe for the soon coming real estate devastation. follow this scenario....
a person purchases a 1000 sq ft home in california for $240,000 and carries a monthly mortgage of $2,400. this includes taxes and insurance. an additional payment of $132 is made monthly for the pmi. this is a monthly home expense of $2,532 or an fixed annual payment of $30,384. wow. if the lender's calculations are correct and living expenses accounts for 30% of a household's gross income, then that household grosses $91,152. by the way, after a collective tax rate of 40%, that net income is $54,691. subtract the living expenses of $30,384 and the household net income is $24,307. this is only$2,025. and this monthly amount must pay for debt, gasoline, day care, food, dining out, clothing, utilities, leisure and everything else. as i am sure you gather, this monthly amount to live on is nearly impossible. hey, the assumed income is nearly impossible!
now that the stage is set, anyone can see the pending doom. one can use any catalyst to begin the fall; increasing debt load, stagnate income, loss of job, increased medical expenses, increased property taxes, increased purchases. only by selling the house at a profit can one wash this away. and if the house IS sold, it must be considered that someone else has PURCHASED it. and can one assume the new owner is better off than the previous owner?
all one needs to begin the fall of the masses is to consider what IS and has the possibility of happening such as increased fuel costs, increased taxes, increased unemployment and the like. and as soon as it happens in a major state, it will snowball to the rest of the country. and as soon as any decrease in come and increase in expenses begins, imagine the first thing to go will be leisure spending (dining out, movies, theater, sport venues, music venues). as a result, leisure jobs will be eliminated. what follows is major spending such as appliances and entertainment equipment will decrease. layoffs from those producing industries occur. fear will cause a slowdown in housing purchases and debt accumulation (debt based spending as the usual mall runs are). more income will go to local taxes and utilities as they raise their rates to make up for the decrease in spending based taxes.
where does katrina fit into california? with the devastation of louisana, the production has been ceased. the economy of that area has taken a critcal blow and must transfer (remove) resources from other areas to be rebuilt and revived. so the builders and resources will cease activity from the profitable california and other hot real estate areas to the super profitable louisana area. profitable to superprofitable? let's say every builder in california made a profit of $14 per square foot because that is what the market could bear. all of a sudden federal funding allowed the builder to increase his profit (for just barely over his current effort, i.e. logistics, regulations, manpower, other associated costs) to $44 per square foot. now california and las vegas have a decrease in available builders to meet the demand. thus the remaining builders can (and probably will) increase prices due to the decrease in competition. also, the remaining builders have increased costs because the necessary resources are being demanded by the louisiana area. so instead of prices falling or even staying the same, prices have increased in the regions where demand has fallen. oops...
louisana will experience an increased economy. money for its rebuilding will be transferred from the government and insurance companies to the builders while the people who lost their jobs, livelihoods and homes have not been fully restituted. the average home insurance policy does not cover flood or water damage and even if the government creates a program to pay those affected, it will have to be created, developed, implemented and activated all of which takes time. until those affected receive their funds (which may or may not happen), they still have financial obligations and no place to live.
overall, it is all about money. count on the building other associated industries to exploit the situation and drain all the money from the people and government they can. this will increase inflation, prep the housing bubble and further exaberate the fuel crisis.
like dave chappelle told carson daly when dave had the future cam, "hey dude, save your money."
posted by MrIWright at 10:57
1 Comments:
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