Why Japan's nightmare is worrying the world

Scotsman ^ | BILL JAMIESON

[ApesForEvolution]

The value of a 1913 US Dollar in year 2000 was approximately 3 cents. Where did the other 97 cents go??

[patriciaruth]

One has to consider whether paying 2200 a month and banking 1800 might be wiser than committing to a 4000 a month mortgage. At least for a year or two, and then reassess.

Things are up in the air right now. Real estate may be a dom.com bubble.

[American in Israel]

The last warning bell to get out of debt folks, including the morgage. Heed it or suffer.

[patriciaruth]

Here's an interesting companion article. Seems the Japanese banks may be getting ready to bite the bullet and declare their losses.

Losses of Japanese Banks [may] Point to Reform

[SevenDaysInMay]

Our politicians will create some inflation because deflation stalls then ruins a national or world economy longer than a 4 year election cycle. That is what this tax reduction bill is about.

[Joe Hadenuf]

In America, the Federal Reserve is running out of ammunition to revive the US economy by way of interest rate cuts

Get ready, they are going to cut interest rates again......

[Joe Hadenuf]

Regarding real estate: Don't know about the rest of the country, but right now in Southern California we have a huge price inflation — some 20% or more over the past 12 months, with most of that coming in the last six months. Prices are breathtakingly, extraordinarily high, even for so-called starter homes. They are continuing to rise, with no end in sight according to real estate analysts. This is fine for people who already own property, but for someone like me — solidly in the middle of the middle class, with one income and a modest down-payment — who wants to buy a house, it's a dream-killer.

Interesting you brought that up. Who wants to buy a house here? Well I'll tell you for a fact, there are a hell of a lot of people that are doing just that, *if* they can find a home for sale. There is very little inventory for sale in Southern Cal. Very few are selling their homes. And the one's that do go on the market are being sold in a matter of days.

For instance, our neighbor put his home on the market two weeks ago, and it is now sold and in escrow! He told his realtor he didn't want a sign and it was only listed in mulitple listing. No sign! He had multiple offers, and took a full price offer! Remember, in Southern California, it's supple and demand too. Only so much prime land and nice homes to go around. There are many times more people that want to buy a nice home in a nice areas than there are homes available. Trust me. It's a buying frenzy with little availble to buy.

[Myrddin]

The 1334 sq ft, 4 br house that I sold for $242,000 in San Diego on Feb 28, 2001 is now selling for $389,000 as of last week. The SMALLER house next door is selling for $355,000. These houses are not worth that kind of money. It is all market hype. In a year or two, the people who foolishly spent this kind of money will be upside down on their mortgage. A mere 3 blocks from my old house, a feeding frenzy resulted in homes selling for $300,000. Six months later, similar homes that had not yet sold were at the peak price were offered and sold for $240,000. The buyers who purchased at $300,000 were distressed, but had no recourse.

My advice: don't rush into an over heated market. Find something you can afford in a depressed market, build some equity and wait for the prices to settle out. My first condo was $36,400. I put $4,000 down and lived in it for 5 years. I sold it for $48,500 and put the equity into buying the house in Mira Mesa for $105,000. I lived in that one for 17 years before selling it for $242,000. I'm now in a 3900 sq ft home in Idaho that I own free and clear. My former mortgage payment goes straight to savings and I'm covering college costs for my sons on a "pay as you go" basis. I'm on target to be totally debt free within the next calendar year. Only taxes and basic subsistence costs will remain.

[Porterville]

One word: geisha, sell hookers to the world.

[ex-Texan]

Bingo ! You win the prize.

But when real wages fall and fall and unemployment goes higher and higher it will have a great impact on the price of homes. People have been refinancing their homes at very low interest rates. But some have taken out too much eqity. Others think they were getting a deal to pay off credit cards and wrap everything up with a big bow.

Housing prices will fall when people find they cannot sell their homes at the expected price. Already, in some parts of the U.S., houses have dropped 20% or more in value.

I predict Oregon will get a taste of deflation by 2004. We are suffering through 8% unemployment. Soon it will be 9%. Next year it will fall to 10% or even higher. Today the news was that most college graduates will have to stay another year in school or look for low paying jobs outside their area of expertise.

I predict homes in Oregon will start really falling in price by the end of 2003. The "$ 160,000 perfect starter home" will be selling for $ 130,000 next year.

When prices fall that rapidly people may start entering voluntary foreclosures just to walk away from the burden of house payments on an over-priced 'turkey.'

It will get worse before it gets better IMHO.

[ggekko]

"The US differs from Japan in one important respect: in the US, if a company is bankrupt, it goes out of business...."

The Japanese deflation is unique to Japan Despite all the ink devoted to the Japanese situation the Japanese monetary base is still DECLINING. The Japanese central bank has pursued a feckless policy of targeting interest rates rather than directly increasing the monetary base. This policy has failed to break the deflationary psychology in Japan.

To a large extent the chickens are coming home to roost in Japan. The real reason the Japanese central bank does not pursue a policy of directly increasing the monetary base is because there is a justified fear that Japanese insurance companies will be made insolvent since they would realize a huge paper loss on their government bond portfolios.

What is needed now is radical Government action that would buy the government bond portfolios of the insurance companies and then agressively grow the money supply. This plan has risks but it would be better than what they are doing.

The moral to be drawn from the Japanese disaster is the danger of a Government industrial policy. The imbalances in the Japanese economy are the direct result of misdirected Government investment decisions made 25 years ago.

[Jumper]

The West has enough wealth and now in order to stablize the world in a dangerous period we must "spread the wealth" in the socalist fashion dictated socialist membership organizations like the UN and WTO. Anyone who thinks deflation is not going to provide a stimulus to some poor place the World Community wants to uplift is missing the greater meaning of managing the world's economy to benefit the people. The great danger of these world organizations is that they are dominated by socialists and because socialism is a failed idealogy (economically speaking) they want to "feel good".

[RightWhale]

get out of debt

As loyal citizens consumers, we are required to drag things home from the mall whether we need them or not. The car or cars would be worth more than the house except for the real estate bubble, and the car payments are manageable so long as the paycheck is reliable. Getting out of debt is equivalent to dropping out of society. Major decision, here. If you are approaching retirement, though, it is easier to get out of debt without people thinking you have gone mad.

[DB]

I agree. I've hoping Japan would recover as well.

I consider the Japanese as much more important allies than the French or Germans (if you can call the French or German that).

[DB]

I live in central CA and much the same thing has happened here. That is changing though. Home prices are definitely leveling off and is taking much longer to sell a home now.

I think we have passed the peak in CA.

[DB]

They can inflate the currency by simply printing it...

[DB]

That may well be true, but real estate isn't like other manufactured things. There are only so many beautiful places to live. Also everyone has to live somewhere.

[DB]

Hey now, I'm 41 and out of debt (for now anyway). I've neither dropped out or near retirement.

[tom paine 2]

As much as I hate to agree with you I think you are correct.Immigration, legal and otherwise, plus capitalism will be our way of dodging this bullet.

[arthurus]

The difference between then and now, though, is that the U.S. government inflated the dollar simply as a means of paying of the enormous cost of the Vietnam War

Differences in motivation are not relevant to much. If I shoot you because I mistake you for a deer or if I shoot you because my gone went off as I was cleaning it- you are dead in either case.

The inflation of the 70s was not directly to pay off the VN War, it was to make the institutions and individuals from which the government borrowed pay off the war. Inflation is antimarket, anticapital theft by government.