The face of the river, in time, became a wonderful book . . . which told its mind to me without reserve, delivering its most cherished secrets as clearly as if it had uttered them with a voice. -- Mark Twain

Stimulus Money in the Dumpster

Posted: May 30th, 2010 | Author: | Filed under: Uncategorized | No Comments »

I came across this article talking about how a bunch of good school furniture and electronics were found thrown away in a dumpster in Saint Louis, MO. The reason for the waste? $92K of “stimulus money” was allotted to buy new furniture for six schools in the district, so a little spring cleaning was in order.

District officials said it’s routine spring cleaning at the schools. But the disposal also comes as schools make room for upgraded equipment and technology funded by millions of dollars of stimulus funds from the federal government.

A question not raised in the article:

I am left very uncertain about the government’s ability to make any intelligent decision about how to spend our hard earned cash or create anything stimulating with the money we’ve forked over. Expect to see this recession linger on for a long time, folks.

(Incidentally, next time we decide to totally misdirect a bunch of stimulus money I’d like to see a little bit go the way of MY old classroom, where kids sit on broken chairs with mold growing out of the air conditioner and no cleaning staff other than me going in on a weekend twice a year. Thank you, Los Angeles Department of Cultural Affairs, for your hospitality.)

From: STL Today Website
Out with the old? Special School District went too far, officials admit
Sara Lenz

Builder Questioning Reality

Posted: May 21st, 2010 | Author: | Filed under: Uncategorized | No Comments »

I think this commentary by home builder Chuck Miller of Idaho is worth a look for anyone thinking of buying a home today.

Chuck implies that we cannot return to sound mortgage lending standards because it’s too expensive to build houses that could sell cheap enough to qualify.  By “sound mortgage standards” he is referring to homes valued at 2.5 to 3 times income, 30 year fixed rate mortgages at 80% loan-to-value and a 20% down payment.

Chuck maintains the median price of just building a home exceeds the ability for a median income to pay for it, essentially.  He goes on in detail about the prices of labor and materials, etc. and concludes we cannot return to sound lending practices because it is just plain unaffordable.  Then at the very end he says in order to return to safe lending “We would build fewer new homes and the ones we do build would be much smaller homes on much smaller lots.  And home buyers would certainly have to adjust their expectations.”

Well, what about that?  The new homes this guy is talking about financing are on average 3300 sq ft on 12000 sq ft properties!  I mean, since when is everyone entitled to live in a home like that on an average income?  If that’s what buyers are expecting, then yes they certainly WOULD have to adjust their expectations.  My goodness.  We need a deflationary “expectations” bust.

That brings me back to talking about deflation.  This guy sees prices continuing to go up for materials and labor, etc.  This will not be the case for long, especially in the construction sector.  Please!  Has he not heard about the unemployment problem yet?  Maybe the industry is holding out a little better in Idaho.  I think half the unemployment rate is due to construction workers out of a job.  (Don’t know the real numbers on that, but it’s huge.)  Building starts are on the skids.  There’s no demand.  So… prices will fall on all that stuff right along with the rest of the deflating economy, for sure.  This dude’s still living in a bubble, as are many many other folks across the nation (the globe!), including the revered leaders in our very own dear government.

The gist of the matter is there is no way to work except to return to sound lending practices.  It’s the only way to achieve and maintain stability.  Everything else will adjust to that.  It’s a mathematical truth.  It’s like chemistry- everything breaks down until equilibrium is achieved.  You just can’t mess with Mother Nature.

Return to Sound Mortgage Standards
Active Rain
Chuck Miller, Builder

Social Unrest Escalates

Posted: May 20th, 2010 | Author: | Filed under: Uncategorized | No Comments »

Well, a lot has happened since we saw the social unrest beginning amongst Berkeley students angry over budget cuts. God love the Berkeley students- always on the ball providing a real bellwether for social direction! Didn’t I tell you we’d be seeing more soon enough? Of course, I’m sure by now you’ve heard about what’s been going on in Greece. We are in the midst of a global sovereign debt crisis, and the cracks in the walls have begun to leak and spurt. I’ve been noticing quite a few folks are getting angry, as well they should be. We are still somewhat protected here in the good ol’ USA. More cushion for the pushin’, financially speaking. We’ve got a little more fat to burn… and let’s face it, we’d rather not miss the next episode of American Idol to go out and get our hair all mussed in some unsavory angry rally type of exchange. At least, I speak for myself. But we will pay the price for that. We are paying right now. The middle class will be demoted to poor, and the poor will die. I hope I’m just being dramatic. Here are some articles I’ve come across.

From: BBC News
Thousands protest over Romania austerity measures

Greek unions hold new general strike against cuts

Sarkozy Grapples With ‘Politically Unacceptable’ Cuts

From: Belfast Telegraph
Banks protesters storm Irish parliament

From: LA Times
Schwarzenegger’s budget a blow to the poor

Deflation in Progress

Posted: May 20th, 2010 | Author: | Filed under: Uncategorized | No Comments »

The Consumer Price Index fell into negative territory last month.  We are seeing the smallest 12-month gain since 1966.  This indicates the cost of living is falling.  It is cited in the article below as being a reaction to unemployment and foreclosures.  I would include pay cuts and lack of credit, as well.  Many who are still employed have seen their pay reduced in some form, or are working part time jobs when they’d like to be working full time.  Loans are hard to get.  Home equity is gone and HELOCs are closed down.

The fall in prices is considered a red flag indication of deflation at work.  The CPI doesn’t even include the price of buying a home.  It uses rental prices, which are also falling now.  If it used the price of purchasing a home we’d have gone negative long ago and would see much deeper plunges in the numbers right now, of course.

Funny, this was a “surprise” to economists but the bloggers I read have been talking about it for eons.  Thank you, internet!

Prices falling sounds like a good thing, but in a deflationary climate falling income outpaces those falling prices and our inability to pay escalates faster than prices around us are discounted.  Destruction of wealth and falling income lead the way with prices falling in response.  If it takes hold, deflation is a very difficult process to stop.  We’ll just have to ride it out.  Ultimately the correction is necessary and good.  Like Shiva’s dance of destruction, like the winter freeze that prepares the seed for next spring’s bloom.

So now is probably a good time to pay off all your debt!  And sell anything of value you don’t need.

Consumer Prices in U.S. Unexpectedly Drop, Core Rate Unchanged
By Timothy R. Homan
May 19, 2010