The Obama Great Depression

16 01 2016

 By Timothy D. Naegele[1][2]

Soon after the presidency of Barack Obama began—on April 8, 2009—the  McClatchy-Tribune News Service published an article of mine entitled, “Euphoria or the Obama Depression?”[3]  In it, I wrote:

Barack Obama is euphorically optimistic, but neither he nor the leaders of other countries can hold back an economic tsunami, just as mankind is helpless to stop the wrath of natural tsunamis in the oceans.

. . .

According to the Rasmussen Reports, most Americans—53 percent, in fact—believe the United States is at least somewhat likely to enter a 1930s-like Depression within the next few years. If so, the repercussions are unfathomable.

. . .

Years from now, economic historians may look back at this era and conclude that the world’s central bankers were overwhelmed and Depression-era “safety nets” did not work; and global market forces ultimately determined the depth and duration of the economic meltdown, not the politicians in Washington or anywhere else.

The tsunami that was released when the housing bubble finally burst may not run its course until about 2017-2019; and its effects will be devastating worldwide. There are no legislative solutions or quick fixes to the problems. The carnage between now and 2019 will approximate the Great Depression. . . .

. . .

America and other nations are in uncharted waters; and their politicians may face backlashes from disillusioned and angry constituents that are unprecedented in modern times. Also, the limits of godless secularism and paying homage to the false gods of materialism may become self-evident.

It is interesting to reflect on these comments and others contained in the article, as well as those in an companion article that I wrote for the American Banker—the daily newspaper of the U.S. banking industry—and in an interview that I gave on these subjects.[4]  Today, it is as though the economies of individual countries are “careening,” creating a “cascading” effect.

This is not 2008 all over again. It may be much worse, even eclipsing the Great Depression of the last century.  A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison.  America’s Fed and the other central banks of the world will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable.  Americans and people of other countries have lost trust in their governments, which will only compound the problems.

Hold on tight. Things will get very scary between now and the end of this decade.[5]  Whatever happens will be attributable principally to Barack Obama’s failed presidency.  Indeed, there are so many tragedies he has spawned that it is impossible to do justice to each of them in a short article like this one.

For example, he has set back race relations in the United States by years if not decades. He has been a divider, not a healer.[6]  With respect to his so-called major policy “accomplishments”—such as Obamacare, limited gun control, and the Paris man-made “global warming” accords—they can and probably will be undone by executive orders on Day One when the next American president takes office less than a year from now.  Americans are clamoring for this to happen.[7]

Obama may go down as the worst president in American history, even eclipsing Jimmy Carter, which is a remarkable feat unto itself.  History may record that Obama became a “transformative” or revolutionary president, which is not what the majority of Americans wanted. Perhaps because he was not raised on the U.S. mainland, his perspective is not that of most Americans . . . even blacks.[8]

With the global economy imploding, and Obama being an impediment to the U.S. growth that has occurred, his place in American economic history may rank next to or below that of Herbert Hoover.

Today, Barack Obama is like a minstrel wandering the land, with respect to whom no one will listen.

© 2016, Timothy D. Naegele



[1]  Timothy D. Naegele was counsel to the United States Senate’s Committee on Banking, Housing, and Urban Affairs, and chief of staff to Presidential Medal of Freedom and Congressional Gold Medal recipient and former U.S. Senator Edward W. Brooke (R-Mass). He and his firm, Timothy D. Naegele & Associates, specialize in Banking and Financial Institutions Law, Internet Law, Litigation and other matters (see and He has an undergraduate degree in economics from UCLA, as well as two law degrees from the School of Law (Boalt Hall), University of California, Berkeley, and from Georgetown University. He served as a Captain in the U.S. Army, assigned to the Defense Intelligence Agency at the Pentagon, where he received the Joint Service Commendation Medal. Mr. Naegele is an Independent politically; and he is listed in Who’s Who in America, Who’s Who in American Law, and Who’s Who in Finance and Business. He has written extensively over the years (see, e.g.,, and can be contacted directly at; see also Google search: Timothy D. Naegele

[2] Note: This article is an expansion of earlier articles and comments at this blog.  See, e.g., (“The Economic Tsunami Continues Its Relentless And Unforgiving Advance Globally”) (see all of the comments beneath it) and (“Barack Obama: A Failed American Presidency”) and (“Helter Skelter Is Arriving With A Thud, Sell Everything”) and (“Doomsday Clock For Global Market Crash Strikes One Minute To Midnight As Central Banks Lose Control“) and (“The Surging Ranks Of America’s Ultrapoor”) and (“The EU’s Collapse In 2016?“) and (“Global Chaos And Helter Skelter”)

[3]  This article has been republished by RealClearPolitics, and can be found at the links that follow.

See (“Euphoria or the Obama Depression?”) and (“Commentary: Euphoria or the Obama Depression?

[4]  See and (“Viewpoint: Greenspan’s Fingerprints All Over Enduring Mess”); see also and and–SeekingAlpha.pdf (“Greenspan’s legacy: more suffering to come”)

[5]  Not factored into these comments explicitly are the effects of (1) the terrorist strikes on Paris and elsewhere in the world; (2) the immigration issue that is tearing Europe and the Middle East apart; (3) the military implosion that is taking place in the Middle East, with much worse yet to come; and (4) the effects of our adversaries (e.g., China, Russia, North Korea, Iran) on peace, and on the American and global economies.

See, e.g., (“We Are All Parisians”) and (“EMP Attack: Only 30 Million Americans Survive”) and (“The Death Of Putin And Russia: The Final Chapter Of The Cold War”) and (“China Is America’s Enemy: Make No Mistake About That”) and (“The Next Major War: Korea Again?”) and (“Human Trafficking”) and (“Islamophobia Is Un-American”) and (“Is Israel Doomed?”)

[6]  See, e.g. (“Barack Obama: A Failed American Presidency”)  and (“Is Barack Obama A Racist?”)

[7]  See, e.g., (“A $34 Trillion Swindle: The Shame Of Global Warming”) and (“Abortions And Autos Kill More In America Than Guns”)

[8]  See, e.g., (“Disappointment In Obama Leads Some Blacks To Ask Whether Voting Is Worth It”)



67 responses

16 01 2016

Buy silver…


16 01 2016
Timothy D. Naegele

Thank you, Rick, as always.

I do not believe in the purchase of either gold or silver.

See (“What About Gold?”)


16 01 2016

My only regret is that I bought much of it when it was much higher than it is now. Silver is easily traded, due to its lower value per ounce compared to gold. If the dollar collapses, it’s precious metals that will always have value .


16 01 2016
Timothy D. Naegele

Can you eat them, Rick? 🙂


16 01 2016

I can trade them for goods and services. 10% of your worth should be in silver and gold. Not certificates, the actual metal. If you disagree, then you are deriving your strategy from the wrong information.. It is a safety net. Plain and simple.


16 01 2016
Timothy D. Naegele

In truly desperate times, Rick, how is anyone going to know the value?


16 01 2016

The value in desperate times will be significant. Paper money will be worth more than that..


16 01 2016
Timothy D. Naegele

The greatest threats to the American way of life are (1) a nation-ending EMP Attack; (2) nuclear, biological or chemical attacks; and (3) a massive economic depression, surpassing anything that we have witnessed in our lifetimes.

See, e.g., (“EMP Attack: Only 30 Million Americans Survive”)

In the first instance, I believe gold and silver would be worthless. Ours would be a primitive, barter system, at best. Variations of that would occur with the last two situations.

. . .

Any further discussion should begin with a new thread, to help those who read these comments on smartphones.


9 03 2016

I agree about keeping physical gold and silver. In the past every fiat currency system has collapsed. And when this happens again ( most likely due to debt that is impossible to repay ) an ounce of gold will be able to buy a house. I dont think this will happen in my life but im keeping some more as an insurance policy!


5 11 2016
Tom Fix

You’re overlooking something, Rick. In a collapse such as the Soviet collapse in the early 1990s, very few people own gold and silver coins, so these coins never become a medium of exchange. In the Soviet collapse, barter and goods became the medium of exchange.


17 01 2016

Bullets. That would also be a valuable asset to trade with..

Liked by 1 person

17 01 2016
Timothy D. Naegele

And guns . . .


16 01 2016
H. Craig Bradley


I agree that President Obama has not been a very effective president, but in his eyes, still ” a pretty good president”. I am looking ahead and see difficulties as far as the eye can see for the majority who even still, are unable to comprehend what has happened in the last ten years.

The world is fast changing and in many ways, not for the better from an American point-of-view. We must either change with it and attempt to adapt in the best possible way to maximize our domestic interests or we will be swept away along with most of the rest of the world. Everything is up for grabs and the deck is going to be reshuffled. To a large extent, the lack of progress- for whatever reasons- has effectively taken the initiative away from the United States.

If you doubt it, look at our Federal Reserve Bank. Janet Yellen is a dove. She was appointed by President Obama. She delayed raising interest rates and maintained the zero percent regime far too long. Since the world is still on the dollar standard, this created immense global financial problems/imbalances.

China had little choice but to devalue, as did the Swiss, when confronted with unsustainable monetary relationships (exchange rates). This triggered a number of global stock market corrections. We have lost the initiative and can not get it back easily, if at all. We wasted 8 years you don’t get back. Ditto with Middle Eastern policies and willfully allowing ISIS to establish a presence. What a mess.


16 01 2016
Timothy D. Naegele

Thank you for your comments.

Yes, I agree that it is a mess; however, we are still the strongest country in the world, by far.

While the Wall Street Journal begrudgingly admits that Donald Trump is a formidable candidate for the presidency, the UK’s Economist—which I do not like, and seldom bother reading because of its biases—begrudgingly admits that the United States is still “second to none.”

See (“Trump’s New York Advantage”) and (“A voice in the wilderness”)

In the first article—with respect to Trump, and last night’s GOP debate—the Journal noted:

(1) “Mr. Trump won handily with an big assist from ‘New York values,’ of all things.”

(2) “Mr. Trump is a better politician than we ever imagined, and he is becoming a better candidate.”

(3) “He . . . won the round [with Ted Cruz] in a knockout by invoking the response of the firefighters, police and the entire city after 9/11.”

The Journal added:

The exchange was all the more notable because Mr. Trump delivered the message in an un-Trumpian way: deliberate, almost softly. It showed a more gracious candidate than the name-caller he has often been and suggested he might possibly be able to appeal to a larger set of voters than he has so far.

In the second article, with respect to the United States, the Economist noted:

America has not . . . gone to the dogs. Its economy is the envy of the world. Its armed forces are unrivalled. So is its global leadership.

I agree with these assessments.

While the United States will fare better than other countries, it will still be hit hard.

Hold on tight. Things will get very ugly . . .


16 01 2016

Even with your humble reposting stamp on this most apt piece of timely prophetic literature I must say ….as commented before: Naegele For President.
Although let’s wait until after 2019….tthe country…the world even, will truly be ready to listen to some common sense wisdom round their fire barrels in tattered Gucci Jean’s and defunct purposeless 400.00 sneakers….yet,…that’s the brave optimistic rant…I fear God has a much different plan of moral recovery and economic restitution in mind.

Gary Flynn

Liked by 1 person

16 01 2016
Timothy D. Naegele

Thank you as always, Gary, for your kind words.

It must be getting a wee bit cold in your portion of the American continent. Stay warm. 🙂


16 01 2016
Jonathan Buttall

Hello, Timothy. I’d like to go somewhat light on the partisan issues, as we have different views on the presidency. With a new president coming on board in 1/17 and a Republican Congress, the local US economy will likely be in a very different place in a few years.

The primaries are likely to put in new front runners (alas, less choice on the Democratic side, they didn’t cultivate new talent). We can’t control the global economy completely, given China’s slowdown and lower thirst for energy imports, but the US is still the main influence on economics and we have the strongest and most stable currency.

Individuals can do much to protect themselves. Our investments have had, obviously, a very bad year, but our retirement incomes don’t depend on the Markets. I came into some money this last year, and while well invested in stocks, kept the new money in cash. Metals are not a good investment, they’ve plummeted and didn’t benefit from the panic in equities.

I like Gary Flynns attitude and philosophy.

I don’t care for Mario Rubios foreign policies, but he reminds me of the energy, youth and forcefulness of John Kennedy, albeit with a conservative orientation. Kennedy had that personality and in a world worried about nuclear war and foreign enemies, he gave us optimism. Reagan could do that too and the world did change then. If Mario found himself in power with a same party Congress, I think he could as well.

Anyway, whatever we try to do, the best way to make God laugh is to plan our future the way we think it will go. We’ll survive just fine, whatever it becomes.

Liked by 1 person

16 01 2016
Timothy D. Naegele

Thank you, Jonathan, for your comments as always.

I agree with your second paragraph. However, I would add that the Middle East is imploding; and Europe may fragment even more than it has. The “safe haven” may well be—or continue to be—the United States.

Regarding your third paragraph, I am a believer in sitting on the sidelines with cash. There may be real bargains down the road (e.g., residential real estate), but we are not even close to the bottom yet.

See, e.g., (“Cash is king.
The shrewdest investment decision seems to have been holding high cash balances”)

With respect to JFK, I was a believer too, but not anymore . . . at all.

See (“John F. Kennedy: The Most Despicable President In American History”) (see all of the comments beneath the article)

With respect to your last thoughts, it is always best to “walk by faith, not by sight” . . . or so I believe.

See (“What And Where Is God?”)


17 01 2016
Jonathan Buttall

Oh, and my system still doesn’t allow me to give “likes” or I would have done that for all your comments, Timothy.

Liked by 1 person

17 01 2016
Timothy D. Naegele

Thanks so much, Jonathan. 🙂


16 01 2016
Timothy D. Naegele

Markets Suffer Worst Start To The Year Since Great Depression [UPDATED]

Market crash

This is the title of an article in the UK’s Times, which states:

The start of this year has been the worst for financial markets since the onset of the Great Depression, with stock prices slumping around the world amid mounting concern over the situation in China.

A wave of selling has swept the world’s leading financial centres over the past two weeks, with the value of Britain’s leading companies falling by more than £110 billion since the start of the year.

The FTSE 100 index of Britain’s biggest quoted companies fell 114 points, or 2 per cent, to 5,804 yesterday — the lowest close since November 2012. Indices in Europe and America have fared even worse: the Shanghai market was the worst performer, closing down 3.6 per cent, taking its total losses to 18 per cent for 2016. This was prompted by the price of a barrel of Brent crude dipping below the $30 mark, for the third time this week. In America the Dow Jones industrial average closed down 391 points, or 2.4 per cent, at 15,988.

The FTSE 100 index of Britain’s biggest quoted companies fell 114 points, or 2 per cent, to 5,804 yesterday — the lowest close since November 2012. In America the Dow Jones industrial average closed down 391 points, or 2.4 per cent, at 15,988.

. . .

David Buik, of Panmure Gordon, the investment bank, suggested that the “financial carnage” in stock markets in the first two weeks of the year was the worst since 1928.

Investors seeking safe havens have turned to gold, sparking a 2 per cent recovery in its price to $1,094 an ounce.

George Osborne underlined the pessimistic mood by warning last week of grave threats to the British economy, the chancellor saying that it could be “the year we look back at the beginning of the decline” if the country abandoned his agenda. Fears of another crash were heightened by a research note by an economist at RBS advising clients to “sell everything except high-quality bonds”.

Some economists have said, however, that the risk of contagion from China has been exaggerated. It is only Britain’s sixth-largest export market, representing no more than 3.6 per cent of overseas sales, behind the Republic of Ireland.

In China, interventions by the Communist party to prop up markets have done little to reassure investors, and the plight of the world’s second-largest economy is gripping markets. There is strong evidence of a slowdown, after an unprecedented boom between 2000 and 2014, when the size of the Chinese economy ballooned by a factor of eight. The Beijing authorities have set a growth target of 6.5 per cent for this year, but scepticism over the accuracy of its economic data is growing.

Fathom Consulting, an economic forecaster, thinks that growth in China could be as low as 2.4 per cent, rather than the official 6.8 per cent. The difference between those figures, in dollar terms, equated to more than the entire economy of the United Arab Emirates, suggesting that a severe jolt is in store for the rest of the world.

The Chinese government’s botched interventions in local stock exchanges have heightened the nervousness, and added to the steep fall in the price of oil. It tumbled to below $29 a barrel yesterday, its lowest since 2004.

See (emphasis added)

Anything can happen to the markets on any given day. It is a “crapshoot.”

See and and–SeekingAlpha.pdf (“Greenspan’s legacy: more suffering to come”)

Again, this is not 2008 all over again. It may be much worse, even eclipsing the Great Depression of the last century.

A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison. America’s Fed and the other central banks of the world will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable. Americans and people of other countries have lost trust in their governments, which will only compound the problems.

Hold on tight. Things will get very scary between now and the end of this decade. Whatever happens—at least in the United States—will be attributable principally to Barack Obama’s failed presidency, and referred to as “The Obama Great Depression.”

See (“World faces wave of epic debt defaults”—”Situation worse than it was in 2007, says chairman of the OECD’s review committee”—”The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability”—”‘Our macroeconomic ammunition to fight downturns is essentially all used up'”—”Europe’s creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.
The European banking system may have to be recapitalized on a scale yet unimagined, and . . . any deposit holder above the guarantee of €100,000 will have to help pay for it”—”[I]t is impossible know what the trigger will be for the next crisis since the global system has lost its anchor and is inherently prone to breakdown”—”[T]he Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. ‘It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse'”—”‘It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit'”
) and (Rasmussen Reports: “81% Think Federal Government is Corrupt”)


23 01 2016
Timothy D. Naegele

The World’s Central Banks Can’t Save Us Anymore [UPDATED]

Dorothea Lange photo of Depression-era mother

This is the opening sentence of a Wall Street Journal article. One commentator cited in the article added:

The trade now is to hold as much cash as possible. . .

See (“Investing in 2016: ‘The Only Winning Move Is Not to Play the Game’”)


These are messages that I have been repeating again and again, beginning with my earliest writings on the subject—which are cited in my article above.

We are living in topsy-turvy, helter skelter times, when anything is possible. Economic depressions have occurred periodically over hundreds if not thousands of years—and they change the course of history. The time between now and the end of Barack Obama’s presidency may be very precarious, to say the least.

There are sound reasons why our adversaries (e.g., China, Russia, North Korea, terrorists of all stripes) may wish to test us, perhaps like never before; and they may do so.

The Middle East is imploding; Europe may fragment even more than it has; Russia is a basket case, and will run out of its reserves momentarily; the problems with China may become greater, not less; and the list goes on and on.

See, e.g., (“America Elects Its Next President“) and (“The EU’s Collapse In 2016?“) and (“Helter Skelter Is Arriving With A Thud, Sell Everything“) and (“The Death Of Putin And Russia: The Final Chapter Of The Cold War“) and (“The Coming Chinese Crack-Up”—”China is trapped”—”A major Chinese devaluation would be a global earthquake, transmitting a wave of deflation through a world economy. . . .”) and (Rasmussen Reports: “81% Think Federal Government is Corrupt”)

Americans and people of other countries have lost faith in their governments; and the government bureaucrats aka economists at the Fed and other central banks have run out of options. Monetary policy has been tested to its limits.

Indeed, America’s Fed and the other central banks will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable.

We have not had this level of economic, social and political fragmentation and economic disintegration in our lifetimes. And the difference this time is that things are becoming “unglued” around the world, simultaneously.

As I have stated, a “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison.

Hold on tight. Things will get very scary—at the very least, between now and the end of this decade.

[Note: The photo above is of Florence Owens Thompson and her children, who were the subject of Dorothea Lange’s photo “Migrant Mother” (1936). The Library of Congress caption reads: “Destitute pea pickers in California. Mother of seven children. Age thirty-two. Nipomo, California.” See also (“‘I never lost hope’: Startling interview unearthed with woman behind iconic Great Depression image talking just five years before her death in 1983”)]


23 01 2016

By “hold on tight” do you mean don’t sell?


23 01 2016
Timothy D. Naegele

No, it was meant to convey the recommendation to “hold on tight” to one’s “sanity,” while the world as we know it is coming apart at its seams.

Investment decisions are personal; and I do not make recommendations in that regard . . . except to agree with the commentator’s words cited above:

The trade now is to hold as much cash as possible. . .


24 01 2016
Jonathan Buttall

I’m kind of doing both. I’m holding fast to my formal investments, so as not to sell low and never get it back. I don’t need to sell to pay bills anyway (I prepared for the future when young. That seems to getting out of fashion, now when it’s needed more than ever before).

On the other hand, I came into a windfall last year (that tends to happen when you get old and start outliving people who are older than you, or worse, younger than you). Not trusting the market enough this year to add to my investments even when the price is low, I parked all of it in cash.

As for sanity, meditation works well…………and avoiding looking at the market for days at a time. As for things coming apart, I was brought up during the Cold War and remember the duck and cover drills and Cuban missile crisis. I think nuclear war- in the Middle East possibly- is still the same main danger as it was in the 60s.

Liked by 1 person

24 01 2016
Timothy D. Naegele

Thank you as always, Jonathan, for your comments.

With respect to your first two paragraphs, you have been wise and fortunate.

I too remember the drills, which you have cited. Indeed, I mentioned them in the second paragraph of my recent article about Putin.

See (“The Death Of Putin And Russia: The Final Chapter Of The Cold War”)

Regarding a nuclear war in the Middle East, whatever happens there is not our fight, or so I believe. We have shed enough blood and wasted enough economic treasures there to last many lifetimes.

See (i.e., discussion of Donald Trump)


29 01 2016
Timothy D. Naegele

The Coming Global Meltdown [UPDATED]

Global Meltdown

Jeremy Warner has written in the UK’s Telegraph:

“When the facts change, I change my mind. What do you do, Sir?” So reputedly said the British economist John Maynard Keynes. Economists are always changing their minds, but few practitioners of the “dismal science” do it quite as regularly as central bankers.

I’ve lost count of the number of times Mark Carney, Governor of the Bank of England, has signalled an interest rate rise, only to row back a few months later in the face of a softening economy, turmoil in the markets, or a plunging inflation rate.

On the other side of the pond, his opposite number at the US Federal Reserve, Janet Yellen, last month succeeded in pushing through the first US rate rise in nearly 10 years, but already she is being widely accused of making a grave policy error.

With panic in the markets, and the US economy showing renewed signs of weakness, there have been near hysterical calls for the Fed to reverse the decision. Rightly, it has so far chosen to ignore them. To change tack so quickly would indeed be a damning admission of failure.

If nothing else, the debate around this quite marginal rise in US rates demonstrates just how reliant on central bank stimulus, and sensitive to any changes in it, the world economy has become.

It beggars belief that a mere quarter point increase in the Fed Funds rate is going to make the difference between a recovering economy and one that plunges back into recession. Yet every time the markets sneeze, central banks are expected to step in with the resuscitator. If economies are ever to get back to normality, it is vital they stop this nonsense.

In the early months of the crisis, the central bank response of cranking up the printing press seemed more than justified. Timely action by the Federal Reserve and the Bank of England prevented the crisis from turning into something very much worse.

But it is debatable how much good the monetary steroids have done since; arguably, they may now be doing quite a lot of harm. In advanced economies, at least, there is not much sign of the revival in investment spending the recovery needs to become self-sustaining. The overwhelming mood of international business leaders at the World Economic Forum in Davos last week remained one of extreme caution.

In the face of so many uncertainties, sitting on your hands and doing nothing has, for many chief executives, become the order of the day. Highly accommodative monetary policy doesn’t seem to be making a blind bit of difference to this hiatus in investment. “Animal spirits”, as Keynes described them, have failed to rekindle, despite the positive effect easy money undoubtedly has had on consumption. Unfortunately, growth cannot for ever be sustained on a diet of debt-fuelled household and government spending. It needs ultimately to be backed by rising business investment and productivity.

Speculative investment in stocks, bonds and property – the other main beneficiary of all that central bank support – seems even less likely to provide the foundations for sustainable growth. To the contrary, it serves only to make the world more vulnerable to bubbles and financial crisis.

If loose money has ceased to help, what are the alternatives? Most governments are too fiscally constrained to provide anything more in the way of demand stimulus. By chance, however, there is one unexpected bonus in the world economy right now – the low oil price.

For big consumer nations, lower oil prices act like a tax cut and therefore provide the equivalent of a fiscal boost. Just as very high oil prices mark the last hurrah of the boom, and therefore tend to push advanced economies into recession, low prices have in the past invariably had the reverse effect in front-running global recovery.

Yet the temptation is to see the low oil price as a deflationary signal, a sign of stagnant demand, rather than the geopolitically complex series of positive supply-side shocks which provide the better explanation. In any case, its depressing effect on inflation has given the world’s leading central banks yet another excuse for keeping monetary policy ultra-accommodative.

The financial overlords of central banking may understand economics, money, and markets better than any, but they don’t have the answers and seem just as frequently to get it wrong as right. When a car skids, the best response is usually to turn the wheel into the skid rather than against it.

This approach has broadly instructed the central bank response – to treat a crisis caused by too much debt with yet more of it. Yet some skids are too extreme to counter. Across the world as a whole, debt has continued to grow, and now stands at hitherto undreamt of levels relative to output. Excessively easy money may have succeeded in temporarily mitigating the crisis, but its underlying causes remain very much with us. Thanks to the “Lords of Finance”, these disequilibria have got worse, not better.

See (“The Lords of Finance are skidding out of control“) (emphasis added; charts omitted); see also (“Rudderless Federal Reserve, Gets Freaked by Markets, And Retreats on Policy”—”[The Fed] has a hundred indicators — domestic, international, jobs, and inflation. In truth, it doesn’t know what its next move is going to be because it can’t read the economy. Fed policy is opaque, confusing, and rudderless”) and (Rasmussen Reports: “81% Think Federal Government is Corrupt”)

This is a fine article, and constitutes a very basic lesson in economics.

As stated in my article and comments above, the “financial overlords” are nothing more than government bureaucrats, who have been wrong all along. At best, they have postponed the day of reckoning, and insured that its effects will be worse then ever anticipated.

See (“The Economic Tsunami Continues Its Relentless And Unforgiving Advance Globally“) and (“Global Chaos And Helter Skelter“) (see also all of the comments beneath these articles)

The levers of monetary policy have been used to their limits; and now they have distorted the global economies beyond belief.

Since the world’s politicians will not control fiscal policies (i.e., spending), all “bets” have been put on monetary policy to do the job, which is foolhardy and tragic to say the least.

While the United States will not be hit as hard as other countries and regions of the world (e.g., Russia, emerging countries), it will be hurt too.

A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison.

America’s Fed and the other central banks of the world will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.


5 02 2016
Timothy D. Naegele


Grim Reaper

Katy Barnato of CNBC has reported:

The global economy seems trapped in a “death spiral” that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.

“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

“The death spiral is in nobody’s interest. Rational behavior, most likely, will prevail,” he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East.

By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

Overall, advanced economies are mostly making a modest recovery, while many emerging market and developing economies are under strain from the rebalancing of the Chinese economy, lower commodity prices and capital outflows.

Stubbs added that policymakers would likely attempt to “regain credibility” in the coming weeks and months.

“This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era,” he said.

Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world’s biggest economy is slowing. Economists are concerned about an industrial or manufacturing recession in the country, following some warnings from companies in earnings seasons and recent weak manufacturing activity and durable goods orders data.

However, some analysts say markets are overegging the prospect of a global slump.

“Many markets are now pricing in a significant probability of recession and when we talk about recession, we’re talking particularly about a U.S. recession. Do you think that is likely or not? To me, the odds are too high; the market is pricing too high a probability,” Myles Bradshaw, the head of global aggregate fixed income at Amundi, told CNBC this week.

See (emphasis added); see also (“The Obama Great Depression“) and (“The World’s Central Banks Can’t Save Us Anymore“) and (“The Coming Global Meltdown“) and (“Oil market spiral threatens to prick global debt bubble, warns BIS”—”The global oil industry is caught in a self-feeding downward spiral as falling prices cause producers to boost output even further in a scramble to service $3 trillion of dollar debt”—”[T]he sheer scale of leverage in the oil and gas industry is amplifying the downturn since companies are attempting to eke out extra production to stay afloat”—”The [Bank for International Settlements] calculates that debt in US dollars outside the United States has surged to $9.8 trillion, a fivefold rise since 2000 and an unprecedented level for the global monetary system as a whole”—”[T]here is now clear evidence that this liquidity is drying up”—”We may be approaching the eye of the storm”) and (“Debt, defaults, and devaluations: why this market crash is like nothing we’ve seen before”—”A pernicious cycle of collapsing commodities, corporate defaults, and currency wars loom over the global economy. Can anything stop it from unravelling?”—”The real question is always when and how deep the upcoming downturn will be”—”Commodity prices have crashed by two thirds since their peaks in 2014. Oil has borne the brunt of the sell-off, suffering the worst price collapse in modern history. Brent crude has fallen from $115 a barrel in the summer of 2014, to just $27.70 in mid-January”—”[A] confluence of factors – led by oil, but encompassing China, the emerging world, and financial markets – are all brewing to create a perfect storm”—”[T]he current sell-off has seen commodity prices, equities and credit conditions all move in dangerous lockstep”—”Although a 75pc oil price collapse should represent an unmitigated positive for the world’s fuel thirsty consumers, the sheer scale of the price rout is already imperiling the finances of producer nations from Nigeria to Azerbaijan, and is now threatening to unleash a wave of bankruptcies across corporate America. It is the prospect of this vicious feedback loop – where low oil prices create financial tail risks that spill over into the real economy – which could now propel the world into a ‘full blown crisis'”—”[T]he globe’s largest emerging markets have shown signs of deterioration over the last six months”—”[A] tipping point may well be approaching. . . . [A] 20pc decline in stock markets that persists for more than six months, will translate into a decline in consumption of between 0.5pc to 1.0pc. ‘This would be a serious shock. My biggest fear is precisely that the dramatic shift in mood becomes self-fulfilling'”—”2016 is set to see the first wave of corporate bankruptcies in the oil and gas sector. Highly leveraged US shale companies will be the first be picked off. Should escalating defaults have a further depressant effect on oil prices, it could unleash a tidal wave of corporate bankruptcies in the world’s largest economy. Indebtedness is not just the scourge of the US. Globally, the oil and gas industry has issued $1.4 trillion of bonds and taken out a further $1.6 trillion in syndicated loans, driving the sector’s combined debt to $3 trillion, according to the Bank of International Settlements. They warn of an ‘illusion of sustainability’ that could quickly turn toxic as the credit cycle unravels. The question exercising the minds of economists and investors is the extent to which this contagion could metastasize beyond the energy sector, as banks cut off credit access, loans turn bad, and financial conditions enter a critical tightening phase”—”[A] series of other indicators are also flashing red. Global equity markets have endured their worst start to a year since the dotcom crash. To paraphrase Nobel prize-winning US economist Paul Samuelson, Wall Street has predicted nine out of the last five recessions, but the current turbulence has an ominous precedent”—”Macroeconomic indicators from the world’s largest economy are also beginning to turn sour. The US has already fallen prey to a manufacturing collapse. Service sector data for December showed the slowdown is spreading to the dominant driver of economic growth”—”[T]he economy is ‘firing on one cylinder’ with consumers the sole bright spot in an environment of still weak capital investment, and a crippling exchange rate that is hurting exporters and squeezing corporate profits”—”The soaring dollar has put record pressure on China’s exchange rate peg, forcing Beijing to burn through its reserves with interventions amounting to $140bn-a-month in December to protect the renminbi. Meanwhile, China’s capital outflows have accelerated to $676bn, according to the Institute of International Finance”—”A weaker renminbi would unleash a new wave of deflation in an already fragile global environment, and hasten the pressure on emerging market exchange rates as the world’s currency wars would renew apace”—”The lower oil prices fall, the faster buyers are expected to flood back in, with violent upward movements already in evidence”—”[The] world could find itself defenceless against another round of mania, panics or crashes”—”Should the world manage to ride out the perfect storm of 2016, next time round, answers will be difficult to find”) and (“Why a selloff in European banks is ominous”—”European banks have been caught in a perfect storm of market turmoil”—”‘The current environment for European banks is very, very bad'”—”The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year. East or west, investors ran for the exit in a market marred by panic over tumbling oil prices and signs of sluggishness in China. But for Europe’s banking sector, the new year has started even worse, sending the bank index down 23% year-to-date”—”[I]ts worrisome, because banks are much more important for the credit mechanism in the economy here in Europe than it is in the U.S. There, you have a capital market where it’s easier to issue corporate bonds and get funding outside the commercial banking system. We don’t have that to the same extent in Europe, and therefore [the current weakness] is a little bit scary”)) and (“Russia shuts down two more banks“) and (“Greek stock market falls sharply on banking sector meltdown“) and (“Why Is America So Angry?“) and (“The world can’t afford another financial crash – it could destroy capitalism as we know it”) and (“Venezuela’s Collapse Brings ‘Savage Suffering’”—”Dying infants, chronic power outages and empty shelves mark the world’s worst-performing economy”)

As I have said in comments above, while the United States will not be hit as hard as other countries and regions of the world (e.g., Russia, emerging countries), it will be hurt too.

A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison.

Hold on tight. Things may get very ugly and, yes, scary!


5 02 2016

I blame global warming.


5 02 2016
Timothy D. Naegele

Thank you, Buffy, for your comment.

Lots of people blame the “Tooth Fairy,” and the Loch Ness Monster, and the Abominable Snowman . . . and the list goes on and on.

So-called man-made “global warming”—or “climate change,” or “The Great Green Con”—is way down the list of non-factors.

See (“A $34 Trillion Swindle: The Shame Of Global Warming”)


11 02 2016
Timothy D. Naegele

Another Financial Crash Is Coming

Depression-Two men walking to LA
[Two men walk along the road to Los Angeles in 1937, during the Great Depression]

Allister Heath has written in the UK’s Telegraph:

They bounce back after terrorist attacks, pick themselves up after earthquakes and cope with pandemics such as Zika. They can even handle years of economic uncertainty, stagnant wages and sky-high unemployment. But no developed nation today could possibly tolerate another wholesale banking crisis and proper, blood and guts recession.

We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.

The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so-all encompassing that it would threaten the very survival of free trade, of globalisation and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.

For fear of allowing extremist or populist parties through the door, mainstream politicians would end up adopting much of this agenda, with devastating implications for our long-term prosperity. Central banks, in desperation, would embrace the purest form of money-printing: they would start giving consumers actual cash to spend, temporarily turbo-charging demand while destroying any remaining respect for the idea that money needs to be earned.

History never repeats itself exactly, but the last time a recession was met by pure, unadulterated populism was in the Thirties, when the Americans turned a stock market crash and a series of monetary policy blunders into a depression. President Herbert Hoover signed into law the Smoot-Hawley Tariff Act, dreamt up by two economically illiterate Republican senators, slapping massive taxes on the imports of 20,000 goods and triggering a global trade war. It was perhaps the most economically destructive piece of legislation ever devised, and it took until the Nineties before the damage was finally erased.

That is why we must all hope that the turmoil of recent days in the financial markets, and the increasingly worrying economic news, will turn out to be a false alarm. It would certainly be ridiculously premature, at this stage, to call a recession, let alone a financial crisis. But at the very least we are seeing a major dose of the “dangerous cocktail of new threats” rightly identified at the turn of the year by George Osborne, a development which will have political repercussions even if the economy eventually muddles through.

Investors in equities, including millions of people with private pensions and Isas, have already lost a fortune; they won’t be too happy when they begin to realise the extent of the damage. Growth is slowing everywhere, and the monetary pump-priming of the past few years is looking increasingly ineffective. Traders believe that interest rates won’t go up in Britain until 2019, and there is increasing talk that negative interest rates could become necessary across the developed world, further crippling savers.

No positive spin can be put on any of the latest developments. Banking shares have taken a beating; China’s slowdown continues; Maersk, the shipping giant, believes that conditions for world trade are worse than in 2008-09; industrial production slumped in December, not just in Britain but more so in France and Germany; energy prices are devastating Middle Eastern and Russian economies; and sterling has tumbled.

It is always a sure sign that panic has broken out when financial markets respond badly to all possible scenarios. The prospect of higher interest rates? Sell, sell, sell. A chance of lower rates? Sell, sell and sell again. A rise in the price of oil is met with as much angst as a decline. The financial markets remain addicted to help from central banks: they are desperate for yet more interventions, regardless of the consequences on the pricing of risk, the allocation of resources or the creation of unsustainable bubbles that only enrich the owners of assets.

This is exactly the tonic that the populists have been waiting for. Despite their dramatic emergence, they have so far failed to make a real breakthrough. The SNP was unable to win the Scottish referendum and the National Front didn’t gain a single region in France. Mariano Rajoy remains Spain’s prime minister, and anti-establishment parties have been thwarted in Germany. Even lighter forms of populism, such as Ed Miliband’s, were rejected. Syriza’s victory in Greece was one of the few genuine populist triumphs; but it was soon crushed by the combined might of Brussels and Frankfurt.

This could be about to change. The fact that Donald Trump and Bernie Sanders both won their respective New Hampshire primaries is certainly one remarkable indication of the state of mind of many US political activists. Any economic relapse would help Marine Le Pen’s chances in next year’s French presidential election, and further undermine Angela Merkel’s sinking popularity in Germany.

But it is in Britain that the immediate impact could be the greatest. The Brexit debate is already being overshadowed by the migration crisis, undermining the Government’s attempts at portraying a Remain vote as a safe, low-risk option; a sustained bout of economic volatility would further ruin the pro-EU case, especially given that the eurozone, rather than the City, is likely to emerge as one of the epicentres of any fresh crisis. It would be hard for bosses of large financial giants to credibly tell the electorate to vote Remain when their own businesses are in crisis.

Britain will noticeably outperform the EU this year: our labour market remains strong and our banks far better capitalised than many of their eurozone competitors, too many of which are still sitting on massive amounts of bad debt. The Chinese slowdown is worse for Germany than for us. But while the Eurosceptic cause to which some of us are partial is likely to benefit from the turmoil, it would be madness for anybody who cares about this country’s future to feel anything but dread towards the economic threats facing the world. The sorry truth is that there is very little that governments can do at this stage, apart from battening down the hatches and hoping that central banks succeed in kicking our problems even further down the road.

See (emphasis added; charts omitted); see also (“WORLD ECONOMY IN DEATH SPIRAL, THE PERFECT STORM OF 2016“) and (“Why Is America So Angry?“)

This analysis is sobering and largely accurate.

However, what is coming will not be a recession.


15 02 2016
Timothy D. Naegele

Financial Armageddon [UPDATED]

Grim Reaper

Echoing what I have written in the article and comments above, famed investor Jim Rogers has said:

“We’re all going to pay a horrible price for the incompetence of these central bankers,” he said Monday in a TV interview with CNNMoney’s Nina dos Santos. “We got a bunch of academics and bureaucrats who don’t have a clue what they’re doing.”

The Singapore-based American investor said central bankers are doing everything they can to prop up financial markets, but it’s all for naught. He predicts their unconventional monetary strategies will lead to a stock market rally in the near future, but deep trouble later this year and into 2017.

“This is going to be a disaster in the end,” he said. “You should be very worried and you should be prepared.”

Central bankers around the world have been increasingly using negative interest rates to prop up inflation and support their economies, but Rogers said the moves aren’t working. He said they are simply trying to rescue stock markets and help brokers keep their Lamborghinis.

“The mistake they’re making is, they’ve got to let the markets sort themselves out,” he said.

“It’s been over seven years since we’ve had a decent correction in the American stock market. That’s not normal. . . . Markets are supposed to correct. We’re supposed to have economic slowdowns. That’s the way the world has always worked. But these guys think they’re smarter than the market. They’re not.”

Rogers made his fortune several times over by investing where others feared to tread. He made a name for himself in the 1970s after co-founding a top-performing fund with George Soros. He has also penned a range of investment books and become a fixture on the international speakers’ circuit.

Rogers set a Guiness world record between 1999 and 2002 by visiting more than 100 countries by car.

See (“Central bankers ‘don’t have a clue’ – Jim Rogers”); see also (“Why negative central bank interest rates herald new danger for the world“)

Also, echoing what I have written above, former OMB director David Stockman fears there will be “a run on mutual funds and ETFs [or exchange-traded funds]” amid the volatile economic climate:

“I do think that the banks have unloaded the worst of their stuff and today it is in mutual funds and ETFs, today it is in non-bank financial institutions, like all these companies that have come up overnight to make auto loans by selling junk bonds as a form of capital,” he said.

“The dangers of a run are far more serious now than it was with banks then. Back then, there never was a run on Main Street banks, it was only on a few hedge funds,” he said.

“This time you are going to have a run of $5 trillion or $6 trillion of mutual funds. This time you are going to have a run on the ETFs. There were only $1 trillion of ETFs in existence in 2008. There is over $3 trillion now and they are an accelerator mechanism,” he said.

“When everyone sells their ETFs, the managers have to go out and liquidate assets by selling the underlyings. The underlying assets are not nearly as liquid as the offer that anytime you want to sell your ETF there is a bid. Anytime you want to sell your mutual fund share, there is a bid . . . and I will tell you what . . . that is where the collision is going to come in the market.”

To be sure, it’s scary to watch the stock market plummet, but long-term investors have always eventually been made whole.

Someone with terrible timing who bought an S&P 500 index fund on Oct. 9, 2007, when stocks peaked before the financial crisis, got back to even by August 2012, aided by dividends. That meant a wait of about five years.

Plus, much of stocks’ long-term returns can come from just a handful of really big days, and it’s impossible to predict when they’ll occur. Miss them, and owning stocks gets much less lucrative. Two thirds of the S&P 500’s gain over the last decade has come from just five days.

“This is the whole point of why equities generate the best returns of any major asset class over long periods of time,” David Lefkowitz, senior equity strategist at UBS Wealth Management Americas, told the AP.

“They have higher volatility. If you can live with the higher volatility, you should be in a position to earn higher returns. I fully expect that stocks ultimately will reach new highs.”

See (“David Stockman: Mutual Funds, ETFs at Risk of a Run“); see also (“Exchange-traded fund“)

As I have written in the article above:

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable. Americans and people of other countries have lost trust in their governments, which will only compound the problems.

Hold on tight. Things will get very scary between now and the end of this decade.

See (“The Obama Great Depression“); see also (“Chilling ways the global economy echoes 1930s Great Depression era”) and (“Making Depressions Great Again”—”The pace of global trade continues to tumble, an ominous trend for growth”—”Four of the remaining U.S. candidates claim to oppose the Trans-Pacific Partnership, and Congress now lacks the votes to pass it”) and (“Britain’s factories engulfed in global manufacturing slump”—”Britain’s slump came amidst a broader slowdown in the world’s factories as global demand for industrial goods ebbs”)


16 02 2016
Jonathan Buttall

Hello, Timothy. As I’m writing this, there seems to be one of those respites which have been brief, in the poor market results over the last 14 months. As I earlier noted, we’re holding fast on investments, not wanting to buy but not wanting to sell low. And, as we’re now heavy on cash and planned retirement incomes, our retirement seems safe enough.

I noticed Jim Rogers is apparently an ex-pat based in Singapore. We visited Singapore in October for five days in October before spending a longer time in Australia. Singapore seems attractive to smart people from financially troubled countries who want a good standard of living, especially from India and China.

An Indian woman there running a small business gave us a long chat about how people should live and work that sounded taken from a successful American conservative playbook. It’s a prosperous city state surrounded by poorer countries, formed when it became independent of one of them (Malaysia). This tells me that this Jim Rogers is sophisticated about the world and where to live, and has a good international perspective.

This is a good time to be very financially diversified with back up plans. The pressures on Central Banks in Europe is troubling and I hope the mega banks in our country hold up- we do use one of them for our aggressive investments (most of my net worth is not in this category).

If I had to start my professional career today with the current economy and the lack of good positions, we’d be in trouble. Being empty nester retirees at this time is a good place to me. Our son and his wife struggle (we don’t support them) but they now have three jobs between them so I think they’ve got a lot more financial maturity than they used to. They (and all of us) will need that in the years ahead.

Liked by 1 person

16 02 2016
Timothy D. Naegele

Thank you, Jonathan, for your comments as always.

Google Jim Rogers. He is a fascinating person. He and his third wife moved to Singapore after they completed their around-the-world travels, which are mentioned in the last paragraph of the article about him.

One reason he did so is because of the emergence of China as such a global power now and in the future. Also, he wanted his first daughter (and now the second one too, presumably) to be fluent in Mandarin so they would be comfortable in China, and living and doing business in the Orient.

See, e.g.,


16 02 2016
Jonathan Buttall

Thanks, Timothy, I’ll look up his name. …


26 02 2016
Timothy D. Naegele

The Coming Deflation Spiral

Deflation Spiral

An article appears in the New York Sun that contains one very important sentence:

Central banks haven’t been able to identify tools to stop deflation, so if it starts, it might become a deflation spiral.

See (“‘Helicopter Money’ Next? New Course for the Fed Is Growing More Urgent“)

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable.

Americans and people of other countries have lost faith in their governments, which will only compound the problems. Yes, this is not 2008 all over again. It may be much worse, even eclipsing the Great Depression of the last century.

See (“The Obama Great Depression“)

A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison.

America’s Fed and the other central banks of the world will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.


28 02 2016
Timothy D. Naegele

World Economy Stands On The Cusp Of Another Crash

The UK’s Telegraph has reported:

Former Bank of England Governor Lord Mervyn King has warned that the world is on the cusp of another crash because regulators’ have failed in their attempts to reform the financial system in the wake of the last crisis.

“Another crisis is certain, and the failure . . . to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later,” Lord King says in his new book, the exclusive serialisation of which starts in The Telegraph this weekend.

Since the last crisis, “governments and regulators have been hyperactive at the national and international level” but “bankers and regulators have colluded in a self-defeating spiral of complexity”, he claims.

Lord King had a turbulent ten-year reign as Governor of Bank of England between 2003 and 2013 – a period in which he was at the heart of a £500bn bailout of Britain’s broken banking system in 2008 led by Chancellor Alistair Darling and Prime Minister Gordon Brown in response to the global crash.

As Governor of the Bank, Lord King was responsible for Britain’s interest rate policy and money supply. He says that Brown’s “tripartite” system of financial regulation, created in 1997 and comprising the Bank of England, the Treasury and the Financial Services Authority – failed to protect Britain’s financial system when the credit crunch struck in 2007.

“A major failing before 2007 was that the monetary policy framework designed to deal with good times and the lender of last resort framework for bad times were not properly integrated. In the crisis, massive support was extended not to save the banks but in order to save the economy from the banks,” Lord King says.

The crisis was not a failure of individual policymakers or bankers Lord King argues but of “a system, and the ideas that underpinned it…There was a general misunderstanding of how the world economy worked”.

Unsustainably high and low spending around the world led to large trade surpluses and deficits, creating a “disequilibrium” between major economies. This distorted real interest rates and exchange rates and led to bad investments in housing and property, he says.

Since the crisis, low interest rates have fuelled asset prices and a desperate search for yield, leaving central banks trapped “in a prisoner’s dilemma” unable to raise rates for fear of slowing growth and causing another downturn. However, short-term measures to maintain market confidence in the aftermath of the crisis has only perpetuated the underlying disequilibrium, Lord King argues.

“Only a fundamental rethink of how we…organise our system of money and banking will prevent a repetition of the crisis. Without reform of the financial system, another crisis is certain, and the failure . . . to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later.”

See; see also (“[Former governor of the Bank of England] Mervyn King: the eurozone is doomed”—”The eurozone is doomed to fail and will lurch from crisis to crisis unless it is broken up”—”‘Monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other. This is extraordinarily dangerous'”—”[T]he euro area today is a drag on world growth”—”The ‘only way’ to stop countries staring into the abyss of ‘crushing austerity, continuing mass unemployment’ with ‘no end in sight to the burden of debt’ faced by debtor nations is for them to abandon the euro”—”[L]eaving the euro area may be the only way to plot a route back to economic growth and full employment. ‘The long-term benefits outweigh the short-term costs'”) and (“Debt, defaults, and devaluations: why this market crash is like nothing we’ve seen before“) and (“The Coming Deflation Spiral“)


29 02 2016
Jonathan Buttall

Hi, Timothy. You’ve been close to the Washington scene so understand it. I’ve noticed that when a high up official in a Western country is in office, they often are under pressure to spin an unfortunate situation and emphasis the plans to prevent or solve the issues. When they’re long out of office, they speak quite freely, sometimes in anger, over what they admit is a terrible situation that will produce dire circumstances. Lord King is now free to speak frankly.

On a much smaller scale, I worked in local government for the second half of my career until retirement (psychology field in a criminal justice setting). In my last year, the Recession hit and funding reductions and bad administrative decisions (stressed people at the top tend to act impulsively) led to making a wreck out of the once excellent programs we had developed. I kept my silence then. Years later, under assumed names, on line comment sections have witnessed strong opinions and recommendations for shutting down a certain Gov’t agency.

Doing the right thing is often balanced, sadly, with self protection in difficult times. Interesting times are what they are. Best wishes to you.

Liked by 1 person

29 02 2016
Timothy D. Naegele

Thank you for your comments as always, Jonathan.

Yes, I agree completely. In many ways, this blog has served that purpose for me. When I submitted articles to publications in the past, often they would be edited and it took time for them to be published.

I still do that, certainly with professional publications like law reviews, but this blog allows for instant publication, without waiting. Also, it allows for instant feedback, such as yours.

I felt the Telegraph article above about Lord Mervyn King’s new book was rather shallow, which is why I have not “dignified” it by sending out a Tweet, as I usually do when announcing articles and comments that truly merit attention.


8 03 2016
Timothy D. Naegele

Can The United States Save The World?

American consumers

David Harrison has written an article in the Wall Street Journal entitled, “Amid Global Slowdown, U.S. Gets Miscast as Savior”:

With global growth sputtering, much of the world is hoping to hitch a ride with the U.S. economy. One big problem: The U.S. may not have enough horsepower to act as the global tow truck.

The collapse of commodity prices and China’s slowdown have walloped once-highflying economies, leading many policy makers and businesses to turn their eyes to the relatively sturdier consumer-driven U.S. economy.

The World Bank estimates the U.S. accounted for almost 23% of global growth last year, its highest contribution since 2003. This year, the U.S. is expected to contribute a still-strong 21% with faster growth than many advanced nations. The International Monetary Fund predicts the U.S. will grow a respectable 2.6% this year and next, though private-sector economists see a slightly slower expansion.

“The only engine of growth is the U.S. economy,” said Sri Mulyani Indrawati, managing director and chief operating officer at the World Bank in a speech Monday in Washington, D.C. Europe is struggling with the U.K.’s possible exit, Japan continues to see weak growth and the emerging economies that were “the engines of growth during the last decade” are underperforming, she said.

While the spotlight reflects well on the U.S. economy, some experts and policy makers worry about banking on American strength. The relative power of the U.S., they say, can only go so far to shake the world out of its slump.

“The U.S. economy alone can’t pull the global economy along. We simply don’t have the torque” said Timothy Adams, head of the Institute of International Finance, a trade group representing financial institutions.

U.S. policy makers, in settings such as the recent Group of 20 meeting of top finance officials, have been pushing other nations to encourage faster consumption in major economies such as China and Germany.

“The world can’t depend on the United States to be the consumer of first and last resort,” Treasury Secretary Jacob Lew said in a recent interview with The Wall Street Journal. “That’s not a powerful enough engine to drive the whole global economy. So there needs to be more demand in other places where there’s the capacity to generate it.”

Still, the buying habits of American households have become a global preoccupation as U.S. consumer spending adjusted for inflation grew 3.1% last year, the fastest annual increase since 2005.

While export-oriented sectors of the American economy have been hit by the global turmoil amid a strong dollar that makes goods more expensive overseas, the U.S. has performed relatively well thanks to a recovering job market and cheap energy prices that have bolstered consumers’ spending power. Only about one-eighth of U.S. output comes from exports; consumer spending still accounts for more than two-thirds of U.S. gross domestic product.

“The fact that the U.S. has been able to delink its own economic prospects from those of almost the entire rest of the world is quite remarkable,” said Cornell University economist Eswar Prasad. “Many people, including myself, had anticipated at least some drag from the persistent strength of the dollar and the fact that the rest of the world was so weak.”

Guillaume Deglise, chief executive of Vinexpo, a French company that organizes trade fairs for the wine and spirits industry said his company is boosting its focus on the U.S. because “it’s the leading consumer market.”

“Many people have forgotten that in the last few years,” he said. “The focus was probably too much on China.”

Amando M. Tetangco, governor of the central bank of the Philippines, recently said the “vibrant outlook” in the U.S. could have “positive spillover effects” for Filipino exporters.

In Germany, the U.S. consumer has already helped. Exports to the U.S. rose 19.4% between January and November of last year, offsetting a 4.3% drop in exports to China, according to the German statistics office.

Today’s dynamic is similar to one that prevailed nearly two decades ago. In 1999, as Asian countries were gripped by a financial crisis, an IMF report noted that the U.S. economy “has shown no signs of abating despite the slowdown of most of the United States’ overseas markets.”

“The ability of the United States to act as the main engine of global growth can be explained in part by the optimism of consumers and investors engendered by an exceptionally encouraging combination of economic developments,” the report said.

But that was a different era. In 1998, the U.S. was the world’s undisputed economic behemoth, accounting for almost half of global economic growth. Today, after the rise of China and other emerging markets, the U.S. contribution is less than half that.

Pinning the world’s hopes on the U.S. economy poses risks both to emerging markets and to the U.S.

For emerging markets, focusing too much on exporting to the U.S. could bind them to American economic cycles, putting them at the mercy of not just U.S. monetary policy but also the whims of American consumers. It could also lead them to postpone making the difficult decisions needed to develop healthy domestic demand.

And there are reasons to worry about the health of the U.S. economy, despite a generally positive outlook. Wages have been stubbornly slow to rise since the recession ended, though they have picked up somewhat in recent months. Business investment has also struggled to rebound.

Meanwhile, the stronger dollar has caused exports to plunge at a seasonally adjusted annual rate of 2.7% in the fourth quarter of last year after rising just 0.7% in the third.

That has hurt American manufacturers and made many gloomy about the future. Demand for long-lasting durable goods fell 3.3% last year. And only 27% of American manufacturers were optimistic about the world economy in a survey conducted by Pricewaterhouse Coopers. A slightly higher share, 46%, expressed optimism about the U.S. economy.

“The longer the drag from global growth remains in place,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics, “the more likelihood there is for a U.S. slowdown that would have secondary impacts on the rest of the world.”

See (emphasis added; chart omitted)

The U.S. has the strongest economy in the world; and it is the world’s only Superpower. Also, it is the largest energy producer globally, and essentially energy independent.

We do not need the Middle East anymore, for anything. Europe is in the process of fracturing; Brexit is underway; and Americans and people of other countries have lost faith in their governments, and are angry.

A “perfect storm” has been gathering for a long time now; and when it hits with its full force and fury, 2008 may seem like a “blip” by comparison. America’s Fed and the other central banks of the world will be overwhelmed; Depression-era “safety nets” will not make any difference; and panics may ensue.

The biggest worry in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable.

Russia is in a death spiral; and China is not in great shape.

America cannot save the world, nor is it the world’s policeman. Those days are over.


9 03 2016
Timothy D. Naegele

Extortion: Big Banks Paid $110 Billion In Mortgage-Related Fines [UPDATED]


The Wall Street Journal has an article that states:

The nation’s largest banks paid fines totaling about $110 billion for their role in inflating a mortgage bubble that helped cause the financial crisis. Where did that money go?

In New York, the annual state fair is using bank-settlement money to build a new horse barn and stables. In Delaware, proceeds are being used to subsidize email accounts for local police. In New Jersey, a mortgage firm owned by a former reality-television star collected $8.5 million as a reward for reporting a bank’s misconduct.

Banks also helped tens of thousands of homeowners with their mortgages in neighborhoods from Jacksonville, Fla., to Riverside County, Calif., funded loans for low-income borrowers and donated to dozens of community groups and legal-aid organizations.

Yet some of the biggest chunks of money stayed with the entity that levied the fines in the first place. Of $109.96 billion of federal fines related to the housing crisis since 2010, roughly $50 billion ended up with the U.S. government with little disclosure of what happened next, according to a Wall Street Journal analysis.

The Journal reviewed the terms of more than 30 settlements, filed public-records requests with a dozen agencies at the federal and state level and spoke to dozens of homeowners and others who obtained payouts, tried to or were otherwise involved with the distribution of the settlements. The results represent the most detailed breakdown yet of the billions paid out in the unprecedented deals.

Out of the $110 billion, the Journal found that:

• The Treasury Department received almost $49 billion of the funds, including money the agency received directly and sums funneled to it by other departments, including government-chartered housing associations Fannie Mae and Freddie Mac. How the money is spent isn’t specified.

• About $45 billion was earmarked for “consumer relief,” a category that includes money dedicated to helping borrowers and funding housing-related community groups.

• The Justice Department, whose prosecutors led many of the negotiations with banks, collected at least $447 million. How it spends the money isn’t specified.

• States received more than $5.3 billion, usually to spend as they saw fit. Almost all states received payments from a national settlement in 2012 over mortgage-servicing abuses, and seven also received payments in the Justice Department’s blockbuster mortgage-securities settlements that started in 2013.

• Roughly $10 billion went to other recipients, including housing-related federal agencies, two federal agencies responsible for cleaning up failed banks or credit unions, and whistleblowers who helped the Justice Department. Some funds from these deals typically revert to the Treasury.

The White House said tens of billions of dollars have been recovered for American consumers since 2009, including funds that went to government agencies and programs and the Treasury, according ​to Deputy White House Press Secretary​ Jen Friedman.

The lack of detailed disclosure bothers some people. “The government has a responsibility to its citizens to be transparent about where its revenues are going,” said Aaron Klein, who focuses on financial regulation for the Bipartisan Policy Center in Washington, D.C. “When settlement funds just go into the black box of the general fund of the government, who is accountable?”

Bank executives grumble privately about the opaque process and are critical the government didn’t ensure more money went to housing-related issues.

Given the historic scope of the fines, the money “shouldn’t just be a slush fund,” said Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, an industry group.

The settlements arose from bank behavior prosecutors said fueled the housing crisis and aggravated its effects. Among other things, banks were accused of pushing expensive mortgages on unqualified borrowers, selling hundreds of billions of dollars of securities that they knew were likely toxic and filing fraudulent paperwork on people being booted from their homes.

The Journal analysis included fines paid by the four biggest U.S. banks— Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.—as well as investment banks Morgan Stanley and Goldman Sachs Group Inc. One settlement, the Justice Department’s $16.65 billion deal with Bank of America, was the biggest ever imposed by the U.S. government on a single entity.

The analysis excluded settlements from private lawsuits—including some investor suits that resulted in multibillion-dollar payouts—as well as fines levied on banks for conduct outside the housing and mortgage crisis.

Fines generally are funneled to the Treasury, which manages the federal government’s finances. There, the money goes into the government’s general fund, where it can be spent on any budgeted item, including employee salaries or reducing the deficit. The Treasury Department said the settlement money isn’t specifically tracked.

A spokesman, Rob Runyan, said the funds are “spent as Congress authorizes.”

Most of the money attributed to Treasury in the analysis came indirectly. Fannie Mae and Freddie Mac, which buy loans from lenders and package them into securities, and their regulator, the Federal Housing Finance Agency, collected more than $34 billion in fines. The bulk was transferred to Treasury, which spent $187.5 billion to bail out Fannie and Freddie during the financial crisis.

The housing companies said they have been profitable since 2012 and have together paid the Treasury about $246 billion in dividends.

There is precedent for broad use of penalties. Funds from a 1998 deal for tobacco companies to pay states an estimated $200 billion over 25 years, intended to help states pay for smoking-related health costs, have also been used to balance state budgets and to fund school reading programs, after-school services and infrastructure.

A Justice Department spokesman, Patrick Rodenbush, said the bank settlements “hold financial institutions accountable for various forms of fraud in the mortgage industry” and that the money compensated “government agencies and programs harmed by the banks’ conduct.”

In three major settlements analyzed by the Journal—$13 billion from J.P. Morgan Chase, $7 billion from Citigroup and the $16.65 billion from Bank of America—banks were censured for misleading investors about shoddy mortgage securities. The Justice Department played the lead role in doling out pieces to other agencies and states involved in the litigation, according to people involved in the lawsuits.

Seven states, most with attorneys general who played important roles in previous litigation against the banks, participated directly in those settlements and received funds for special projects and local residents.

In New York, Gov. Andrew Cuomo is using proceeds to help replace the Tappan Zee Bridge north of New York City, renovate the Port of Albany and provide high-speed Internet access in rural communities.

Last year, when Mr. Cuomo announced in a speech that the New York state fair would get $50 million for an overhaul, Troy Waffner, the acting director of the fair, jumped up and down and called his mother. The fair will use the funds for improvements like a bigger concert stage, making the grounds more accessible to the disabled and an equestrian facility with warm-water washing stations for the horses.

Some New York housing advocates said more money should have been directed to areas directly affected by the financial crisis. Mr. Waffner is among those who support a broader distribution. “The more money we can invest in bringing back the economy . . . I don’t think that’s a bad use of funds,” he said.

Gov. Cuomo’s office said his own $20 billion, five-year investment in affordable housing, homeless services and related programs, “far exceeds what the state has collected from financial settlements,” said Morris Peters, a spokesman for Mr. Cuomo’s budget office.

Most states have directed settlement funds to state pension plans, which oversee savings accounts for public employees such as teachers, judges and other government workers. Many of those funds had invested in mortgage securities that went sour during the crisis. California sent the bulk of its $700 million in bank penalties to its two biggest state pension funds. The office of state Attorney General Kamala Harris said it held back $28 million for itself “to support this and related litigation.”

Out of the $110 billion in settlements, the Justice Department retained at least $447 million, the Journal’s analysis showed. The department keeps up to 3% of most civil fines collected, in its Three Percent Fund. It isn’t required to disclose how much money it puts in the fund or how it is spent.

Last year, a report by the Government Accountability Office, the investigative arm of Congress, estimated the Three Percent Fund collected $158 million from all eligible civil fines in fiscal 2013.

Diana Maurer, a GAO director, said her office believes the Justice Department should develop better plans for the use of the Three Percent Fund. The Justice Department countered, according to Ms. Maurer, and said it wanted to avoid creating improper incentives for prosecutors.

“They did not want to plan out” the spending for the long term, Ms. Maurer said. “And we said, ‘No, you really should, this is hundreds of millions of dollars.’ ”

The Justice Department didn’t comment on the use of the fund.

Banks agreed to provide an estimated $45 billion from the settlements in the form of consumer relief.

For example, according to the independent monitor overseeing Bank of America’s $16.65 billion agreement—which sets aside $7 billion in consumer relief—the bank has so far modified mortgages for nearly 20,000 homeowners and made loans to more than 21,000 borrowers who are low-income, lost their previous homes to foreclosure or live in parts of the country hit especially hard by the housing crisis. The monitor, mediator Eric Green, said the bank has completed nearly 60% of its obligations.

Bank of America declined to comment beyond Mr. Green’s report.

Six years after the end of the recession, the housing sector is still on unsteady ground. Home prices have rebounded, but the weak pace of new home construction and a lack of first-time buyers raise concerns. A million homeowners or more are facing foreclosure, by industry estimates.

Massachusetts determined Karen Lojek, a staff accountant at a manufacturing company, had been harmed by a deceptive loan that violated state lending laws, according to the state attorney general’s office.

Ms. Lojek bought her Methuen, Mass., home in 2004. Her husband died soon after, leaving her struggling to make ends meet.

At the end of 2014 she learned she would receive $19,600, part of $80 million the Massachusetts attorney general’s office received in certain settlements.

The windfall only reduced her overall mortgage debt and didn’t cut her monthly payment of about $1,300, which is scheduled to climb when her interest rate resets in December.

Ms. Lojek estimated she now owes about $235,000 on the house, which is worth roughly $200,000.

“It just doesn’t make sense,” Ms. Lojek said. “With all the settlements that were made, I thought maybe it would all be fixed. How can I still be in this situation with everything that supposedly happened to correct the situation?”

See (emphasis added; charts omitted)

This article is ludicrous; however, we must be ever vigilant not to condemn the messenger.

This is robbery and extortion, and a national scandal, equalling or far surpassing anything that prompted the fines.

The big banks did not cause the problems. Alan Greenspan did; and in another time and place, he would have been literally hung for what he did.

As I wrote in the American Banker—the daily newspaper of the U.S. banking industry—on October 17, 2008, right in the midst of the crisis:

Former Federal Reserve Chairman Alan Greenspan is the architect of the enormous economic “bubble” that has burst globally. No longer is he revered as a “potentate.” His reputation is in tatters. Giulio Tremonti, Italy’s Minister of Economy and Finance, has said: “Greenspan was considered a master. Now we must ask ourselves whether he is not, after [Osama] bin Laden, the man who hurt America the most.” That speaks volumes.

Greenspan let things get out of control, and the prices of U.S. homes rose to stratospheric levels. Americans and their counterparts abroad borrowed like drunken sailors because of their newfound wealth and net worths, and no one believed that the party would end. While borrowers were told to read the fine print about the risks of adjustable-rate mortgages and the like, few people worried about the future.

See (“Viewpoint: Greenspan’s Fingerprints All Over Enduring Mess”)

Greenspan was and still is a criminal, and a disgrace to America. He inflated the mortgage bubble—and he was responsible for the end of Glass–Steagall—the big banks did not do it. Yet, the big banks were blamed, and extorted.

And no, the so-called “Big Banks”—and in fact, all banks—are not evil, as they are so often depicted by the political class. Banks serve public purposes; and they are an indispensable part of our domestic and international economic fabric. The Fed exercises its monetary policies vis-à-vis the banks. Yet, they are demonized, and convenient whipping boys.

No one speaks of the fact that they have shareholders; and a broad sector of people were affected adversely by the payment of $110 billion in fines. It was not free “Monopoly” money. Also, when this level of extortion is paid out, the banks have to recoup the monies, and they do so through higher charges on loans and other activities. Put bluntly, what has taken place is an unconstitutional redistribution of wealth.

The bank executives who authorized the payment of such extortion should be held personally responsible by the shareholders—assuming of course that applicable statutes of limitations have not run. They should have blocked all of the extortion monies that were paid.

The prosecutors must be held personally responsible as well, and their legal careers must be ended. They are a vicious and unprincipled lot anyway. The same is true of the corrupt politicians who were involved in this wholesale fleecing of America’s banks.

If there is even a modicum of humor in all of this, it is that what happened reminds one of Rube Goldberg cartoons, whereby something simple was accomplished through complicated and contorted means.

See also (“Attorney General Loretta Lynch testified Wednesday that the Justice Department has ‘discussed’ taking civil legal action against the fossil fuel industry for ‘denying’ the ‘threat of carbon emissions’ when it comes to climate change”)

. . .

Why should American banks (and foreign banks that operate in the U.S.) take any risks at all?

If they do so, (1) our financial institution regulators will pounce on them; (2) rabid attorneys general will sue them; (3) shareholders and customers will sue them; and (4) management will run the risk of being sacked and sued.

The world is on the verge of a financial crisis of unfathomable depths; and when its history is written in the decades to come, these will be among the contributing factors.


31 03 2016
Timothy D. Naegele

An Ominous Sign Of The Future: Condo Bust Looms In Miami

Global Meltdown

The Wall Street Journal has reported:

Miami is facing a condo bust—again.

Developers have started canceling projects, slashing prices and offering incentives such as private-jet access to spur sales, an ominous echo of the housing crash that pounded South Florida especially hard.

Easy financing and rising prices prompted developers to build about 21,000 condos in the downtown Miami area from 2004 to 2008. Many of those units sat empty for years.

Developers say this time they have insulated themselves by requiring buyers to put down 50% deposits by the time buildings break ground and by canceling projects instead of moving forward as the market slows.

Still, it may not be easy for some to sidestep the damage. In the fourth quarter of 2015, the number of Miami Beach condo transactions declined nearly 20% from a year earlier, while inventory jumped by nearly a third, according to a report from appraisal firm Miller Samuel Inc. The median sales price slipped 6.6%, according to the report.

“The condo market has peaked,” said Neisen Kasdin, a real-estate development lawyer at Akerman LLP in Miami. “Sales velocity has slowed down considerably.”

Many of the forces buffeting the Miami market are also hitting luxury markets in New York, Southern California, Australia and London. A strong U.S. dollar and weakening local currencies, dropping oil prices and global economic turbulence have crimped the buying power of foreign investors.

At the same time, stock-market turbulence has made wealthy locals hesitant to undertake big purchases. Luxury-home prices in 10 global cities analyzed by broker Knight Frank LLP are expected to increase by 1.7% this year, down from 3% growth in 2015.

Carlos Rosso, president of condominium development at Related Group, Miami’s largest condo developer, said he sells about 20 units a week in the Miami-Fort Lauderdale area, versus about 100 a week last year. In response, the company priced its new Auberge development, a 60-story project in downtown Miami, at $600 a square foot, compared with the $850 a square foot it might have asked a couple of years ago.

If Related and its partners hadn’t decided to lower prices, they probably would have had to wait until the next cycle to start construction, Mr. Rosso said. The project launched two months ago and Related has sold about 70 units out of 350 so far.

“It’s a marathon and it’s not a 100-meter chase,” he said. “This is the part of the marathon where we are running a little bit slower.”

Other Miami developers have put on hold or canceled more than half a dozen projects planned earlier in the cycle, from the Ion East Edgewater, a 35-story tower planned by a local Florida development firm, to Krystal Tower, a downtown tower planned by a Brazilian developer, according to consulting firm Integra Realty Resources Miami. Overall, the pipeline of units in active projects in Miami has shriveled by 42%, according to a report released a month ago by Integra.

At the Aurora, a new 61-unit building off the Miami waterfront, the developer is offering buyers a free membership to JetSmarter, a service that allows members to use shared private jets for free.

Tim Lobanov, managing director of Verzasca Group, which is developing the building, said the perk has a retail value of about $12,000 and is part of the project’s pitch to appeal to New Yorkers. JetSmarter offers flights several times a week from New York to southern Florida.

The south Florida condo market is especially vulnerable to swings in the global economy because developers rely heavily on foreign buying, particularly South Americans, Russians, Europeans and Canadians.

Foreign investors have pulled back as the value of their currencies has dropped versus the dollar. Brazilians, for example, have seen the value of their currency against the dollar slip nearly 42% since 2014, while Argentines have seen their purchasing power in the U.S. decline more than 40%, according to Integra Realty Resources.

Miami developers said they are seeing increased demand from New Yorkers and Chinese buyers looking to buy second homes, but that is unlikely to replace the sharp drop in demand from South Americans.

“The depth of the Chinese market, or the European or Canadian market, is not enough to make up for the South American buyer,” said Anthony Graziano, senior managing director at Integra.

While people across the industry acknowledge the market is slowing, they say low debt levels and a slowdown in new projects will prevent the massive oversupply they saw during the last bust.

“I don’t see this as the bloodbath that we had last go around at all,” said Gil Dezer, president of Dezer Development, builder of high-end Miami condos such as the Residences by Armani Casa, which has seen sales volume plunge to six a month from 20.

Overall, about 1,200 condo units in Miami were delivered last year, down from the peak of 10,000 units in 2008, according to Integra. But with more than 7,300 units under construction, inventory is expected to increase.

Most Miami developers have protected themselves by taking a page from the South American markets. Many now require buyers to pay a 50% deposit on the total cost of their units by the time the project breaks ground. Developers don’t break ground until the project is 80% sold, which means the deposits are enough to cover a significant portion of the construction costs. During the last cycle, by contrast, developers required only 20% deposits and allowed buyers to flip their units while they were still in contract.

Related and a few other developers have since loosened their deposit requirements to 30% from 50% to spur more deals. Mr. Rosso said Related does that only when it already has secured a construction loan and doesn’t need the additional deposits to cover building costs because the building is 80% sold.

Still, Mr. Rosso said the company doesn’t anticipate breaking ground on many new projects in Miami in the next couple of years and instead will be focusing on projects in places like Argentina and Mexico.

“A big part of the cycle is understanding when it’s time to launch new jobs and when it’s time to sell what you have,” he said.



31 03 2016
Jonathan Buttall

Hi, Timothy (I made another unsuccessful attempt to log on in a way to allow giving likes). Looking at this latest article reminds me of when I was growing up in the Northeast. People there often saw Miami- South Florida in general as the promised land and longed to retire there one day. My family would take driving trips down there and stay at a Miami resort. The beaches were narrow due to heavy hotel and condo development, and the high rises were just white boxes with no style. I even remember garbage dumped in Everglades National Park. Florida is badly overcrowded today, certainly no “Mecca”.

When I decided where I wanted to live, I didn’t consider Florida…..I moved to Arizona in my early 30s, continued my career, married and raised a family, and we’re now empty nesters and retired. That said, sounds like a housing bust coming to Florida. Obviously too many people moved there, although Arizona, with a little more than one third Floridas population and twice the size, is getting crowded too in our only two metro areas.

Mr. Rosso sounded interested in Mexico, popular with Ex pats looking for a low cost of living and Argentina, with it’s exotic culture and great scenery (but a troubled economy and terrible gov’t). We like to visit Mexico and Argentina, but if the world destabilizes, the US will be the last place to fall so we’ll stay here to live!

Best wishes, Timothy, thanks for the insights. This smug retiree is opinionated but way too smug about his senior lifestyle.

Liked by 1 person

31 03 2016
Timothy D. Naegele

Thank you as always, Jonathan.

Sorry about the “like” issue. I use three Web browsers (Safari, Chrome, Firefox). Some features at Web sites work with one browser but not another. In theory, there should be no differences, but reality dictates otherwise. You might wish to try another browser, and see if it makes a difference.

Second, your key sentence (or so I believe) is:

[I]f the world destabilizes, the US will be the last place to fall so we’ll stay here to live!

I agree completely. So do people in other parts of the world, who are flocking here if they have a choice.

Which part of America to live in depends on one’s personal tastes, economics and fate. Growing up in Southern California, if anyone had told me that I would live in the Washington, D.C. area and raise my kids there, I would have laughed. But an Army commission brought me to the Pentagon; and the “excitement” of WDC took me to the Hill and beyond.

John Lennon had a line in one of his last songs (“Beautiful Boy”) on his “Double Fantasy” album:

[L]ife is what happens to you while you’re busy making other plans.

Perhaps that says it all.


2 04 2016
Timothy D. Naegele

Trump Predicts Massive Recession [UPDATED]

Donald Trump

Watergate pundit Bob Woodward, and Robert Costa, have written in the Washington Post:

Donald Trump said in an interview that economic conditions are so perilous that the country is headed for a “very massive recession” and that “it’s a terrible time right now” to invest in the stock market, embracing a distinctly gloomy view of the economy that counters mainstream economic forecasts.

The New York billionaire dismissed concern that his comments — which are exceedingly unusual, if not unprecedented, for a major party front-runner — could potentially affect financial markets.

“I know the Wall Street people probably better than anybody knows them,” said Trump, who has misfired on such predictions in the past. “I don’t need them.”

Trump’s go-it-alone instincts were a consistent refrain — “I’m the Lone Ranger,” he said at one point — during a 96-minute interview Thursday in which he talked candidly about his aggressive style of campaigning and offered some new details about what he would do as president.

The real estate mogul, top aides and his son Don Jr. gathered over lunch at a makeshift conference table set amid construction debris at Trump’s soon-to-be-finished hotel five blocks from the White House. Just before, he had met there with his foreign-policy advisers and just after he visited officials at the Republican National Committee — signs that, in spite of his Trump-knows-best manner, the political novice is making efforts to build a more well-rounded bid.

Over the course of the discussion, the candidate made clear that he would govern in the same nontraditional way that he has campaigned, tossing aside decades of American policy and custom in favor of a new, Trumpian approach to the world.

In his first 100 days, Trump said he would cut taxes, “renegotiate trade deals and renegotiate military deals,” including altering the U.S. role in the North Atlantic Treaty Organization.

He insisted that he would be able to get rid of the nation’s more than $19 trillion national debt “over a period of eight years.”

Most economists would consider this impossible because it could require taking more than $2 trillion a year out of the annual $4 trillion budget to pay off holders of the debt.

Trump vehemently disagrees: “I’m renegotiating all of our deals, the big trade deals that we’re doing so badly on. With China, $505 billion this year in trade.” He said that economic growth he foresees as a consequence of renegotiated deals would enable the United States to pay down the debt — although many economists have said the exact opposite, that a trade war would be crippling to the U.S. economy.

Trump also said that the United States has lost its standing in the world and that he would make people “respect our country. I want them to respect our leader.” Asked how he would do so, Trump cited an “aura of personality.”

As a group of world leaders attended President Obama’s Nuclear Security Summit less than a mile away, Trump said that, like Obama, he would support full-scale nuclear disarmament, but quickly added, “I love that. But from a practical standpoint, not going to happen.”

Were he to be elected president, Trump said he would want high-level employees of the federal government to sign legally binding nondisclosure agreements so that staffers couldn’t write insider accounts of what it’s like inside a Trump White House.

“When people are chosen by a man to go into government at high levels and then they leave government and they write a book about a man and say a lot of things that were really guarded and personal, I don’t like that,” Trump said.

But first, Trump must get elected, and his campaign is struggling through one of its most challenging stretches. In the past week, his campaign manager has been charged with battery for grabbing a reporter, he has been criticized for mocking the looks of an opponent’s wife as compared with those of his own spouse, and he has backtracked from comments about abortion that offended many in his own party.

Trump said that everyone close to him — family, friends, Republican leaders — have been urging him to tone down his attacks and reach out to former rivals, both to reassure wary voters and to begin the difficult process of unifying a party in which many have sworn to never back him. Trump does not intend to take the advice. He said such overtures are “overrated.”

“I think the first thing I have to do is win,” he said. “Winning solves a lot of problems. And I have two people left” — his two remaining Republican rivals, Sen. Ted Cruz of Texas and Ohio Gov. John Kasich.

“Sometimes you have to break an egg,” he said, and Cruz and Kasich were the two remaining eggs.

Trump did offer some concessions to the realities of being a political novice, saying that he would not pick an outsider like himself as a vice-presidential running mate, but rather, “somebody that can walk into the Senate and who’s been friendly with these guys for 25 years, and people for 25 years. And can get things done. So I would 95 percent see myself picking a political person as opposed to somebody from the outside.”

In another unprecedented move, Trump said he plans to announce a list of 10 to 12 judges from which he would pick to fill vacancies on the Supreme Court to allay concerns from conservatives that he wouldn’t choose someone to their liking.

“I’m getting names. The Federalist people. Some very good people. The Heritage Foundation,” Trump said. “I’m going to announce that these are the judges, in no particular order, that I’m going to put up. And I’m going to guarantee it. I’m going to tell people. Because people are worried that, oh, maybe he’ll put the wrong judge in.”

And after a series of violent incidents at his rallies between supporters and protesters, Trump acknowledged that, at least for a little while, he has tried to calm things down.

“We’ve purposefully kept the crowds down this past week,” he said. “You know, we’ve gone into small venues and we’re turning away thousands and thousands of people, which I hate, but we didn’t want to have the protest. You know, when you have a room of 2,000 people, you can pretty much keep it without the protesters.”

‘I bring rage out. I always have’

The question posed to Trump about his decision to run: “Where do you start the movie?”

A wry smile spread over his face as he repeated the question about the moment when he decided to turn what had long been a flirtation with running for the presidency into something real.

Asked who he talked to about this critical decision, Trump answered: “To myself.”

To your family?

“To my family, but to myself.”

So it was an interior dialogue?

“This is thought process. And I’m saying to myself, you know, look, they put me in these polls. I’m number one.”

Trump said his interest really started to pick up in the summer of 2014, when he was still busy with his hit NBC reality show, “The Apprentice.” He kept his ambitions mostly to himself, slowly thinking it through into early last year, when he hired political advisers, months before he formally jumped in.

Trump said his experience throughout the last two years wasn’t like 1987, when he first made a speech in New Hampshire that he “forgot about” soon after delivering it. This time, as he read the daily newspapers, printed-out online articles (his preferred method of reading) and kept tabs on cable news, he felt the pull.

“I said, ‘You know, this is something I really would like to do.’ I think I’d do it really well. Obviously the public seems to like me,” Trump recalled.

“I’ll tell you a moment when it kicked to yes. Because it was a monetary moment also. . . . There was a moment in, I would say February of last year, so that would be four months, three, four months before I announced, when Steve Burke, great guy, of Comcast . . . came to see me with the top people at NBC. And they wanted to extend my contract.”

Trump told them he was going to run for president instead.

“I just felt there were so many things going wrong with the country,” Trump said of his thinking at the time. He was frustrated with what he saw as the “stupidity” of trade deals and Iran nuclear negotiations that were “terrible” and dominated by “Persians being great negotiators.”

Trump’s wife, Melania, heard most of his complaints, but was not enthused about him becoming a candidate. “She said, ‘We have such a great life. Why do you want to do this?’ ”

“I said, ‘I sort of have to do it, I think. I really have to do it.’ . . . I could do such a great job.”

Later, Melania said, “I hope you don’t do it, but if you run, you’ll win,” according to Trump.

Now, more than a year later and with the Republican nomination in sight, Trump’s family is giving him different advice. “My family said to me — and Don [Jr.] has said this, and Ivanka, and my wife has said this — ‘Be more presidential.’ ”

Trump said he is getting similar guidance from close friends. He had a story to share. A couple weeks ago, a friend, a famous athlete, called. This was right after Trump beat Sen. Marco Rubio in Florida, the senator’s home state. “That was a big beating. Don’t forget, he was the face of the Republican Party. He was the future of the Republican Party. So [the athlete] called me up. And he said, ‘Hey Donald, could you do us all a favor? We love you. Don’t kill everybody. Because you may need them on the way back.’ ”

But Trump doesn’t see it that way, at least not yet. “I think you have to break the egg initially,” he said, adding that he has to beat his opponents and secure the nomination before he is willing to consider reaching out or easing off in any way.

When it was suggested that he seems comfortable being the Lone Ranger — the famous old-time TV and radio masked vigilante who fought for good outside the law — Trump immediately concurred.

“I am,” he said. “Because I understand life. And I understand how life works. I’m the Lone Ranger.”

Asked how he would build a coalition for the general election, Trump responded that he hasn’t focused on Hillary Clinton yet — an implication that once he starts attacking her, voters would rally to his side.

Pressed on whether it is incumbent on him to tame the anger within his party, Trump said it was, but also: “I bring rage out. I do bring rage out. I always have. I think it was, I don’t know if that’s an asset or a liability, but whatever it is, I do. I also bring great unity out, ultimately. I’ve had many occasions like this, where people have hated me more than any human being they’ve ever met. And after it’s all over, they end up being my friends. And I see that happening here.”

Not with everyone, though. Trump acknowledged that he has been “rough” and “nasty” in debates — so much so that some relationships with his former rivals are likely beyond repair. “One of the problems I have is that when I hit people, I hit them harder maybe than is necessary,” he said. “And it’s almost impossible to reel them back.”

Like Rubio, and former Florida governor Jeb Bush. “Some of the people that I was competing against, I’m not sure they can ever go back to me,” Trump said. “I was very rough on Jeb.” It was “Jeb: Low energy. Little Marco. Names that were devastating.”

Trump seemed unsure whether Cruz would ultimately fit that category. Trump noted that they had gotten along quite well for many months and suggested they could again, but he was also ambivalent about potentially reaching out to Cruz if he beats the senator from Texas for the nomination.

“I’ll never have to call him,” to get his help and support, Trump said, adding that if Cruz did reach out, he would congratulate him. “Because out of 17 people, you beat 16. Okay? Which is pretty good.”

Still, Trump admitted that he needed to do more outreach. “Honestly, a lot of people are calling me, but I should be calling them,” he said. “Because to a certain extent, I should be calling them, they shouldn’t have to be calling me.”

Trump noted that two of his former rivals, Ben Carson and New Jersey Gov. Chris Christie, are supporting him. As for some others, “They will be loved. At the right time, they will be loved.”

Asked specifically at this uncertain moment in his campaign whether, “all politics, all successful politics, is about coalition building,” he responded: “It’s true.”

Do you agree?

“I do,” Trump said, his arms folded across his familiar dark suit, white shirt and red tie, as he sat in what he hopes will be his newest trophy hotel. “I agree. I agree.”

Pressed on when that coalition building might begin, he turned to stories about boxing great Muhammad Ali and football coaching icon Vince Lombardi.

Ali, he said, earned respect “through having the goods. You know, so Muhammad Ali is a friend of mine. He’s a good guy. I’ve watched many people over the years. Muhammad Ali would get in the ring and he’d talk and talk and scream and talk about the ugly bear, and this, that — you know. And then he’d win. And respect is about winning. We don’t win anymore. I see it in my — we don’t win anymore. And he’d win. I’ve seen many fighters that were better than Muhammad Ali, in terms of talking. I’ve seen guys that were so beautiful, so flamboyant, they’d get into the ring — and then they’d get knocked out. And guess what? It’s all gone.”

Trump took a similar lesson from Lombardi.

“The coalition building for me will be when I win. Vince Lombardi, I saw this. He was not a big man. And I was sitting in a place with some very, very tough football players. Big, strong football players. He came in — these are tough cookies — he came in, years ago — and I’ll never forget it, I was a young man. He came in, screaming, into this place. And screaming at one of these guys who was three times bigger than him, literally. And very physical, grabbing him by the shirt. Now, this guy could’ve whisked him away and thrown him out the window in two seconds. This guy — the player — was shaking. A friend of mine. There were four players, and Vince Lombardi walked in. He was angry. And he grabbed — I was a young guy — he grabbed him by the shirt, screaming at him, and the guy was literally. . . . And I said, wow. And I realized the only way Vince Lombardi got away with that was because he won.”

‘It’s precarious times’

Trump has for months contended that the U.S. economy is in trouble due to what he sees as an overvalued stock market, but his view has grown more pessimistic of late and he is now bearish on investing, to the point of warning Americans against doing so.

“I think we’re sitting on an economic bubble. A financial bubble,” Trump said. He made clear that he was not specifying a sector of the economy but the economy at large and that more bullish forecasts were based on skewed employment numbers and an inflated stock market.

“First of all, we’re not at 5 percent unemployment. We’re at a number that’s probably into the twenties if you look at the real number,” Trump said. “That was a number that was devised, statistically devised to make politicians — and in particular presidents — look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number.”

Trump’s assertion does not match data from the Bureau of Labor Statistics. Its analysis of joblessness beyond the unemployed — such as “marginally attached” workers and those who have dropped out of the labor force — was under 10 percent nationally last month.

Trump’s view also runs counter to most economists, whose rough consensus is that the U.S. economy has about a 20 percent chance of slipping into recession this year largely because growth remains weak across the world, according to a Wall Street Journal survey of economists in March.

Most economists aren’t overly worried about an imminent downturn because job creation remains strong, workers are starting to see their wages grow and the Federal Reserve remains cautious about shifting away from the low-interest-rate stance that has helped stimulate the economy.

Any number of Trump’s predictions haven’t worked out. In 2012, for instance, he predicted that if President Obama were reelected, oil and gas prices would go “through the roof like never before.” In 2011, Trump said that when Obama’s health-care law took effect, national unemployment would “go even higher” than 9 percent. He was also bullish on real estate investments in the run-up to the housing bust.

Nonetheless, Trump said, “it’s precarious times. Part of the reason it’s precarious is because we are being ripped so badly by other countries. We are being ripped so badly by China. It just never ends. Nobody’s ever going to stop it. And the reason they’re not going to stop it is one of two. They’re either living in a world of the make believe, or they’re totally controlled by their lobbyists and their special interests.”

“I’m pessimistic,” Trump said. “Unless changes are made. Changes could be made.”

By Trump, for instance: “I can fix it. I can fix it pretty quickly.”

Trump firmly believes that a turnaround on trade would be the necessary beginning of a solution to any looming recession. He mentions the Trans-Pacific Partnership as one pact he would immediately seek to renegotiate, putting him at odds with congressional Republicans who supported giving the president fast-track trade authority last year.

Coupled with his push on trade would be a “very big tax cut,” which Trump unveiled last September. That proposal increases taxes on the “very rich” but reduces taxes for most taxpayers and would cut the corporate tax rate to 15 percent. To woo companies back to the United States, he would offer an incentive of a deeply discounted rate and would no longer allow corporations to defer taxes on income earned overseas.

‘You’ll be falling asleep you’ll be so bored’

In the center of Washington on Thursday, world leaders were attending a summit focused on reducing nuclear stockpiles around the world. A day earlier, Trump had made headlines for saying at an MSNBC forum that he would “possibly” use a nuclear weapon as president. Less than a week before, in an interview with the New York Times, Trump had suggested that Japan and South Korea should consider acquiring nuclear arms as a way of disengaging the United States from its role as a military protector — a proposal that the Obama White House promptly called “catastrophic.”

Told that Obama had said in 2010 that his greatest worry is a nuclear device exploding in an American city, Trump at first took a dig at the president.

“It’s funny. It’s very interesting. I’m surprised he said that because I heard him recently say that the biggest problem we have is global warming, which I totally disagree with. Okay?” Trump said.

But after mocking, Trump turned solemn on the topic, calling the nuclear threat the “single greatest problem” for global peace. “You look at Hiroshima and multiply it times a thousand,” he said, shaking his head.

Trump said if other countries would agree to do so simultaneously, he would be open to eliminating nuclear weapons held by the United States. “If it’s done on an equal basis, absolutely,” he said.

But Trump added a caveat. He said as much as he supports the idea of eliminating nuclear weapons, it may not be feasible in the current climate and with countries such as Russia and Pakistan perhaps unwilling to relinquish their arms since they are “spending a tremendous amount of money.”

“That’s something that in an ideal world is wonderful, but I think it’s not going to happen very easily. I would love to see a nuclear-free world. Will that happen?” Trump said. “Look, Russia right now is spending a tremendous amount of money on redoing their entire nuclear arsenal.”

Turning to Russia’s leader, Vladimir Putin, Trump said he continues to appreciate praise from Putin, even though his human-rights record and incursions into Ukraine and elsewhere have alarmed many. “I want Putin to respect our country, okay?” he said. “I think he respects strength. Okay? I think Putin respects strength. And I’ve said it before, I think I will get along well with Putin. Now you never know. I don’t say that — only a fool would say, ‘I will,’ but I feel that I will get along well with Putin.”

After talk of Putin and strength, Trump was read a few lines from Jeffrey Goldberg’s interview with President Obama in the Atlantic, which quotes Obama as saying, “Real power means you can get what you want without having to exert violence.”

Trump listened carefully and said, “Well, I think there’s a certain truth to that. I think there’s a certain truth to that. Real power is through respect. Real power is, I don’t even want to use the word, fear. But you know, our military is very sadly depleted. You look at what’s going on with respect to our military and it’s depleted from all of the cuts,” Trump said, noting that he frequently sees advertisements for former U.S. military bases being available for purchase.

“I don’t want people to be afraid. I want them to respect our country,” he said. “Right now, they don’t respect our country.”

Trump said the United States should not retreat from the world but it should reevaluate its relationships and role in many international groups and alliances, including NATO.

“First of all, it’s obsolete,” he said. “Our big threat today is terrorism. Okay? And NATO’s not really set up for terrorism. NATO is set up for the Soviet Union more than anything else. And now you don’t have the Soviet Union.”

But for Trump, NATO, Putin, nuclear weapons, all of that is for later. For now, against mounting calls from friends, loved ones and fellow Republicans, remains the fight.

“My natural inclination is to win,” Trump said. “And after I win, I will be so presidential that you won’t even recognize me. You’ll be falling asleep, you’ll be so bored.”

See (“In a revealing interview, Trump predicts a ‘massive recession’ but intends to eliminate the national debt in 8 years”) (emphasis added); see also (“On campuses across the country, students are standing up for Donald Trump”)

What Trump has predicted about the economy is a more politically-palatable version of the “Obama Great Depression,” which is described in my article above. Trump is pulling his punches, so he does not scare people.

Factors not discussed in the interview are (1) what effect Hillary Clinton’s possible indictment and withdrawal from the race will have on her true believers and the nation; (2) the effect of the GOP’s possible implosion; (3) more terrorist attacks around the world; (4) the migration crisis and Brexit in Europe; (5) North Korean aggression; (6) general uncertainty in the U.S. resulting from the fractious political campaigns; and (7) actions by our adversaries to take advantage of the waning days of the Obama presidency and the period before the next administration assumes office and gets its “sea legs.”


5 04 2016
Timothy D. Naegele


Global crash

If Donald Trump is denied the GOP presidential nomination, his supporters may walk (or run) from the party en masse. They will be angry; and it is unlikely that they will support someone else who is anointed by the party elites, such as Ted Cruz, Paul Ryan or Mitt Romney. The Trump faithful will be gone, and they may not come back for the general election. Good riddance to the GOP: many will say or think, and understandably so. They will feel betrayed.

Similarly, if Bernie Sanders is denied his party’s nomination, his supporters—especially new and young voters whom he has drawn into the American political process for the first time—are likely to bolt. The Sanders and Trump supporters may form Independent, third-party challenges to their respective parties’ reigns. If Hillary Clinton is not indicted, many Americans may reject the nation’s political and judicial processes, as unfair and unjust. If she is indicted and exits the race, uncertainty will also ensue.

With Trump, Sanders and/or Clinton gone, the United States’ political system may be thrown into turmoil, before the eyes of the world. This will come at a time when financial, social, economic and military upheavals are happening globally, threatening any notions of a coherent, pervasive fabric of order. Migrants are changing the face of Europe. Others are seeking to flee the Middle East for a better life in Europe. The Middle East continues to implode, as Syria, Iraq and even Saudi Arabia disintegrate. North Korea threatens. China’s tentacles expand. Brexit looms. And terrorists have demonstrated that they can strike anywhere, at any time, with increasing ferocity and impunity.

Donald Trump has predicted a “massive recession.” However, it may be much worse than that. Many economists and seers discount this possibility, but Trump may be correct. The economic problems and structural weaknesses of 2008 were papered over, and the can was kicked down the road, while the true day of reckoning was postponed. The chickens may be coming home to roost, bigtime; and like the late 1920s and early 1930s, the world may be unprepared. The Fed and the other central banks may have exhausted their options, especially in the face of an economic, political and social tsunami and calamity of unknown dimensions.

A perfect storm has been gathering for a long time now, and soon it may be upon us. One of the biggest worries in Washington for many years has been that there would be runs on the big funds, which are uninsured, and that a “liquidity crisis” of unfathomable proportions would occur—which would be unstoppable. Americans and people of other countries have lost faith in their governments, which will only compound the problems.

See (“Trump Predicts Massive Recession“); see also (“The Economic Tsunami Continues Its Relentless And Unforgiving Advance Globally“) and (“Republican presidential candidate Ted Cruz said the United States is headed toward a stock-market crash because Federal Reserve officials are ‘playing games with money to juice the system’ but have ‘created bubbles. . . . But that’s not built on anything real. It’s not built on an increase in the intrinsic value of those assets. That’s just playing games with money, which means a crash will be coming'”) and (“Britain’s super-rich have suffered the worst hammering of their fortunes since the financial crash”) and (“David Stockman, former budget director under President Ronald Reagan, warns that the nation will plunge into recession by year’s end. He said the Federal Reserve’s hawkish tone about hiking interest rates is bluster. ‘When has the Fed ever gotten it right about the economy? Did it see the crash coming in 2000? Did it see the housing bubble? Did it see the Wall-Street meltdown in 2008, or the bubble it’s creating now,’ he asked Fox Business Network. ‘The answer is no . . . it has no clear view of the future'”) and (“Celebs Slash Prices on Multi-Million Dollar Homes”) and (“U.S. Homeownership Rate Falls to Five-Decade Low”)

[Mr. Naegele was counsel to the Senate Banking Committee and chief of staff to former Sen. Edward W. Brooke, R-Mass. He has an undergraduate degree in Economics from UCLA, and two law degrees from Berkeley and Georgetown. He and his firm, Timothy D. Naegele & Associates, specialize in Banking and Financial Institutions Law, Internet Law, Litigation and other matters (see]


9 09 2016
Timothy D. Naegele


Global crash

The UK Telegraph‘s International Business Editor in London, Ambrose Evans-Pritchard, has written:

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and one trillion euros of quantitative easing by the European Central Bank, leaving the currency bloc with no safety buffer when the next global recession hits.

The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.

Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure. “It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro.

Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn (£60bn) programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject.

“The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics.

The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc.

This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year.

The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity.

Yet all the eurozone has achieved is growth of 0.3pc a quarter. France and Italy have both slowed to a standstill.

The euro’s trade-weighted exchange rate has crept up by 7pc since QE began, and it has continued to rise even since the ECB cut interest rates to minus 0.4pc.

“The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

Mr Redeker said the eurozone’s current account surplus – now running at €350bn, or 3.3pc of GDP – is feeding the deflationary dynamic. Since European banks are shrinking their balance sheets and repatriating money to meet capital rules, they cannot recycle the eurozone surplus abroad. This is creating a chronic bias towards a stronger currency.

Work by the International Monetary Fund shows that “lowflation” – even short of deflation – causes to a host of debilitating pathologies. It holds down nominal GDP and makes it even harder to work off high-debt ratios.

In theory, Mr Draghi could resort to even more radical measures but the scope is limited and he is walking through a political minefield. Public trust in the ECB has collapsed in several countries and the mood in Germany has turned toxic. The German banking and insurance lobbies have accused the ECB of destroying their business models with negative rates.

Deutsche Bank’s chief economist David Folkerts-Landau said the ECB had gone beyond the point of diminishing returns and was now itself a threat to the eurozone. “Central bankers can lose the plot. When they do, their mistakes can be catastrophic. After seven years of ever-looser monetary policy there is increasing evidence that following the current dogma risks the long-term stability of the eurozone,” he said.

This is unfair to Mr Draghi. The great macroeconomic errors were made long ago from 2010 to 2012 when drastic austerity and premature rate rises pushed the region into a double-dip recession.

Yet ECB officials confess that they may be close to the “economic lower bound”, where any gains to be eked out from more stimulus are outweighed by poisonous side effects.

The ECB network is running out of assets to buy since it can purchase only in proportion to the size of each national economy, a precaution against backdoor bail-outs of insolvent states.

The eurozone no longer seems to have an activist policy. It is treading water and at the mercy of external forces. The danger is that the next global downturn will strike before the currency bloc has escaped its current malaise and before it has built up any defences against a deflationary shock. Mr Draghi will not be able to rescue them a second time.

See (“ECB’s Mario Draghi has run out of magic as deflation closes in“) (emphasis added; charts omitted); see also (“FINANCIAL ARMAGEDDON?“) and (“‘Should prevailing economic conditions change in response to a large negative economic shock, commercial real-estate prices could decline relatively quickly, leading to large losses at leveraged firms,’ [Boston Fed President Eric Rosengren] said in an Aug. 31 speech in Beijing. That, in turn, could trigger a broader economic downturn, he said”) and (“The Bank for International Settlements warned in its quarterly report that China’s ‘credit to GDP gap’ has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis”—”Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. . . The BIS said there are ample reasons to worry about the health of world’s financial system”) and (“Banks Are Now Too Scared to Even Make Money“) and (“Condominiums in crisis: Financial troubles put many communities at risk“) and (Art market crash: “That $100,000 Painting Bought to Flip Is Now Worth About $20,000”) and (“[Putin’s Russia] is burning through its Reserve Fund to cover a fiscal deficit, drawing down $6bn in August alone. There is only $32bn left”) and (“London’s Mega-Mansion Owners Have a Tough Time Selling”)

At some point in time—in the not-too-distant future—the bottom will fall out. It is simply a function of time.

The storm clouds have been gathering globally for a long time now; and when the perfect storm hits, an economic tsunami will be unleashed that will roll the world’s financial markets, unlike anything that we have witnessed in our lifetimes.

The Fed and the other central banks will be helpless, and hopeless. One of the great worries in Washington for years is that there would be runs on the uninsured funds, which would be unstoppable, and massive panics would ensue.

Hold on tight. It will not be pretty when it hits; and the destruction of families and their lives, economically, will be unparalleled.

See, e.g., (A sign of things to come: “Largest property fund re-opens following investor panic”)


5 11 2016
Tom Fix

The Federal Reserve System and the Congressional Budget Office are saying quite forcibly, lately, that the Social Security and health care programs are not sustainable and will likely fail, within 12-16 years. They are saying this for two reasons: the U.S. government revenue as a percentage of GDP has been flat since 1945. But, it’s spending as a percentage of GDP has been increasing, especially lately. They are saying a political solution isn’t likely. The second reason we will experience a collapse is the slowdown in GDP growth. We’ve been spared a collapse, because of the output generated by the Baby Boomers, but as they retire, they are being replaced by less productive younger people. Worse yet, the debt will need to be repaid, as global growth slows, to prevent severe deflation. Because the U.S. is the world’s reserve and trade currency, the dollar must inflate at global GDP rates or global growth chokes. But, if it slows, we must repay that accumulated debt. This is the dire aspect of the outcome laid out by the Fed and the CBO, rather than a projected cutback in SSN and Medicare payments. It isn’t a pretty picture.


6 11 2016
Timothy D. Naegele

Thank you for your comments.

Yes, I agree. The picture is not likely to be pretty at all


2 12 2016
Jonathan Buttall

Hi, Timothy. Just read Toms comment. I believe that Social Security simply needs the latest reforms to be sustainable and this has successfully been done numerous times in the past by Congress. The actual numbers say it won’t fail, but in a decade or more, the payout will simply go to 70% of what it is now.

Medicare is in worse shape, and my studying of medical bills of mine and that of my late mother (who lived into her mid 90s) suggested that Medicare routinely enabled fraud by paying on request, up to triple what they had to, to greedy providers. There’s no better way to see the shady stuff that goes on with senior health insurance than handling someones Estate!

That all said, the solution is simply for Congress to come together and do the standard reforms of the past; perhaps raising the age for SS as done before, raising the taxes for it in certain circumstances, changing criteria’s for income brackets, more careful screening for SS disability than they do now, etc. While I mostly voted for the other party (not entirely), I admit having one party in charge of gov’t does make SS reform inevitable and likely to occur soon.

Of course, everyone should have back up plans. I kept my Employers insurance after retirement to cover what Medicare won’t, and we invest actively in case the “gov’t well” ever does go dry. I realize there are many millions of Americans that can’t afford these actions, but I do think the new Congress will pass reforms to help this.

I have an actual pension (well earned, given the kind of extreme positions I held and the physical and other risks involved), and believe that pension reform the last few years has already begun the process of gradually phasing out pensions for new gov’t workers. Retirement planning is more important and more difficult with each new generation. Our son will one day get what we have, but our grandson will have a tougher time.

That all said, we just got back from a month in South America, half of it a cruise and half of it exploring foreign cities on our own. One advantage I learned first hand is that if you’re traveling in Latin America anyway on vacation as a tourist and you have urgent dental work needed (which insurance barely covers any of), you can get the same quality care there on short notice at a tiny fraction of the price! Our last country there was Columbia, and instead of the third world poverty we expected, most of Bogota looked middle class, clean and with a modern new skyline………….and the badly cracked tooth I got two days before we traveled was easily handled by the first dental office we found in Bogota for the price of a good hair stylist. American health care is a real money machine that sucks people dry.

Oh, and congratulations, Timothy, your candidate won! My politics is offended, but my skyrocketing stocks after the election are quite pleased with the results………………..Best wishes, Jonathan.

Liked by 1 person

2 12 2016
Timothy D. Naegele

Welcome back, Jonathan. 😊

I assume you had a wonderful time; and I am pleased that your dental needs were met so cheaply.

Yes, Donald Trump won, and it is nice that your stocks are increasing in value. The Carrier deal is a sign that companies will benefit by keeping jobs here. Both Carrier and Ford seem to have learned that lesson already.

“The Obama Great Depression” may or may not materialize, now that Trump is about to seize the reins. Even the Trump naysayers may benefit, which would be ironic.


2 07 2017
Timothy D. Naegele

Is A Housing Price Collapse Coming To America?

Housing price collapse

The UK’s Daily Mail has reported:

House prices are teetering on the brink of a crash that could be as bad as the bust of the early 1990s, a leading expert has warned.

There are already warning signs that prices are heading towards a near 40 per cent plunge, warns Paul Cheshire, Professor of Economic Geography at the London School of Economics.

It raises the alarming spectre of the return of ‘negative equity’ – when a house falls so far in value it is worth less than the mortgage – which hit one million people at the worst point in the 1990s.

Speaking exclusively to The Mail on Sunday, Prof Cheshire, a former Government housing adviser, said: ‘We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting.

‘Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.’

Such a shift could push many thousands of recent buyers into trouble. From 1989, the price boom fell apart over the next six years, with prices plunging by 37 per cent.

In its most recent figures, The National Association of Estate Agents reported the number of homes sold in May for less than the asking price rose to 77 per cent. Inflation hit 2.9 per cent last month, while incomes only grew by 2.1 per cent.

Property experts and estate agents say the housing market in wealthier pockets of the country has been further hit by stamp duty hikes.

Prof Christian Hilber of the LSE also warned: ‘If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.’

The Council of Mortgage Lenders said earlier this month that the housing market had ‘stalled’.

See (“Britain ‘is on the brink of the worst house price collapse since 1990s’: Experts predict property costs could plunge by FORTY PER CENT“) (emphasis added; charts omitted)

The same thing may be true of the U.S. Our Fed has been irresponsible, and has allowed an enormous housing price bubble to inflate. When it bursts, the results may be truly catastrophic.

Yes, some will argue, such dire predictions have occurred in the past, but they have not materialized. True, many economists—including yours truly, whose undergraduate degree from UCLA was in economics—have been predicting a serious economic downturn, if not collapse, for a long time now.

See, e.g., (“The Obama Great Depression“) and (“The Economic Tsunami Continues Its Relentless And Unforgiving Advance Globally“) and (“The Great Depression II?“)

When it will happen is anyone’s guess. Those who have bet on housing prices and the stock market rising in the U.S. have been correct so far. However, like the game of musical chairs, at some point a severe “correction” will occur, and not everyone will end up having a seat.


7 08 2017
Timothy D. Naegele

Americans Have The Highest Credit-Card Debt In History [UPDATED]

Credit card debt

Maria LaMagna of MarketWatch has written:

American consumers just hit a scary milestone.

They now collectively have the most outstanding revolving debt — often summarized as credit card debt — in U.S. history, according to a report Monday released by the Federal Reserve. Americans had $1.021 trillion in outstanding revolving credit in June 2017. This beats the previous record in April 2008, when consumers had a collective $1.02 trillion in outstanding credit revolving credit.

“This record should serve as a wake-up call to Americans to focus on their credit card debt,” said Matt Schulz, a senior industry analyst at, a credit card website. “Even if you feel your debt is manageable right now, know that you could be one unexpected emergency away from real trouble.”

Revolving credit had been growing at an annual growth rate of 4.9%. One reason: More consumers are getting access to credit cards backed by major banks and issuers in recent months. More than 171 million consumers had access to those cards in the first quarter of 2017, the highest number that has had access since 2005, when about $162.5 million people had access.

For the first time since the Great Recession, lenders have given more consumers with sub-prime, or below average, credit scores, access to credit cards, but they are giving them lower spending limits, according to the credit reporting agency TransUnion TRU, +0.22% .

The New York Federal Reserve released a new report Wednesday that showed U.S. collective household debt balances totaled $12.73 trillion in March 2017, surpassing the 2008 peak of $12.68 trillion.

This isn’t the first debt milestone Americans have hit recently. The Federal Reserve announced in April that the U.S. had $1 trillion in credit-card debt. (Consumers hit that number previously in the fourth quarter of 2016, but had eased on their use of revolving credit during January 2017. The Fed announcement showed revolving consumer credit hit more than $1 trillion once again in February 2017 and has continued to climb.)

This year, total household debt — including housing, auto loans and student-loan debt — in the U.S. also surpassed the 2008 peak. While the debt level is similar to 2008, the things Americans are buying on credit have changed, as household incomes have increased in recent years, and housing prices and stock prices have improved.

Compared with 2008, fewer borrowers have housing-related debt and, instead, more have taken on auto and student loans. This is backed up by previous research: Student loans have made it harder for younger consumers to buy homes; plus, lower housing prices are also tied to higher student loan default rates.)

The New York Federal Reserve’s report also showed debt delinquencies of 90 days or more have mostly improved since 2008, except for student loans. About 10% of student loan balances are 90 days or more delinquent, according to the New York Federal Reserve’s analysis.

Here’s how the numbers stack up for indebted Americans in 2017: Housing-related debt is down nearly $1 trillion since the 2008 peak, but auto loan balances are $367 billion higher, and student loans are a whopping $671 billion higher, according to the Federal Reserve.

Although housing debt has decreased since 2008, mortgages still make up the bulk of the debt total, at 67%, as of 2016.

Previous Fed studies have shown Americans struggle with their auto debt, which often has high interest rates. The number of subprime auto loans that have fallen into delinquency hit their highest level since 2010 during December 2016. At that time, nearly 6 million people were at least 90 days late on their payments. That is similar consumer behavior to what was seen just before the 2007 – 2009 recession, experts said.

Nearly a quarter of the adults the Fed surveyed in 2016 said they or their spouse purchased or leased a new or used car or truck in the last year. About two-thirds of them took out a loan to do so. And 12% of those who used loans had a longer repayment period than the amount of time they even planned to own the vehicle.

Another trend: Older Americans are taking on a greater share of debt than in years past. Those ages 60 and older held 22.5% of total household debt in the fourth quarter of 2016, compared with 15.9% in 2008 and 12.6% in 2003. Although much of that debt is likely due to mortgages, it’s also possible they are shouldering more student loan debt than in the past, for their children and grandchildren. There were nearly 2 million borrowers between the ages of 50 and 64 who took on “Parent PLUS” loans, the loans the government offers parents, in 2015, up from about 1 million in 2005. Another 200,000 borrowers over the age of 65 also have them.

Credit card debt and auto loan debt balances for people ages 60 and older have also risen since 2008, whereas credit card debt for those 59 and younger has fallen. The Fed, when describing that phenomenon, said lending standards have tightened since the recession, and those who are older may also be more creditworthy.

Although that may make young Americans breathe a sigh of relief, it’s still potentially dangerous, as high levels of debt could mean older Americans don’t have enough money saved for retirement. Indeed, the average American couple has only $5,000 saved for retirement, and only a third of working Americans are saving money in an employer-sponsored or tax-deferred retirement account.

The Fed did find some good news, though. Largely because of tougher underwriting standards for mortgages, the Americans holding debt have higher credit scores than in the past. As of 2016, 41.3% of Americans’ total debt is held by people with high credit scores, above 760. That’s compared with 33.9% in 2008 and 23.7% in 2003. And a smaller share is held by those with lower scores, below 620. Some 13.2% of debt in the fourth quarter of 2016 was held by those with scores below 620, compared with 19% in 2008 and 16.6% in 2003. (Auto loans still have “looser standards,” the Fed found.)

Lending to people who are unlikely to pay debts back can have disastrous effects, from keeping families in debt for years to ruining their credit scores, which makes it more difficult for them to borrow responsibly in the future.

See (emphasis added; chart omitted); see also (“Is A Housing Price Collapse Coming To America?“) and (“24 Percent Of Americans Do Not Have Single Dollar Saved For Emergency“)

If anyone had a sense of well-being during the Obama presidency, they were ignorant or delusional.


17 01 2018
Timothy D. Naegele



In the article above, and in two earlier articles of mine and the extensive comments beneath them, I predicted a catastrophic economic collapse, not only in the United States but globally.

See (“Euphoria or the Obama Depression?”) and (“The Economic Tsunami Continues Its Relentless And Unforgiving Advance Globally“)

Had Hillary Clinton been elected, I believe this would have materialized, sooner rather than later. There are “houses of cards’ all over the globe today, which are being buoyed up by the economic optimism created by the election of Donald Trump and his policies.

Yet, even as I write this, treasonous steps are being taken by our Left and far-Left—the Democrats, a party that I once embraced—to destroy the Trump presidency at all costs, which would send our great nation into an economic tailspin, and precipitate a second American Civl War at the very least.

See, e.g., (“America’s Newest Civil War: 2017 And Beyond“) (see also the comments beneath the article) and (“The Real Russian Conspiracy: Barack Obama, The Clintons, And The Sale Of America’s Uranium To Russia’s Killer Putin“)

One out of every five residents of California is poor; and California is nation’s largest state economically.


And what about the collapse of “Bitcoin”? The UK’s Economist has noted:

THE great Sir Isaac Newton may have revolutionised our knowledge of the world but he still had his blind spots. He was sucked into the great mania of his day, the South Sea Bubble and lost a lot of money. “I can calculate the motion of heavenly bodies but not the madness of people,” he ruefully reflected. In retrospect, he should have pondered the popular saying that was used to define his law of gravity: “What goes up, must come down.”

Investors in Bitcoin are learning this old truth. The price of the cryptocurrency peaked last month at somewhere over $19,000 (there is a very wide spread, a problem in itself) but, at the time of writing (around 11am GMT), some exchanges now show a price below $10,000.

Perhaps the best way of understanding Bitcoin is through a model of how bubbles operate. The classic model, developed by Hyman Minsky and elaborated by Charles Kindleberger, a historian who studied bubbles, has five stages: displacement, boom, euphoria, financial distress and revulsion. The displacement is some technological development that can be used to justify a “new era”—railways, canals, the internet or blockchain. A boom then occurs and drags in more and more investors; at some stage, we reach euphoria, where the boom is widely known to the public and there is talk about those who made millions from the trade. This stage had been reached in November, when there were adverts for cryptocurrencies on the train and discussions on popular radio programmes.

In the euphoria stage, people buy because others are buying and because they anticipate being able to sell quickly at a higher price. For a while, this trend is self-reinforcing. At some stage, however, doubts set in; some people decide to take their profits while they can. Bad news occurs; with Bitcoin, it seems to be reports that authorities in South Korea (where trading has been particularly active) are going to crack down.

Once the price starts to fall, the psychology changes. People who bought early and were counting their millions suddenly see a dent in their wealth (and it is worth noting that you are not really rich unless you have got into the asset class and out again). Other people may have bought above the current price and are bitterly regretting their mistake. Bargain hunters jump in and temporarily drive the price higher but it doesn’t last.

We have not yet reached the “distress” stage but we might be near it. Worries about the security of cryptocurrencies could be the trigger for another sell-off. At that point, the price could fall as quickly as it rose—as the saying goes “up like a rocket, down like a stick”. Investors may well reflect that Bitcoin had not become a means of exchange for day-to-day transactions, has not proved to be a reliable store of value and thanks to the proliferation of cryptocurrencies, does not really benefit from a limited supply. As Steven Englander of Rafiki Capital writes:

There are no barriers to entry on the crypto space, other than a good story about the niche that your coin is filling. The number of ICOs (initial coin offerings) tells you that it is easy and cheap. There are big incentives to get in on the ground floor of a cryptocurrency that has even moderate acceptance.

A digital asset that has no income stream is very hard to value. That makes it hard to designate a price target on the way up, but also hard to set a floor on the way down. But by the time people realise that, we will be in the “revulsion” stage.

See (“The rise and fall of Bitcoin“) (emphasis added); see also (“As bitcoin crashes, Reddit’s cryptocurrency community post links to suicide hotlines“) and (“Bitcoin plunges 25 per cent amid South Korea, China fears“)

Will the collapse of Bitcoin trigger an economic collapse?

Clearly, what goes up, must come down. Also, there’s a sucker born every minute. And the kids’ game of “Musical Chairs” repeats itself again and again in real life.

It is “a game of elimination involving players, chairs, and music, with one fewer chair than players. When the music stops[,] whichever player fails to sit on a chair is eliminated, with a chair then being removed and the process repeated until only one player remains.”

See (“Musical chairs“)

Who will be left without a chair? Only time will tell.


25 07 2018
Timothy D. Naegele

Southern California Home Sales Crash: A Warning Sign To The Nation? [UPDATED]

Housing price collapse

What goes up, comes down, often with a thud. The economic cycles operate, and have throughout human history.

Diana Olick has written for CNBC:

Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.

The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.

“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”

Fewer affordable homes

The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared with June 2017. While part of that is due to a mix shift, since there are fewer lower-priced homes for sale, it is becoming increasingly clear that fewer buyers are able to play in the higher price ranges.

“Sales below $500,000 dropped 21 percent on a year-over-year basis, while deals of $500,000 or more fell about 3 percent, marking the first annual decline for that price category in nearly two years,” said LePage. “Home sales of $1 million or more last month rose just a tad – less than 1 percent – from a year earlier following annual gains of between 5 percent and 21 percent over the prior year.”

LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.

In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere, amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for the third straight month.

See (emphasis added); see also (“Housing market is showing signs of cracking: ‘Anything-goes list-price strategy is no longer working'”) and (“Record Drop in Foreigners Buying U.S. Homes“) and (“Billionaire owner of Johnny Carson’s luxury Malibu estate slashes the price by $16million (but you’ll still need $65M to buy it)”) and (“Luxury Apartment Sales Plummet in New York City“) and (“The $1 billion price cut: Luxury real estate gets slashed“)

My father was a realtor, who had offices in the Encino and Brentwood suburbs of Los Angeles before the advent of the mega-firms. Growing up, I lived with the swings in the housing markets, bigtime.

As I have written above:

Clearly, what goes up, must come down. Also, there’s a sucker born every minute. And the kids’ game of “Musical Chairs” repeats itself again and again in real life.

It is “a game of elimination involving players, chairs, and music, with one fewer chair than players. When the music stops[,] whichever player fails to sit on a chair is eliminated, with a chair then being removed and the process repeated until only one player remains.”

. . .

Who will be left without a chair? Only time will tell.

During the Obama presidency, the Fed allowed housing prices to reach the stratosphere, with housing becoming unaffordable for lots of—or most—Americans.

Also, as prices have risen, people have become real estate salespersons who have never lived through the tough times. Like used-car salespersons, they will tell prospective buyers anything to produce sales; and their collection knowledge is paper thin, if not nonexistent.

Will California, and in particular Southern California, lead the way downward?

See (“THE NEW 1928? In 5 states, Richest Americans Live In A New Gilded Age“) and (“THE DEATH OF SAN FRANCISCO?“) and (“California Has Gone Berserk Again!“) and (“San Francisco straphangers on edge after third BART murder“) and (“The Hollowing-Out of the California Dream“) and (“Housing market now ‘reminds me of 2006,’ Robert Shiller says“)

For those who say there can never be another major housing crash, the answer is nonsense; they are grossly naïve.

Indeed, someone whom I know bought a house in the Newport Beach area of Southern California, and had to move elsewhere for business reasons. In the process, the person lost $800,000, after telling me that prices only go up.

This example may be repeated again and again, in California and elsewhere.


29 07 2018
H. Craig Bradley


Real Estate Agents are just like Goldbugs preaching the next boom in precious metals is always “just around the corner” ( been in a bear market for the past 7 years and has a ways to go ). The faithful and those who already have “skin in the game” by owning a home are biased with what is often been referred to as “normalcy bias”. Another words, if markets keep going-up, then they will continue to appreciate with only “minor” corrections. Similarly, once markets are in a prolonged funk, the bias (public sentiment) changes to negative and assumes it will keep getting worse ( ever lower prices). The media follows this social trend both ways.

What matters here in California is where the money is? The related issue is where is the money coming from? From 2005-2017 an average of 25% of real estate in California ( residential condos and single family houses) was purchased with CASH ONLY. Quite a bit of this money came from out-of-state or foreign buyers, primarily Chinese Nationals laundering money out of China. ( California real estate records do not detail the nationality of home buyers, as its irrelevant to the State or local governments, so they don’t track it here )

Starting this year, capital controls have been imposed from Beijing, curtailing much of the Chinese real estate purchased in the U.S., Canada, and Australasia in prior years. In addition, a stronger U.S. Dollar in 2018 has made U.S. real estate relatively more costly for any foreign buyer, thus slowing down sales.

So, its a complicated subject and includes domestic demand and foreign demand together in large, coastal markets, like California. Its not just Trump (Tariffs) or the FED. Many more factors to consider (analyze). No simple explanations. So, its not well understood by real estate agents or homeowners who just assume its like all past real estate cycles. You really can not conclude that. Maybe, maybe not. We will all find out soon enough.


29 07 2018
Timothy D. Naegele

Thank you again, Craig.

Please read what I wrote above and at the links that I cited.

I grew up in the business, and know it well.


29 07 2018
H. Craig Bradley


I read it. You are right of course. Just saying the cycle probably has peaked in SoCAL but I’ve heard as much for the past 2-3 years in my neighborhood. Just this month a nearby home sold for $1.9 Million Dollars. One local real estate agent recently told me the average (median) home in my zip code (91208) is now priced at $1.1 Million dollars, up +10% from a year ago. You should be able to verify these stats for Glendale or parts of it anyway.

My home was purchased by my late father from my grandfather in 1965 for $50,000. My grandparents bought the lot and built a house on it brand new on a Public School Teachers Pension ( L.A. Unified Scholl District) and then bought a brand new Chevrolet every three years for 12 years until he died. NO DEBTS either ! They always voted and always voted for a Democrat.

Life was real good back then and for more (average) people in California like they were. Not so today. That is a huge (BASELINE) difference often unaccounted for.. As you can see, we are losing ground and have been overall for the past 50 years. There is your real long term trend. Different State and Different Economy too.


29 07 2018
Timothy D. Naegele

Yes, I understand, Craig.

My parents built our home in Westwood, a mile west of the UCLA campus, before I was born. Today, Zillow estimates its value to be $2,681,632.00; and it was sold last in 2015 for $2,120,000.00.

The house has barely changed at all since I was a baby there, up through my college years.

Location, location, location. 🙂


18 10 2018
Timothy D. Naegele

If The Democrats Take The House (Or Senate), The Obama-Hillary Depression May Ensue

Democrats are losers

Douglas Ernst has written for The Washington Times:

House Minority Leader Nancy Pelosi said American voters will simply have to deal with the “collateral damage” that comes their way if Democrats craft economic policies in the years ahead.

The California Democrat recently sat down with New York Times columnist Paul Krugman in the Big Apple to discuss public policy. The event, hosted by the Jewish organization 92nd Street Y, included a portion on climate change that sparked the lawmaker’s pronouncement.

“We owe the American people to be there for them, for their financial security, respecting the dignity and worth of every person in our country, and if there is some collateral damage for some others who do not share our view, well, so be it, but it shouldn’t be our original purpose,” she said Sunday.

Her commentary came against a political backdrop in which the U.S. unemployment rate is at a 49-year low — 3.7 percent — in conjunction with moderate inflation.

Fed Chairman Jerome Powell said earlier this month, for instance, that Americans are enjoying a “historically rare” economic climate.

Ms. Pelosi added that Democrats may find areas of compromise with Republicans on policies related to infrastructure, the Washington Free Beacon reported Thursday.

See (“Pelosi on the ‘collateral damage’ of Dems’ economic policies: ‘So be it’”)

If the Democrats take the House—the Senate is unlikely—they will precipitate an economic collapse, which would have been coming if Hillary had been elected.


Lots of us began as Democrats, but will never vote for one again. Also, some of us lived through Watergate; and the viciousness perpetrated by the Democrats this time will make those days seem like child’s play.

All Americans will suffer, but the Democrats do not care. They are truly America’s enemies. This is what the mid-terms are all about, and what is at stake.


18 10 2018
H. Craig Bradley


I suspect the partisan animosity and the uncertainty of the upcoming Nov. Midterm elections, as well as all the rancor surrounding the latest Kavanaugh Supreme Court Confirmation process has harmed the stock market. Retail investors, pension funds of all kinds, and 401 (K) retirement account holders are already suffering a reduction in the gains of the past two years. In fact, the “Trump Bump” has almost been erased for many brokerage accounts.

We are already back to square one. In the meantime, credit is a bit more expensive and interest rates on debt has risen by 1.4% on a traditional 30-year bank mortgages. The global stock markets already fear a trend of rising inflation in the upcoming decade. We have peaked, as far as High Living.


18 10 2018
Timothy D. Naegele


But if Democrats take the House and/or Senate, a true catastrophe may occur.


18 10 2018
H. Craig Bradley


If president Trump were to be impeached, but not “removed” by a Democratic House, then yes, all Hell may indeed break-out. You must remember what happened to the economy and stock market following the impeachment and removal (resignation under threat of removal) of the late President Nixon.

The Democrats forced us to renege on our treaty arrangements to safeguard South Vietnam following our evacuation of troops. We were winning until the anti-War movement caused the Republicans to lose public support, thereby handing victory to the Viet Cong. The seventies were truly a lost decade for America. Sure hope we don’t have another one coming-up. Could be, but not a “catastrophe”. We still have some choices left which affect final outcomes.

The (final) collapse of the United States of America may be in our collective futures, but not yet. Look at Venezuela as a Case Study. ONLY could happen some day if we all just let it happen in increments. If so, what can possibly be said ? We would rightly deserve to lose it all if our response is apathy or denial.


18 10 2018
Timothy D. Naegele

Yes, South Vietnam collapsed and the ensuing blood bath was horrendous, because Congress pulled the plug.

And yes too, as I have stated many times, lots of us began as Democrats, but will never vote for one again.


19 10 2018
H. Craig Bradley


The global economy, largely driven by China and other Asian Economies ( Belt and Road Trade Initiative ), will grow more slowly for about the next ten years. Sometime after they fix their economy and over-indebtedness, the Chinese and other Asian economies will really take-off, leaving the North American economy more isolated and cut-off. In the meantime, America- internally divided and politically weakened, can not change its trajectory- even with President Trump.

The United States will continue to lose its ability to alter world affairs in a way that is advantageous and will continue to lose influence and financial primacy. We already have lost it. Career politicians of BOTH political parties are active members of the “Swamp”. Its the new bipartisanship.

We remain set ( in our ways ) and will continue to incur more sovereign indebtedness until we face a major sovereign debt crisis. Its definitely coming. The State and Local Public Pension (funding) Crisis is a big part of it too.

All the bad debts in our system and political corruption will continue to retard our long term economic growth rate (GDP). It won’t average much more in the future than it did under President Obama, possibly 2.2%/ year GDP. It is higher now for awhile, but only during Trump’s presidency at most. Then we fade back to trend and continue our national glide path.

America will NEVER be the same again. Taxes overall will trend-up everywhere to some degree over time. We lost our chance to turn it around long ago. So now, Its all temporary Executive Orders (EXO) under President Trump which undoubtedly will be quickly undone by his successor. Congress won’t often Act on major policy initiatives with new legislation.

China & the Hidden Debt Crisis in the Provinces | Armstrong Economics


19 10 2018
Timothy D. Naegele

Yours is a negative view about the future of the United States and the American people—akin to the fall of the Roman and British empires—and one that is worrisome to lots of our fellow citizens. I am not being critical of you; I am simply stating a fact.

I believe it is essential that Congress remains under the GOP’s control; and that President Trump is reelected in 2020, and serves out the second of his four-year terms in office.

Obviously, the Democrats—and I began as one of them, but will never vote for another one—will do everything in their power to see that Donald Trump is destroyed, and his agenda and accomplishments are brought to a screeching halt and undone.

I view them as greater threats to this nation’s future than China, Russia, North Korea, Iran and international terrorism. As George Orwell wrote in his prescient “Animal Farm,” all of the animals were equal until the “Pigs” reigned supreme and subjugated the other animals.

See (“Animal Farm“)

Orwell was railing against communism, but what he wrote is just as relevant and timely today as ever. The “Pigs” are America’s Left. Also, Hans Christian Andersen’s “The Emperor’s New Clothes” rings loud and clear.

See and

In his fable, two make-believe weavers purport to spin a fine suit of clothes for the emperor, which is made of beautiful material that possesses the wonderful quality of being invisible to any man who is unfit for his office or unpardonably stupid. The potentate and his subjects acknowledge that the garments are very fine indeed. That is, until one little child sees the emperor marching in a procession, and says at last: “But he has nothing on at all”—and the grand swindle is exposed for all to see.

Nancy Pelosi and Maxine Waters, among others, have exposed the Democrats’ future for America clearly. They and their co-conspirators are bent on regaining power and exercising it, even if it means the American economy’s destruction and unending mob violence and the subjugation of Americans who disagree with them. Theirs is today’s “grand swindle.”

Assuming that President Trump succeeds in serving eight years in the presidency, the issue of his successor is critical. In my opinion, Mike Pence is not that person; and the President would be wise to dump Pence before the 2020 elections. At best, Pence is the Republican version of Joe Biden: a career politician who has little or no courage, and is a creature of the “Deep State.”

. . .

In reading your comments, one party has noted:

It’s in the realm of possibilities, although I think it’s a little too severe. From an intellectual property standpoint, no one can compete with our creativity—whether it’s consumer technology, business technology, defense and aerospace technology, healthcare, bio technology, entertainment, gaming, etc. This all flows out of our universities (which draw kids from all over the world), the venture capital community and risk tolerance. Our debt is the Sword of Damocles hanging over our heads, and that is true. Our debt and unfunded liabilities; this can be our undoing. The Roman Empire fell apart because it overextended its forces (i.e. the equivalent of our debt). I don’t have any faith that our debt crisis will get resolved within the next 20-30 years, during which time it may only get worse. Where he is also too severe is his assertion that Asia’s economic future is independent of ours. We are China’s largest export economy. If we don’t buy the goods they make, their economy suffers greatly. The bottom-line: he makes valid points, and no one can refute them today because there is no effort—by the Dems, Republicans or Trump—to fix them. DC, including Trump, just keep punting the ball down the field; eventually the clock runs out.

I believe President Trump will address and come to grips with the debt issues, after our borders are secured, and after the “Deep State” is prosecuted to the fullest and/or is catatonic, and after the Korean peninsula is denuclearized.

Lastly, Donald Trump is a political rock star. If anyone has doubts, just watch the packed stadiums and other venues when he speaks, and the long lines waiting to get in—and his adoring fans.


23 01 2019
Timothy D. Naegele

Home-Sales Plunge Stuns Real-Estate Agents

Housing price collapse

Newmax has reported:

Real estate brokers reportedly are trying to figure out why sales of existing homes plunged in December.

U.S. home sales tumbled Tuesday to their lowest level in three years in December and house price increases slowed sharply, suggesting a further loss of momentum in the housing market.

The weak report from the National Association of Realtors (NAR) on Tuesday was the latest indication of slowing economic growth. A survey last Friday showed consumer sentiment dropped in January to its lowest level since President Donald Trump was elected more than two years ago.

The NAR said existing home sales declined 6.4 percent to a seasonally adjusted annual rate of 4.99 million units last month. That was the lowest level since November 2015, Reuters explained.

CNBC reported that the 6.4 percent monthly move was unusually large, regardless of direction. The tally usually moves in the very low single digits month to month, CNBC reported. The shift was one of the largest that didn’t involve some sort of change in government policy, like the homebuyer tax credit.

“The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018,” said Lawrence Yun, chief economist for the Realtors. “The latest numbers do not reflect the lower, current mortgage rates compared to the November figures, so it’s really harder to explain,” he told CNBC.

The housing market has been stymied by higher mortgage rates as well as land and labor shortages, which have led to tight inventory and more expensive homes, Reuters said.

“This weakness is certainly due to the sharp home price gains along with the rise in mortgage rates,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.

Affordability has been blamed for slower sales over the past six months, but sales in December matched the same pace as in 2000, and Yun argues that affordability is better now, CNBC explained.

“Today it is actually more affordable compared to year 2000, yet we have about 20 million more jobs, so for home sales to be roughly equivalent means that in 2018 there is an underperformance of the overall housing sector.”

In addition, existing home sales are now the weakest since Trump was elected, said MUFG Chief Economist Chris Rupkey, “signaling the initial confidence boost from the new ideas and new legislation is falling flat.”

But there are glimmers of hope. The 30-year fixed mortgage rate has dropped to a four-month low, with much of the moderation occurring in the second half of December, and house price inflation is slowing. The median existing house price increased 2.9 percent from a year ago to $253,600 in December. That was the smallest increase since February 2012, Reuters said.

Wage growth topped 3.2 percent in December, outpacing house price gains for the first time since February 2012, according to the NAR. While economists expect affordability to improve, they also caution that changes to the tax code in December 2017, which limited deductions for mortgage interest and property taxes, had reduced the appeal of homeownership.

A survey last week showed a rebound in homebuilders’ confidence in January amid hope that the moderation in mortgage rates “will help the housing market continue to grow at a modest clip as we enter the new year.”

A month-long partial shutdown of the federal government, which has delayed data from the Commerce Department is, however, obscuring the economic picture.

The shutdown started on Dec. 22 as Trump demanded that Congress give him $5.7 billion this year to help build a wall on the country’s border with Mexico.

It has affected the Commerce Department, leading to the suspension of the publication of data compiled by its Bureau of Economic Analysis and Census Bureau, including new home sales, housing starts and building permits.

Data released before the shutdown had pointed to persistent weakness in the housing market, with economists estimating that housing would again be a drag on gross domestic product in the fourth quarter. Residential construction has subtracted from GDP growth since the first quarter of 2018.

Economists estimate that the impasse over the border wall was cutting off at least two-tenths of a percentage point from quarterly GDP growth a week. The Realtors group said the longest government shutdown in the country’s history had so far not had an impact on home sales, but warned this could change.

“Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty,” said Cheryl Young, senior economist at Trulia.

However, not everyone is as pessimistic about housing.

There’s no shortage of warning signs for the housing market, but Bank of America says investors shouldn’t fear the worst, Bloomberg reported.

“Don’t believe the narratives of a housing collapse,” economist Michelle Meyer wrote in a note to clients on Tuesday. Meyer said the challenges facing the sector “should only be a slight drag on growth” and that “the recent decline in mortgage rates is well timed, ahead of the spring selling season.”

See (emphasis added)

Far far worse is likely to lie ahead. The Obama economy was weak and fraught with potential peril; however, to his credit, Donald Trump began to restore faith in America and its economic might.

With two years of Washington treachery ahead, much worse than the Watergate era that lots of us lived through, it is anyone’s guess where the U.S. economy will go, but the likely prognosis is not pretty.


What do you think?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: