5 ms·

And they'll be screwed when the market corrects and the value of the home they just bought drops significantly

bradleyjg 5y ago
The market will not be allowed to correct. That was the lesson of 2008. The only endgame here comes after the end of dollar dominance.
- skywal_l 5y ago
  Now in what circumstances the dominance of the dollar would end? The dollar has pretty much replaced gold in the world economy. And the US happens to own the only mine in the world. I don't see any scenario, bear some sort of cataclysmic event, that would, in say, the next 50 years, change any of that. But I would gladly have my mind changed.
  - bradleyjg 5y ago
    Hogs get slaughtered. We’ve collectively figured out that we have the world’s only gold mine and are busy exploiting the F out of it. Both parties, round the clock. For example, we prop up our residential housing market by having one part of the government create dollars to buy the mortgages backed securities created by another part of the government in order to keep the yields down and justify low mortgage interest rates. Do you think the rest of the world is going to sit back and be cynically exploited forever?
    - skywal_l 5y ago
      > Do you think the rest of the world is going to sit back and be cynically exploited forever? Yes absolutely. Because this system does not benefits american citizens (it used to, but it is less and less the case). It benefits world elites which have been co-opted in a global financial system which is based on the dollar. Hell, the CCP leaders all own assets in dollars, they wouldn't want to see any of this change. Remember that the money that fuel the 2008 bubble was, for the most part, chinese investments. Bottom line is, the world is driven not by ideologies or political interests but by economic interests. At the top: greed and at the bottom: hunger, with a declination in between. Both ends tend toward the status quo and the dollar is very much part of it. For me, only ecological collapse or some other unforeseen global cataclysm would change any of that and probably not for the best.
      - bradleyjg 5y ago
        It absolutely does benefit US citizens. The argument to the contrary about boogeyman elites is just designed to let ordinary Americans off the hook so they will join in your crusade (and so they won’t have to feel guilty.) Ordinary American homeowners have massively benefited from rising home prices. They’ve spent that money on vacations, cars, drugs, etc.
  - kipchak 5y ago
    I could see alternative currencies becoming and increasingly available option. Something like SDRs used by the IMF could emerge for example, made up of multiple international currencies. Not necessarily a replacement, but a decreasing reliance. Russia, the EU and China are fairly aggressively de-dollarizing, and encouraging trading partners to do the same.[1][2] See CMIM for example in the Asia region, INSTEX in the EU to get around Iran sanctions and the creation of the "Petroyuan". Lyn Alden has a great overview.[4] [1]https://www.everycrsreport.com/files/2021-07-23_IF11885_09a6986fb2de221b83de761f118062ca2def8737.pdf https://www.everycrsreport.com/files/2021-07-23_IF11885_09a6... [2]https://www.csis.org/blogs/new-perspectives-asia/chiang-mai-initiative-multilateralization-cmim-if-not-now-then-when https://www.csis.org/blogs/new-perspectives-asia/chiang-mai-... [3]https://infobrics.org/post/32689/ https://infobrics.org/post/32689/ [4]https://www.lynalden.com/fraying-petrodollar-system/#fraying https://www.lynalden.com/fraying-petrodollar-system/#fraying
    - deleted 5y ago
      [deleted]
- jjoonathan 5y ago
  What did they do to prop up the market in 08? What would that policy intervention look like today?
  - ProAm 5y ago
    They starting printing money (and have largely not stopped) and not letting banks fail that needed to die.
  - htrp 5y ago
    https://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility https://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_L... https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investment_Program_for_Legacy_Assets https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investm... Broadly we call this entire period quantitative easing.....
  - bradleyjg 5y ago
    There was a government takeover of the residential mortgage sector. Private companies today largely act as agents for GSEs, the Fed, or other parts of the government. They originate mortgages, package them, and service them but the government sets rates, underwriting rules, and holds the risk. Thus it was very easy for it to reinflate the bubble far beyond where it was in 2007 (check out case-schiller https://fred.stlouisfed.org/graph/?g=It55 https://fred.stlouisfed.org/graph/?g=It55). If prices look like they are about to stall keep an eye out for the introduction of the low rate 50 year fixed rate mortgage. Whatever it takes to keep incumbent homeowners receiving endless windfalls.
  - throwawaycities 5y ago
    Banks were insolvent in 2008, in lieu of them facing the natural consequences of the free market (bankruptcy) the banks were given nearly $2T of tax payer money which the banks used to consolidate through acquisitions/mergers (Chase acquired bear sterns and Washington mutual; BOA acquired Merrill lynch and countrywide; Wells Fargo acquired Wachovia) and tax payer funds paid for years and years of bank foreclosure cases (most of which were done using fraudulent bank documents). Literally the banks couldn’t afford to foreclose on the homes secured by toxic loan and tax payer funds went to foreclosing on tax payers. If the banks were in trouble again, government would bail them out again with tax payer money to the detriment of tax payers. Just like the government did last time they would sweep people under the rug by removing them from unemployment numbers and pretending they never existed.
ethbr0 5y ago
It's going to be hard for the market to correct while (1) rates stay low, (2) housing demand > housing supply, (3) wages stay high enough to support buying. It's hard to see any of those collapsing in the near term. Especially (2).
- nicoburns 5y ago
  I'm rather anticipating (1) collapsing in the next couple of years. It's possible governments will try to put it off, but it's going to have to happen at some point.
  - runako 5y ago
    People keep saying this, and perhaps they will be proven correct at some point. But it brings to mind the economics maxim that "in the long run, we're all dead." Japan's interest rate has not exceeded 0.5% for the last 25 years: https://tradingeconomics.com/japan/interest-rate https://tradingeconomics.com/japan/interest-rate Ours hasn't been in a "normal" range for almost 15 years. At what point are low interest rates just the backdrop of our time here rather than something we should expect to change? Would we assign a higher probability of (say) the USSR reconstituting or the Euro becoming the global reserve currency or US interest rates going back to a more normal rate like 6%? If all are improbable, why assert that one must happen at some point?
    - linksnapzz 5y ago
      Another economics maxim: "Things that obviously can't go on forever; will go on for far longer than you would believe...but when they stop, they also stop faster than you'd think." Also: "The market can remain irrational far longer than you can remain solvent".
  - ethbr0 5y ago
    What do you see leading to the collapse? At least in the US, mortgage debt only recently hit 2008 levels in absolute terms (i.e. not adjusting for 12 years of population growth), which doesn't seem overly burdensome.

The market will not be allowed to correct. That was the lesson of 2008. The only endgame here comes after the end of dollar dominance.

skywal_l 5y ago
Now in what circumstances the dominance of the dollar would end? The dollar has pretty much replaced gold in the world economy. And the US happens to own the only mine in the world. I don't see any scenario, bear some sort of cataclysmic event, that would, in say, the next 50 years, change any of that. But I would gladly have my mind changed.
- bradleyjg 5y ago
  Hogs get slaughtered. We’ve collectively figured out that we have the world’s only gold mine and are busy exploiting the F out of it. Both parties, round the clock. For example, we prop up our residential housing market by having one part of the government create dollars to buy the mortgages backed securities created by another part of the government in order to keep the yields down and justify low mortgage interest rates. Do you think the rest of the world is going to sit back and be cynically exploited forever?
  - skywal_l 5y ago
    > Do you think the rest of the world is going to sit back and be cynically exploited forever? Yes absolutely. Because this system does not benefits american citizens (it used to, but it is less and less the case). It benefits world elites which have been co-opted in a global financial system which is based on the dollar. Hell, the CCP leaders all own assets in dollars, they wouldn't want to see any of this change. Remember that the money that fuel the 2008 bubble was, for the most part, chinese investments. Bottom line is, the world is driven not by ideologies or political interests but by economic interests. At the top: greed and at the bottom: hunger, with a declination in between. Both ends tend toward the status quo and the dollar is very much part of it. For me, only ecological collapse or some other unforeseen global cataclysm would change any of that and probably not for the best.
    - bradleyjg 5y ago
      It absolutely does benefit US citizens. The argument to the contrary about boogeyman elites is just designed to let ordinary Americans off the hook so they will join in your crusade (and so they won’t have to feel guilty.) Ordinary American homeowners have massively benefited from rising home prices. They’ve spent that money on vacations, cars, drugs, etc.
- kipchak 5y ago
  I could see alternative currencies becoming and increasingly available option. Something like SDRs used by the IMF could emerge for example, made up of multiple international currencies. Not necessarily a replacement, but a decreasing reliance. Russia, the EU and China are fairly aggressively de-dollarizing, and encouraging trading partners to do the same.[1][2] See CMIM for example in the Asia region, INSTEX in the EU to get around Iran sanctions and the creation of the "Petroyuan". Lyn Alden has a great overview.[4] [1]https://www.everycrsreport.com/files/2021-07-23_IF11885_09a6986fb2de221b83de761f118062ca2def8737.pdf https://www.everycrsreport.com/files/2021-07-23_IF11885_09a6... [2]https://www.csis.org/blogs/new-perspectives-asia/chiang-mai-initiative-multilateralization-cmim-if-not-now-then-when https://www.csis.org/blogs/new-perspectives-asia/chiang-mai-... [3]https://infobrics.org/post/32689/ https://infobrics.org/post/32689/ [4]https://www.lynalden.com/fraying-petrodollar-system/#fraying https://www.lynalden.com/fraying-petrodollar-system/#fraying
  - deleted 5y ago
    [deleted]
jjoonathan 5y ago
What did they do to prop up the market in 08? What would that policy intervention look like today?
- ProAm 5y ago
  They starting printing money (and have largely not stopped) and not letting banks fail that needed to die.
- htrp 5y ago
  https://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility https://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_L... https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investment_Program_for_Legacy_Assets https://en.wikipedia.org/wiki/Public%E2%80%93Private_Investm... Broadly we call this entire period quantitative easing.....
- bradleyjg 5y ago
  There was a government takeover of the residential mortgage sector. Private companies today largely act as agents for GSEs, the Fed, or other parts of the government. They originate mortgages, package them, and service them but the government sets rates, underwriting rules, and holds the risk. Thus it was very easy for it to reinflate the bubble far beyond where it was in 2007 (check out case-schiller https://fred.stlouisfed.org/graph/?g=It55 https://fred.stlouisfed.org/graph/?g=It55). If prices look like they are about to stall keep an eye out for the introduction of the low rate 50 year fixed rate mortgage. Whatever it takes to keep incumbent homeowners receiving endless windfalls.
- throwawaycities 5y ago
  Banks were insolvent in 2008, in lieu of them facing the natural consequences of the free market (bankruptcy) the banks were given nearly $2T of tax payer money which the banks used to consolidate through acquisitions/mergers (Chase acquired bear sterns and Washington mutual; BOA acquired Merrill lynch and countrywide; Wells Fargo acquired Wachovia) and tax payer funds paid for years and years of bank foreclosure cases (most of which were done using fraudulent bank documents). Literally the banks couldn’t afford to foreclose on the homes secured by toxic loan and tax payer funds went to foreclosing on tax payers. If the banks were in trouble again, government would bail them out again with tax payer money to the detriment of tax payers. Just like the government did last time they would sweep people under the rug by removing them from unemployment numbers and pretending they never existed.

ethbr0 5y ago

It's going to be hard for the market to correct while (1) rates stay low, (2) housing demand > housing supply, (3) wages stay high enough to support buying. It's hard to see any of those collapsing in the near term. Especially (2).

nicoburns 5y ago
I'm rather anticipating (1) collapsing in the next couple of years. It's possible governments will try to put it off, but it's going to have to happen at some point.
- runako 5y ago
  People keep saying this, and perhaps they will be proven correct at some point. But it brings to mind the economics maxim that "in the long run, we're all dead." Japan's interest rate has not exceeded 0.5% for the last 25 years: https://tradingeconomics.com/japan/interest-rate https://tradingeconomics.com/japan/interest-rate Ours hasn't been in a "normal" range for almost 15 years. At what point are low interest rates just the backdrop of our time here rather than something we should expect to change? Would we assign a higher probability of (say) the USSR reconstituting or the Euro becoming the global reserve currency or US interest rates going back to a more normal rate like 6%? If all are improbable, why assert that one must happen at some point?
  - linksnapzz 5y ago
    Another economics maxim: "Things that obviously can't go on forever; will go on for far longer than you would believe...but when they stop, they also stop faster than you'd think." Also: "The market can remain irrational far longer than you can remain solvent".
- ethbr0 5y ago
  What do you see leading to the collapse? At least in the US, mortgage debt only recently hit 2008 levels in absolute terms (i.e. not adjusting for 12 years of population growth), which doesn't seem overly burdensome.