Use access key #2 to skip to page content.

alstry (35.49)

Has it finally started????

Recs

12

June 26, 2008 – Comments (6)

Are we finally realizing that our free ride to the ATM credit machine is coming to an end?

Over the past 30 years, Ford and GM have accumlated $500 Billion dollars of debt.  About 5% of our national debt.  Ford and GM were basically subsidized by our pension system extending ever increasing amounts of credit.

Now it looks like the system is saying no mas at a time when revenues are evaporating.  What the hell do you think is going to happen to our auto companies when they can't borrow any more money to make their debt payments?

The same thing happens to people when they can't borrow on their credit cards or home ATM to meet monthly obligations.  They default.  The lose any equity in their house and start over.

For a company, its stock goes to zero, its debt is restructued, and if viable starts over.

The question now is whether we have entered a period where less and less credit is going to be extended.  If so there will be less and less money to spend and more and more business will fail.  As more and more business fail more and more jobs will be lost causing spending to decline even further.

At some point the process stops, but the result is a much smaller economy with much less leverage.  Many homeowners are wiped out and many equity holders are eliminated and replaced by debt holders.

The above is simply the natural course of an unwinding of a credit bubble when its government chooses restructuring over hyperinflation(rapid inflation occurs when you allow people to borrow as much as they want with little concern for ability to repay...housing is the perfect example).

It appears we are finally waking up and realizing what is going on.  Credit is drying up.  No more home equity loans.  Credit card availability contracting.  No more money for commercial real estate projects.  Few private equity deals.  No more municipal auction rate securities...ect...Many of our companies and municipalities depended on this money to be viable and now its going going gone.

Once people realize this, expect a mad rush to liquidate assets and pay down debt.......it seems like people are finally waking up to the issue......it will be interesting to see what happens when a lot of people try to sell similar things at the same time.................

In the end, many business will be wiped out, many individuals will go bankrupt, and our local and state governments will have to restructure debt as the new lower revenue streams is simply not enough to cover interest payments.

It is not complicated......just the mathematical result of unwinding the largest credit bubble in human history.....and the consequences will be felt worldwide.

 

6 Comments – Post Your Own

#1) On June 26, 2008 at 12:46 PM, alstry (35.49) wrote:

American Airlines just announced an 8% job cut.  We are seeing 5-10% cuts almost everyday from different companies......you think its a stretch that umemployment will be 25% by the end of the year???.....add it those that will be forced to return to work and we could be easily looking at over 40% by January 1, 2009.

Report this comment
#2) On June 26, 2008 at 1:19 PM, joeykid13 wrote:

How to make a million dollars?  "Start with a Billion, and open an airline".-Sir Richard Branson

Report this comment
#3) On June 26, 2008 at 1:22 PM, dwot (73.53) wrote:

alstry, these car makers have pension burdens they can't afford and prevent them from being able to compete so they will go under and different car business will prevail.  People who made more money than most of us will every see in wages will whine about how hard done by they were because their pensions were wiped out.

Looking at the history from the Depression, well, real estated peaked about 3 years before the market first started its crash and the market didn't bottom until 3 years after that, so 6 years after the real estate peak.

It is going to be a while...

Report this comment
#4) On June 26, 2008 at 1:26 PM, alstry (35.49) wrote:

One day the market may wake up and realize the the current HB business model is dead for the next 5 to 10 years.

Over the past five years, new HBs over supplied the market with at least 2-3 years of extra inventory.  Add in the loose lending practices and we probably have at least 5 years of excess inventory out there.

What is happening now is prices have fallen so far in a number of areas....and the cost to build a home is risen so high.....HBs cannot sell their homes for cost of construction and compete with newer existing inventory selling far below a price that an HB can sell.

The problem in this environment is that each home a builder builds it loses money...the more they build the more thay lose.

The price declines are increasing in severity and regions as more and more distressed property keeps coming to market.  This is likely to continue for at least the next few years.

As a result, if builders want to stand a chance to survive this next  few years of over supply, their only hope  is to shut down and hope their cash and borrowing availability lasts through the downturn.

If they keep building....the more they lose and the quicker they go bankrupt.

Hang on.

Report this comment
#5) On June 26, 2008 at 3:06 PM, hansthered0 (< 20) wrote:

dwot:

 From what I can tell the great drop in real estate value occured about 8 years before the great depression, maybe I' m wrong?

Report this comment
#6) On June 26, 2008 at 3:07 PM, hansthered0 (< 20) wrote:

alstry:

 some institutions may  be to big to fail, remember the IMF? I think hyperinflation may occur instead, which is worse?

Report this comment

Featured Broker Partners


Advertisement