Europe 2020 Think Tank: Great Depression has begun in U.S. Options

[Guest_secretannexe_*]

Here is a link to the most recent article by a European Think Tank I have been following for a couple of years. They publish fantastic financial analysis about the U.S. dollar, trade and other issues. They have been illustrating for months now how the U.S.'s unimaginable deficit is leading it, and the rest of the world, into a great World Depression -- or as they call it, a global systemic financial crisis.

http://www.leap2020.eu/GEAB-N-14-is-availa...al-of_a570.html

Here is a summation article on U.S., China, dollar strategy that sums up the game quite nicely.

http://www.europe2020.org/spip.php?article403&lang=en

The question is: How long do China and Russia allow us to self destruct before launching Rocket Day, since they cannot allow us to revert to a military dictatorship?

[Babs]

FROM THE US COMPTROLLER
Learn from the fall of Rome, US warned
By Jeremy Grant in Washington

The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon, the country’s top government inspector has warned.

David Walker, comptroller general of the US, issued the unusually downbeat assessment of his country’s future in a report that lays out what he called “chilling long-term simulations”.

These include “dramatic” tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of US debt.

Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”.

“Sound familiar?” Mr Walker said. “In my view, it’s time to learn from history and take steps to ensure the American Republic is the first to stand the test of time.”

Mr Walker’s views carry weight because he is a non-partisan figure in charge of the Government Accountability Office, often described as the investigative arm of the US Congress.

While most of its studies are commissioned by legislators, about 10 per cent – such as the one containing his latest warnings – are initiated by the comptroller general himself.

In an interview with the Financial Times, Mr Walker said he had mentioned some of the issues before but now wanted to “turn up the volume”. Some of them were too sensitive for others in government to “have their name associated with”.

“I’m trying to sound an alarm and issue a wake-up call,” he said. “As comptroller general I’ve got an ability to look longer-range and take on issues that others may be hesitant, and in many cases may not be in a position, to take on.

“One of the concerns is obviously we are a great country but we face major sustainability challenges that we are not taking seriously enough,” said Mr Walker, who was appointed during the Clinton administration to the post, which carries a 15-year term.

The fiscal imbalance meant the US was “on a path toward an explosion of debt”.

“With the looming retirement of baby boomers, spiralling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks,” said Mr Walker, a former senior executive at PwC auditing firm.

Current US policy on education, energy, the environment, immigration and Iraq also was on an “unsustainable path”.

“Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernise everything from highways and airports to water and sewage systems. The recent bridge collapse in Minneapolis was a sobering wake-up call.”

Mr Walker said he would offer to brief the would-be presidential candidates next spring.

“They need to make fiscal responsibility and inter-generational equity one of their top priorities. If they do, I think we have a chance to turn this around but if they don’t, I think the risk of a serious crisis rises considerably”.

From Financial Times
http://www.ft.com/cms/s/80fa0a2c-49ef-11dc...00779fd2ac.html


Dismall considering this is coming from the US Comptroller.
Does anyone believe that the changes that need to be made,
will in fact be made in time to avoid the inevitable? Our enemies are standing by (or flying by, as of late)
like vultures just waiting........

[bm_cali]

Unless a given individual is a hermit or independently mega wealthy, they would have noticed that over the past 3 years the US purchasing power, in the absolute sense, has incurred a melt down on par with the Thai Baht in the 1997 - 1999 time frame. What is happening is not as much like the Great Depression as it is like the Asian Contagion in slowmo.

Globally, this means the overall human progress peaked during the early 00's and is now being undone.

[Babs]

What is happening is not as much like the Great Depression as it is like the Asian Contagion in slowmo.

I hope that you are proven correct, bm.

~"How differently would we live if we believed that every dimension of our lives--from the happy to the tragic to the mundane--were part of a beautiful and purposeful design in which no thread were wrongly woven? " - Ravi Zacharias

[Guest_Eagle Strike_*]

I really hope its like the Asian Contagion. I really hope, because a Great Depression...well...I don't even want to think what would happen here. You can feel the underlying tensions. I feel like society has been stretched out to the max like a rubber band and all civility is ready to snap. Keep your guns at the ready.

[bm_cali]

Globally, this means the overall human progress peaked during the early 00's and is now being undone.

Personally, I find this chilling. The last time this could be said was during the period 350 - 700AD.

[Babs]

Personally, I find this chilling. The last time this could be said was during the period 350 - 700AD.

Forgive me bm, I am ill informed. If that be the case, I hope that you are proved wrong.
Babs

[Dan07112]

Dozens of U.S. banks will fail by 2010: analyst
http://www.canada.com/ottawacitizen/news/b...367&k=53982
Jonathan Stempel
Reuters

Friday, February 01, 2008

NEW YORK (Reuters) - Dozens of U.S. banks will fail in the next two years as losses from soured loans mount and regulators crack down on lenders that take too much risk, especially in real estate and construction, an analyst said.

The surge would follow a placid 3-1/2 year period in which just four banks collapsed, all in the last year, RBC Capital Markets analyst Gerard Cassidy said in a Friday interview.

Between 50 and 150 U.S. banks -- as many as one in 57 -- could fail by early 2010, mostly those with no more than a couple of billion dollars of assets, Cassidy said. That rate of failure would be the highest in at least 15 years, or since the winding down of the savings-and-loan debacle.

"The initial round of failures will come from smaller banks with limited access to capital and overexposure to commercial real estate," Cassidy said.

"Could banks with $75 billion or $100 billion of assets fail? That's hard to say, but it depends on the severity of the economic downturn and the real estate decline," he added.

Banks are under pressure as a slowing economy, the housing crunch, weak job growth and rising energy costs make it harder for individuals and businesses to pay their bills.

Compounding the problem has been the seizing up of capital markets that has led to more than $130 billion of write-downs worldwide, including at lenders such as Citigroup Inc , Bank of America Corp and Washington Mutual Inc .

On Wednesday, Standard & Poor's said financial industry losses linked to mortgages may reach more than $265 billion.

Analyst Tanya Azarchs expects the pain to spread to regional banks, and especially "some of the smaller players that have yet to feel the full extent" of the credit crunch.

Cassidy said: "The regulatory focus is now acutely on commercial real estate. The problems are centered around construction loans in residential housing. Home prices and sales are declining. This leaves builders unable to carry the debt they took on because they can't sell their homes."

RESERVES MAY GROW, MERGERS MAY NOT

There are 8,553 banking institutions insured by the Federal Deposit Insurance Corp. Of these, 7,285 are commercial banks, 1,257 are thrifts and 11 are U.S. branches of foreign banks.

Twenty-six banks have failed since the last U.S. recession began in March 2001, the FDIC said.

The latest came last week, when Douglass National Bank of Kansas City, Missouri collapsed. Liberty Bank & Trust Co of New Orleans took over its $53.8 million of deposits. FDIC-insured institutions have about $8.19 trillion of deposits overall.

Cassidy expects the bank failure rate to be the worst since at least 1993, when 50 banks collapsed. That followed more than 2,000 failures in the previous decade, according to FDIC data.

Still, that pales in comparison with the more than 9,000 bank failures from 1930-1933, during the Great Depression, Federal Reserve data show.

A top U.S. bank regulator, Comptroller of the Currency John Dugan, said on Thursday that his office was prepared to intervene if banks with large real estate exposure maintained unreasonably low reserves for bad loans.

A tough credit and regulatory environment may make it hard for struggling banks to find suitors, Cassidy said.

On Thursday, Midwest banks Integra Bank Corp and Peoples Community Bancorp Inc called off their merger.

Integra Chief Executive Mike Vea lamented that the housing crunch "fundamentally changed the attitudes of the stock market, industry experts and regulators toward mergers."

Cassidy said: "Sellers are not going to receive the premiums they think they deserve. Merger activity is going to slow until the down leg in the credit cycle is past."

(Editing by Gary Hill)

[Dan07112]

Depression risk might force U.S. to buy assets
Tue Feb 12, 2008 4:19pm EST
http://www.reuters.com/article/ousiv/idUSGOR27660220080212
By John Parry

NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said.

Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.

"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.

Some economists have blamed the U.S. economy's travails in the 1930s on the Federal Reserve's hesitation to inject reserves into the banking system.

However, today's Fed has tried to preempt the danger of a protracted economic slump and has responded swiftly to a credit crunch in the past year and gathering signs of deterioration in the economy, Connolly said.

The Fed has stepped up its temporary additions of reserves to the banking system, and swiftly slashed its benchmark fed funds target rate to 3.0 percent from 5.25 percent in September. Analysts expect at least another 0.5 percentage point cut in next month.

At the same time, "the fed funds rate can't stay significantly above the 2-year note yield," Connolly said.

On Tuesday, the 2-year Treasury note yield was at 2.00 percent, not far above the lowest level since 2004.

The Fed "almost certainly" has to cut the funds rate to 2.0 percent by the end of this monetary easing cycle, he said. If conditions in the banking sector worsen, the Fed could cut the funds rate to 1.0 percent, a low last seen in June 2004.

Global banks have already written down more than $100 billion of bad debts associated with the U.S. subprime mortgage debt meltdown and housing market decline.

However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households.

"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.

That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.

One turning point came when agricultural prices were restored to their pre-slump levels, Connolly said. Such measures were among the New Deal programs that President Franklin D. Roosevelt launched to bolster the economy.

Either way, investors face bleak prospects now without some kind of further government intervention, he said.

Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.

Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.

"If we don't avoid depression, the only thing worth holding is cash," he added.

(Reporting by John Parry; Editing by Tom Hals)

[SJL]

The problem is the weathering of this problem, and not the problem itself. With lawyers and liability makers, and dividers and opportunists all over the country, it's bad. And, then, the whole base of an "elite population" capable of taking it, working hard, allowing or instructed and ready psychologicaly in job mobility ability is completely canned by the Public Education system and the welfare government mindset.

There still are some creativity being allowed that is surprizingly resilient despite all the laws and their weighing against the entrepreneur, but this is ever dwindling. Initiative is completely dying in America. It's not the culture anymore. It's not PC. "Everybody is in jail or a retard of government day care" mandate seem to be the common apathy and "throw the arms up in the air" attitude. Service has decreased in quality, bureaucracies do not deliver but hate: I tell you, a New Deal or what not will never work and make it even more deadlocked, jailed and incoherent.

When you see a child rapist getting away with murder because he can bottle up cops' initiative in the arena of mental health or what not, so that the cops are policed by psychologists in their procedures - while cops themselves frown upon citizens' initiatives in pointing suspicious but PC activity, one starts wondering who can really do what anymore in case of crisis, just like Hurricane Katrina (not to mention Bush calling antiIllegals intitiatives vigilantes, when it is Congress the real Vigilante on the American people). That Pelosi going hystericaly in fear motivated denial of truth - by stating Bush is trying to scare us in the enforcing of the Patriot wiretap protection of phone companies from liabilities - has lots' to say about the Jungian projection mental health of the society and Congress. Their childlish attitudes and stonewalling is a bad Omen to how they will react when things go down: it's the blame, freeze, stonewall, deny, blame, produce records, sue, discredit, fight spiral of death.

[Dan07112]

Severe US recession may already be underway
http://www.telegraph.co.uk/money/main.jhtm...cnusecon122.xml
By Edmund Conway, Economics Editor
Last Updated: 12:14am GMT 22/02/2008

A severe recession may now be under way in the United States, according to a closely watched economic barometer.

The Philadelphia Fed warned late yesterday that the manufacturing sector in the key heartland of the US is suffering its lowest output for seven years - a firm sign that the world's biggest economy is now shrinking, experts said.
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The news sent share prices in New York lower, with the Dow Jones benchmark index down 138 points at 12,290 in late trading.

Paul Ashworth of Capital Economics said: "As far as this indicator is concerned, a recession, and a severe one at that, is already under way."

Another important measure, the Conference Board's index of leading indicator is also in recession territory, he added.

"It is a fairly reliable indicator as well, successfully predicting every recession since 1960 and only throwing up one false-positive (back in 1967). Nevertheless, while the index is signalling a recession, the rate of decline suggests, so far, a very shallow contraction.

Overall, today's data on the activity front is a big disappointment - the Fed still has a lot of work to do."

The Federal Reserve has already started cutting interest rates at the fastest speed in two decades, with the US facing an unprecedented housing slide and a sudden rise in unemployment. It is widely anticipated to reduce the cost of borrowing again at its meeting next month.

Joseph LaVorgna, chief US economist at Deutsche Bank, said: "The economy is shrinking and business sentiment is as bad as it can be. We're very close to a recession."

In a bid to provide some extra adrenaline for the economy, President George W Bush has promised a series of tax cuts to reduce the burden on families. But some fear the US will nevertheless suffer a far worse recession than after the dot-com crash.

[Dan07112]

The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.
http://www.theatlantic.com/doc/200803/subprime.
by Christopher B. Leinberger
The Next Slum?

Strange days are upon the residents of many a suburban cul-de-sac. Once-tidy yards have become overgrown, as the houses they front have gone vacant. Signs of physical and social disorder are spreading.

At Windy Ridge, a recently built starter-home development seven miles northwest of Charlotte, North Carolina, 81 of the community’s 132 small, vinyl-sided houses were in foreclosure as of late last year. Vandals have kicked in doors and stripped the copper wire from vacant houses; drug users and homeless people have furtively moved in. In December, after a stray bullet blasted through her son’s bedroom and into her own, Laurie Talbot, who’d moved to Windy Ridge from New York in 2005, told The Charlotte Observer, “I thought I’d bought a home in Pleasantville. I never imagined in my wildest dreams that stuff like this would happen.”

In the Franklin Reserve neighborhood of Elk Grove, California, south of Sacramento, the houses are nicer than those at Windy Ridge—many once sold for well over $500,000—but the phenomenon is the same. At the height of the boom, 10,000 new homes were built there in just four years. Now many are empty; renters of dubious character occupy others. Graffiti, broken windows, and other markers of decay have multiplied. Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, “There’s been gang activity. Things have really been changing, the last few years.”

In the first half of last year, residential burglaries rose by 35 percent and robberies by 58 percent in suburban Lee County, Florida, where one in four houses stands empty. Charlotte’s crime rates have stayed flat overall in recent years—but from 2003 to 2006, in the 10 suburbs of the city that have experienced the highest foreclosure rates, crime rose 33 percent. Civic organizations in some suburbs have begun to mow the lawns around empty houses to keep up the appearance of stability. Police departments are mapping foreclosures in an effort to identify emerging criminal hot spots.

The decline of places like Windy Ridge and Franklin Reserve is usually attributed to the subprime-mortgage crisis, with its wave of foreclosures. And the crisis has indeed catalyzed or intensified social problems in many communities. But the story of vacant suburban homes and declining suburban neighborhoods did not begin with the crisis, and will not end with it. A structural change is under way in the housing market—a major shift in the way many Americans want to live and work. It has shaped the current downturn, steering some of the worst problems away from the cities and toward the suburban fringes. And its effects will be felt more strongly, and more broadly, as the years pass. Its ultimate impact on the suburbs, and the cities, will be profound.

Arthur C. Nelson, director of the Metropolitan Institute at Virginia Tech, has looked carefully at trends in American demographics, construction, house prices, and consumer preferences. In 2006, using recent consumer research, housing supply data, and population growth rates, he modeled future demand for various types of housing. The results were bracing: Nelson forecasts a likely surplus of 22 million large-lot homes (houses built on a sixth of an acre or more) by 2025—that’s roughly 40 percent of the large-lot homes in existence today.

For 60 years, Americans have pushed steadily into the suburbs, transforming the landscape and (until recently) leaving cities behind. But today the pendulum is swinging back toward urban living, and there are many reasons to believe this swing will continue. As it does, many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s—slums characterized by poverty, crime, and decay.

The suburban dream began, arguably, at the New York World’s Fair of 1939 and ’40. “Highways and Horizons,” better known as “Futurama,” was overwhelmingly the fair’s most popular exhibit; perhaps 10 percent of the American population saw it. At the heart of the exhibit was a scale model, covering an area about the size of a football field, that showed what American cities and towns might look like in 1960. Visitors watched matchbox-sized cars zip down wide highways. Gone were the crowded tenements of the time; 1960s Americans would live in stand-alone houses with spacious yards and attached garages. The exhibit would not impress us today, but at the time, it inspired wonder. E. B. White wrote in Harper’s, “A ride on the Futurama … induces approximately the same emotional response as a trip through the Cathedral of St. John the Divine … I didn’t want to wake up.”

The suburban transformation that began in 1946, as GIs returned home, took almost half a century to complete, as first people, then retail, then jobs moved out of cities and into new subdivisions, malls, and office parks. As families decamped for the suburbs, they left behind out-of-fashion real estate, a poorer residential base, and rising crime. Once-thriving central-city retail districts were killed off by the combination of regional suburban malls and the 1960s riots. By the end of the 1970s, people seeking safety and good schools generally had little alternative but to move to the suburbs. In 1981, Escape From New York, starring Kurt Russell, depicted a near future in which Manhattan had been abandoned, fenced off, and turned into an unsupervised penitentiary.

Cities, of course, have made a long climb back since then. Just nine years after Russell escaped from the wreck of New York, Seinfeld—followed by Friends, then Sex and the City—began advertising the city’s renewed urban allure to Gen-Xers and Millennials. Many Americans, meanwhile, became disillusioned with the sprawl and stupor that sometimes characterize suburban life. These days, when Hollywood wants to portray soullessness, despair, or moral decay, it often looks to the suburbs—as The Sopranos and Desperate Housewives attest—for inspiration.

In the past decade, as cities have gentrified, the suburbs have continued to grow at a breakneck pace. Atlanta’s sprawl has extended nearly to Chattanooga; Fort Worth and Dallas have merged; and Los Angeles has swung a leg over the 10,000-foot San Gabriel Mountains into the Mojave Desert. Some experts expect conventional suburbs to continue to sprawl ever outward. Yet today, American metropolitan residential patterns and cultural preferences are mirror opposites of those in the 1940s. Most Americans now live in single-family suburban houses that are segregated from work, shopping, and entertainment; but it is urban life, almost exclusively, that is culturally associated with excitement, freedom, and diverse daily life. And as in the 1940s, the real-estate market has begun to react.

Pent-up demand for urban living is evident in housing prices. Twenty years ago, urban housing was a bargain in most central cities. Today, it carries an enormous price premium. Per square foot, urban residential neighborhood space goes for 40 percent to 200 percent more than traditional suburban space in areas as diverse as New York City; Portland, Oregon; Seattle; and Washington, D.C.

It’s crucial to note that these premiums have arisen not only in central cities, but also in suburban towns that have walkable urban centers offering a mix of residential and commercial development. For instance, luxury single-family homes in suburban Westchester County, just north of New York City, sell for $375 a square foot. A luxury condo in downtown White Plains, the county’s biggest suburban city, can cost you $750 a square foot. This same pattern can be seen in the suburbs of Detroit, or outside Seattle. People are being drawn to the convenience and culture of walkable urban neighborhoods across the country—even when those neighborhoods are small.

Builders and developers tend to notice big price imbalances, and they are working to accommodate demand for urban living. New lofts and condo complexes have popped up all over many big cities. Suburban towns built in the 19th and early 20th centuries, featuring downtown street grids at their core, have seen a good deal of “in-filling” in recent years as well, with new condos and town houses, and renovated small-lot homes just outside their downtowns. And while urban construction may slow for a time because of the present housing bust, it will surely continue. Sprawling, large-lot suburbs become less attractive as they become more densely built, but urban areas—especially those well served by public transit—become more appealing as they are filled in and built up. Crowded sidewalks tend to be safe and lively, and bigger crowds can support more shops, restaurants, art galleries.

But developers are also starting to find ways to bring the city to newer suburbs—and provide an alternative to conventional, car-based suburban life. “Lifestyle centers”—walkable developments that create an urban feel, even when built in previously undeveloped places—are becoming popular with some builders. They feature narrow streets and small storefronts that come up to the sidewalk, mixed in with housing and office space. Parking is mostly hidden underground or in the interior of faux city blocks.

The granddaddy of all lifestyle centers is the Reston Town Center, located between Virginia’s Dulles International Airport and Washington, D.C. Since it opened in 1990, it has become the “downtown” for western Fairfax and eastern Loudoun counties; a place for the kids to see Santa and for teenagers to ice skate. People living in the town can stroll from the movie theater to restaurants and then back home. A 2006 study by the Brookings Institution showed that Reston’s apartments, condominiums, and office and retail space were all commanding about a 50 percent rent or price premium over the typically suburban houses, office parks, and strip malls nearby.

Housing at Belmar, the new “downtown” in Lakewood, Colorado, a middle-income inner suburb of Denver, commands a 60 percent premium per square foot over the single-family homes in the neighborhoods around it. The development covers about 20 small blocks in all. What’s most noteworthy is its history: it was built on the site of a razed mall.

Building lifestyle centers is far more complex than building McMansion developments (or malls). These new, faux-urban centers have many moving parts, and they need to achieve critical mass quickly to attract buyers and retailers. As a result, during the 1990s, lifestyle centers spread slowly. But real-estate developers are gaining more experience with this sort of building, and it is proliferating. Very few, if any, regional malls are being built these days—lifestyle centers are going up instead.

In most metropolitan areas, only 5 to 10 percent of the housing stock is located in walkable urban places (including places like downtown White Plains and Belmar). Yet recent consumer research by Jonathan Levine of the University of Michigan and Lawrence Frank of the University of British Columbia suggests that roughly one in three homeowners would prefer to live in these types of places. In one study, for instance, Levine and his colleagues asked more than 1,600 mostly suburban residents of the Atlanta and Boston metro areas to hypothetically trade off typical suburban amenities (such as large living spaces) against typical urban ones (like living within walking distance of retail districts). All in all, they found that only about a third of the people surveyed solidly preferred traditional suburban lifestyles, featuring large houses and lots of driving. Another third, roughly, had mixed feelings. The final third wanted to live in mixed-use, walkable urban areas—but most had no way to do so at an affordable price. Over time, as urban and faux-urban building continues, that will change.

Demographic changes in the United States also are working against conventional suburban growth, and are likely to further weaken preferences for car-based suburban living. When the Baby Boomers were young, families with children made up more than half of all households; by 2000, they were only a third of households; and by 2025, they will be closer to a quarter. Young people are starting families later than earlier generations did, and having fewer children. The Boomers themselves are becoming empty-nesters, and many have voiced a preference for urban living. By 2025, the U.S. will contain about as many single-person households as families with children.

Because the population is growing, families with children will still grow in absolute number—according to U.S. Census data, there will be about 4 million more households with children in 2025 than there were in 2000. But more than 10 million new single-family homes have already been built since 2000, most of them in the suburbs.

If gasoline and heating costs continue to rise, conventional suburban living may not be much of a bargain in the future. And as more Americans, particularly affluent Americans, move into urban communities, families may find that some of the suburbs’ other big advantages—better schools and safer communities—have eroded. Schooling and safety are likely to improve in urban areas, as those areas continue to gentrify; they may worsen in many suburbs if the tax base—often highly dependent on house values and new development—deteriorates. Many of the fringe counties in the Washington, D.C., metropolitan area, for instance, are projecting big budget deficits in 2008. Only Washington itself is expecting a large surplus. Fifteen years ago, this budget situation was reversed.

The U.S. grows its total stock of housing and commercial space by, at most, 3 percent each year, so the imbalance between the supply of urban living options and the demand for them is not going to disappear overnight. But over the next 20 years, developers will likely produce many, many millions of new and newly renovated town houses, condos, and small-lot houses in and around both new and traditional downtowns.

As conventional suburban lifestyles fall out of fashion and walkable urban alternatives proliferate, what will happen to obsolete large-lot houses? One might imagine culs-de-sac being converted to faux Main Streets, or McMansion developments being bulldozed and reforested or turned into parks. But these sorts of transformations are likely to be rare. Suburbia’s many small parcels of land, held by different owners with different motivations, make the purchase of whole neighborhoods almost unheard-of. Condemnation of single-family housing for “higher and better use” is politically difficult, and in most states it has become almost legally impossible in recent years. In any case, the infrastructure supporting large-lot suburban residential areas—roads, sewer and water lines—cannot support the dense development that urbanization would require, and is not easy to upgrade. Once large-lot, suburban residential landscapes are built, they are hard to unbuild.

The experience of cities during the 1950s through the ’80s suggests that the fate of many single-family homes on the metropolitan fringes will be resale, at rock-bottom prices, to lower-income families—and in all likelihood, eventual conversion to apartments.

This future is not likely to wear well on suburban housing. Many of the inner-city neighborhoods that began their decline in the 1960s consisted of sturdily built, turn-of-the-century row houses, tough enough to withstand being broken up into apartments, and requiring relatively little upkeep. By comparison, modern suburban houses, even high-end McMansions, are cheaply built. Hollow doors and wallboard are less durable than solid-oak doors and lath-and-plaster walls. The plywood floors that lurk under wood veneers or carpeting tend to break up and warp as the glue that holds the wood together dries out; asphalt-shingle roofs typically need replacing after 10 years. Many recently built houses take what structural integrity they have from drywall—their thin wooden frames are too flimsy to hold the houses up.

As the residents of inner-city neighborhoods did before them, suburban homeowners will surely try to prevent the division of neighborhood houses into rental units, which would herald the arrival of the poor. And many will likely succeed, for a time. But eventually, the owners of these fringe houses will have to sell to someone, and they’re not likely to find many buyers; offers from would-be landlords will start to look better, and neighborhood restrictions will relax. Stopping a fundamental market shift by legislation or regulation is generally impossible.

Of course, not all suburbs will suffer this fate. Those that are affluent and relatively close to central cities—especially those along rail lines—are likely to remain in high demand. Some, especially those that offer a thriving, walkable urban core, may find that even the large-lot, residential-only neighborhoods around that core increase in value. Single-family homes next to the downtowns of Redmond, Washington; Evanston, Illinois; and Birmingham, Michigan, for example, are likely to hold their values just fine.

On the other hand, many inner suburbs that are on the wrong side of town, and poorly served by public transport, are already suffering what looks like inexorable decline. Low-income people, displaced from gentrifying inner cities, have moved in, and longtime residents, seeking more space and nicer neighborhoods, have moved out.

But much of the future decline is likely to occur on the fringes, in towns far away from the central city, not served by rail transit, and lacking any real core. In other words, some of the worst problems are likely to be seen in some of the country’s more recently developed areas—and not only those inhabited by subprime-mortgage borrowers. Many of these areas will become magnets for poverty, crime, and social dysfunction.

Despite this glum forecast for many swaths of suburbia, we should not lose sight of the bigger picture—the shift that’s under way toward walkable urban living is a healthy development. In the most literal sense, it may lead to better personal health and a slimmer population. The environment, of course, will also benefit: if New York City were its own state, it would be the most energy-efficient state in the union; most Manhattanites not only walk or take public transit to get around, they unintentionally share heat with their upstairs neighbors.

Perhaps most important, the shift to walkable urban environments will give more people what they seem to want. I doubt the swing toward urban living will ever proceed as far as the swing toward the suburbs did in the 20th century; many people will still prefer the bigger houses and car-based lifestyles of conventional suburbs. But there will almost certainly be more of a balance between walkable and drivable communities—allowing people in most areas a wider variety of choices.

By the estimate of Virginia Tech’s Arthur Nelson, as much as half of all real-estate development on the ground in 2025 will not have existed in 2000. It’s exciting to imagine what the country will look like then. Building and residential migration seem to progress slowly from year to year, yet then one day, in retrospect, the landscape seems to have been transformed in the blink of an eye. Unfortunately, the next transformation, like the ones before it, will leave some places diminished. About 25 years ago, Escape From New York perfectly captured the zeitgeist of its moment. Two or three decades from now, the next Kurt Russell may find his breakout role in Escape From the Suburban Fringe.

The URL for this page is http://www.theatlantic.com/doc/200803/subprime.

[bm_cali]

The above post is what you have in many parts of Europe. As you move outward from, say, central Paris, the neighborhoods get rougher and rougher, for the most part. You cross the "Peripherique" and you start to see some places that are almost "no go" zones for the police.

[Dan07112]

US economy risks a 'lost decade' like Japan
http://www.telegraph.co.uk/money/main.jhtm...cnusrates12.xml
By David Litterick in Munich
Last Updated: 9:18am GMT 28/02/2008

The US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.

Tim Collins of Ripplewood Holdings, said the Fed was "running out of policy alternatives" as it attempted to prevent a long recession in the US.

A foreclosure sign on a US house
A debate is raging about the extent of the US slowdown

Mr Collins, whose firm has significant expertise in Japan after leading the buyout and turnaround of Japan Telecom, said he believed a "sharp repricing of assets" was the most likely outcome.

But he said: "My fear is that we will prolong it and suffer a death of a thousand cuts after we have exhausted all the options."

"Even without a recession and with all of the policy tools available we still have hundreds of billions of dollars of losses."

Japan has only recently emerged from a period of zero interest rates.

He said the future would not be clear until a recession had laid bare the true state of the financial system. "You have to wait for the tide to go out to see who is wearing a bathing suit," he said.

But the chairman of Ripplewood, which last year completed the $2bn buyout of Readers Digest, rejected the argument, put forward by some at this year's SuperReturn private equity conference in Munich, that Sovereign Wealth Funds would replace struggling banks to provide debt to private equity companies.

"The financial markets operate on the basis of the multiplier effect in the banking system and you cannot replicate that with what is effectively equity, not debt, from sovereign wealth funds."

[Dan07112]

New recession worry: Bank failures
Construction loan problems threaten spike in smaller bank failures and add to worry over credit crunch.
By Chris Isidore, CNNMoney.com senior writer
March 3 2008: 4:14 PM EST
http://money.cnn.com/2008/03/03/news/econo...rce=yahoo_quote
NEW YORK (CNNMoney.com) -- As if the economy wasn't already fighting enough strong headwinds, the risk of capital shortfalls and outright failure of the nation's banks is rising.

The Federal Deposit Insurance Corp., the federal agency that backs bank deposits, last week reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s. While the extent of the problem is still low by historic standards, it identified 76 banks as in trouble - a 52% increase from a year ago.

FDIC Commissioner Sheila Bair among regulators set to testify Tuesday at a Senate Banking Committee hearing on the state of the banking industry.

Experts say the 76 banks now under scrutiny are likely only a small part of the problems now looming over the banking sector.

Jaret Seiberg, the financial services analyst for policy research firm Stanford Group, said it appears that regulators are expecting about 200 bank failures in the coming year or two.If that occurs, it could rival the flood of bank failures seen during the S&L crisis. In 1989, the nation saw a post-Depression era record of 206 bank failures.

And Seiberg says even more than 200 troubled banks are likely to be purchased before they reach the point of failure.

"Many of these banks are highly dependent on construction lending, and that's the area of lending that is likely to come under the most stress," he said.

The FDIC stresses that not all those banks will fail. In fact in 2007 only three banks failed, even though 50 were on the watch list at the end of the previous year. So far this year, one bank - Douglass National Bank in Kansas City, Mo. - has failed.

Still, the head of the FDIC is looking to hire 25 staffers to deal with an anticipated increase in failures, a move that would increase its staff by 11%. Among those it hopes to hire are recent retirees who worked through the S&L crisis.

The banks most at risk for failure are generally smaller ones, not the huge global banks hit by billions in writedowns from subprime mortgage problems.

Smaller banks are big players in the business of construction loans made to homebuilders - loans that were backed by new homes now worth a fraction of the original estimated value.

In the past six months, the number of construction loans that are 30 days or more delinquent has spiked, according to Foresight Analytics, an Oakland, Calif., economic- and real-estate-research company. Its figures show 7.5% of single-family construction loans were delinquent in the fourth quarter of 2007, more than double the 3.1% rate as recently as the second quarter.

Matt Anderson, a partner with Foresight Analytics, said that it is the small- and mid-size banks, those with assets of $10 billion or less, that find themselves most at risk. Their construction loans outstanding equaled about 115% of their primary supply of capital as of Dec. 31, compared to the big banks for which construction spending represents only 43% of capital.

Anderson said even non-residential developers who have not been hurt by the downturn in housing could see their funding spigot turned off.

"The demise of smaller lenders probably won't have as noticeable impact on the national level, but in a lot of local markets around the U.S. it will be felt," Anderson said. "In the short-run, for folks that may have a viable projects, it could mean those projects will go under as well."

Dean Baker, co-director of the Center for Economic and Policy Research, agreed that it will be the smaller banks in markets with the greatest economic weakness that will fail, and that will only compound the troubles in those areas, even if customers don't lose their deposits.

"It's one more downdraft," he said. "For certain areas, Detroit, Cleveland, some of the areas where the housing bubble burst, it could be real bad news. I don't see the bigger banks rushing into those areas to provide credit."

But even if the big banks are somewhat protected from problems with construction loans and the risk of failure, it doesn't mean their balance sheet problems don't pose a threat to the economy.

In fact, Seiberg and some others say that tighter capital among the nation's major banks poses an even greater economic threat than hundreds of small bank failures.

Huge writedowns have caused losses at No. 1 bank Citigroup (C, Fortune 500), No. 1 thrift Washington Mutual (WM, Fortune 500) and leading mortgage lender Countrywide Financial (CFC, Fortune 500) in the fourth quarter.

Federal Reserve Chairman Ben Bernanke told a Senate panel last week that while he doesn't expect the rising tide of bank failures to reach the major banks, he is worried about the need they face to raise additional outside capital.

"They have enough now certainly to remain solvent, and to remain well above their minimum capital levels," he testified. "But I'm concerned that banks will be pulling back and not making new loans and providing the credit which is the life blood of the economy."

Seiberg agreed that potential tightening of capital among the major banks is a far more serious threat to the economy than even hundreds of small bank failures.

"This economy lives and dies on credit," he said. "If the megabanks are stuck with billions in leveraged loans eating up precious space on their balance sheet, they won't be able to originate new loans. That's bad for everybody."

[Dan07112]

http://www.marketwatch.com/news/story/stor...&siteid=rss
Rapid deterioration
Housing in deepest decline since the Great Depression, economist says
By Steve Kerch, MarketWatch
Last update: 4:48 p.m. EST March 4, 2008
CHICAGO (MarketWatch) -- Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
The NAHB's latest forecast calls for new-home sales to drop 22% this year, bringing sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008, putting starts 60% off their high of three years ago.
"More and more of the country is now involved in the contraction, where six months ago it was not as widespread," said David Seiders, the NAHB's chief economist, on a conference call with reporters. "Housing is in a major contraction mode and will be another major, heavy weight on the economy in the first quarter."
'More and more of the country is now involved in the contraction.'
— David Seiders, National Association of Home Builders
A home-sales measure tracked by the association that includes data on cancellations from 30 large U.S. builders that account for one-quarter of all sales shows sales down 65% from their peak in 2005, Seiders said. Government measures of home sales do not include numbers from contracts that were signed but buyers later backed out.
Vacant homes for sale in the U.S. now number about 2 million, Seiders said, an increase of 800,000 from 2005. That inventory overhang is bedeviling builders, who have been forced to cut prices and write down the value of their holdings. Read more on the builders' plight.
"Weak demand and oversupply naturally put downward pressure on prices," Seiders said.
Citing the Case-Shiller index, Seiders noted that home prices nationally have fallen nearly 10% from their peak in early 2006 and that prices were declining at a 19% annual rate in the fourth quarter. "The downward momentum was building at the end of the year," he said. Read the latest Case-Shiller numbers.
Home sales may bottom out later this year, Seiders predicted, but housing starts are not likely to rebound until 2009. Housing, which took 1.25 percentage points off GDP in the fourth quarter, looks like it will continue to be a major drag on gross domestic product at least through the end of 2008, he said. End of Story
Steve Kerch is assistant managing editor and personal finance editor of MarketWatch in Chicago.

[Dan07112]

http://www.marketwatch.com/news/story/stor...&siteid=rss
Rapid deterioration
Housing in deepest decline since the Great Depression, economist says
By Steve Kerch, MarketWatch
Last update: 4:48 p.m. EST March 4, 2008
CHICAGO (MarketWatch) -- Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
The NAHB's latest forecast calls for new-home sales to drop 22% this year, bringing sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008, putting starts 60% off their high of three years ago.
"More and more of the country is now involved in the contraction, where six months ago it was not as widespread," said David Seiders, the NAHB's chief economist, on a conference call with reporters. "Housing is in a major contraction mode and will be another major, heavy weight on the economy in the first quarter."
'More and more of the country is now involved in the contraction.'
— David Seiders, National Association of Home Builders
A home-sales measure tracked by the association that includes data on cancellations from 30 large U.S. builders that account for one-quarter of all sales shows sales down 65% from their peak in 2005, Seiders said. Government measures of home sales do not include numbers from contracts that were signed but buyers later backed out.
Vacant homes for sale in the U.S. now number about 2 million, Seiders said, an increase of 800,000 from 2005. That inventory overhang is bedeviling builders, who have been forced to cut prices and write down the value of their holdings. Read more on the builders' plight.
"Weak demand and oversupply naturally put downward pressure on prices," Seiders said.
Citing the Case-Shiller index, Seiders noted that home prices nationally have fallen nearly 10% from their peak in early 2006 and that prices were declining at a 19% annual rate in the fourth quarter. "The downward momentum was building at the end of the year," he said. Read the latest Case-Shiller numbers.
Home sales may bottom out later this year, Seiders predicted, but housing starts are not likely to rebound until 2009. Housing, which took 1.25 percentage points off GDP in the fourth quarter, looks like it will continue to be a major drag on gross domestic product at least through the end of 2008, he said. End of Story
Steve Kerch is assistant managing editor and personal finance editor of MarketWatch in Chicago.

More bad news
International experts foresee collapse of U.S. economy
Posted By Hielema, Bert
Posted 7 days ago
http://www.intelligencer.ca/ArticleDisplay.aspx?e=918803
And you thought that I had a gloomy outlook on the economy. Now the bad news pops up everywhere.

Harry Koza in the Globe and Mail quotes Bernard Connelly, the global strategist at Banque AIG in London, who claims that the likelihood of a Great Depression is growing by the day.

Martin Wolf, celebrated columnist of the U.K.-based Financial Times, cites Dr. Nouriel Roubini of the New York University's Stern School of Business, who, in 12 steps, outlines how the losses of the American financial system will grow to more than $1 trillion - that's one million times $1 million. That amount is equal to all the assets of all American banks.

Every day now, thousands of people all over the U.S. and Great Britain are walking away from their homes - simply mailing their house keys to the banks - as housing bailout plans fail.

With unemployment growing, the next phase will hit commercial real estate making the financial institutions the unwilling owners not only of quickly depreciating houses, but also of empty strip malls and even larger shopping centres.

The next domino to fall will be credit card defaults, and after that... who knows? There are so many exotic funds out there, with trillions of dollars in paper - or rather computer-screen money - all carrying assorted acronyms, and all about to disintegrate into nothingness. Over the next couple of years, scores of banks that have thrived on these devices, based on quickly disappearing equities, will fail.

The most frightening forecast so far comes from the Global Europe Anticipation Bulletin (GEAB), available for 200 euros - about $300 - for 16 issues annually. Its prediction is quite specific.

Where my warnings never spelled out an exact date, this think tank has it pegged precisely. Here are its very words:

"The end of the third quarter of 2008 (thus late September, a mere seven months from now) will be marked by a new tipping point in the unfolding of the global systemic crisis.

"At that time indeed, the cumulated impact of the various sequences of the crisis will reach its maximum strength and affect decisively the very heart of the systems concerned, on the front line of which (is) the United States, epicentre of the current crisis.

"In the United States, this new tipping point will translate into - get this - a collapse of the real economy, (the) final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the U.S. dollar fall. The collapse of U.S. real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down."


The report goes on to say that we are entering a period for which there is no historic precedent. Any comparisons with previous situations in our modern economy are invalid.

We are not experiencing a "remake" of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis.

What we will have, instead, is truly a global momentous threat - a true turning point affecting the entire planet and questioning the very foundations of the international system upon which the world was organized in the last decades.

The report emphasizes that it is, first and foremost, in the United States where this historic happening is taking an unprecedented shape (the authors call it "Very Great U.S. Depression").

It continues to predict that, although this crucial event is global, it will be the beginning of an economic 'decoupling' between the U.S. and the rest of the world. However, non 'decoupled' economies will be dragged down the U.S. negative spiral.

Concerning stock markets, the GEAB anticipates that international stocks would plummet by 40 to 80 per cent depending where in the world they are located, all affected in the course of the year 2008 by the collapse of the real economy in the U.S. by the end of summer.

The European authors of this report - it appears simultaneously in French, German and English - state that they simply and without prejudice try to describe in advance the consequences of the ominous trends at play in this 21st-century world, and to share these with their readers, so that they can take the proper means to protect themselves from the most negative effects.

So there you have it. Three reports from three different sources, all well regarded, and all pointing to a disastrous fall-out from our monetary moves.

[Dan07112]

CNN Money recorded on or about 3-1-08.
Great Depression coming.
http://www.liveleak.com/view?i=f49_1204403165


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