Real Estate

More Bad News: 10 Things You Should Know About The Latest Economic Numbers

On Friday, headlines across the United States declared that “unemployment remains unchanged at 9.6%”.  Many analysts rejoiced and heralded this announcement as a sign that we have hit bottom and that things will be turning around soon.  But is that the truth?  A closer look at the unemployment numbers reveals some disturbing facts.  For example, according to the Bureau of Labor Statistics, a broader measure of unemployment that includes workers that have stopped looking for work rose sharply to 17.1%.  But that is not the only troubling sign from this past week.  Agricultural commodities continue to skyrocket, which means that food price increases are on the way.  The foreclosure “robo-signing” crisis continues to escalate, and that threatens to throw the entire mortgage industry into a state of absolute turmoil.  Meanwhile, the U.S. national debt continues to grow and wealth continues to leave the United States at a dizzying rate. 

So is there reason for optimism?

No, not really.

Even if the unemployment numbers had improved slightly, the longer-term trends for unemployment are extremely troubling as you will see from the statistics and the chart below.

At the same time when so many Americans are out of work or can barely get by on what they are currently making, there is every indication that prices are about to go up.  Wheat, corn and soybeans all jumped in price on Friday, and it is inevitable that at some point these price increases will be passed on to consumers.  And if that wasn’t bad enough, now some Federal Reserve officials are actually talking about purposely generating more inflation in order to “stimulate” the U.S. economy.  

Meanwhile, this “robo-signing” foreclosure crisis threatens to escalate totally out of control.  Will we soon see thousands of court cases popping up from coast to coast challenging the legitimacy of foreclosure paperwork?  Will title insurers start totally backing off from foreclosed properties?  Banks were already completely overwhelmed trying to process the massive backlog of foreclosures.  Is this going to make the situation a whole lot worse?

The truth is that more bad news for the U.S. economy comes out almost daily now.  The following are 10 things that you need to know about the latest econ0mic numbers…. 

1 – Gallup’s measure of unemployment, which is not adjusted for “seasonal factors”, showed a sharp increase in September.  According to Gallup, unemployment has increased from 8.9% in July to 9.3% in August and to 10.1% in September.

2 – The seasonally-adjusted Alternate Unemployment Rate compiled by Shadow Government Statistics shows that the real unemployment rate in the United States is worse than it has been ever since the economic downturn began.  The Alternate Unemployment Rate calculated by SGS reflects estimated “long-term discouraged workers”, which the U.S. government stopped keeping track of back in 1994….

3 – The number of Americans working part-time jobs “for economic reasons” is now the highest it has been in at least five decades.

4 – 15.8% of Americans between the ages of 18 and 29 were unemployed during the month of September.

5 – Agricultural commodities continued to move higher on Friday.  Wheat, corn and soybeans all saw their prices soar.  Unfortunately for American consumers, this is part of a broader trend of rising agricultural commodity prices.  As this continues, it is inevitable that we will all be seeing much higher food prices at our local grocery stores. 

6 – It is being reported that PNC Financial Services Group has suspended the sale of foreclosed homes for the next thirty days.  This is the fourth major lender to take dramatic action recently.  Will nearly all U.S. mortgage lenders eventually be caught up in this crisis before it is over?

7 – Bank of America announced on Friday that it is now going to suspend sales of foreclosed homes in all 50 U.S. states as it continues to evaluate internal foreclosure procedures.  This “foreclosure crisis” threatens to decimate the entire U.S. real estate industry.  What has happened is that millions of U.S. mortgages were sold and resold around the globe at lightning speed and the chain of ownership for many of these mortgages become muddied.  In addition, it is starting to emerge that many of these lenders used fraudulent loan documents during foreclosure proceedings and company officials often used “robo-signers” to sign important foreclosure documents.  So now mortgage lenders, title insurers and those buying or selling foreclosed homes will be facing years of gridlock and chaos as foreclosure-related lawsuits multiply exponentially.  All of this is going to have a dramatic effect on the U.S. real estate market.  In fact, it is being reported that U.S. home sales are already starting to be affected by this crisis. 

8 – The U.S. National debt just keep growing.  If you took the national debt and divided it up among all Americans, each American (including children) would owe approximately $42,000.  So, for an average family of four, their share of the national debt would be $168,000.

9 – Interest payments on the U.S. national debt increased 13% in the fiscal year that ended September 30th.  If interest payments continue to increase that rapidly each year they will bankrupt the U.S. government very quickly. 

10 – It appears that some weird games are being played with the national debt numbers.  Back on September 29th, the U.S. national debt was 13.466 trillion dollars.  On September 30th, the U.S. national debt soared to 13.561 trillion dollars.  Then on October 1st, the beginning of the new fiscal year for the federal government, the U.S. national debt jumped up to 13.610 trillion dollars.  So how in the world does the U.S. national debt jump by a whopping 144 billion dollars in just two days?  Somebody has some explaining to do for this kind of accounting.

The United States was once the wealthiest nation by far on the entire planet.

But now we are in such a rapid decline that it is hard for most Americans to even comprehend it.

We are like that one couple that almost every neighborhood seems to have that has two shiny new cars in their driveway, that dresses in designer clothes and that seems to have plenty of money to take vacations and yet is in debt up to their eyeballs.

The truth is that the United States keeps getting poorer every single month.  The term “trade deficit” is not very sexy, but it is critically important to understand if you want to comprehend what is happening to the U.S. economy.  Every month tens of billions of dollars more wealth goes out of the United States than comes into it.  We are continually getting poorer.

To cover up our declining national wealth, we have gone into staggering amounts of debt.  We have maintained our lavish standard of living by piling up staggering amounts of debt on the national, corporate and consumer levels. 

The sad reality is that the U.S. government is not the wealthiest government in the world any longer.  Rather, it is the government that is the most in debt.  The U.S. national debt is the biggest debt that the world has ever seen, and it grows larger every single day.

We can’t keep up this charade forever.  At some point it is going to stop.

When this house of cards does come tumbling down, do you think that the American people are going to be pleased to learn that our leaders have squandered our once great wealth and have destroyed the greatest economic machine that the world has ever known?

The Coming U.S. Real Estate Crash

This week headlines across the United States screamed that new home sales in the U.S. had declined to the lowest level since the U.S. government began keeping track in 1963.  But in the news stories covering this data in the mainstream media, they were always very careful to give their readers lots of reasons why things are going to “get back to normal” very soon.  But the truth is that is simply not going to happen.  Right now the United States is heading for another real estate crash.  The only thing that has been holding it back was the huge bribe (called a tax credit) that the U.S. government was giving people to buy houses.  Now that the tax credit has expired, there is no artificial incentive to buy homes and the real estate market has fallen through the floor.  Unfortunately, there is every indication that things are going to get even worse.  Read on to find out why…. 

The following are 7 reasons why the U.S. real estate market is already a total nightmare….

#1) In May, sales of new homes in the United States dropped to the lowest level ever recorded.  To be more precise, new home sales dropped 32.7 percent to a seasonally adjusted annual rate of 300,000.  A “normal” level is about 800,000 a month.  New homes have never sold this slowly ever since the U.S. Commerce Department began tracking this data back in 1963.

#2) The median price of all new U.S. homes sold in May was $200,900, which represented a 9.6% drop from May 2009.  If prices are still falling on new homes that means that the real estate nightmare is not over.

#3) New home sale figures for the previous two months were also revised down sharply by the government.  Apparently their previous estimates were far too optimistic.  But those were supposed to be really good months for home sales with so many Americans taking advantage of the tax credit right before the deadline.  So the fact that the data for the previous two months had to be revised downward so severely is a very bad sign.

#4) Newly signed home sale contracts in the U.S. dropped more than 10% in May.

#5) According to the U.S. Commerce Department, housing starts in the U.S. fell approximately 10 percent in May, which represented the biggest decline since March 2009.

#6) Internet searches on real estate websites are down about 20 percent compared to this same time period in 2009.

#7) The “twin pillars” of the mortgage industry are a complete and total financial mess.  The Congressional Budget Office is projecting that the final bill for the bailouts of Fannie Mae and Freddie Mac could be as high as $389 billion.  Both Fannie Mae and Freddie Mac continue to hemorrhage cash at an alarming rate, but the truth is that without them there wouldn’t be much of a mortgage industry left in the United States.

The following are 7 reasons why things are going to get even worse….

#1) The massive tax credit that the U.S. government was offering to home buyers has expired.  This tax credit helped stabilize the U.S. real estate market for many months, but now that it is gone there is no more safety net for the housing industry.

#2) Foreclosures continue to set all-time records.  In fact, the number of home foreclosures set a record for the second consecutive month in May.  Not only that, but the number of newly initiated foreclosures rose 18.6 percent to 370,856 in the first quarter of 2010.  A rising tide of foreclosures means that there is going to be a growing inventory of foreclosed homes on the market.  As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, which was up 20 percent from a year ago.  There is no indication that the number of foreclosed homes that need to be sold is going to decrease any time soon.  This is going to have a depressing effect on U.S. home prices.

#3) Another giant wave of adjustable rate mortgages is scheduled to reset in 2011 and 2012.  This “second wave” threatens to be as dramatic as the first wave that almost sunk the U.S. mortgage industry in 2007 and 2008.  Unfortunately, what this is going to cause is even more foreclosures and even lower home prices.

#4) Banks and lending institutions have been significantly tightening their lending standards over the past several years.  It is now much harder to get a home loan.  That means that there are less potential buyers for each house that is on the market.  Less competition for homes means that prices will continue to decline.

#5) Home prices are still way too high for most Americans in the current economic environment.  Based on current wage levels, house prices should actually be much lower.  So the market is going to continue to try to push home prices down to a point where people can actually afford to buy them.  Right now Americans can’t even afford the houses that they already have.  The Mortgage Bankers Association recently announced that more than 10% of all U.S. homeowners with a mortgage had missed at least one mortgage payment during the January to March time period.  That was a new all-time record and represented an increase from 9.1 percent a year ago.

#6) The overall U.S. economy is caught in a death spiral.  Unemployment remains at frightening levels, a large percentage of Americans are up to their eyeballs in debt and more than 40 million Americans are now on food stamps.  If people don’t have jobs and if people don’t have money then they can’t buy houses. 

#7) The Gulf of Mexico oil spill is the greatest environmental disaster in U.S. history, and it is threatening to become one of the greatest economic disasters in U.S. history.  Already, real estate agents along the Gulf coast are reporting that the oil spill has completely killed the real estate industry in the region.  As this disaster continues to grow worse by the day, homes in the southeast United States will continue to look less and less appealing.  In fact, many are now projecting that the crisis in the Gulf will actually crush the housing industry from coast to coast.

So honestly there is not a lot of reason to think that the housing industry in the U.S. is going to rebound any time soon.  In fact, for those waiting for a “rebound” the truth is that we have already seen it.  Where we are headed next is the second dip of the “double dip” that so many of the talking heads on CNBC have been talking about.  For those seeking to sell their homes this is really bad news, but for those looking to buy a home this is actually good news. 

Who knows?  Home prices may actually come down to a point where many of us can actually afford to purchase a home.

12 Reasons Why The U.S. Housing Crash Is Far From Over

Over the past several months, many in the mainstream media have hailed the slight improvement in the U.S. real estate market as a “housing recovery”.  But the truth is that the small improvement in the numbers was primarily due to a significant number of Americans attempting to squeeze their home purchases in before the huge home buyer tax credit expired at the end of April.  Now that there is no more giant tax incentive, real estate professionals all over the United States are fearing the worst.  Mortgage defaults and foreclosures are still at record levels, and a giant “second wave” of adjustable rate mortgages is scheduled to reset in 2011 and 2012.  In addition, there are numerous indications that the U.S. economy as a whole is going to experience a dramatic downturn shortly, and if that happens it is going to be really bad news for the housing industry.  So are we about to see “Housing Crash Part 2”?

The reality is that it has taken unprecedented U.S. government intervention to even stabilize the U.S. housing market.  Now that the tax credit has expired, and as the U.S. economy continues to worsen, there is simply no way (except if we see hyperinflation at some point) that housing prices are going to return to the levels that we saw during the height of the housing bubble.

Banks and other lending institutions all across the U.S. have seriously tightened their lending standards and so it is now much more difficult to get approved for a mortgage.  That means that there are going to be less home buyers in the marketplace.

In addition, while mortgage rates are at record lows right now, the truth is that they will not stay there indefinitely.  When interest rates do start to rise that is going to suck even more home buyers out of the market.

Truthfully, the housing market is not going to be as good as it was during the first several months of 2010 for quite some time.  The entire U.S. economy is on the verge of collapse, and when it does the real estate industry is going to be one of the first to feel the pain.

The following are 12 reasons why the U.S. housing crash is far from over….

#1) Now that the huge home buyer tax credit (government bribe to purchase homes) has expired, the real estate industry is bracing for the worst.  The truth is that a significant percentage of those Americans that planned to buy a home in 2010 really tried to squeeze their purchases in before the April 30th deadline in order to take advantage of the tax incentive.  According to mortgage consultant Mark Hanson, “buyers were bidding on everything and sellers were accepting anything and everything before 4/30.”  Now that the tax credit is over, things could get really slow for the U.S. real estate market.

#2) A massive “second wave” of adjustable rate mortgages is scheduled to reset in 2011 and 2012.  In fact, there are many analysts that are openly speculating that this second wave could be even more brutal than the first wave that we experienced in 2007 and 2008.

#3) The number of home sale closings in May was down more than 5% compared to April.

#4) Newly signed home sale contracts dropped more than 10% in May.

#5) There has been an even more dramatic decline in mortgage applications.  In fact, home purchase applications are now almost 40 percent below the level of just four weeks ago.

#6) Internet searches on real estate websites are down 20 percent compared to this same time period in 2009.

#7) From all indications, a record number of foreclosures is going to continue to flood the market.  The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period.  That was a record high and up from 9.1 percent a year ago.

#8) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a whopping 35 percent increase from the first quarter of 2009.

#9) A staggering 24% of all homes with mortgages in the United States were underwater as of the end of 2009.

#10) People can’t buy houses if they are flat broke.  For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

#11) The truth is that American consumers are stretched to the limit and are increasingly finding it very difficult to pay their bills.  During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

#12) The overall U.S. economy is in really bad shape and is rapidly getting worse.  If American workers cannot find good jobs and if they keep going bankrupt in record numbers they simply are not going to be able to buy homes in 2010 or any year thereafter.

Those who are projecting a robust housing recovery are living in some kind of fantasy world.  It is just not going to happen.  Let’s just hope that things don’t get as bad as the numbers seem to indicate that they might.  Another devastating housing crash would just suck the life right out of the U.S. economy.  So let us hope for the best but also let us be prepared for the worst.

The Beginning Of The End

Strategic Defaults: Is It Morally Right To Decide To Simply Stop Paying Your Mortgage?

In 2010, record numbers of Americans are defaulting on their mortgages.  For most of them, it is because they simply cannot afford the mortgage payments any longer.  But for a growing number of Americans, the decision to stop paying on a mortgage is not because of financial hardship.  Rather, after taking a hard look at the numbers, many Americans are simply deciding to walk away rather than continuing to make monthly payments on a home that has dramatically declined in value.  It is called a “strategic default”, and it is a phenomenon that is sweeping the nation.  So why have strategic defaults increased so dramatically?  Well, in some areas of the United States, homes are only worth about half of what they were going for at the height of the market.  So what is the morally right thing to do in that situation?  Should someone “honor the contract” that they signed and continue making payments no matter how hard it hurts, or is the morally right thing to stop making payments on the mortgage in order to put your family in a better financial position?

The truth is that the answers to these questions are not easy.     

In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away.

Take a moment and think about that.

A million Americans that have simply walked away from their homes.

This is something that is absolutely unprecedented in American history.

In fact, 31 percent of all foreclosures in March were deemed to be “strategic defaults” by researchers at the University of Chicago and Northwestern University.  That is up from just 22 percent in March 2009.

So the strategic default trend is accelerating.

And with more than 24% of all homes with mortgages in the United States underwater as of the end of 2009, it is likely that we are going to see a whole lot more strategic defaults.

This is particularly true in areas that were hurt the worst by the real estate crash.  In Arizona for example, it is estimated that 50 percent of all homes are underwater, and in Nevada it is estimated that a whopping 65 percent of all homes are underwater.

That is a whole lot of families that have some very hard decisions to make.

But it just isn’t families that are making these kinds of decisions.  Even the biggest financial institutions in the United States have committed strategic defaults.  For example, Morgan Stanley walked away from five San Francisco office buildings they bought at the height of the real estate boom.

But is it the right thing to do?

Well, let’s look at both sides of the issue.

Why many would say that strategic defaults are morally acceptable….

Many Americans have no problem at all walking away from their mortgages.  After all, they would argue, they never agreed to pay twice what a house is worth.

If they signed up for a $400,000 mortgage, they would argue that they expect to be making payments on a house that is worth somewhere around $400,000.

So is that unreasonable?

After all, if a $400,000 house goes down to $200,000, there are many that would argue that it represents an unforeseen circumstance that negates the deal.

Others would argue that bankers tricked millions of Americans into accepting mortgages that they could not possibly afford, and therefore nobody should be crying for the bankers when people quit paying on those mortgages.

In essence, the argument is that the bankers created this mess so the bankers should be the ones to pay the penalty.

Still other Americans are choosing strategic defaults because it enables them to provide for their families during these hard economic times.

For many Americans, often the choice is between paying the mortgage and putting food on the table.

And because of the massive delays in processing foreclosures these days, many people are finding that they can live in their homes “rent free” for months on end after they stop making payments.

In fact, Bank of America’s credit loss mitigation executive, Jack Schakett, has even acknowledged that many home owners have a huge financial incentive to walk away: “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”

So how much “free rent” are those who have walked away from their mortgages getting?

According to LPS Applied Analytics, the average home owner in foreclosure has been delinquent for 438 days before actually being evicted.  That is up from 251 days in January 2008.

The truth is that especially in states where the foreclosure process must go through the courts, the systems are simply being overloaded.

For example, in Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases.  Ten years ago, there were only about 4,000.

But there are others that would argue that strategic defaults are 100 percent morally wrong.

Why many would say that strategic defaults are morally wrong….

Those who would say that strategic defaults are wrong would argue that no one put a gun to the head of anyone signing up for a mortgage.

They would argue that “a contract is a contract” and that Americans should fulfill their obligations, no matter how hard it hurts.

The truth is that once upon a time in America, a “strategic default” would have been unimaginable to most people.

Back then, a man was only as good as his word.

Even today, to purposely break a contact is on the same level as purposely telling a lie to many people.

Not only that, but the reality is that a strategic default will ruin your credit for years to come.  Many would argue that it is immoral to ruin your family credit for the simple convenience of getting out of a bad mortgage.

In addition, many would argue that it is wrong to take advantage of the banks by exploiting the delay in foreclosure processing – no matter how evil the banks have been.

After all, do two wrongs make a right?

Plus, in some states there may be additional financial penalties even after you walk away.

Kyle Lundstedt, the managing director of Lender Processing Service’s analytics group says that those who do willingly walk away from their homes are playing a very dangerous financial game….

“These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

Plus, those who do commit strategic defaults raise borrowing costs on the rest of us.  In the future, banks are going to have to charge all of us higher interest rates on our mortgages in order to factor in the risk that many Americans will simply walk away from their mortgages if their house values go down.

So is it right for everyone else to suffer in the future so that some can get out of bad mortgages right now?

The truth is that it is not the purpose of this article to answer these questions.

The purpose of this article is simply to raise these questions.

We live in unprecedented economic times, and we are all going to be faced with very hard decisions as we move into a very uncertain future.

Strategic defaults pose some very interesting moral dilemmas, and if you ask 10 different people about strategic defaults you are likely to get 10 different opinions.

So what do you think about strategic defaults?

Is it morally right to decide to simply stop paying your mortgage?

Feel free to leave a comment with your opinion….

Paupers In The Land Our Forefathers Conquered

A long time ago, in an America now far, far away, the majority of the American people owned the land that they live on.  The term “my land” actually meant something back then.  But today that has fundamentally changed.  Now the majority of the American people owe on the land that they live on.  In fact, most of them owe big money to the giant corporate banking interests that control the mortgage industry.  So how did the American people come to be debtors and paupers in the land that our forefathers conquered?  Today when someone says that they “bought a house” what they really mean is that they have signed up for 30 years (or more) of bloated mortgage payments which they care barely afford.  As you will see below, the percentage of residential mortgage debt to total home equity (housing net worth) in the United States continues to rise at a staggering pace.  In fact, thanks to the housing crash, for the first time in American history residential mortgage debt far surpasses the total home equity owned by all Americans.  So what does that mean?  It means that the big corporate banks have more of an interest in America’s homes than we do now.

So how are we getting our land taken from us?

Well, you can thank rampant inflation and the housing bubble.

Back in 1980, the United States was pushing up towards a total of $1 billion in total residential mortgage debt.  It took us over 200 years to get to that point as a nation.

By 1990, the United States approximately doubled that amount and was sitting at about $2 trillion  in total residential mortgage debt.

By the year 2000, the United States had just about $5 trillion in total residential mortgage debt.

By 2008, the United States had over $10 trillion in total residential mortgage debt.

Do you notice a trend?

In just the past 30 years the amount of residential mortgage debt in the United States has increased tenfold.

Meanwhile, thanks to the housing crash, home equity has taken a nosedive.  As you can see from the chart below, total residential mortgage debt in the U.S. now far exceeds total home equity….

So what does this mean?  It means that the banks have more of a financial interest in America’s homes than we do.  It means that we are quickly becoming paupers and debt slaves.

As you can see from the chart below, back in 1945 total home equity as a percentage of home value was extremely high (80%).  Home equity exceeded total residential mortgage debt by about a 4 to 1 margin.  But today total residential mortgage debt exceeds home equity and the situation is rapidly becoming worse….

We were all told to buy into the system and we could live the American Dream.  We were told to get a “good job” with one of the big global corporations and we were told to get a mortgage so that we could build up equity.  Well, that has turned out great for most of us, hasn’t it?

The reality is that the system so many of us trusted is dying.  We are now at the point where the system cannot provide jobs for millions of us anymore.  If unemployment continues to soar as it has, millions more of us will find ourselves destitute and homeless on the continent our forefathers conquered….

So how did all of this happen?

Back in 1913, the U.S. Congress gave control over U.S. currency to the Federal Reserve.  Since that time, the value of the U.S. dollar has slowly been eroded.  $1.00 in 1914 (the year after the Federal Reserve was established) had about the same buying power as $21.59 in 2010.  That means that the U.S. dollar has lost over 95 percent of its purchasing power since then.

So the accumulated wealth that our parents and grandparents hand down to us is being constantly devalued.  The only way to keep up with rising prices on land and on everything else is to go out into the system to get more of the “currency” that is controlled and manipulated by the Federal Reserve and the big corporate banks.  But what most of us don’t realize is that the game is rigged to slowly transfer the wealth of the nation over to them.

The house always wins in the end.

Thanks to the greed and stupidity of the American people, we have accumulated the biggest mountain of debt in the history of the world.  It was a fun party while we were piling up all the debt, but now the bankers have us where they want us.

If only we had listened to those among our founding fathers who warned us about this trap.

For example, the words of Thomas Jefferson in a letter to John Taylor dated May 28th, 1816 ring more true today than they ever have….

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

The truth is that the American people are being swindled and most of them don’t even realize it.  The wealth of America is slowly being transferred to the big banks.  All of the interest that we pay month after month after month makes them rich.

The financial system of the United States is broken.  But until the U.S. economy totally collapses most Americans will not realize it.  By then it will be far too late.

FINCA BAYANO

Has The State Of California Become The Epicenter Of The Economic Collapse Of America?

Once upon a time, California was the state that everyone wanted to move to.  The endless sunshine, the gorgeous weather, the beaches, the lure of Hollywood and a booming economy made it extremely attractive to millions of Americans who wanted to fulfill their “California dreams”.  But those days are long gone.  Now, the state of California has become an economic nightmare.  In fact, many would argue that California has now become the epicenter of the economic collapse of the United States.  Everything that once made California great is now being swamped by a tidal wave of unemployment, foreclosures, crime, budget cuts, traffic, taxes and natural disasters.  There is a reason why every year now many more people leave the state of California than move into it.  The state of California is suffering a slow economic death, and if something is not done it could end up being one of the biggest financial disasters in history.

The economic crisis of the past several years has hit California so incredibly hard that it is hard to describe.  According to the U.S. Labor Department, the unemployment picture in the state continues to deteriorate, with an overall unemployment rate of 12.5 percent in January.

12.5 percent may not sound that bad, but the truth is that the situation in many of the urban areas is much worse.  There are now 8 counties in the state of California that have unemployment rates of over 20 percent.

In this economic environment, not even teachers are safe.  Just last week, the state of California handed pink slips to nearly 22,000 teachers across the state.

It is hard to even convey how bad things are in California right now.  California has always been a “boom or bust” state, but what is happening now is really unprecedented.

In fact, the number of people now unemployed in California is equivalent to the populations of Nevada, New Hampshire and Vermont combined.

Businesses are shutting down at an alarming rate.  For example, in the area around Sacramento, California there is one closed business for every six that are still open.

Just think about that.

One out of every seven businesses has already shut down.

And unfortunately things are going to get even worse.

But that is the last thing that people in California want to hear about now.

All of these economic problems are playing havoc with the state budget as well.  At this point the state of California is essentially dead broke.  Yet they have to keep borrowing more and more money because revenues have fallen off so sharply.  Basically what California is doing is they are piling up the biggest mountain of debt that any U.S. state has ever accumulated, and there is no hope that they will be able to do anything about it any time soon.

The following is how Ralph E. Stone of the Fog City Journal recently described the California government’s colossal financial problems….

How bad is the problem? Consider that California has a $20.7 billion deficit in the general fund budget over the next 16 months. California owes $8.8 billion in short-term loans that have to be paid off by June, and over $120 billion in outstanding bonds and interest that will be paid over decades. The state’s pension fund, CalPers, has $16.3 billion more in liabilities than assets, plus California also faces a $51.8 billion expense for the health and dental benefits of state retirees and future retirees.

So what can the state of California do?  Well, they can either raise taxes or they can cut spending.  Considering the fact that taxes are already at an incredibly oppressive level in the state, that is not a great option.  Not that they won’t try to suck more money out of the taxpayers anyway.

What California should be trying to do is to cut spending, but the very deep cuts that have been made already have not made that much progress.

Bob Herbert of the New York Times recently described California’s massive budget problems this way….

California has cut billions of dollars from its education system, including its renowned network of public colleges and universities. Many thousands of teachers have been let go. Budget officials travel the state with a glazed look in their eyes, having tried everything they can think of to balance the state budget. And still the deficits persist.

But it is not just California’s government that is experiencing a financial crisis of unprecedented magnitude.

California’s overstretched health care system is also on the verge of collapse.  Dozens of California hospitals and emergency rooms have shut down over the last decade.

Why?

The reality is that many hospitals and emergency rooms simply could not afford to stay open as they were endlessly swamped with immigrants and poor and homeless who were not able to pay for the services they were getting.

As a result of these hospital and emergency room closings, the remainder of the health care system in the state of California is now beyond overloaded.  This had led to brutally long waits, diverted ambulances and even unnecessary patient deaths.

And the number of Californians who are unable to pay for their emergency care is only increasing.

According to one new study, approximately 1 in 4 Californians under the age 65 had absolutely no health insurance last year.

But perhaps now that Barack Obama’s health care scheme has passed, maybe the cost of caring for everyone in California will be taken care of by the American taxpayers.

Thanks Obama.

The high unemployment rate and the cuts to the budget in California have also created an environment where crime and gang activity can flourish.  Not that crime and gangs were not gigantic problems before.  But now thousands upon thousands of young men who can’t or won’t find jobs have nothing better to do than sell drugs and terrorize entire neighborhoods.

In fact, there are many areas of California where you just do not go out of your home at night.

Then there are the devastating droughts, the thousands of wildfires, the endless earthquakes, and the crippling mudslides which California now experiences almost every single year.

No wonder so many people are flocking to leave the state.

But what happens in California eventually spreads to the rest of the United States.

Keep in mind that 13 percent of the U.S. gross domestic product comes from the state of California.

Counted by itself, California would be the 5th largest economy in the entire world.

So to think that these problems can be isolated to California is complete fantasy.

In fact, there are some areas in the United States, such as Detroit, that are just as bad as anything that is going on in California.

So the reality is that this is a national economic cancer that is spreading rapidly.

The economic nightmare that people in California and Michigan are experiencing will be coming to your area sooner or later.

Are you ready for that?

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How Can Anyone Claim That The Housing Crisis Is Over When The Delinquency Rate On U.S. Mortgages Continues To Explode At An Exponential Rate?

Housing prices have stabilized and are actually slightly increasing in some areas.  The tax breaks passed by Congress have encouraged more first-time home buyers to get into the market.  So is the U.S. housing crisis over?  Will the real estate market be back to normal in no time?  Well, if you listen to many of the talking heads on the news channels, you might be tempted to think that the worst of the housing crisis is behind us and that we are headed towards recovery.  But that is not what is happening.  The truth is that we are just now getting ready for round 2 of the real estate nightmare.

Where is the evidence to back that assertion up?  Well, just consider the chart below.  The delinquency rate on U.S. residential mortgages continues to explode at an exponential  rate….

Please note that the rate of mortgage delinquencies is now much, much higher than it was when the housing market was crashing so hard in 2007 and 2008.  More people than ever are falling seriously behind on their mortgages, and that means that more homes than ever are in danger of being foreclosed.

Now it is true that there are some signs that the rate of serious mortgage delinquencies is starting to stabilize, but the reality is that we will experience only a momentary pause.

Why?

A massive second wave of adjustable rate mortgages is scheduled to reset beginning this year, and if it goes anything like the “first wave” did, the results could be absolutely catastrophic for the U.S. economy.  Just check out the chart below….

This coming second wave could result in another huge mountain of foreclosures being forced on to the market.

So is the housing crisis over?

No.

Not even close.

Unless something really dramatic happens, the U.S. housing market is going to experience pain so intense that it is hard to even imagine.  Millions more Americans could lose their homes and scores of banks could end up being shut down.

Let’s hope that things end up being not quite as bad as it looks like they could be.

But you know what they say: “Hope for the best but prepare for the worst”.

Thrive Life

 

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