Denninger: ‘We Are Going to See a Huge Further Decline. It is Inevitable.’

by | Sep 7, 2010 | Headline News, Karl Denninger | 26 comments

Do you LOVE America?


    When the bottom fell out of the real estate market in 2008, democrats and republicans alike clamored for immediate action to save the housing market. President Obama, after taking office in early 2009, took what he perceived as steps to stabilize the housing markets, which included an $8000 tax credit for first time home buyers and billions dedicated to mortgage modification programs – all designed to stabilize home prices.

    The problem, of course, was that by “stable” the President meant to keep home prices at their over-inflated bubble top levels of 2006-2007, rather than the generally accepted norm of the prior century.

    An excellent review of the historical value of homes was put forth by Glenn Beck in February of 2009, where Beck charted the value of homes all the way back to 1890. From this data, we can extrapolate a home value, in real terms (adjusted for inflation), of around $110,000 to $130,000 historically for the hundred years prior to the boom which started around 2001. By 2006, values skyrocketed over 60% to about $200,000.

    Once the bubble burst, prices began to return to the historical average – another way to put it, is that home values were returning to their historically stable values. This return to balance was derailed by pulling forward demand with an $8000 tax credit, billions in bailouts for failing institutions like Fannie Mae, Freddie Mac and large banking conglomerates, and banks’ reluctance to report the seven million homes in the delinquent “shadow inventory.

    After all of the money spent to stabilize prices, what actually happened was that the free market’s attempt to correct itself was merely delayed, not prevented as some in Washington would have us believe.

    The fact is, nothing has gotten better in the housing markets, and it is going to become clearly evident in the very near future. Karl Denninger of The Market Ticker shares his perspective:

    At historical lows interest rates only have one direction to go for mortgages: UPWARD.

    Yet it was those historical, ridiculous lows that led to the bubble in the first place.  It was 1 and 2% “teaser rates” and Option ARMs that caused the price explosion.  Since the rate environment has been artificially suppressed, the price correction necessary to fix the problem has not been able to occur.

    We are going to see a huge further decline folks.  It is inevitable.

    “Let it crash” was the right decision in 2007, it was the right decision in 2008, it was the right decision in 2009, and it is the right, and inevitable, decision today.

    If you want the housing market to “recover”, it must first adjust out the distortions from the previous decade.  It cannot be otherwise.  In addition, rates must normalize so that a durable bottom can be found and formed.

    When will President Obama and his administration come to grips with reality?

    Neither President Bush or President Obama understood the reality of the situation. If we had to guess, President Obama will stay the course with stimulus packages (though his administration denies this), artificial propping up of housing markets and bailouts for large institutions when they’re needed for as long as is possible.

    They’ll also receive help from industry experts like the National Association of Realtors, who has seemingly been fraudulently padding the numbers to maintain artificially high home values.

    Nature, however, will ultimately take its course and we’re getting to the point now that the market has pulled forward about as much demand as possible. With employment in the toilet and mortgage lending coming to a standstill as a result of fewer qualified buyers, the charade doesn’t have much longer to go.

    As we pointed out in a previous housing market assessment, do not be surprised if home values fall another 30% from here. In our view, this is a conservative estimate, and we could see a significantly higher drop over the coming decade. Though it is hard to imagine another drop of this magnitude, we only need to look at Japan whopping 75% housing decline since their bubble top in the early 1990’s – and they have yet to recover.

    Prepare for another crash. It really is inevitable at this point.


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      1. The government will do whatever is necessary for it to survive this economic debacle it helped create. The American People on the other hand, will be left to fend for themselves. Storing a year supply of food, and other essentials, will allow you to get through the initial chaos of the financial crash to come. Many individuals will be unprepared and add to the problem.
        A financial crash will lead to higher food prices. Stocking up now would save you a lot of money, and provide peace of mind knowing that your family will not go hungry. Check out,,,,,long term food storage delta69alpha on youtube,,,,, and see how you can store food that will last for years. Gear up folks.

      2. I have been trending this for quite some time – more or less for self-interest. Any more bailouts? Hard to say but Bernake wasn’t opposed to printing more money. Yikes!

      3. BD, I am thinking they are going to keep bailing out companies (and people). Stock market moves aside, the economy is faltering again and when the next GM and Chrysler come along I have a hard time believing they won’t act to “save” them…

        Wheedle, good advice in my opinion. In fact, I just long-term packed an additional 200 lbs. of rice and 100 lbs. of  Pinto beans a couple nights ago… My wife also put together a 50 lbs. bucket of bean soup mix the other night that includes 15 different varieties…

        A 25 pound bag of rice is roughly $12 right now… pretty solid deal if you ask me, considering the amount of servings that produces… Since we regularly eat rice anyway, it’s something we rotate back in to our food supply every few months…

        We’ve also packed dehydrated milk, cornmeal, oats, noodles, etc. over the last couple years…

        Though we don’t pack our own because I don’t have a wheat supplier, hard wheat (hard white wheat) is a winner too…Rather than packing flour, which may go bad after a year, maybe two, going with a hard wheat is a great way to ensure you can make basic breads and tortillas and such. I’ve got several hundred pounds of that on hand as well, and it’s fairly cheap considering the benefits of non-processed wheat and storage life.

        oh, and don’t forget the popping corn… heck of a meal at 30g carbs and 5g protein per serving! (Plus, if you have a reserve you never run out during movie night!)

        Long term food storage packing is much easier than most think… and it is peace of mind.

        Also, as a side note, my wife busted out about 20 bricks of these last night: and they’re pretty darn good! We did some recipe modifications with wheat germ for added nutrition and cut out some of the sugar. Going to vacuum seal with oxygen absorbers and double pack in vacuum food storage bags and Mylar tonight. This was an experiment. I will report back on how they taste a year from now 🙂

        My view is, even if we don’t have a complete societal collapse where the grid goes down and food supply systems are affected, I may lose my income stream for a time as people cut even more spending… If nothing else, I’ll be able to supplement my weekly groceries with existing food supplies and our home garden and spend very little at the store…

        The money spent for pre-packing long-term food supplies gives me much more value than, say, blowing $25 – $50 at Starbucks each week. (Incidentally, I have a ton of coffee beans on standby — for consumption or use as a currency.. heh)

        I am prepping not just for a mass catastrophe, but personal catastrophe as well…. it’s kind of like a 401(k) for food…. when Jim Rogers and Marc Faber said buy commodities, I took it literally… a paper receipt for a commodity ETF does me no good if i happen to ever need to eat it.

      4. My wife now has a literal warehouse of toilet paper.   She has been stockpiling it for over a year now.
        So, looks like we will be trading TP for food.   lol
        How much would you pay to wipe your ass with Charmin?  Oh, the simple pleasures of life.

      5. LOL !

        I guess once I run out of FRN’s to wipe with I would be willing to offload some booze, 6 ounces of vacuum sealed organic tobacco and a survival meal brick for a roll of Charmin. That’s a high value commodity right there! Kind of reminds me of those KFC pre-packed hand wipes from The Book of Eli.

      6. My guess is that the hottest items will be cigarettes, tampax,TP,booze and of course food.
        In fact,I will bet that there will be many women who will trade “you know what” for a box of tampax,of course it might be better to take a raincheck on her end of the deal!

      7. Lost in Mo. and preppers comment:  A few years back, I had to settle a relatives estate in Fla.  400 mi. south of us.   Toilet paper and light bulbs galore, canned stuff, much had expired, etc.   This is the subject of what I mentioned in the post on the 5th on over prepping.    People  die and leave all this stuff for the heirs to deal with.  Plus I had to clean the house and turn the keys over to a realtor  the next day.  I worked thru the night!   I called the neighbors in to take  it,   and donated the rest to a local charity.  Yes, I think prep. in moderation is the key; extra TP, coffee, tea bags, chocolate, nature bars, canned  meats, veg., peanut B, is a good idea.  But if the grid stays off for months, will life really be worth living?  No med. care, air cond., etc.  It’s bad enough when there’s a hurricane and 3-5 days w/o/ power. 

      8. On the toilet paper thing.
        Woudn’t be a good idea to purchase those wet napkins used for babies?
        They come in handy packages and can even actually clean the hands or the b….
        What i also bought recently, is vitamin C and B12 tablets and a couple of hand-cranked flashlights.
        Mac, isn’t the rice easy to get worms and insects?

      9. Laura m,

        The deal ALWAYS leave heirs to take care of everything….the reason they had stuff was trying not to be one of the dead.  You might not be appreciating how long they delayed the inevitable  🙂

        As to whether life will be worth living if the grid goes away, I think that’s a defeatist attitude, AND if you have children, one you can’t afford….unless you plan to shoot them after a few weeks of lights out.

        If your ancestors had adopted the silly notion that life isn’t worth living without modern medical “care” ( which opens a whole nuther debate ) or air conditioning, or indoor plumbing, or refrigeration, or TV or cell phones, then guess what ?  YOU wouldn’t be here.

        My plan A is to live a long time, either in my present manner of lifestyle, or, plan B: prepping to stay as close to plan A as possible.

      10. aye to that TnAndy!

        manos, with the rice, it all depends on the way you pack it up. Assuming there are no bugs in the rice to begin with, our preferred method is to basically pack about 40 lbs. of rice into a large mylar bag which is packed inside of a 5- or 6-gallon bucket. Included in the Mylar with the rice is a 2000 cc oxygen absorber. We heat seal the Mylar making sure to remove as much oxygen from the bag as possible (we don’t have a vacuum sealer big enough to vacuum the air from this size mylar, though we do it for smaller size packages). Then, cover the bucket with a snap on lid and you’re done. The bucket, as well as the sealed Mylar bag are airtight, so if there weren’t bugs in it before, they will most likely not find a way in.

        In the first comment above Wheedle mentioned a Youtube video which I just pulled up. The gentleman in the video uses the same process we do for packing. It’s very simply, cost effective and works like a champ. I’ve embedded all three parts below in sequence:

      11. TnAndy, etc:   The fact is our ancestors didn’t have modern  goodies , perks, and didn’t know any better, living day to day under  harsh living cond. world wide,   scraped by just to eat, grow crops, raise animals.   They bred like rabbits because there was no birth control or they didn’t know what made babies.   Everyone alive today had grown up with electricity, air cond., etc. I saw the arrival of air cond. and T.V. sets (late 50’s ,60’s) then  a/c/ in cars (70’s).    We don’t miss what we never knew/ had.  But people are spoiled nowdays..even 19th century royalty didn’t have it as good as 21st century  middle class in advanced nations.    Younger folks  will probably be more likely to adapt to harsh cond.   This country has no future;   all political activity, voting is useless since banks and corporations control politicians.  People in the know would not raise families with no future or hope.

      12. Most bakeries will sell or give buckets away.  The problem is getting there in time to get them.   I like the Gamma Seal Lids available at Emergency Essentials.  They also sell buckets, mylar bags and oxygen absorbers.    We use an iron but the rig shown above sure looks like the way to go. 
        Mac – I’ll trade you a bottle of JD for a full brick of survival bars…..
        One small side note – Don’t store your TP in the attic of the garage.  The mice like it a lot.  I never realized how much they must have to wipe.  What a mess too!

      13. Oh yea, plus your wife will say “I told you so”.

      14. I agree with James kunstler’s opinion, suburbia is the greatest missallocation of resources in the history of the planet. And I feel confident, that in 50 years or less, most suburban homes will be worth nothing. Not a cent, like many homes in Detroit today where the plan is to bulldoze them.

        Here on the Australian Gold Coast there was a building boom during the 1970’s, where in the space of a decade, hundreds of hi-rise apartment blocks went up. The individual apartments themselves have gone up and up in price and sell for hundreds of thousands of dollars. Yet no one “It seems” is aware of the fact that these reinforced concrete structures have a useful life of only 50 years in a salt air environment. Then they have to be demolished.

        So who pays for the demolishing and what happens to the wealth tied up in the apartments? They have been standing for 40 years now and are almost ready to come down, but people are buying them at full price as though this was not a factor? It would be like me buying a 40 year old toyota sedan for the price of a new one. Illogical no?

        The only explanation for this is mass delusion. The same delusion that keeps people cramming themselves into suburban homes like so many Jews into the Krakow ghetto. The end result will be the same. Mass liquidation of the suburbs as the lights go out and the food stops coming. Mass extermination of their inhabitants in the process.

        This is why modern homes are built from rubbish pine and particle board, that will ensure they are stable for only a decade or two. They don’t need to last any longer do they?

        Why can’t we see this, why can’t society in general, like the Lauras above, percieve it’s own destruction? The only answer I can come up with is that they have been blinded to it, and the only power I can concieve capable of this amazing feat is God himself.

        Perhaps that is why most preppers have faith in the Almighty? He has opened our eyes.

      15. Comments…..people see what they want to see. That’s why some(most) people don’t get it about prepping for hard times. What used to be a normal way of life, (prepping), has now been replaced by popping in to the grocery store and picking something up.  No reserves, no extras. It just amazes me that people can’t look around and add up what they can obviously see with their own eyes.  So many paying for groceries with food stamps, so many formerly middle class making trips to the local food banks, the food banks running out of food.  I guess these folks will never wake up.
              What we have now is a period of time before the economy corrects itself.  And the market forces will balance themselves as soon as the government quits using stimulus money.   I guess we have at least one more stimulus coming. It will only postpone the inevitable.   We are a dying patient on life suppport.  The sooner people realize we are toast, the sooner we can hit bottom, and head back up.  it will be a painfull  trip, but can’t be avoided.
              The only positive thing we have to look foward to, is that the preps we do will help us make it through what is surely coming.  Good luck.

        Mac Slavo
        I like your spunk—I have 5 gallon buckets bought for $1 from a dry wall guy—clean up easily, place garbage bag inside, and HAMMER  on the lid–good for a looong time!

        Thanks for the tip about real popcorn–husband said they popped buckets full in Vietnam every night.

      17. Comments….. must be married—
        I tried telling my anti-gun neighbor–we have 4 to guard our food and supplies—she has a 12,000 gallon pool of water??
        She thinks she won’t need a gun to guard that?? I think she will!!!


        Mac, isn’t the rice easy to get worms and insects?


      19. There is no money in doing what is necessary for America and her people. Not for the politicians, not for the bankers, not for the 1 percent who own most everything; and since it is these people in positions of power and control over the cogs and sprockets that make your and my world go around, we find ourselves totally and completely screwed……..unless we find enough people with enough balls to corporately starve the Beast …….to our own hurt if necessary for as long as is necessary to regain our independence over corruption, greed, and slavery.

      20. “There is no money in doing what is necessary for America and her people. Not for the politicians, not for the bankers, not for the 1 percent who own most everything;…….”

        Funny how history repeats itself.    IIRC the last time this attitude got out of hand someone said this……

        “Let them eat cake.”
        Then some common folks decided that a guillotine would help this person get their mind right.    We’re not from that happening again IMO.    Examples will be made and the rest as they say will be history.

        What a stupid price to pay for temporary greed.

      21. Try using your wifes flat iron to seal the mylar bags, it works real good. I got the idea when I saw the above YouTube clip.  The hair iron is cheap and has two heated sides. If your wife doesn’t have one they are only about $15.

        As for the buckets, check out the Home Depot buckets which are #2, I think there $2 plus the lid. Don’t use trash bags though they are chemically treated with a deoderant.

      22. To Wooba:  Salt water and concrete, yeah you are right.  But stick built homes will last 100 years and lots more as long as you keep the roof tight and everything maintained.  I can’t predict the future and neither can you but I think the suburbs offer as much in the future as any other options I see today.  It may not be the same but with a nice big garden, some chickens and some work it could be as good as any other place on earth. 

      23. For women: instead of tampons or pads, try menstrual cups (DivaCup or The Keeper/Moon Cup). The only waste to dispose of is the flow that collects in the cup. May not be an option for those with prolapse issues.

      24. Get your wheat (along with rice, etc, packed for 30 year storage) at the local mormon home food storage center, and no, DO NOT put your food in old drywall mud buckets, get food grade buckets only!!

      25. Honestly, God has nothing to do with it.  I’m an atheist and a prepper.  In fact, most christians I know think everything is OK.  Jesus will watch out for them.  They are blind to what’s coming.  Survival of the fittest!

      26. I have a web site where I give advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks . If their is anyone that is interested in these type of stocks you can check out my web site by just clicking my name. It appears that the problems in the housing market are not improving they appear to be getting worse. The glut of houses on the market will take many years to work off.

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