By Bill Bonner
Memories take time. Like history. Or wine. Or cement.
At first, they are loose, fluid…and watery. Then, over time, they dry up…and develop more body…more shape…more substance.
Our recollections from our trip to Argentina are still congealing…setting up like a stone wall. We’ll show it to you in the days ahead.
But today, let’s turn from the pampas to the developed world…to the world of money. That is, let us turn our attention from the vivid world of real things and real people…to the absurd blah blah world of economics.
What happened in the 2 months we were gone? Anything important? Not that we can tell from the papers. The headlines are almost the same as they were when we left.
The Great Correction, for example, hasn’t gone away. Instead, it seems to be intensifying.
In America, 11 million homeowners are still ‘underwater.’ Every one of these houses is a candidate for foreclosure…and every one puts downward pressure on the housing market, which has been falling for the last 5 years with hardly a let-up.
Yes, Dear Reader, this month marks the 5th anniversary of the Great Correction. It began in April ’07, when its weakest link — subprime mortgage debt — snapped. Since then housing has been losing value. And with 11 million houses still priced below the amount of their mortgages, this housing bear market could last for another 5 years before it finally comes to an end.
When housing goes down so do the balance sheets of America’s households. And without improving balance sheets it is very unlikely that households will substantially increase spending. This will leave the economy hobbling along about as it is now…with the lowest growth rate of any post-war ‘recovery’…and completely dependent on more loose change from the feds.
No, that hasn’t changed either. When we left the feds were still trying to sort out a debt crisis by adding more debt. Nothing has changed since. America’s feds keep lending money they don’t have to borrowers who can’t pay it back.
This time, students are the subprime borrowers. Can you imagine a more subprime group? Students don’t have jobs. They’ve never proven they can earn money. Their credit histories are as thin as their resumes. And yet the feds have extended $1 trillion to this group. How long will be before that blows up? Probably not too long.
Meanwhile, in Europe, subprime debt is concentrated at the government level. The subprime borrowers were the countries at the periphery of Europe — Ireland, Portugal, Greece and Spain — who would have a very hard time paying their bills when the lending stopped. When we left, Greece was struggling. Now, it’s Spain.
Read more HERE
