The dollar shows a lot of weakness with clear attempts to push it down not geting much of a response. One major mideast play just dropped it alloactions from 80 percent dollar based to 60 percent.
Silver pulled back but not nearly as much as recent push down efforts. It would appear that silver is heading up and I suspect much higher as the true cost of the fiscal insanity of Washingto hits home to the average consumer. It would appear that many of the baby boomers who enjoyed the excess credit card and not saving will be greating you at wallmart shortly. That should bring a big profit to wallmart as they buy insurance on the old people but they do not share the profits of insurance on 80 years old.
One last thought, I still believe washington is going to take all the stock value out of FNM and FRE. They will have to push the price up to get a lot of suckers to sink their dollars into real estate market when no one wants houses.
Usually I casually agree or disagree with the stuff the gurus say. Rarely do I strongly feel thateveryone should read an article and think about it. This is such an article! EVERYONE SHOULD READ AND THINK ABOUT IT!
I strongly agree with much of what he writes here. Obviously there is going to be a huge default rate on mortgages. Before looking at what he writes, let's look at two possible endpoints. Say you buy a $200k house with at $180k mortgage: 1. No inflation. The value of your house falls to $100k. You still owe $180k. 2. Inflation cuts the value of the dollar in half. Your home remains worth $200k, or $100k in constant dollars. You still owe $180k.
In scenario #1 homeowners will walk away and default. Real estate will fall further, perhaps as Stanberry suggests, 75%. Mortgage owners are wiped out due to defaults. Property will ultimately be purchased cheaply by those with large amounts of cash, say Chinese, and rented back to Americans. This may already be happening. In my market, there are billboards advertising "We buy problem houses". Who is this mysterious buyer with cash, willing to buy houses at lowball prices?
In scenario #2 people will continue to have positive equity, and will attempt to avoid default. Much of what the homeowner loses in value of his real estate he gains by the decreasing value of what he owes. The mortgage owner still loses big due to inflation.
Between these 2, I have to believe that scenario #2 is the better one, and I think most people would. This is why the Fed is inflating as fast as it can, and why the dollar must continue to fall.
Turning to Stansberry's options, I do have a gut instinct in favor of the justice of option 1. Let the mortgage buyers and borrowers stew in their own juices. However, I am also aware that driving down real estate prices 75% pushes us directly into endpoint #1 above. He is completely wrong in his analysis of the effect of a balanced budget. He says "reduces taxes radically to encourage economic growth (which, ironically, increases tax receipts, leading to a balanced budget)". Laffer's supply-side economics does work when there is a need for more supply-side investment, but in a radically contracting economy there is surplus supply-side investment so reducing taxes will not stimulate investment. Keynes teaches us that increasing government spending increases GDP, but also that decreasing government's decreases GDP. Thus, in choosing Option 1, be aware that it would lead to a grotesquely painful deflationary depression. I agree that eventually government must balance the budget, and the consequences must be faced. In choosing to do it immediately, at least be aware of what you are choosing. Private enterprise will eventually rebuild, and the economy will grow, but it won't be instant, it would take many years to replace 40% of our economy.
When it comes to Option #2, I agree with his consequences. They lead directly to my scenario #2 above, or perhaps worse inflation. They lead to a plummeting dollar, dramatically higher inflation, and a lower standard of living, all of which I have been predicting because this is exactly what I have been expecting.
The US faces a major crisis, just as Stansberry describes. Unlike the rosy picture he paints for option #1, there is no rosy path; all paths lead to a dramatically lower standard of living. We must choose between two poisons. Despite my gut instinct as to the justice of Option #1, the dire consequences, an instant depression that continues to spiral down, and the end of individual home ownership is too bleak for me. In the end I favor the slower poison, a standard of living that is eaten up by inflation, but retaining as much continuity to the economy of today as possible.