"You sound as clueless as Bernanke when he addressed the US Congress last week. Perhaps you should work for the Bush Administration. "

Typical Ad Hom. Why not address the arguement rather than who you think the arguer is? Lame.

"You said that it would be suicide for China to dump their reserve currency (USD). Why would it be suicide? "

I was the one who suggested it. First off, it's never a good idea to make rash and massive changes in your holdings, whether you are an individual or a country. It's very risky. I think the Chinese like to sell us stuff and such a move would be detrimental to that relationship. Frankly, in the short term, I think the Chinese had better figure out that they shouldn't be selling us defective toys before they think of dumping dollars.

As someone who inadvertently started to quarrel with jakenewton a few days ago but learned that I was out of my element, I would like to say that today he was the cause of an excellent discussion. I think. so far.

Although his belligerence might be questionable for some, it sucks you in and then he forces you to support your point of view. I think he remained pretty calm before taking off. didn't Jake prove that a difference of opinion is healthy?

I would still like to know the full gist of the point of view jakenewton is supporting in a paragraph or two.

America is in for long hard haul--at least if they are in the "have-not" category. An economic downturn is coming; there is no doubt about it. On top of that, in some areas of the southeast, a calamitous drought is in progress. Some sections or GA and Alabama are looking at the possibility of having to truck in bottled water. I suppose it will come down to how much longer we can stay in denial and justify our "way of life." This recession will be profoundly different in many ways, not only because of those who will lose their homes, but because there is little or no industry left to lift things back up; we've shipped it all away. Unfortunately, just because we don't understand the ramifications of our actions does not mean we will be able to escape their consequences. If fact, our resistance to reality will only make matters worse. The crash about to come will either wake us up and lead us to work together for change, or cause us to destroy one another. From what I observe that latter is likely to be true, but I would gladly be wrong.

Forextrader I think Americans are such sheeple because no one educates them about the financial system and the horrorible monstrosity that is the Federal Reserve which by the way was never Federal and is a privately owned investment bank. They don't know the history behind it. Most Americans don't know that the dollar is merely "legal tender" and is no longer backed by gold. No one educated them about ursury and debt and trade deficits and credit cards and the industries that lobby congress to ensure that they are in perpetual slavery to banks. Even college economics classes don't really address real world economic knowledge the kind you need to survive to make good decisions. Thankfully though we have the internet and lots of people are waking up and learning things. There are some great videos on the money system too on google which I have found useful. Unless you seek it out through mediums like the internet and the information about our monetary system is not readily available to the masses. Worse yet due to inflation its difficult for the majority to afford things like cars, housing, and education without going into massive debt.

Bet it's more like eight million and countng. Thanks to George, this country is bankrupt and the depresion will hit us sooner than most wish to believe. Be prepared, it may be as early as next April.

Don't be fooled. The lenders knew exactly what they were doing. Ask your hero Greenspan and posibly Kissinger if that is so. A vacuum suck of hard earned cash from decent hard working paople to the arch capitalists. All same in UK as US of I. Still I suppose someone has to pay for obscene and illegal wars.

Jeese explains that the rich are protected and that the lenders profited immensely through good ol' predatory fraud. Crushing debt, that bellwether symptom of capitalist "correction", ensures that a smaller group holds most of the wealth by swindling and grafting the punished commodities of the lower classes.

Why should my taxes pay to bail out a house flipper or the bank who loaned money to him?

I am concerned that if there is bailout of homeowners this will keep prices high and still unaffordable to many. What then is the solution?

dcbeltway: I am concerned that if there is not a bailout and full-fledged depression does hit, the house that I 'own' and rent out while living overseas will be unrentable. In a depression, any price for housing is too high - rented or owned.

"this country is bankrupt"

Just curious, how the term "bankrupt" should be defined when speaking of a nation.

beltway: First of all, let's re-frame the word "home owner". Until we make that last mortgage payment, we own some equity (hopefully) -- not a home. So let's call them "mortgage-payers".

Jackson's idea of renegotiation makes sense as a starter. We have rampant usury in our society, monthly amortization hides the fact that in relation to principle over 30 years even a 6% loan can actually be a 100+% loan. If we could shut down or phase out the Federal Reserve, or otherwise lower interest rates to like 1% of principle (just to cover paperwork costs), let homeowners renegotiate at that rate. That'll cause their monthly out-of-pocket to dimish dramatically, without sending values into the sewer, and and also allow homes to become more affordable.

This country is headed toward a severe, and deliberately instigated, rapine financial crisis. The earning power of younger people, in an outsourced/offshored world has declined in the past few decades, while housing costs and debt have shot up at a ridiculous rate.

It's the god cursed banks -- they own too much, a new form of slavery, lifelong indentured servitude. I Pledge Allegiance to the Banks.

The fact that we bought into this lopsided system by allowing the real estate and mortgage brokers to keep pushing prices up in order to pad their own bank accounts just shows how short sighted and greedy we are as a people. Living within one's means is an exercise in saying "No"--to ourselves. I haven't seen much of that around this country, have you? I see huge trucks, boats, RVs, trips to foreign countries, mega mansions, freeways loaded down with cars going 85 in a 55, a general party party party atmosphere. Let's face it. Buying a $250,000 home when you earn 35,000 a year makes no sense. The fact that 10 years ago that house was valued at $90,000 makes the transaction even more nonsensical. People bought into this lock stock and barrel, hoping to get rich quick. We're ALL responsible for this mess, not just the bankers and brokers. And we will all suffer from our own idiotic choices.

ncycat: We suffer from our neighbor's idiotic choices as well. That's the great fallacy of the "buyer beware" credo. If it were only the buyer who suffered, economic Darwinism would kick in and he'd eventually have to change his ways or go to debtor's prison.

But if a sufficient number of fools live beyond their means, that means that even sensible people, fixed-income people, etc. see double-digit property assessments on their homes, rising taxes -- to meet up with speculated/illusory valuation. It also means that it's all but impossible to raise kids today with one stay-at-home parent.

I think I'm one of the last who's able to do it. I needed to buy a run-down home, deal with a longer commute, drive 10+ year old cars, and shop second-hand whenever possible.

"Living within one's means is an exercise in saying "No"–to ourselves. "

Have to agree with this. Those who do this are not likely to have too much trouble.

America is such a "gotta have" society. Too many Americans live way beyond their means. Also America has also become a "Flip This House" culture. You have a constant barage of TV shows showing "house flippers" bragging about their profits. I'm sure a lot of "house flippers" are going to be affected and I have no sympathy for them. I'm from the old school: houses are for living in, not for idle speculation. I'm not letting lenders off the hook. The commission system is so corrupt that it turns lenders into hustlers, rather than responsible lenders. Loan qualifying be damned.

Why foreclose? Why not offer new above-board loans to at-risk mortgage-payers with lower interest rates and longer terms if that's what it takes? Why don't the lenders bear some of the burden of their interest usury, too?

punish the monkey,

let the organ grinder go.

Some would argue that flipping is just ordinary age-old market behavior. Maybe, maybe not. But for the majority of people a house is NOT a business, luxury or commodity. A roof over one's head (particularly in a northern climate) is up there with air/water/food for essential survival. Basic necessities should have been protected from such wild speculation and flipping.

That is, people have the option "not to buy" if you're referring to consumer electronics, luxury goods, etc. But a roof over one's head is not really an option -- it's a purchase you're basically forced to make.

"But for the majority of people a house is NOT a business, luxury or commodity. "

Nor should it be thought of as an "investment", as is widely touted. It's an expense. I think not understanding this point contributed to some of the bad situations developing.

We can't make people financially responsible. Most learn through painful experience. I was aghast that many purchased homes with crazy ARMs.
The vast array of mortgages titillated first time buyers. They simply didn't know how mortgage money worked and were easily confused and fooled.
Fortunately I was able to talk sense into a colleague who was on the verge of buying a townhouse. When her Realtor tried to switch to an ARM when my colleague had insisted on a 30yr mortgage, my colleague refused to sign the sales agreement. She was subsequently bullied, but still refused to sign.
The worsening financial crisis worries me. I'm rushing to pay off my 30yr mortgage in 8 years. I'm pretty sure cash will be king again.

These subprime borrowers were bilked. They were told that the value of their homes would keep going up and that they could just refinance before the higher rates kicked in. It would have worked in 2005, but that's not when this scam happened. This was at a time when the realtors and brokers knew that the bubble was coming to an end. Some made a huge amount of money off this scam, the banks left holding the bag howled for help and got it. The rest of us will pay dearly in the hit to our economy.

Welcome to Corporate America.

"We can't make people financially responsible. Most learn through painful experience. "

Can we teach it in the public schools?

The only economics taught in public school are traditional capitalist approaches. I talk to the Economics teacher all the time. He's convinced this will all blow over, kind of like a little rainstorm passing by, a glitch, a snafu in a system that, to him, is fundamentally sound. He needs to study history, it seems. Oh--he's the History teacher too!!!

"The only economics taught in public school are traditional capitalist approaches."

I was speaking of personal finances. How would that be different vis a vis capitalist/socialist? Live within your means, invest the savings, know how interest works, advance your education or skills, etc.

JAKE, you ask how is America bankrupt, just curious you state?

I doubt your are curious, you are just looking for an argument as usual. We're bankrupt because we owe or asses to China and Japan. The federal deficit is at an all time high, our dollar is almost worthless, it has dropped over 60 cents to the Euro in less than a year. We're printing money as fast as the presses will run 24/7 and the price of everythng from gasoline to peanut butter and milk has about doubled in the past year.

Most Americans live from paycheck to paycheck with little or no savings, most owe several thoudand dollars to credit card companies. Millions of Americans are behind in their mortage payments by up to 60 days. Those are not MY opinions, it is what is stated by some of the best imformed economists in the world. The U.S. is bankrupt or teetering on the brink of it and won't admit it. We've spent our money killing Saddam and attempting to tkae the oil of Iraq. In doing so, we have created a damn nighmare in our economy and in the Mid-East. If we attack Iran the depression will occur shortly afterwards. It is coming anyway. Any more goofy questions?

JAKE, you say a ouse is not an investment.

Well, in 1970 we purchased a new, four bedroom, three bath home we easily could afford at a loan rate of 7.5%. The monthly payment was less than payng rent for a three bedroom two bath apartment. We didn't buy it for an investment, but it turned out it WAS a very good one.

We paid $21,800 for it and in 1992 sold it for $280,000, a little less than the market valuem then bought a little 26 acre ranchette up in the mountains, paid cash and had lots left over. The market value of that house now is $320,000, of course no one is buying now so it's really worth what the owner can get for it if he decides to ever sell. It WAS an investment JAKE.

Most people are going to skip out on their mortgages.. if you are a paycheck to paycheck person, you're going to ditch the house, move to a cheap apartment, change your phone number, and pray the bill collectors don't find you.

At this point I would love to have a house of my own, but seeing what's going on with the housing market is making me think twice about getting stuck in such a long term financial commitment. I'll be renting til I die apparently.. I'd rather pay my landlord than the banks.

Did anyone notice how the Fed just pumped an extra $40bil into the economy to save it for this week? I wonder, what happens next week?

"I doubt your are curious,"

I am, please trust me.

" you are just looking for an argument as usual. "

Of course. As usual. You wouldn't want these forums to be reduced to a silly Agreement Festival would you? I was going to take you to task for saying the US is "bankrupt", but thought we should try and define what is meant by that first. The question is out there to anyone.

"We're bankrupt because we owe or asses to China and Japan. The federal deficit is at an all time high,"

Having a National Debt is why we are bankrupt? Is a family with a mortgage bankrupt? I notice you indicate the debt as the highest ever, which is true in dollar amount, but as a percentage of GDP it's actually shrinking, and around half of what it was in WWII and slightly after. In personal finance, you would often compare debt to assets. Do you know what the National Asset is? Do you ever hear anyone talk about it? I'm serious.

"our dollar is almost worthless,"

Exaggeration. Did you know BTW that the decreasing dollar has contributed to a narrowing of the trade gap? And the current budget deficit is quite low, at less than 2% GDP.

"the price of everythng from gasoline to peanut butter and milk has about doubled in the past year. "

Overall inflation is low. The items you have mentioned have not in fact doubled in a year, and you fail to mention the many things that are staying flat and even decreasing in price. Still, like you, I am troubled somewhat by the recent increases in energy costs.

"Most Americans live from paycheck to paycheck with little or no savings, most owe several thoudand dollars to credit card companies."

I would like to see sources for these claims.

" Any more goofy questions?"

Would you or anyone else like to take a stab on defining what it means for a nation to be "bankrupt"?

The country is bankrupted so a bailout is probably unaffordable given how much we are in debt as a nation. Agree with everyone that the Federal Reserve and realtors, flippers, and mortagage brokers helped to create this bubble. Interest is also way out of control in this country ursury is forbidden in several religions for a reason.

JAKE, you do not know what you are talking about as usual. It's fine to debate when one offers decent arguments and is sensible, ____ you are not. You are arguing with the experts, ___ not me.

No, having a national debt is not why we are bankrupt, we are bankrupt, or on the verge of it, because our money is backed with paper which is worthless paper. And our dollar is practically worthless in spite of your opinion. If you have an option of a Euro or a dollar, which do you choose? Ask the people who make those choices.

"It WAS an investment "

You neglected to list some of your expences, including taxes, fair market for your labor for your routine and otherwise upkeep, and to account for the opportunity cost of putting the down payment into the house instead of some place else that usually appreciates at a much better rate (stock market). Plus your house isn't very liquid.

Of course, most people do show a profit on the sale of their home. But over the long haul, residential real estate increases in value at only half the rate of the broad stock market. When you get down to it, the tax advantages on a mortgage is really what is usually the smart thing, allowing leverage to do it's work. But in recent times we are now seeing the other edge of that sword as people find themselves upside down.

Good comments from most everyone. And I too like to read two informed people debate an issue. It's much more interesting than people hurling insults at each other, and it adds to my knowledge of an area of which I know little.

When I hear the words "Our Country" and "Bankrupt" the first thought that leaps into my mind is morally bankrupt, but that's not what the article is about. However, my opinion is that the banks should not be bailed out when they make poor choices. No one's ever come to my aide when I've been in financial hardship. I had to dig my way out of that hole. Thank goodness for friends and sofas.

"JAKE, you do not know what you are talking about as usual."

Really now?

" It's fine to debate when one offers decent arguments and is sensible, ____ you are not. "

Please demonstrate.

"You are arguing with the experts, ___ not me."

It's an old joke, the "experts" predicted seven out of the last three recessions. You should know better, the "experts" disagree and are often wrong. Today, you are referring to the experts whose opinions you happen to like.

"No, having a national debt is not why we are bankrupt, we are bankrupt, or on the verge of it, because our money is backed with paper which is worthless paper."

Are you going to stick with this then? Are the many other countries that do exactly this as well bankrupt too?

"And our dollar is practically worthless in spite of your opinion."

Repeats the exaggeration. Why, I can prove you wrong simply by posting today's rate against any currency you pick.

So what is it that makes a nation "bankrupt?

Not having anything of value to back up their currency, only good faith and hope and trust for the best. And I'd take the experts opinions I choose to believe over yours any day JAKE

"So what is it that makes a nation "bankrupt?"

When most of the available funds are in offshore accounts that are held by people like Dick Cheney, perhaps?

Yep, I neglected to mention my expenses, such as replacing a water heater, some plumbing repairs, a paint job I did myself, a new roof after 20 years, building a patio wall and enclosing the back yard with a nice wall, which we had fun doing. Then landscaping and new carpeting. We put aside $80 a month for all of that and had a lot left over when we sold it. The tax breaks in leau of renting made up for all of the expenses by far. Again JAKE, you just love to argue any comment I make, which is your perogitive. It is mine to state you cme across as a strange person. The house was a very good investment, which was the original debate.

Great website on the housing bubble and the current crisis:

www.patrick.net

"Not having anything of value to back up their currency, only good faith and hope and trust for the best."

Like pretty much all countries.

"The house was a very good investment, which was the original debate."

You now qualify it with "very good" so I have to ask "compared to what"?

If you are still "CURIOUS" JAKE, go to the lead article about the cost of the Iraq/Afgan war. there is help for you there, or, for more chances for you to express your ignorance.

Compared to answering ignorant people. You are proving what I say about you, you are funny now though.___Bye

"Bye"

Thanks for nothing. Anyone else?

@ Jake Newton

With regards to the financial solvency of the United States, or the lack there of, one need to look at both the macro and micro economic figures. The federal governments fiscal deficit it is over 7 trillion dollars, and America's annual current account deficit in nearly 1 trillion dollars. The individual American's savings rate is less than zero, the first time since the Great Depression, and aggregate American credit card debt is near 1 trillion dollars. THE ONLY REASON WHY THIS IS ALLOWED TO OCCUR IS DUE TO THE FACT THAT THE DOLLAR SERVES AS THE WORLD'S RESERVE CURRENCY. Nation-states throughout the world use the USD to settle international accounts. If China, for example, wants to purchase oil from an OPEC nation they need to procure dollars to do so, or if India wants to buy a mainframe server from IBM they must procure dollars. Whereas this does not apply for the US, since if American companies want to purchase goods, whether they be capital goods or commodities, they exchange green paper for tangible goods, once again due to the USD's role as the world's reserve currency. Having said, the USD's role as the world's reserve currency is in serious jeopardy, if not already history, and the ramifications of the latter will be tremendous, then you will come to fully understand what is meant by America being bankrupt.

Thank you AKASHGIRI. Very well said, I'm not smart enough to put it so well.

U welcome JAKE.

Thanks for your post akashgiri.

"The federal governments fiscal deficit it is over 7 trillion dollars,"

But we have a great national asset, and this deficit as compared to GDP is not all that out of whack historically.

"THE FACT THAT THE DOLLAR SERVES AS THE WORLD'S RESERVE CURRENCY."

Not soley. It is shared with the Euro, and some others.

"Having said, the USD's role as the world's reserve currency is in serious jeopardy, if not already history, and the ramifications of the latter will be tremendous, then you will come to fully understand what is meant by America being bankrupt."

But I don't see where the dollar would be dumped wholesale as a reserve currency anyway. To do so today would be suicide for China for example. Nonetheless, I would be interested in what you think would trigger that.

"U welcome JAKE."

:-)

In order to understand how the USD is in serious jeopardy of losing its status as the world's reserve currency, one should understand how it attained that position in the first place. First thing to understand is the concept of fiat currency, i.e. currency that is not based on any particular standard, like bi-metal (gold/silver) or uni-metal (gold) standard. For example you cannot go to your local bank and exchange currency notes for specie (gold/silver) payments, which at one time a person could. Essentially the integrity of the fiat aspect stems from general consensus, viz. you're currency may not be based on any metallic standard, but it is based on sound economic fundamentals. The USD became fiat currency when the US abandoned the gold standard, and the Bretton-Woods system of finance evolved. Its role as the world's reserve currency was based on the fact that US had sound fiscal policy and the largest economy, where the markets were large, dynamic, transparent, and had a high-level of instituitional integrity. There was stability and profitablity in US equities and dollar-backed assets, much more so than any other country in the world, thus the reserve currency status. Now we have entered a strange and troubling era in America, where "deficits don't matter", and regulation and transparency are "unnecessary restraints on the market." This MBS (Mortgage Backed Securities) and CDO (Collateral Debt Obligations) fiasco under this ponzi scheme of "Structured Finance", which IMO will turn out to be the biggest scam in US financial history, will most likely be the proverbial straw that breaks the camel's back. Couple that with the neocon sucidal fiscal policy of significantly reducing taxes, and massively increasing expenditure, and not on education or public works, where there is return on investment, but on war, an extremely bleak picture emerges. And Jake, you are correct, that the world's central banks are extremely leveraged in the dollar, so they need to be careful that they don't see there investments turn into pennies on the dollar, but the movement as already occured to diversify away from the dollar, and unfortunately I would not be surprised if there is a run on it, once a better picutre emerges on the insolvency of the major banks in America, due to horribly bad investments, which stemmed from too easy credit.

@ jld_overseas
I don't think it is suicide for China, and other countries that are heavily leveraged in the dollar to start significantly reducing their holdings, but it could result, if not done in a prudent fashion, in a run on the dollar, and all would see the effective value on their dollar holdings drasticially reduced. And I think over the last few years China, Japan, and a host of other nations have been carefully diversifying their currency holdings, but as the fiscal deficit continues to balloon, the current account deficit continues to grow, and the institutional integrity of the US financial system suffers serious setback, a run on the dollar seems more and more likely. China is in a unique situation since their economy so leveraged on US consumer spending, since a large volume of their exports are in consumer commodity goods. And if the US consumer's purchasing power is drastically curtailed due to the weakening of the dollar then China's economic miracle quickly mutates into a curse. But on the flip side China has a prospective 1 billion+ domestic consumer base to fuel their economy, but they need to institute some serious reform to transition from primarily a commodity export based economy to capital goods and finance at the export level, and concentrate on internal demand for commodities they manufacture. But considering no other population will ever have a chance to be so profligate as the American consumer they are better off curtailing growth in the commodity manufacturing sector, especially those worthless knick-knacks that line the big-box store shelves. The irony is that all the developing nations' growth models, and fair number of developed nations are founded on an export based economy, where the primary importer in the equation is the American consumer. Therefore there will be rough times ahead for the entire financial world, with the brunt of the adverse reprecussions falling on the American consumer, and in turn the American economy of which over 70 percent is based on consumer spending.

"But, I agree, Jake, it's still unclear what you are arguing in support of, I just know you disagree. "

I had only asked for some way to define what was met by a nation being bankrupt. People say "the US is bankrupt" all the time but what are they really saying? Saying it's the fiat money can't be right because most nations have that. Saying it's foreign held debt isn't right either. I think akshgiri was maybe on to something, but I'm not convinced that we are so close to something that would trigger the scenario he/she paints. I hope this makes sense.

"They now exclude energy and food from the calculation, calling those items too volatile."

They have been doing this for a while, and that is for one index. There is another that includes energy and food. Everyone knows this, it's not like traders and economists don't know. I think you could make a case for an index that used a moving average to get rid of volatility. I think in the long term it's worth pointing out that the US has become twice as efficient in producing real GDP per barrel of oil consumed over the last 30 years. Some European countries are more efficient still so there is still room for improvement perhaps, but many developing nations are very inefficient.