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Posted by Winslow R. (71.138.255.94) on 12:37:17 10/29/07
'Bank losses have been minimal'
Predictions on the fallout from housing seem to be all over the map. Given rental rates in relation to prices it looks to me like expected losses in the $80 billion range are optimistic.
To keep losses from escalating to the 1.1 trillion range (commercial bank residual)may take extraordinary action.
Assume 2004 as price level homes fall back to - though I'm seeing 2003 levels as more likely...
6 million homes/year x 3 years x $25,000 loss/home
http://www.realtor.org/Research.nsf/Pages/EHSdata
http://www.realtor.org/Research.nsf/files/REL0709A.pdf/$FILE/REL0709A.pdf
Would imply potential loss in the $400 billion range as homes cycle over the next 5 years. To avoid a loss this large will likely require action on the fiscal side.
My question is will exports/monetary policy be sufficient to sustain the economy until the next election and then give the new government time to act?
Course of action of new government to 'solve' housing surplus value problem will be a flood of immigration of the H1B type, as Clinton did in the 90's, starting in 2009. These immigrants keep higher wages down yet are also able to afford to pay rent or even purchase homes. 2 million new highly educated immigrants (1 million households) would wipe out current surplus inventory.
Given the potential wipeout of the economy in the next two years, the Fed is likely to lower rates as current rates are still inverted.
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