Peering Into The Mirror Ball: Housing Crisis Update

I’ve already suggested that all of the recent drama with a squatter in our own neighborhood is but the “tip of the iceberg” or, perhaps, “the first wave” of things to come, as pace of crumbling of our societal norms begins to quicken.   Today, I’d like to take a moment to step back, just a little, to get a better sense of what the “whole picture” might look like.

Unfortunately, even looking into the current “housing crisis” is more than a bit like trying to stare at but one facet on a “mirror ball”; it’s just as likely to reflect some distant spotlight, perhaps even a thousand.  On closer inspection, it’s more likely to merely reflect your own face.  And, in all that effort, you may well glean nothing from it’s inner workings.  If it is your face that you see, take that as your first clue about the road ahead.

But, for the moment, let’s at least see what we can learn from those various glittering reflections.  We might begin with remembering that, in a great many ways, the 2007 “Subprime Mortgage Crisis” in the United States was something of a “gut-shot” to the whole system of global finance.  We don’t need a recounting all of the functional linkages in this system, we merely need to understand that both it’s complexity and it’s connectivity resulted in tremendous fragility. 

It’s probably worth adding that, as a cornerstone to the global finance system, the housing market is the single largest asset class on the planet.  In other words, it’s really, really big.  Teetering, as it has been, it’s a bit like a montrous Humpty Dumpty poised to fall, propped up by “all the King’s horses and all the King’s men”, ever fearful that, once it has fallen, it won’t easily be put together again.

And, as big as it is, the housing “problem” is also really, really personal.  All of us, either directly or indirectly, are affected by it.  You have to live somewhere.  Next to food and water, your shelter needs are probably the next highest in the order of your survival priorities. 

Even renters (as we’ve had recent reason to be reminded) haven’t really “opted out” of the game.  I might go one step further to also suggest that even the growing ranks of the homeless remain fully engaged in it as well, if less directly. 

We might note, from the lastest Regional Economy & Housing Update, issued by the NY Fed, “there are roughly 3 million vacant housing units more than usual“.  Paired with various studies indicating a steady increase in homelessness, all a good Austrian can do is paraphrase “The Captain’s” famous words:  “What we’ve got here, is a failure to allocate resources efficiently.”

But, let’s not -today – bother to recount all of the reasons for that misallocation of critical resources and, rather, ponder the on-going implications.

  1. Financial Implications:  Fully three-plus years into the crisis, mortgage defaults are still rising, all the while having temporarily averted the original risks posed by the potential rise in interest rates.  Continuingly high unemployment, the rising “moral hazard” of so-called “strategic foreclosures”, and, now, the failure of the system to ensure the reasonable, timely, and legal processing of foreclosures are sure to further undermine the banking system, already propped up by trillions of newly minted taxpayer dollars.  (See video clip below regarding the forward-looking risk of full nationalization of the country’s banking system.)  And, for the record, rising interest rates have not been taken off the table….the Fed can only contain this risk for so long.  The day they lose control – and it’s coming closer with each and every QE they launch – is the day that the whole financial house of cards will collapse.
  2. Social Implications:  To paraphrase Samuel Johnson this time:  “Nothing focusses the mind like an empty belly or a night spent in the rain.”  Well, plenty of minds are getting focused, you can be sure.  What is less sure is what remedy will come to those sharply focused minds.  And, sympathetically, what practical solutions are really available to those without much in the way of resources beyond those being provided to them?  When those resources become (or are perceived to be) inadequate, look out.  And, that threshold, as we’ve recently learned in our own neighborhood, may be much, much lower than you might expect.  Already, the “squatting” phenomenon is rapidly gaining ground.  (Expect more commentary on this subject in the near future.)

As stated in a variety of contexts here, it’s impossible to know just how close to the “cliff’s edge” we are at the moment.  We might, in terms of a “point of no return”, already be well past that edge.  But, if not, we nonetheless continue to move closer to it.  I’ve yet to see convincing proof that we’ve materially slowed or otherwise improved our trajectory.

One might argue that the substantial government steps taken to have “minimized” and, thus, helped to contain the damage.  Others, rather convincingly, argue that these efforts have merely exchanged  sovereign debt, attendant inflation, currency devaluation, and higher tax burdens on the economy for but a temporary deferment of (Samuel Johnson’s or) our execution.

While I am fully convinced that the Keynesian weapons being utilized will (and have already begun to) backfire, I’m also mindful of this:

“He who fights and runs away, may live to fight another day.” – Demosthenes

Charged with cowardice and desertion from battle, Demosthenes’ made his case, much as the Keynesians and social-reformers do today, all the while admitting that the fate of that future day will, in the end, depend upon on an actual victory.

Bottom Line:  When I’m peering at this particular part of the mirror ball, I’m seeing the light reflected from more than one train barreling down the track and my own face as it realizes just how close to the tracks I may be standing.  The trainwreck between impending financial and societal collapse may be unstoppable, however much brake pressure is applied.  My own proximity to the tracks may be something in my own control.

Harry Tuttle

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