Eating Fair Traded, Shade Grown, Free-range, Crow

One unfortunate feature of being an economic gadfly is the the field of economics is fraught with prediction, most of it coming from the third bend in an economist's colon.  At the Institute For Economic Reality, the convocation of macro-economic realists strives not to source its predictions in the same manner.  Even so, reality often intrudes in the most obsene fashion for those of us trying to politely cajole the mildly curious out of the dark arts of economic superstition and down the marble colonnade to economic reality.  Even the IER's predictions did not take into account the serialized criminal actions by the financial elites in this country to prevent the collapse of the debt-fueled consumption binge of the last 20 years.

That's a fancy way of saying that we didn't think the FED and US Treasury would resort to freebasing several trillion dollars worth of economic crystal methamphetamine to keep the party going. 

The IER's predictions of an 80% (minimum) peak to trough decline in sexy, bicoastal residential real estate by the end of 2010 is a bust.

Yes, the IER was wrong.  You heard it here, first.  The homes of the vainglorious twits (the ones that drone on endlessly about how valuable their homes are and how they are special and immune from the macro economic forces that subjugate the rest of us) only collapsed 30-40%, which is 80% lower than where said twits thought they would be.

As one of my favorite hockey players, Grant Marshall, would say when the Dallas Stars would lose a hockey game, "They didn't beat us; we just ran out of time."  He was implying that the Stars were better, but didn't get enough time to demonstrate it.

The same is at work here.  2010 has come and gone, but the game isn't over.  The only part of "20 cents on the dollar by 2010" that isn't true is the time element.  Make no mistake - we are going to 20 cents as soon as the FED runs out of ammo, and they are running out of ammo.

There is no better time to gun the financial markets higher than in the low volume trading days surrounding Christmas.  Even with this, the debt markets are getting crushed, and equities aren't exactly rebounding like they should.  With the FED now holding in excess of a cool trillion in US debt, they are very, very sensitive to the value of that debt.  Some students of this phenomenon have predicted that the FEDERAL RESERVE is going to be frozen solid if the 10 year US Treasury hits 4.5%.  Absent some flood of money hitting the debt auctions over the next few months, we should be there by Spring 2011.

How would you like to sell a home in a market that doesn't have loans available at any price?  If the FED freezes up, we get to find out.

Just as any tweaker knows, once you start meth, you have to keep on it to get the same high, while at the same time, your brain's ability to manufacture its own "happy drug" is essentially detroyed.  That's the situation with the Treasury and the FED.  13% of GDP is borrowed money, and that gets us a 2% growth rate.  Think about that and what happens when the government can no longer borrow 40% of what it spends.

The economy is just reacting to government spending, rather than to a genuinely expanding manufacturing base.  The deficit spending is killing off the private economy because the risk/reward is distorted.

So, for the record, and so everyone on "Rain City Guide" and the detractors on "Seattle Bubble" can rub my face in it, "20 cents on the dollar by 2010" is dead. 

Recipies for crow are being accepted.  In the interest of the sensitivities of those living on the southern 7 miles of SR-305, the crows must be fair traded, shade grown, and free range.