I remember the 1992 and 1996 presidential elections well. 1992’s brought to the forefront the national debt in a way that hadn’t been done before. Perot explained what was going to happen when all of those short-term debts of the US government came due. The doubt that the debt would be bought again at an interest rate that could ever be paid back was real. I remember even earlier when I was working with the offices of Arizona’s US Senator Dennis DeConcinni (I was trying to get import duty data out of the government for my father’s company to determine where the best port to ship his product to Europe was and it sent me on a trail to where I am now) I remember getting help over the months in my efforts from a man named Tim Carlsguard. Tim eventually became the senator’s right arm on the Senate intelligence committee and he and I exchanged many phone conversations and gave each other our individual perspective. I remember one conversation where he was very… "scared" is the best word. He was relaying to me the amount of Treasury Bonds that had to be sold in order to just keep up with the interest on the US Debt and that no one was buying them. I think he said 10 billion a month needed to be raised just to keep current and that to get the debt financed they were having to pay 8.5% and that this was long term certain death for the American economy etc. (This was late 1989 to about the summer of 1990 I think. Those of you with access to such records can take a look to see what the interest rates were that we were financing our national debt with and please remind me).
In the 1996 presidential campaign I remember the Rick Tompkins campaign was approached by some Harry Browne supporters asking that we not scare the Wall Street types from donating to a Browne Libertarian campaign by being so high profile on our belief that the debt "reckoning" was coming, and why. For libertarians to be seen as critics of the way things were being done would mean that they were not going to get any cash from those involved in doing it, Oh My God! This was but one more sign of the separation of libertarians from Libertarians.
I see the family home market (and real estate in general) as the buffer for economic instability over longer periods of time and I think the Federal Reserve does too. When they need a big push of dollars into the economy one of the effective ways to do just that is to lower the interest rates to a point that lots of money is being spent by everyone they can get to take out a loan or refinance. Consumer debt in this country is at amazing levels and the lure of rolling it all into a home’s equity at an interest rate several times smaller than what you are paying otherwise is very compelling when your spouse’s job is teetering on the edge.
Then you have households that are able to drag out the inevitable for as much as another year living on credit cards and the remaining equity in their home. The economy continues to languish and Pow, you're upside down in your mortgage and there are too few buyers in the market to even make your losses bearable. The banks can be held off for several months with tales of BS, but the signs of these kinds of leaks just foretell the flood of real estate going back to the banks.
This process takes about 23 years on average I think and we are at least halfway there. All of the short-term blips that are created with minor and major efforts of the government and their supporting entities have little effect on the ultimate outcome. I saw the same thing happen in the late 80’s and early 90’s here in Arizona where the real estate market has generally been hotter than elsewhere around the country. I see the same thing happening again. New builders are doing everything they can to just get them sold to any warm body that’ll take them.
It reminds me of a project about 35 miles southwest of Phoenix called Estrella. It was a luxury project of Charles Keating (of the S&L scandals one of his and many other’s such projects). Keating had begun development of a high-end housing development up against some very lovely mountains near Phoenix. Sales were not what they had hoped in the economy of the late 80’s but they had an edge. With the S&Ls deregulated (while still being federally insured) the taxpayers and the country as a whole was about to get nailed. Keating was also the head of Lincoln Savings and Loan. Any warm body that showed up to the Estrella development was approved for a loan by their own little S&L. Hell, they were selling many lots to people that were just speculating and had no way of covering the debt should the market go soft,… and it did… big time. Keating had spent all of the money on building things like the ultra luxury Phoenician Resort and solid gold toothbrushes or whatever. Then the reckoning came and the taxpayer got the bill dumped on them.
Where my young family started going to church in the late 80’s is one of the largest in the nation with a gym that includes an indoor skating rink, indoor racquet ball, full training facility, snack bar, running track, games and goodies. Outside there are softball fields and tennis courts, etc., etc., etc. This was all built on debt to the tune of over 23 million. When the Resolution Trust Corporation (RTC) was looking to clear their books they would sell everything at fire sale prices and forgive gazillions in debt. When representatives from my church went to the RTC asking for their debt to be forgiven they were told that nothing could be done as long as they were current with their debt payments. Well that was easily taken care of and they stopped making payments until the RTC forgave over 10-12 million dollars (some separation of church and state).
About a decade later these same people would lose many millions in the Baptist Foundation investments deal where many lost their life savings to more bad dealings of the same types of people if not the very same people. I remember what happened a few years ago when the investors were unable to make bills after they trusted these men of God to take care of the money that they got from their dead husband’s insurance policy, etc. The church set up a government socialist puke fest with representatives of as many government social programs that they could get to come to the church in the parking lot so that everyone could be helped in filling out the forms to get their government checks to see them through this terrible tragedy blah blah blah. Front page of the newspaper and everything,… they should be ashamed.
So do I see the housing market going down? Hell yes. All the same neon signs are flashing.
My libertarian activist simple mind is of the opinion that the other shoe has yet to drop on the stock market and that it is still overvalued. Speculation may have shifted to the real estate arena but that is being held up by consumption based on the lowest interest rates in my lifetime (born in 1961 – I'm a senior citizen of the X-Generation) and when the real estate market starts its fall the rest of the over valuation of the stock market will come with it.
My coming of age at the end of the Viet Nam war put me in a time frame that had every kid my age growing up knowing that the US government was a liar and that the sacrifice of young men and women's lives for attention, wealth, status, legitimacy and/or votes was nothing more than a show of hands and a signature on a piece of paper for these men that were careful not to have their own suffer. I have always felt that I was born at just the right time. I can remember the most complicated thing on an automobile being the AM radio. I remember the space race and my father making sure I was awake to watch the moon landing. I remember the first Pong video game that evolved into illegal exports so the Soviets couldn't use the game's computer chips for their military. I grew up on Star Trek episodes that helped spark the imagination of my generation to the point that almost anything is considered possible. What we have learned is that the largest hurdle to dream fulfillments has been a psychotic Big Brother with the desire to live at our expense with nothing but brute force to justify his claim to our creativeness, productivity and even our lives.
So do I trust the free-market to supply the opportunities for my present and future happiness for my family and me, or do I put my trust in the ever intrusive and manipulating governments of the planet? The ability of government to control the free-market over a person's lifetime has been shown to be impossible anyway. As travel, communication and innovations continue to increase the power of small groups, and even individuals, the governments of the planet are desperate to assert their authority into every aspect of our lives while doing their best to control the free-market.
Libertarians have been the most inoculated people that I know against the deceptions attempted by those that use shiny badges and whistles (or just a gun in your face) to give their arguments validity.
I have the choice of looking at the current directions of our economy from the perspective of a libertarian with even the most basic understanding of the free-market (that exist no matter what laws there are to make it "illegal") or I have the option of believing what I am being told by the talking heads parroting the varied versions of what is allowed to be spoon-fed to the American and the world's population. Libertarians knew the potential of the Internet and what was to come when we were all starting to communicate with each other in the first half of the 90's with 2400-baud modems. Truth always has a way of leaking out between the lines of propaganda and the simple truth is that the Federal Reserve has finally tapped into the last remaining reserve of wealth for a very large segment of the American people, their home. The availability of money through low interest loans have kept home values high but this massive increase in the money supply will have its reckoning.
Phoenix is a hotbed of real estate investment. Developments are everywhere and of all types. $75 million dollar resorts are under construction, a new publicly funded football stadium as well as a publicly funded hockey arena. Housing projects are of all types and the desert is destined to be paved over from mountain range to mountain range. I am familiar with an old trailer park near downtown Phoenix where it was bought, leveled and a new condo development had the club house built and the utilities installed before they realized that the $130,000 asking price for the small condos was a dream. They were excited by the City of Phoenix's promise of special subsidies but construction stopped before the first foundation was poured on a prime 6-acre lot. The development was to be in the delivery area of my family's pizza restaurant so I had an interest in what were going up there and the increase in my customer base. I talked to the developers that happen to be on site when I visited the project early on and the speculative mindset was exactly what I remember in the late 80's.
Contractors and developers are the first to get paid. If a housing development or a tax-funded sports stadium is built, the developers get theirs followed by the contractors. The banks have to rely on either the force of government to make the bonds good or the consumer had better be able to make the mortgage payment. What I feel is coming is the mad rush for builders to get theirs while the burden is left to the banks and ultimately the taxpayer that will be on the hook for the upcoming crash due to the FDIC. Plenty of dollars will be printed for the build up but will the people be able to repay in a society saturated with debt, a falling dollar, no savings and a home worth less than what is owed on it?
Real estate in my opinion will offer bargains for those that have insulated themselves from the certain economic crash that is coming on the downhill track. But to invest in the housing market now would be a bad idea in the mind of this simple libertarian. Having a comfortable place to see this storm through is a very good thing. But if you are counting on the value of your real estate investments to be your "bank" as you were counting on your mutual funds and favorite stocks a couple of years ago, then you are in for a terrible disappointment. Real estate values are just as much a part of the free-market as anything else and the laws of supply and demand still apply. Supply will increase far past demand and prices will plummet.
In this libertarian activist's opinion.
December 31, 2002