Bernanke now has something in common with Elmer J Fudd. He is now out of bullets. No, more buwets! No more buwets! Now that the federal funds rate is resting on the bottom at .25% we are in the same boat as the Japanese were in the 90s when in the midst of their burst real estate bubble they cut their rates to 0. Their experience? Nothing, nada as their economy languished almost a decade.Back then they valued the 200 acre Imperial Palace in Tokyo as much as the entire state of California. I have walked completely around the Imperial Palace with the moats, fortifications, gardens and picturesque buildings. I'll take California, thank you.
It is going to take a long time for our real estate picture to clear. Only when entry level buyers can afford to buy homes will the end be in sight. Right now there are no jobs for this upcoming generation just plenty of debts. Homes will remain out of reach of these buyers. Perhaps they can subdivide some of these McMansions and turn them into duplexes or triplexes.
Bernanke has one thing over Elmer J, he has the keys to printing press and as he has stated they know where the keys are. The problem is once started the press usually does not get turned off to quickly. And, once all this money is injected into the system what is going to soak it all up so that inflation does not return with a roar?
All those smug Europeans who felt this was a pure American problem. Guess what, their bubble may be larger than ours. Then we have the Russians, the Chinese, the Arab oil sheiks and don't forget Hugo Chavez who were all declaring us done for and good riddance. Now, they have all decisively tanked. That is what happens when your main customer goes belly up - you do too. I wonder how much Hugo can afford to send to Cuba with oil down to $40 a barrel. Not much. Perhaps we will all be wearing a barrel soon, but we won't be alone. Misery loves company.
Most people still seem to think this will work its way out in a few months. Unfortunately, it looks like another wave of mortgage foreclosures are coming up next year. By that time commercial real estate should go bust also. All these mammoth stores they have been building will not have enough customers to service their debts. I knew this was a bubble when I saw the giant bath store on Route 17 in Randolf, NJ that is the size of Trajan's forum in Rome.
One thing is certain. Once all this smoke clears it's going to be a very different world.
