Property Grunt

Tuesday, September 15, 2009

Over? Far From It

Remember that recovery people were raving about?

US credit shrinks at Great Depression rate prompting fears of double-dip recession

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

This news correlates to a recent interview that Jonathan Miller conducted.

Q. Do you think we have hit bottom yet?

A. No. We have a lot of unwinding to go. We will continue to slide but the rate of the slide will continue to slow.

Technically, we might be coming out of the recession. But unemployment may continue to rise through 2010. Housing comes after employment.

We have some things that need to be fixed. Unemployment has to decline. We have to see a noticeable improvement in liquidity for jumbo financing [mortgages for pricey homes].

I see this as a gradual process. After we hit bottom, we will move sideways for a number of years.

But I am less bearish. A lot of real estate brokers saw the same or more contracts get signed in June or July than the year before. There was a release of pent-up demand. It wasn't a sign we hit the bottom, but it's positive.

Keep clipping those coupons folks.