Real Estate Is A Global Problem And It Isn't Going Away If You Wish Happy Thoughts

Update: NEW HOME PRICES DROP TEN PERCENT: Most In 35 Years

When I hear the perma-bears launch into how the American consumer is irresponsible, never saves a penny and is, by constant inference and innuendo, a complete buffoon, I zone out. How often over the last thirty years have you heard that while wealth, economic prowess and technological leadership in the US has exploded by every measure?

The latest attempt to label Americans? Housing. Ultimately, everyone is right if you stick with the premise long enough. While I believe global real estate is a serious concern -U.S. home prices dropped the most on record this past month- it appears the American consumer is once again at the top of the buffoon list. Yet, is that really true? Of course not. Central bankers everywhere made the same moves to stave off the threat of deflation post 2000 setting up the same response by every greedy global investor and practicing capitalist.

The difference between the U.S. and other real estate fiascos? The U.S. economy is the engine for global growth and almost solely responsible for the Chinese miracle-less miracle. (The real miracle is that the U.S. has almost single-handedly consumed everything 1.3 billion Chinese can make. Or, at least they have so far.) The real estate problem is a global one and the consequences, whatever they may be, will be felt globally. The only reason the world is focused on the American incarnation is that if we go down, we are taking them with us. If Australia or Spain or England or China real estate craters, it will have a nearly nonexistent impact on the U.S. economy.

By the way, why are we in this global predicament? I'll gladly tell you why. Because the global economy is and will remain synchronized. And why is that? Well, here I go again with the same incessant rantings over and over. Because other than Great Britain, Canada, Australia and to a lesser extent a few other countries, no one else on this earth appears willing to address domestic reform needed to stimulate their own economies. They'd all rather shove all of their ouput down our gullet than deal with painful reform. What is the impetus for reform when countries happily enjoy great export booms to America? A little bit of dysfunctional relationship dynamics there in failing to address their own problems, heh? So, how about a very different perspective on the current global dynamics? It's not the U.S. consumer who is the buffoon. It is the international politicians. The reason all countries are at such high risk for a slow down is the fault of nearly every country other than America. That's right. As I've said many times, six billion people rely on 300 million Americans for their prosperity? International politicians don't see an eventual problem arising from that dynamic? If other countries would undertake reform, a slow down in America wouldn't have such a disproportionate global impact because the economies wouldn't be so synchronized. Under such a scenario, as one economy cools, the remainder of the world could pick up the slack. Oh well. There will be a day of comeuppance. The only question is if that day is tomorrow or a decade from now.

Below is an excerpt from a Finfacts article posted on Monday re the Irish housing market. It's just the latest housing report from nearly every corner of the globe. It's a little unnerving to see such a significant global issue developing. Oh, and central bankers do not have the capability to stop this situation either. More on that later.

“The outlook for the Irish housing market is a subject that is never far from the minds of the general public as well as the government, the Central Bank, the IMF and indeed, those involved in other sectors of the economy who question if a housing market crash could occur and what impact it would have on the economy as a whole. Average Irish house prices have almost doubled over the past six years while cumulative house completions have topped the 450,000 mark over the same period. The housing sector has directly accounted for one-fifth of the cumulative growth in real GDP of 36% since 2000. Construction employment now exceeds 260,000, representing 13% of the total workforce. Mortgage credit has more than doubled over the past three years and personal sector indebtedness now exceeds 150% of disposable income. Residential property related household wealth, however, has grown from €450 billion in 2003 to €700 billion in 2006.“