Economist: Home-price drop could exceed Depression, bailouts needed
An influential economist who long predicted the housing market bubble cautioned today that the slump in the U.S. housing market could cause prices to fall more than they did in the Great Depression, and bailouts will be needed so millions don't lose their homes.
Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor's/Case-Shiller home price index, said there's a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.
"I think there is a scenario that they could be down substantially more," Shiller said during a speech at the New Haven Lawn Club.
Shiller's Standard & Poor's/Case-Shiller home price index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.
Shiller, who admitted he has a reputation for being bearish, said real-estate cycles typically take years to correct.
Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said.
"Basically we're in uncharted territory," Shiller said. "It seems we have developed a speculative culture about housing that never existed on a national basis before."
Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy.
Shiller, who said it's difficult to forecast prices, endorsed legislation proposed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners.
New home sales plunge to lowest level in 16 1/2 years
Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March, compared with a year ago, fell by the largest amount in nearly four decades.
The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
The median price of a home sold in March dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
The dismal news on new home sales followed earlier reports showing sales of existing homes fell by 2 percent in March. Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly boom areas of the country.
For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.
Nine months into the worst housing crisis in a generation, Congress this week took up the most aggressive government plan so far to break spiraling home foreclosures and tumbling house prices that threaten to pull the economy down.
But even as a key House committee began to mark up the bill Wednesday, there were signs that the measure could be caught up in a crippling political crossfire.
Mortgage industry intransigence, voter anger over possible government aid for speculators and economists' fear that thousands of homeowners might just walk away from troubled loans are contributing to a potential stalemate.
Election-year politics also is playing a role.
If the government fails to act -- whether with the House bill or some other equally large-scale approach -- the nation's economic troubles could continue for several years.
The rippling effects of the housing crisis have forced families from their homes, choked credit, destroyed jobs, undermined consumer spending and inflicted huge losses on financial institutions.
"This is a recession that is significantly different from a typical recession because the single biggest cause is not the cyclical excess of supply over demand in the economy but the sub-prime crisis and its reverberations," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and chief architect of the rescue plan.
Two-Thirds of California Defaults End in Foreclosure
Two-Thirds of California Defaults End in Foreclosure:
Borrowers in California — always the Golden State, but now also the center of possibly the worst housing crisis since the Great Depression — are finding loan workouts increasingly tough to come by as price depreciation has put millions upside down on their existing mortgage debt.
Among homeowners in default, only an estimated 32 percent emerged from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owed during the first three months of 2008; the rest — that’s more than two-thirds of troubled borrowers — ended up losing their homes on courthouse steps throughout the state.
One year ago, the percentage of loan workouts in California stood at about 52 percent, according to La Jolla, Calif.-based DataQuick Information Systems.
Compounding the problem, DataQuick said, was a massive reliance by California borrowers on multiple-loan financing during the housing boom — so-called “piggyback” loans, where a borrower takes out a second (and perhaps even a third) mortgage in order to finance their home purchase. Multiple-loan financing peaked in Q4 of 2006 at 60.9 percent of all financed home purchases, DataQuick said. Last quarter it was 15.9 percent.
Foreclosures soar
Not surprisingly, the number of homes lost to foreclosure in the first quarter of 2008 was the highest in DataQuick’s records, which go all the way back to 1988. Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter, up nearly 50 percent from the fourth quarter alone.
New borrower defaults surged during the first quarter, too, with DataQuick reporting that lending institutions sent homeowners 113,676 default notices during Q1, up by 39.4 percent from the previous quarter and 143.1 percent from one year earlier. Default notices were the highest statewide in more than 15 years.
The graph above — used with permission from the always excellent Calculated Risk blog — shows what California’s 2008 NOD total would look like if volume remains constant at first-quarter levels throughout the year.
“The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006 and that’s working its way through the system,” said Marshall Prentice, DataQuick’s president. “The big ‘if’ right now is whether or not the economy is in recession.
“If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans,” he said.
The question of a recession really shouldn’t be a question at this point, and it’s worth noting that a recent report from Standard & Poor’s found that prime jumbos were beginning to show clear signs of stress beginning in March.
We went for a short walk around the neighborhood tonight, maybe 5 blocks or so. We counted 58 homes with for sale signs (most were empty) only 2 of those 58 signs did not have a foreclosure sign attached to them.
The decline in U.S. home prices quickened in February, with prices down a record 12.7% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.
"There is no sign of a bottom in the numbers," said David M. Blitzer, chairman of the index committee at Standard & Poor's. Prices in 19 of the 20 cities have fallen over the past year, with prices in all 20 cities falling month-to-month for six straight months.
The biggest declines were in Las Vegas and Miami, with declines of more than 20% in the past year.
New-Home Sales Tumbled To a 16-Year Low in March
Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season.
The median price of a new home in March compared to a year ago fell by the largest amount in nearly four decades.
The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
The median price of a home sold in March dropped by 13.3 percent compared to March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
The dismal news on new home sales followed earlier reports showing that sales of existing homes fell by 2 percent in March.
Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly boom areas of the country.
For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent.
Sales fell by 12.9 percent in the Midwest, 12.5 percent in the Midwest and 4.6 percent in the South.
The pace of sales slowed to an annual rate of 526,000 last month, the weakest rate since October 1991, the Commerce Department said.
This follows a downwardly revised 575,000 in February and delivered more grim news to the troubled housing sector.
Economists polled by Reuters had forecast March sales to slow to a 580,000 annual pace from the previously reported 590,000 reading the month before.
The inventory of unsold homes dipped 1.1 percent to 468,000 which, at the current level of sales, would take 11 months to clear, up from February's 10.2 months' supply.
The March median sales price for a new home dropped 13.3 percent from the year-ago level and, at $227,600, was down 6.8 percent compared with the month before.
Home vacancies rise to record 2.9% in first quarter Home ownership rate steady at 67.8%, matching six-year low
By Rex Nutting, MarketWatch
Last update: 5:58 p.m. EDT April 28, 2008
WASHINGTON (MarketWatch) -- Putting further downward pressure on home prices, the number of vacant homes in the United States increased by 1 million over the past year to a record 18.6 million, according to government data released Monday.
The vacancy rate for homes usually occupied by the owners rose to a record 2.3 million homes from 2.2 million in the fourth quarter, and was at about 1 million more than was typical before the housing bubble burst.
Analysts say the housing market won't recover until the glut of vacant homes on the market can be worked down. "There is clearly still substantial excess housing supply that will take time to work off," wrote economists for Goldman Sachs. "We think it unlikely that prices begin to stabilize until vacancy rates start declining."
The homeowner-vacancy rate rose to a record 2.9% in the first quarter from 2.8% in the fourth quarter, about 1 percentage point higher than normal. The vacancy rate has jumped in all four regions of the country, as well as in cities, suburbs and rural areas since the housing bubble exploded.
The total U.S. housing stock increased by 2.1 million to 129.4 million in the past year, with about half of that gain accounted for by the increase in vacancies. Much of the newer stock of housing is vacant, the data show.
Of all housing units built for owner-occupancy since April 2000, 10.2% were vacant, up from 8.8% in the fourth quarter and 4.7% two years ago.
While the vacancy rate for single-family homes has risen to 2.5%, the most dramatic increase in vacancies has been in smaller condominium projects.
For all owner-occupied buildings with two to four housing units, 9.4% were vacant, up from 8.1% last quarter. In all owner-occupied buildings with five to nine housing units, the vacancy rate was 15.2%, up from 12.2% last quarter and double the rate of two years earlier.
Vacancy rates in larger condo buildings have fallen from 8.7% a year ago to 6.3%.
Families are no more likely to own their home now than they were in 2002, even with the big effort to push families with poor credit into home ownership through subprime mortgages. The seasonally adjusted percentage of homes occupied by owners ticked up to 67.9% from 67.7%, after peaking at 69.3% in 2004.
"Given tight lending standards and foreclosures, we expect the homeownership rate will continue to edge lower," wrote Michele Meyer, an economist for Lehman Bros.
Meanwhile, a record 4.1 million vacant homes are for rent, with the rental vacancy rate rising to 10.1%. The record number of vacant rentals should keep rents from rising too fast, which could be a major factor in moderating inflation over the next year or two.
About a fourth of the 18.6 million vacant homes are seasonal homes. Of the 13.9 million vacant homes suitable for year-round occupancy, more than half (7.5 million) are neither for sale nor for rent. Some may be second homes; some may be in the process of foreclosure. Others may be uninhabitable or in undesirable locations.
During the first quarter of 2008, 650,000 U.S. families saw the initiation of foreclosure proceedings on their homes. That’s 1 in every 194 U.S. households!
One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.
Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.
Assessing how much further house prices are likely to fall gets even trickier. Investors expect a further 20% drop, judging by the prices of futures contracts linked to the Case-Shiller locity index. But the futures market is small and illiquid and may overstate the possible declines.
The discrepancy between supply and demand suggests that prices could fall a lot more. By historical standards there is a huge glut of unsold homes on the market. The homeowner-vacancy rate has soared to a record level of 2.9%: there are some 1.1m “excess” houses for sale compared with the average between 1985 and 2005. Although the inventory of new homes is falling as builders have slashed their production, the supply of homes for sale is being pushed up by foreclosures.
By most measures, prices are still above the levels implied by the fundamentals. Using a model that ties house prices to disposable incomes and long-term interest rates, analysts at Goldman Sachs reckon that the correction in national house prices is only halfway through. They expect an 18-20% correction overall, or another 11-13% decline from now. But their models suggest that six states—Arizona, Florida, Virginia, Maryland, California and New Jersey, could see further price declines of 25% or more.
A better measure of housing fundamentals is the relationship between house prices and rents. This is a sort of price/earnings ratio for the housing market: the price of a house reflects the discounted value of future ownership, either as rental income or as rent saved by an owner who lives in the house.
A recent analysis by Morris Davis of the University of Wisconsin-Madison, and Andreas Lehnert and Robert Martin of the Fed, shows that the rent/price yield in America ranged between 5% and 5.5% from 1960 to 1995, but fell rapidly thereafter to reach a historic low of 3.5% at the height of the boom. Given the typical pace of rental growth, Mr Feroli reckons house prices (as measured by the Case-Shiller index) need to fall by 10-15% over the next year and a half for the rent/price yield to return to its historical average. Again, that suggests the national housing bust is only halfway through. And, given the scale of excess supply, house prices are likely to overshoot. All told, the pressure on policymakers to help struggling homeowners is bound to increase.
The first concrete evidence that delinquencies on mortgage bills have spread well beyond those with subpar credit shows that even prime borrowers have increasingly fallen behind on their house payments.
The figures remain relatively small so far. But if they rise further, delinquencies on prime loans — given only to those with good credit — could prolong the housing crisis.
About 2.3% of prime loans were 60 days' past due in February, the highest level in at least a decade, according to data from FirstAmerican CoreLogic LoanPerformance. That's up from 1.4% a year ago.
Some economists, such as Brian Bethune of Global Insight and Dean Baker of the Center for Economic and Policy Research, say they think delinquencies on prime loans have likely risen further since then.
"We're seeing the prime area coming under pressure, with delinquencies moving up," Bethune says. "We're in uncharted territory, and it's definitely been affecting the prime market, although it's still not anywhere as severe as in the subprime market."
Still, even among prime borrowers, not just delinquencies but also foreclosures are up.
From the fourth quarter of 2006 to the fourth quarter of 2007, the rate of foreclosure filings for prime adjustable-rate mortgages rose from 0.41% to 1.06%, the Mortgage Bankers Association says. The rate of foreclosure filings for prime fixed loans rose from 0.16% to 0.22%. Prime ARMs represent 15% of loans outstanding and 20% of foreclosure filings.
Reasons why mortgage woes are hitting prime borrowers:
•Job losses. In areas especially hard hit by the economic slowdown, including Michigan and Ohio, job losses are battering even homeowners who hold prime loans that qualify to be bought by Fannie Mae and Freddie Mac. The sudden change in financial security has left more prime-loan holders unable to make their mortgage payments on time, raising delinquencies. Many economists don't expect job growth to really pick up before 2009.
•Rising payments The Federal Reserve's interest-rate-cutting campaign has helped minimize the higher costs that can arise once ARMs reset. Still, many prime borrowers with ARMs are seeing rate increases, which make it harder to make payments.
Jeremy Brandt, CEO of 1-800-CashOffer, says "a high number of people who call us to sell their home are behind in payments and are not sub-prime borrowers. The typical situation is a person with great credit that bought a big house way over their means using an ARM or interest-only loan."
•Falling home prices. As house prices collapse, especially in states such as California and Arizona, some people with prime loans are finding they owe more than their homes are worth. Many are walking away or delaying payments while they decide what to do.
Economic data in the past two days supports the view that the American consumer may finally be rolling over.
This morning's non-farm payroll data showed the biggest jump in unemployment since 1986, from 5.1% to 5.5%. While job losses were in line with analysts' expectations, the increase in joblessness caught investors off guard. Yesterday on The Buzz & Banter, Mr. Practical hinted the data would be worse than expected.
As for mounting evidence the economic malaise is spreading up the socio-economic ladder, data released yesterday from the Mortgage Bankers Association shows prime mortgages are following their subprime brethren into the abyss.
According to The Wall StreetJournal, 39% of subprime borrowers with adjustable rate mortgages are at least one month past due, while 10% of prime adjustable rate mortgages, or prime ARMs, are late on their payments. Prime defaults, however, are rising more rapidly. Earlier this year I discussed how this trend would lead to the next subprime.
The prime market dwarfs that of subprime loans. While many are looking at Alt-A -- the market between prime and subprime -- as the next shoe, prime is far and away the bigger risk.
Prime mortgage-backed securities, especially those backed by Fannie Mae (FNM) and Freddie Mac (FRE), are structured to handle very few losses. Even though prime default rates are still much lower than subprime on an abslute basis, deviations from historical trends blow up securities, no just high delinquency rates.
Mathematical models used to create mortgage-backed securities analyze historical data to predict default rates and movements in the prices of homes. Property values have already fallen more than expected, reducing the worth of mortgage-backed bonds. As delinquencies rise relative to historic norms, prime securities will face the same cash shortfalls that have destroyed the value of subprime bonds.
Money center banks like JPMorganChase (JPM) and Bank of America (BAC) have thus far skirted many of the same subprime-related losses that ensnared Citigroup (C) and Merrill Lynch (MER). Their focus on borrowers with better credit has helped keep them out of the mire.
As economic conditions worsen and home prices continue to fall, prime securities will become increasingly toxic. The fallout is likely to materialze in 2008 or early 2009, but its a very long train, running down a very steep hill. Investors would be wise to step aside and let it pass.
America's house prices are falling even faster than during the Great Depression
AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.
(This is a national tragedy. The rise in home foreclosures is truly frightening. A national catastrophe is unfolding. )
A snapshot of home foreclosures exposes the continuing nightmare, nowhere near end, with California at the epicenter.
On an annual basis, foreclosures ran at 112% above 1Q2008 versus Q1 of last year. The pace continues, as May national foreclosures rose by 48% versus a year ago. One might expect the pace to level off, but the increases continue. According to RealtyTrac, almost 650k properties were in some stage of foreclosure during the first quarter of 2008, an astounding ratio of 1 of every 194 households nationally.
Nevada suffers a ratio of 1 in every 54 households in foreclosure. For California, the rate is 1 in every 78 households, and for Arizona 1 in every 95 households. This is a national tragedy. The rise in home foreclosures is truly frightening. A national catastrophe is unfolding. In California alone, lenders sent out 113,676 default notices in 1Q2008, up 39% from 4Q2008, and up 143% from 3Q2007. The number of California homes lost to foreclosure in 1Q2008 was 327% above that of Q1 a year ago!!!
In the month of April, foreclosure filings were reported on more than 243,000 properties, a 65% increase compared with April 2007, according to RealtyTrac. In San Bernardino California, a friend told me that 800 foreclosures per day are being filed in the area. By the way, towns dominated by military bases suffer foreclosure rates four times worse than the national rate. California has more than its share of military base towns. This does not sound like support of troops. California generally saw home prices fall by 32% in April, versus the same month in 2007. Sales in the Golden State actually increased by 2.5%, but with heavy price cuts.
Again shockingly, one in every 204 US households is in some stage of the foreclosure process, by latest figures available. Bank owned properties are soaring in number. In January 2007 they totaled 231k homes, in January 2008 it was 493k homes, and in April 2008 it was 660k homes.
Freelance credit analyst Jas Jain said of California, “Since the credit crisis began in August 2007, home prices (on a price per square foot basis) have been steadily dropping at a 20% to 40% annual rate, depending upon region. There could be some leveling off in prices for a few months before the second leg takes [housing] prices down more than 50% from their peaks in most areas by year-end. California has been in a recession since July 2007 based upon employment data, and should enter a depression in 2009. The housing bubble kept Silicon Valley out of the depression after the tech bubble burst, causing employment to fall by 20% in 2001 to 2003. That is a depression by any definition. This time there is nothing to save the California economy.”
Wow! Ouch! Batten the hatches on the Left Coast !!!
The $4.8 state billion budget cut by Gov. Schwartzeneggar in educational funding this year has hit hard, cutting 20 thousand jobs among teachers and other school employees. Many wealthier communities in California have begun initiatives to solicit private funding to aid the schools, even a separate tax levy proposed in Alameda County outside San Francisco. Home values in California are already down by 29%, from March 2008 versus last year March. That translates from median value $582k last March to $414k this March, a median average drop of $168k per home. Conditions are worse with bigger losses in Monterey, Riverside, Sacramento, High Desert, and Santa Barbara. Rick Sharga of RealtyTrac said, “California still has not hit bottom. We have a lot of California homes that are in early stages of default that may not be salvageable, because either there is no market or financing available, or both.”
The national housing inventory problem grows worse, not better. Pollyanna analysts continue to miss the direction toward more bloated, as prices are threatened continually. The inventory for existing homes was high in March, at 9.9 months supply, and went to 11.2 months in April, a record covering 23 years. In California, the existing home inventory is at least two months greater supply than the national figure. On the existing home side, foreclosures relentlessly flood the market, aggravating supply, serving as the most significant factor weighing down housing price. In fact, fully 40% of all sales in California come from bank & lender foreclosures.
And the condominium picture is worse, as pressure comes from rising condo fees. The median national housing price has fallen to $202.3k, down 8% from a year ago. Sales activity has fallen for eight of the last nine months. A key data point is seen in the West, where sales activity rose by 6.4% but where prices fell the largest amount. Prices fell in 43 states, with California and Nevada registering the biggest declines. An opportunity for price stability might come out West where prices came down hard to encourage buyers, but it is early to conclude stability. The foreclosure process still drives the process out West. My belief is that the foreclosure process generally will continue to pressure inventory for another year at least, and push prices down further. Lending institutions are dumping their inventory, lowering price, and achieving some sales. Just because price has fallen, and sales activity has risen, does not mean that price will stabilize. Lending institutions are not seeing any reduction in their inventory, the key point! They incur costs from insurance, property tax, and maintenance, plus legal fees. They bribe homeowners to leave quietly without damage to the property, as in sabotage. Banks even call the cost ‘Anger Escrow’ in their financial reporting. So time to hold properties on the books costs money, an inducement to cut price for distressed or auction sales.
The Standard & Poor Case Shiller composite index provides broad aggregate price data, but two months old. Its index of 20 metropolitan areas showed prices of existing homes fell 2.2% in March, accelerating to worse than a scary 20% annualized decline. The venerable serial bubble engineer Greenspan estimates that house prices will decline by another 10% from February levels, and perhaps 5% worse than that if the USEconomy remains weak. He expects a peak to trough total decline of 25%. Economist Paul Krugman uses a different reasonable measure, a ratio of home prices to rental rates, to arrive at a 25% overall home price decline in the overall correction. Goldman Sachs keeps its simple, stating home prices will fall 15% without a recession, and 30% with a recession. Yale Univeristy professor Robert Shiller expects a shocking 50% home price decline in the formerly hot property zones, like California, Las Vegas, south Florida, and parts of Arizona. My forecast is for a national housing price decline to the levels seen in 1990, plainly put, a double housing recession since no housing recession was permitted in 2000-2002.
In year 2005, a very intriguing sequence of events occurred. California state contractors were not properly paid in cash and instantly redeemable checks issued by the state. The state was actually in severe arrears on payments and at risk of losing contractor work. So California issued state coupons, like IOU on pieces of paper. It is unclear to what extent state employees received such coupons. Of itself, this is not so important. What struck legal and political scholars was how the state coupons were used. THEY WERE REDEEMABLE AS CASH, AS IN LEGAL TENDER, AT SUPERMARKETS AND UTILITY FIRMS. The coupons were essentially cash in restricted usage. They were a bizarre form of money created by the State of California, inflation to be sure, but money printed illegally outside the realm of the federal USGovt. Only the USGovt has the privilege of inflating the money supply and destroying the currency! The problem resolved itself in the ensuing months.
Fast forward to today. Gov Schwartzeneggar announced a 10% budget cut a few months ago, with additional budget cuts in progress. California is under great distress. Its economy is probably in a mild depression, much like Michigan and Ohio. The Governor recently announced the inability to float a state bond to cover ongoing expenses to run the state. So they resorted to floating some emergency measure bonds, using state lottery income as collateral. Gambling income is the only reliable income stream to the state, WOW!
Watch for future attempts to print money via the back door, if desperation runs thick. Look for challenges to the federal privilege to print money. The implications could actually work toward strain in the union, as in USA. That is not my forecast, but one should expect strains to individual states to become acute. Some will want to print money. Imagine a California Dollar with a golden bear on it. Oh yes, the Governator declared a state of drought, which forced an emergency order of resource sharing for water, and some conservation measures. The state has enough problems, let alone drought. What is next, locusts? How about rising salinity levels in irrigated water?
If California is forced to inflate with state coupon devices, or receive massive federal emergency funds, or faces widespread defaults and bond failures, conditions might arise for broad movement into gold as refuge. Vallejo already declared bankruptcy at the town level. The process is degenerating.
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