In Japan, analysts keep an eye on exports as a way of gauging the health of the global economy. If Japan isn’t selling, other nations aren’t buying. And if ships stop loading goods ‘Made in Japan,’ global trade is in trouble.
In the month of May, Japan’s exports declined 40% year on year.
Yesterday came similar news from Europe. Industrial orders in the Eurozone dropped 35% in April, from the year before.
“Fed on hold as slump eases,” reports The Wall Street Journal. What exactly is meant by ‘slump eases’ is unclear. As near as we can tell, the slump is getting worse.
“New home sales plunged 32.8%.” Bloomberg reports that house prices in California and Las Vegas are being hit hard by a wave of foreclosed properties. Yes, dear reader, the anklebone is still connected to the leg bone.
Bloomberg also reports, “jobless claims are up.”
A fellow loses his job; he can’t pay his mortgage. The house goes onto the market and pushes down prices. Prices in California are off 30% year-to-year, with the median house at $267,000. In Las Vegas, the median house is only $135,000 with 75% of sold properties coming from foreclosures.
The housing market is slow. But it works like other markets. It reacts…then, it over-reacts. It shoots. Then, it over-shoots. One study we saw said that housing prices were now down to “reasonable” levels. But there’s no law that says they can’t go to unreasonable levels. They were very unreasonable two years ago; they’re likely to be very unreasonable in the other direction before this depression is over. Hold on; maybe you’ll be able to get the median house in California for $199,000.
The WSJ notices that the leg bone is connected to the knee bone too, “house price falls are cutting into economy,” it says.
Well, what did you expect? That’s what house price declines do. People feel poorer because they are poorer. And with no source of ready cash – they spend less. Then…the whole economy weakens…etc….etc.
We’ve been over that enough times already. You don’t want to hear it again.
And remember how we warned of a big increase in credit card defaults? When the slump began…and consumers could no longer “take out equity” from their houses…they turned to credit cards to fill the gaps in household budgets. Since then, there has been no increase in household earnings. To the contrary, household earnings have gone down. So the fellow with more credit card debt and less revenue is in a predictable jam. What does he do? He defaults.
“Credit card delinquencies at record,” says one headline.
“Credit card charge offs break record,” says another.
And these aren’t the only kind of defaults the United States will be bracing itself for. A second wave of mortgage loan defaults is headed this way. Batten down the hatches and otherwise prepare…once it hits these shores, it will likely do much more damage than the first wave.
Elsewhere in the news, we find GM closing plants and Ford cutting out half its suppliers.
Yes, the Fed is on hold. It dares not do anything else. Its voodoo revival program has not worked. The corpse of the real world economy is as lifeless as ever.
What will it do next? We wait to find out.
And poor Michael Jackson: RIP.
for The Daily Reckoning Australia