CACB = Cracker Ass Cracker Broke

Man doesn't live by bread alone, so I will take a break from the "Scathing Rant" format that has come to dominate past posts, and just put in some varied observations, mainly from comments which is of course where most of the goodness of this blog lies. But first...

I've noticed on more than one occasion while dropping eaves, that Realtors will talk about Ye Olde Bend Bubble Blog to their listing clients. Usually I am at lunch somewhere (Old Mill lunch haunts?) & will overhear something -- sometimes I don't really catch it all -- but 3 times that I remember, I've heard Realtors in consult with a client recommend, or at least give clear direction to, reaching this humble blog. Usually, just before giving a clear URL or Google search directions, they will deride it as distasteful, disgusting & offensive, in so many words. But one thing is clear: they want their sellers to come here & read.

If you're a longtime reader, it seems pretty clear why this would be so; BB2 ain't exactly sanguine on the prospects for Bend RE, and in fact the past few posts have been primarily dedicated to the Primary Objective Function Of Selling Your Home Via Extreme Price Cuts. And of course, there have been the requisite number of facts, figures, and diagrams to support this recommendation. And it's true: You can sing and dance and make groovy movie trailer posters & all that shit, but ain't nothing going to sell a home for $1,000,000 when No One's Got That Much.

But what's funny is that this blog has apparently become The Hatchet Man for local Realtors. When faced with listers who simply refuse to face the music, well then, with a healthy dose of disgust & the proper hesitancy, they promptly give them Detailed Directions for reaching this humble tome of despair.

And as I've said too many times to count, horrendous price cutting is ALL that will work at this point in moving inventory. That's it. As David Foster points out, without proper staging, you won't even be in the running -- of course this has ALWAYS been true for the past 1,000 years, except for a brief 2 year period starting in 2004 -- but cutting price TO THE BONE & BEYOND is really all you have. It's because The Money's Gone. It's NOT because your kitchen is too small, the paint is wrong, you got no granite, or any other nonsense. There's just No Money.

So it is with a certain sense of cruel irony that I welcome those sent here by their Realtor. They aren't trying to beat down your expectations cuz they're lazy sods. Hell, I don't know, they might be. But if your home is for sale, and it's been on the market for many, Many months (or years), or you've just gotten a lowball that's taken your breath away, and you've been referred here, it's cuz your Realtor WANTS to sell your home. But they've detected Kool-Aid staining about your mouth & nose area, and want you to get a shot of RE methadone. They KNOW full well that it's down to price, and that your anchoring on 2006 prices (plus a nominal 40% due to Bend Bulletin pump priming) will be twice as painful & almost as ugly as 1980's Big Hair Bangs & Cockle Shell Belts. Check the top right RIP/DOA tombstone on this page: Prices have GONE BELOW $100/sf! You check your $/sf ask, and I can damn near guarantee you are asking At LEAST 50-100% TOO MUCH for your house.

Just face it: If you've bought in the past 3-4 years, YOU WILL LOSE MONEY. And that's IF you can even sell. Don't believe it? Here's REAL LIVE examples of the CRUSHING losses already being sustained in Central Oregon.

About The Largest Asking Price Cut is the CUT IN HALF (-49.4%) on this Deschutes Market Road piece of shit.

This piece of shit is like some sort of Neverland Ranch done by hillbillies. It looks like a Fuqua Home was plopped down in the middle of topiary nightmare. I'm just kidding. This place is really not that bad. But the sellers have truly been poisoned by the idea where Juniper Ridge takes a shit, up pops a rainbow. You can readily detect the dollar signs cha-chinging in the sellers eyeballs the minute they THOUGHT they would be in the latest UGB:

INVESTMENT PROPERTY! This 3.86 acres should be within the Bend City limits when the boundary is changed in the near future. The value at that time should be around $2,000,000! The owner can't wait and has lowered the price to rock bottom for quick sale. Great IRC 1031 property to double your money in two to five years.Please See Virtual Tour.

Alas, it was not to be. This piece of crap, like many on Deschutes Market, is a Juniper Ridge fueled fantasy. If you look it up on DIAL, you see a few thing: First, is the Build Date discrepancy. DIAL says this shithole was built in 1977, while the Realtor states 2003. The current owner bought in 1998 for $155K, and so started his listing at a modest 1,000% markup (almost), or $1.5MM. Well, of course, REALITY got in the way, and as the Bursting Bubble hangover has worn on, this guy has blinked the sleep outta his eyes, and gradually dropped his price in half as he realizes What Has Always Been True: He lives in an Old Piece Of Shit Out In The Scrub which has been Overlandscaped, of which there are about 3,000,000 FOR SALE on Deschutes Market Rd. No offense Buddy, but that shit is a dime a ton around here.

I predict this place will soon go into the -50% price cut range... AND IT STILL WON'T SELL. You've gotta realize that anchoring on the Dead Top & even remotely believing that will EVER happen again, or even the faintest shadow of that event will happen again, is simply deluding yourself. Brooks Resources, who made more money than God FOR 20 YEARS cannot bail out fast enough. Here is the problem put MILDLY by big mucka-mucka Mike Hollern:

“Nobody quite knows where the price is going to settle down,” Hollern said. “I mean, pricing is so tough. But if you bought something in 2002 for $250,000 or $300,000 and you missed selling it for $750,000 two years ago, and now you have to sell it for $400,000, is that a bad deal? There was a peak there that some people missed if they didn’t sell. And if they bought on a peak, that’s kind of tough. So prices have to come back to, I think, to a somewhat more normal level.”

What's funny is Hollern is Just Like Everyone Else. He knows the shit has hit the fan, but He Still Is Anchoring On 2006 Dead Top Pricing. He dropped price on 3 RiverWild condos, got mega-free PR, frothing-at-the-mouth lowballers... and still a 67% FAILURE RATE. OK, if the Biggest Developer To Ever Grace This Scrub CANNOT sell after a 25% haircut, What The Fuck Do You Think Your Wimpy-Ass 3% cut will accomplish?

Still think you can "Hold Out" for "Better Times"?

Over on BendBB, a strange little trend is becoming evident. And much like BendBB's heart, it started out small & started to grow:

BendBB during a recent electrocardiogram taken at his Westside cave

It is summarized by BendBB himself, God bless his wretched heart:

Here's a table showing the percentage of new listings since July 2007 that are assumed to be lots.

Month % lots
July 24%
August 19%
September 21%
October 29%
November 40%

Lots as a percent of new listings have doubled in the past 2 months. Renaissance has gone WHOLESALE at Shevlin Ridge. This is shorthand for We've Stopped Building Homes Cuz We Don't Want To Go Broke, So We Are Selling Lots To Anyone & Everyone To Build Whatever The Hell You Want. Even my beloved Ranch At The Canyons, which may be primarily responsible for starting the DISASTROUS "Tuscany" themed insanity (mainly because they actually did it RIGHT), has started going wholesale on their lots. I hope that unlike other misguided attempts to liquidate their financial nightmares, that Ranch at the Canyons doesn't throw CC&R's to the wind to get'er done. The Shire, Renaissance Homes, and many others are Going Wholesale in an attempt to bail out on Bend ASAP. Of course this is Frying Pan Into The Fire thinking, cuz who wants to buy a nice 3,000/sf macroshack only to have a Fuqua shithole airdropped right next door?

And just to counter the idea that I am Captain Bringdown: I think I've made it clear that Becky Breezes cheap-ass AdvancedAccess website is about as ass-ugly as they come. But if you wanna see just about the best executed web design that reinforces (an admittedly flawed) concept, it is BendShire.com. This website is absolutely beautiful! Congrats to whoever designed this beauty. That flash stuff up top is excellent, and this site really does make the concept palatable, and has probably done much to move any inventory over there, if indeed any has moved. If you're a Realtor, you'd do well to look at the difference between BendShire.com & this abomination.

Anyway, you can see from the MASSIVE swing from about 80/20 homes to lots, to 60/40 that builders are liquidating as fast as is humanly possible. If you drive around Bend at all, you see them everywhere: Vast Siberian deserts of lots sprouting rotted For Sale signs, with 1 or 2 spec homes manned by VERY lonely Open House squatters. They are tired of watching their burn rate blow through the Bubble Bucks & are going to dump their inventory of lots by hook or by crook. Of course, they like 98% of Deschutes County selling population is afflicted with Price Anchoring Syndrome, and think they will somehow come close to getting prices of the past few years.

Nothing is certain except this: YOU WILL NEVER GET PEAK 2006 PRICES AGAIN FOR YOUR HOME IN YOUR LIFETIME. Your Realtor won't tell you this, cuz you'll jump ship. Then neither will the next guy, cuz nobody in the RE industry has had 3 square meals in over a year. If you're here cuz your Realtor has "hesitantly" given you detailed directions to find this blog, IT'S CUZ THEY KNOW FULL WELL YOU CANNOT & WILL NOT SELL YOUR HOUSE UNLESS YOU WAKE UP FROM THE FOG OF 2006 PRICE ANCHORING. Cut 10%? Fuck, you might as well spare yourself the dashed hopes. 10% price drops are NOTHING. 20%? Go back to bed. 30%? See, you need to realize that homes ARE UNDER $100/sf IN BEND, AND HEADED LOWER.

BUT My House is (Custom|Built by BigWig Builder|On a Prime Lot|Surrounded By Whitey|All sorts of other IRRELEVANT SHIT)!

Take a look around dumbshit. Your RiverRim shithole is SURROUNDED by price-slashing equity locust, CC&R busting, "I'll rent this fucker if it'll make the mortgage" liquidators that have to sell in the next 60 DAYS or their 401K, their Cali shithole domicile, their 8 year old Mercedes will all go on the auction block. This fucking town is going WHOLESALE -- Sell It All, By Hook Or By Crook NO MATTER THE LOSSES -- at an astounding rate. You think YOUR HOUSE is "SPECIAL"? Look at the White Elephant:

I mean that is a sweet ass little fuckin shack. Nice little guest house to boot. This place has been listed since the Stone Age (judging by it's listing number), has suffered 7 price cuts totally 42.7% -- and still NOTHING. And it's STILL TOO HIGH at $255/sf! There's no doubt, this is a sweet little primo piece of ass, but that shit is a dime a TON. This sort of stuff will soon be under $175/sf. Look at this Traditions East piece of crap:

Listed by our favorite Becky Breeze, she let the seller Name that Tune, who promptly when bobbing for apples in the nearest Kool-Aid vat, and came up with $184/sf! $184/sf for a PIECE OF SHIT GOLD RUSH WHACKY SHACK piece of crap that wouln't even rent for $750/mo? C'mon Becky, grow a fuckin backbone, and tell dumbasses like this to go fish. This little micro crap shack is one of the snot tubs dotting the Triad Homes Siberian Desert East of town. Right next door is Darnel Estate Shitholes trying to blow 'em out for $112/sf! Not to mention the Desert Skeeze piece of crap featured in previous posts that just went to $99/sf.

This is what I mean: You've STILL got a town onerrun with builders, sellers, equity locusts, and Tuscany wannabes trying to get 100% more than what someone RIGHT ACROSS THE STREET is asking. $184/sf Triad? Fuck, you'll have better luck buying Powerball tickets.

Anyway... moving on.

You can see from last weeks comments that someone kindly pasted the recent Bulletin story, "Home prices in Deschutes flatten out". What's funny, and a little sad, is that they are doing EXACTLY what I said they'd do, well over a year ago.

"Still, there are some statistical bright spots in the general market gloom. For one thing, home prices in the Bend Metropolitan Statistical Area, which covers all of Deschutes County, have risen 91.03 percent over a five-year period despite the recent slowdown, and they have remained stronger than the once-hot markets of California and Nevada, where prices slid 3.6 percent and 2.4 percent over the last year."

Everyday, as RECENT HISTORY turns more & more disastrous, The Bulletin has saw fit to go farther & farther into the past to relive the glory years. Hmmmm... now who did I compare that to...

Oh right, UNCLE FUCKIN RICO who is constantly reliving his Glory Years Before His Life Went To Shit. Predictably, VERY PREDICTABLY, this is exactly how The Bulletin has responded to the RE Implosion: Continuously reminiscing about The Glory Years. I'm sure this is a sound strategy. All sorts of Equity Locusts will want to swarm the 188th performing housing market in the US, out of 287. Dang! That puts us in the 65th percentile! Not good. Better stretch our analysis back to before Oregon achieved fuckin statehood.

Of course, this DELUSIONAL BULLSHIT is at the ROOT of why people are unwilling to lower prices: Bend is a magical fantastical wonderland where Anything Is Possible! "Hey, we're at the 65th percentile, DOWN FROM THE TOP 1%, but we can RECLAIM THE GLORY YEARS IF WE JUST BELIEVE!" Of course this will not happen, and will only act to PROLONG THE PAIN. The faster we get cut in half, THE BETTER.

And just a note: If you bought in the past 3-4 years, YOU WILL SELL FOR A LOSS, about that there is No Doubt. But if you've been here before that, and have simply switched homes & are going to sell now & move into another Bend home, then really you are not losing anything. It's like watching a stock go from NASDAQ 1,000, riding it up to 5,050, then riding it back down to 1,500 or whatever. If you were in Bend 10 years ago, you are almost certainly still UP.. a lot.

If you bought in the past 3-4 years, and you own more than 1 home, well then Fuck You. I hope you lose your ass. You're part of the problem. You made homes unaffordable for NORMALS, and you are 100% RESPONSIBLE for the Economic Implosion about to overwhelm this place. Again, FUCK YOU.

But if you've been here long term as a homeowner, your inane gains of 2004-2006 were largely illusory anyway. Cutting your price in half will STILL almost certainly leave you above water. I know several properties where 90% could come OUT of their late 90's purchase price & they will still breakeven. Don't make the mistake several of my NASDAQ bubble playing friends made & Hold On For A Pop: WON'T HAPPEN. Every single person I know who did this lost 90-99%... and it's because they couldn't stomach losing 20%.... then 30%.... then 60%.... then 80%.

OK, Bend has been CUT IN HALF in places. The low-end is racing to the bottom, and that bottom is currently UNDER $100/sf. And it's JUST GETTING A GOOD HEAD OF STEAM. It'll be in the $70's later this year, and you will rue the day (That day being TODAY), when you didn't SLASH to $95/sf to get 'er done. You'll be sitting on your shithole, priced at $90/sf, and some fuckin nutcase in Darnel Flipper Bait Shitholes will be at $49/sf.

It's NOT PERSONAL, OK. It's that there is NO MORE MONEY. NOTHING, no force on Earth, will somehow magically shower speculaltors with dumptrucks of cash. Not gonna happen again in our lifetime. And if you do own a home in Bend, and you are trying to sell it now, well then, mark it up to heinously BAD LUCK, cuz you are going to get caught in the most talked about ROUT ever recorded in RE history. There are homes in Bend DOWN 50% TODAY. Tomorrow, down 75% will be The New Norm. That's YET ANOTHER CUT IN HALF.

Again, my advice is SLASH IT TO THE BOTTOM, THEN ANOTHER 10%. Sounds like I wanna Gut You right? Absolutely Not. This is Cutting Your Losses time. This is about Moving On. It's like winning the lottery, and subsequently having the winnings viciously taken from you: It Sucks, but you wanting it back ain't gonna make it happen. If you've been here pre-2002, then shut the fuck up & take your lumps. You'll be a buyer in a buyers market & you can ride this Cannonball Run motherfucker right to the bottom in a rental, which is at least another 50% down.

Finally, here's a nugg from Timmy, on page 8 of the Nov price changes page of BendBB:

Japan has less buildable land than any other place I can think of, yet it suffered through a near-twenty year real estate drop.


Here's a chart of Japanese land prices since 1980:

Look HARD at this graph. In Japan, there was roughly a DOUBLE from 1980 to 1991 in the Greatest Land Bubble EVER to date. Bend? Bend has DOUBLED since FEBRUARY 2004! THAT'S 2 1/2 YEARS AGO! As I have said AD NAUSEUM, Bend Oregon will go down in history as The Greatest Real Estate Bust EVER RECORDED in this country, and possibly the World. 24 Years into the greatest bubble and subsequent BURST, Japan is right back at DEAD EVEN. Where were we 20 years ago? Half the national medians.

Don't Think For 2 Seconds That Bend, Which Has Experienced The Greatest RE Bubble This Or Any Country Has Ever Seen, Will Not GIVE ALL OF IT RIGHT BACK. Does that mean medians HALF the national? Of course it does... that's $100K. Of course, NO ONE around here thinks that's even remotely possible, but BY GOD they believe there is some way this Souffle can reflate & they can sell their 1,100sf cracker shack for $650,000.

Well, you keep dreaming. Just don't start bitching when you're down to your last nickel, homeless, car-less, and penniless because you were TOO FUCKIN' GREEDY to take what in retrospect would be a bearable loss today.

Finally, let's have a look at the trials & tribulations of Cascade Bancorp, CACB.

Ahhh yes, I remember it well. Remember when CACB Shorter first arrived on BEM's blog, and announced that he was going to put his money where his mouth is, and short this bitch. And how we were all like, "Dang dude, that's ballsy. I don't know though. Hope it works", and so forth.

Well look at me now. CACB must stand for CRACKER ASS CRACKER BROKE, cuz that bad boy has been handed it's own cut in half in the past year. I will add to my litany of misguided predictions that Patty Moss will soon bite the bullet. Whether it's resignation for "personal reasons" (does anyone EVER buy that bullshit?), or a takeover, Moss will be shown the door before 2008 is out. She won't be alone though. The heads of Umpqua & WashMu are also headed for the chopping block. I should note that it really isn't their fault. We're headed for something akin to the early 90's S&L crisis, where banking heads rolled on a daily basis. Will there be a Bank Holiday, per BendBilboBuster? Doubtful, last time we did that it made things worse.

But I'll bet on this, we'll all soon be banking at the First National Bank Of Islam soon. Why this is so is best distilled by the awesome Warren Buffett in the Oct 26, 2003 article, "Why I'm not buying the U.S. dollar":

I'm about to deliver a warning regarding the U.S. trade deficit and also suggest a remedy for the problem. But first I need to mention two reasons you might want to be skeptical about what I say. To begin, my forecasting record with respect to macroeconomics is far from inspiring. For example, over the past two decades I was excessively fearful of inflation. More to the point at hand, I started way back in 1987 to publicly worry about our mounting trade deficits -- and, as you know, we've not only survived but also thrived. So on the trade front, score at least one "wolf" for me. Nevertheless, I am crying wolf again and this time backing it with Berkshire Hathaway's money. Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in -- and today holds -- several currencies. I won't give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.

Both as an American and as an investor, I actually hope these commitments prove to be a mistake. Any profits Berkshire might make from currency trading would pale against the losses the company and our shareholders, in other aspects of their lives, would incur from a plunging dollar.

But as head of Berkshire Hathaway, I am in charge of investing its money in ways that make sense. And my reason for finally putting my money where my mouth has been so long is that our trade deficit has greatly worsened, to the point that our country's "net worth," so to speak, is now being transferred abroad at an alarming rate.

A perpetuation of this transfer will lead to major trouble. To understand why, take a wildly fanciful trip with me to two isolated, side-by-side islands of equal size, Squanderville and Thriftville. Land is the only capital asset on these islands, and their communities are primitive, needing only food and producing only food. Working eight hours a day, in fact, each inhabitant can produce enough food to sustain himself or herself. And for a long time that's how things go along. On each island everybody works the prescribed eight hours a day, which means that each society is self-sufficient.

Eventually, though, the industrious citizens of Thriftville decide to do some serious saving and investing, and they start to work 16 hours a day. In this mode they continue to live off the food they produce in eight hours of work but begin exporting an equal amount to their one and only trading outlet, Squanderville.

The citizens of Squanderville are ecstatic about this turn of events, since they can now live their lives free from toil but eat as well as ever. Oh, yes, there's a quid pro quo -- but to the Squanders, it seems harmless: All that the Thrifts want in exchange for their food is Squanderbonds (which are denominated, naturally, in Squanderbucks).

Over time Thriftville accumulates an enormous amount of these bonds, which at their core represent claim checks on the future output of Squanderville. A few pundits in Squanderville smell trouble coming. They foresee that for the Squanders both to eat and to pay off -- or simply service -- the debt they're piling up will eventually require them to work more than eight hours a day. But the residents of Squanderville are in no mood to listen to such doomsaying.

Meanwhile, the citizens of Thriftville begin to get nervous. Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville.

At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat -- they have nothing left to trade -- but must also work additional hours to service their debt and pay Thriftville rent on the land so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest.

It can be argued, of course, that the present value of the future production that Squanderville must forever ship to Thriftville only equates to the production Thriftville initially gave up and that therefore both have received a fair deal. But since one generation of Squanders gets the free ride and future generations pay in perpetuity for it, there are -- in economist talk -- some pretty dramatic "intergenerational inequities."

Let's think of it in terms of a family: Imagine that I, Warren Buffett, can get the suppliers of all that I consume in my lifetime to take Buffett family IOUs that are payable, in goods and services and with interest added, by my descendants. This scenario may be viewed as effecting an even trade between the Buffett family unit and its creditors. But the generations of Buffetts following me are not likely to applaud the deal (and, heaven forbid, may even attempt to welsh on it).

Think again about those islands: Sooner or later the Squanderville government, facing ever greater payments to service debt, would decide to embrace highly inflationary policies -- that is, issue more Squanderbucks to dilute the value of each. After all, the government would reason, those irritating Squanderbonds are simply claims on specific numbers of Squanderbucks, not on bucks of specific value. In short, making Squanderbucks less valuable would ease the island's fiscal pain.

That prospect is why I, were I a resident of Thriftville, would opt for direct ownership of Squanderville land rather than bonds of the island's government. Most governments find it much harder morally to seize foreign-owned property than they do to dilute the purchasing power of claim checks foreigners hold. Theft by stealth is preferred to theft by force.

So what does all this island hopping have to do with the U.S.? Simply put, after World War II and up until the early 1970s we operated in the industrious Thriftville style, regularly selling more abroad than we purchased. We concurrently invested our surplus abroad, with the result that our net investment -- that is, our holdings of foreign assets less foreign holdings of U.S. assets -- increased (under methodology, since revised, that the government was then using) from $37 billion in 1950 to $68 billion in 1970. In those days, to sum up, our country's "net worth," viewed in totality, consisted of all the wealth within our borders plus a modest portion of the wealth in the rest of the world.

Additionally, because the U.S. was in a net ownership position with respect to the rest of the world, we realized net investment income that, piled on top of our trade surplus, became a second source of investable funds. Our fiscal situation was thus similar to that of an individual who was both saving some of his salary and reinvesting the dividends from his existing nest egg.

In the late 1970s the trade situation reversed, producing deficits that initially ran about 1 percent of GDP. That was hardly serious, particularly because net investment income remained positive. Indeed, with the power of compound interest working for us, our net ownership balance hit its high in 1980 at $360 billion.

Since then, however, it's been all downhill, with the pace of decline rapidly accelerating in the past five years. Our annual trade deficit now exceeds 4 percent of GDP. Equally ominous, the rest of the world owns a staggering $2.5 trillion more of the U.S. than we own of other countries. Some of this $2.5 trillion is invested in claim checks -- U.S. bonds, both governmental and private -- and some in such assets as property and equity securities.

In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4 percent more than we produce -- that's the trade deficit -- we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.

To put the $2.5 trillion of net foreign ownership in perspective, contrast it with the $12 trillion value of publicly owned U.S. stocks or the equal amount of U.S. residential real estate or what I would estimate as a grand total of $50 trillion in national wealth. Those comparisons show that what's already been transferred abroad is meaningful -- in the area, for example, of 5 percent of our national wealth.

More important, however, is that foreign ownership of our assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. As that ownership grows, so will the annual net investment income flowing out of this country. That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past. We have entered the world of negative compounding -- goodbye pleasure, hello pain.

We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that's the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.

The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary -- and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card's credit line is not limitless.

The time to halt this trading of assets for consumables is now, and I have a plan to suggest for getting it done. My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties -- either exporters abroad or importers here -- wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

Because our exports total about $80 billion a month, ICs would be issued in huge, equivalent quantities -- that is, 80 billion certificates a month -- and would surely trade in an exceptionally liquid market. Competition would then determine who among those parties wanting to sell to us would buy the certificates and how much they would pay. (I visualize that the certificates would be issued with a short life, possibly of six months, so that speculators would be discouraged from accumulating them.)

For illustrative purposes, let's postulate that each IC would sell for 10 cents -- that is, 10 cents per dollar of exports behind them. Other things being equal, this amount would mean a U.S. producer could realize 10 percent more by selling his goods in the export market than by selling them domestically, with the extra 10 percent coming from his sales of ICs.

In my opinion, many exporters would view this as a reduction in cost, one that would let them cut the prices of their products in international markets. Commodity-type products would particularly encourage this kind of behavior. If aluminum, for example, was selling for 66 cents per pound domestically and ICs were worth 10 percent, domestic aluminum producers could sell for about 60 cents per pound (plus transportation costs) in foreign markets and still earn normal margins. In this scenario, the output of the U.S. would become significantly more competitive and exports would expand. Along the way, the number of jobs would grow.

Foreigners selling to us, of course, would face tougher economics. But that's a problem they're up against no matter what trade "solution" is adopted -- and make no mistake, a solution must come. (As Herb Stein said, "If something cannot go on forever, it will stop.") In one way the IC approach would give countries selling to us great flexibility, since the plan does not penalize any specific industry or product. In the end, the free market would determine what would be sold in the U.S. and who would sell it. The ICs would determine only the aggregate dollar volume of what was sold.

To see what would happen to imports, let's look at a car now entering the U.S. at a cost to the importer of $20,000. Under the new plan and the assumption that ICs sell for 10 percent, the importer's cost would rise to $22,000. If demand for the car was exceptionally strong, the importer might manage to pass all of this on to the American consumer. In the usual case, however, competitive forces would take hold, requiring the foreign manufacturer to absorb some, if not all, of the $2,000 IC cost.

There is no free lunch in the IC plan: It would have certain serious negative consequences for U.S. citizens. Prices of most imported products would increase, and so would the prices of certain competitive products manufactured domestically. The cost of the ICs, either in whole or in part, would therefore typically act as a tax on consumers.

That is a serious drawback. But there would be drawbacks also to the dollar continuing to lose value or to our increasing tariffs on specific products or instituting quotas on them -- courses of action that in my opinion offer a smaller chance of success. Above all, the pain of higher prices on goods imported today dims beside the pain we will eventually suffer if we drift along and trade away ever larger portions of our country's net worth.

I believe that ICs would produce, rather promptly, a U.S. trade equilibrium well above present export levels but below present import levels. The certificates would moderately aid all our industries in world competition, even as the free market determined which of them ultimately met the test of "comparative advantage."

This plan would not be copied by nations that are net exporters, because their ICs would be valueless. Would major exporting countries retaliate in other ways? Would this start another Smoot-Hawley tariff war? Hardly. At the time of Smoot-Hawley we ran an unreasonable trade surplus that we wished to maintain. We now run a damaging deficit that the whole world knows we must correct.

For decades the world has struggled with a shifting maze of punitive tariffs, export subsidies, quotas, dollar-locked currencies, and the like. Many of these import-inhibiting and export-encouraging devices have long been employed by major exporting countries trying to amass ever larger surpluses -- yet significant trade wars have not erupted. Surely one will not be precipitated by a proposal that simply aims at balancing the books of the world's largest trade debtor. Major exporting countries have behaved quite rationally in the past and they will continue to do so -- though, as always, it may be in their interest to attempt to convince us that they will behave otherwise.

The likely outcome of an IC plan is that the exporting nations -- after some initial posturing -- will turn their ingenuity to encouraging imports from us. Take the position of China, which today sells us about $140 billion of goods and services annually while purchasing only $25 billion. Were ICs to exist, one course for China would be simply to fill the gap by buying 115 billion certificates annually. But it could alternatively reduce its need for ICs by cutting its exports to the U.S. or by increasing its purchases from us. This last choice would probably be the most palatable for China, and we should wish it to be so.

If our exports were to increase and the supply of ICs were therefore to be enlarged, their market price would be driven down. Indeed, if our exports expanded sufficiently, ICs would be rendered valueless and the entire plan made moot. Presented with the power to make this happen, important exporting countries might quickly eliminate the mechanisms they now use to inhibit exports from us.

Were we to install an IC plan, we might opt for some transition years in which we deliberately ran a relatively small deficit, a step that would enable the world to adjust as we gradually got where we need to be. Carrying this plan out, our government could either auction "bonus" ICs every month or simply give them, say, to less-developed countries needing to increase their exports. The latter course would deliver a form of foreign aid likely to be particularly effective and appreciated.

I will close by reminding you again that I cried wolf once before. In general, the batting average of doomsayers in the U.S. is terrible. Our country has consistently made fools of those who were skeptical about either our economic potential or our resiliency. Many pessimistic seers simply underestimated the dynamism that has allowed us to overcome problems that once seemed ominous. We still have a truly remarkable country and economy.

But I believe that in the trade deficit we also have a problem that is going to test all of our abilities to find a solution. A gently declining dollar will not provide the answer. True, it would reduce our trade deficit to a degree, but not by enough to halt the outflow of our country's net worth and the resulting growth in our investment-income deficit.

Perhaps there are other solutions that make more sense than mine. However, wishful thinking -- and its usual companion, thumb sucking -- is not among them. From what I now see, action to halt the rapid outflow of our national wealth is called for, and ICs seem the least painful and most certain way to get the job done. Just keep remembering that this is not a small problem: For example, at the rate at which the rest of the world is now making net investments in the U.S., it could annually buy and sock away nearly 4 percent of our publicly traded stocks.

In evaluating business options at Berkshire, my partner, Charles Munger, suggests that we pay close attention to his jocular wish: "All I want to know is where I'm going to die, so I'll never go there." Framers of our trade policy should heed this caution -- and steer clear of Squanderville.

Here we see how Buffett fared on his 2003 prediction of a sinking dollar. As usual, he had The Long Wave dead right. And the attempted reflation of the Busting US RE market by Bernanke & Co will only make this problem worse. Read last weeks post on 17 Reasons We NEED a recession in this country. We need to break the back of this Consumption Monster. There needs to be a real Sea Change. Maybe one Good Thing that'll come out of this Economic Tsunami coming our way is we'll learn thrift again. We'll learn to save. We'll learn the maybe Really Being Green is NOT BUILDING OR BUYING 3 homes. Maybe we'll Getting Fucking Real.

ADDENDUM:

I just wanted to post data/graphs from BendBB's Google spreadsheet. These figures exclude raw land. First is the PPSF indexed to 0% back in Feb:

Bend has clearly done the worst, having price per sf rise only 1 month, way back in March. Redmond after being strong for most of the year has collapsed in the past 2 months. Sisters, after having a mini-bubble this Summer, has collapsed to flat & stayed there. Sunriver is the steadiest, rising slowly but surely, and never really swinging up or down.

Here are raw home price medians for the area:

Hard to see much change which is why I post the PPSF indexed to 0% first. November LIST medians are as follows:

Bend: $399,500 ($399,500 last month)
Redmond: $305,000 ($320,000 last month)
Sisters: $459,000 ( $472,200 last month)
Sunriver: $469,000 ($459,900 last month)

Finally here are PPSF medians, which I find more interesting than raw medians, as the square footage of homes varies widely from month to month:

Raw data:

Bend PPSF median: $208 ($209 last month)
Redmond: $175 ($179 last month)
Sisters: $249 ($247 last month)
Sunriver: $284 ($284 last month)