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June 18, 1993
Mortgage rates are teetering on the edge of their quarter-century lows. A good shove from some lousy economic news, and rates can take the same sort of plunge they did a year ago.
The Consumer Price Index returned to the safety zone, up only .1% in May. New Housing Starts picked up a thin 2.4% gain, while Construction Spending was thinner yet, up only 1.2%. New Jobless Claims held at 344,000 last week.
Remember back there, two years ago, when you were told that wealthy Japan was in the process of buying all the good real estate in the United States?
Do you recall, six months ago, when the German juggernaught was going to lead united Europe into economic domination of the poor, old, worn out United States?
It's not exactly a Christian attitude, but when you feel bad, you can always make fun of somebody else who has screwed up worse than you did.
Kenneth Leventhal & Company, a real estate accounting firm, estimates that Japanese institutions hold $200 billion in mortgages on American real estate, and that half are in or near default. Japanese banks, their most conservative lenders, by themselves report a 13.3% default rate on American mortgages, double the average default rate at American banks.
Japanese lenders make the mortgage folks at Citicorp look like geniuses.
It's not just the loans made by Japanese institutions. Their direct investment in American real estate has run to about $80 billion since 1985, and they have lost about half of that, too.
Four years ago, the Mitsubishi purchase of 80% of Rockefeller Center typified the American decline so much enjoyed by the popular press. Today, the Center is worth less than the $1.3 billion mortgage -- held by those decadent, lazy Americans, the Rockefellers, who at worst get to keep the down payment, and get the Center back if Mitsubishi walks away from its negative cash flow.
Half way around the world, the German powerhouse is in the poorhouse. While the American economy grew at a .9% rate in the first three months of 1993, which we regarded as miserable, the German economy contracted 3.7%. For the whole of 1993, the German economy is likely to shrink by 2%.
Germany does have bragging rights over the United States in one area: their Bundesbank is merciless compared to our namby-pamby Federal Reserve.
While our economy is wandering along, and flirting with new inflation, a fearful Fed has its discount rate at 3.00%. The German economy is so bad that it is causing social unrest, but the Bundesbank is holding its discount rate at 7.25%.
Now, that's a tough, inflation-fighting central bank.
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