The Consequences Of Post Housing Bubble Policy
Readers added to my topic suggestion on policy. “There is a housing bubble question regarding the government and central bank that needs to be addressed at this point in time. What are the consequences of post housing bubble policy?”
“It is well known that Japan had twin manias in both stocks and real estate in the 80’s. Their policy makers chose to hide losses off-shore and to prop up many corporations. Then the country went into a recession that never really ended. But why? What did the post-bubble policy have to do with the recession and what might have been different?”
“A market economy relies on a survival of the fittest contest to weed out inefficient organizations and reward those that make better choices. In the long run, taking this discipline away didn’t save the Japanese economy, but rather made it weaker. Never having cleansed the economy of these non-functioning structures, they sit mired in recession.”
“So here the US stands a similar juncture; we’ve had twin bubbles, and our government/central bank appear to be taking the Japanese route. We hear a lot about the Fed chief and the Great Depression. But IMO, the GD is ancient history. What about the much more relevant Japanese experience with financial manias?”
“And lastly, considering all this, what course do we as individuals take in our finances and careers?”
A reply. “Regarding Japan versus USA: I think the scenarios are quite different and will remain so, with the USA in a much more favorable position to get out of its current mess than Japan ever was. Why? Social, business and cultural mores and norms. Japan is highly patrician/patriarchal and heeds the traditions of its elders. The United States is not.”
“Our problem in the USA is a lack of ethics and individual responsibility/consequence. We now are largely a country of thieves and backstabbers, at all levels. Government, business, individual. Few people want to pay for anything, work for anything. If it feels good, do it. Why? Because you DESERVE it. Because everyone else is doing it.”
“Maybe it’s time to get back to literally lopping off the hands of thieves. Crude? Yes. Effective? Quite possibly. Rather than see Madoff go from court date to court date via limosine, perhaps everyone should witness Madoff’s hands get amputed on live television.”
Another said, “We not only have inefficient organizations but also have massive debts, public, financial, corporate and personal. That makes this different from Japan — and the Great Depression. That is what is bringing on a recession without end — people can only spend what they earn, only earn what other people spend, with the interest on the debt as an ever-expanding wedge between the two. Get rid of the debts, or continue to be poorer.”
“What seems to be happening is a nationalization of the debts, to limit the losses to older generations (who control most wealth), combined with promises to cut down on government benefits for younger generations, with future taxes just going to pay the debts off.”
One said, “Japan spent nearly $125T Yen in a decade of which half went to public work programs, mostly in construction. The government and corporations were corrupt and spent money producing things that nobody wanted and didn’t meet consumer demand. (I have no idea what demand that would have been, and apparently neither did Japan or her people).”
“Additionally, Japan nationalized their banks - we can see how that worked out for them. They admit to propping up the stock market. Again, how did that work out for them? The government invested in RE and values fell 80% in the ‘90s. Ahem, sound familiar?”
“Oh, and they introduced corporate and personal tax cuts. Broken record anyone? They managed to spend over 100% of the GDP. The U.S government and her citizens must realize that a laissez-faire approach will sort out market inefficiencies. Only then can we progress toward a more rapid recovery.
Lifted from mises.org.”
Another had this, “It seems pretty clear to me that right now the folks running The System (and by this I mean the global economy,) are attempting to salvage the system itself rather than its individual components. And we’ve not even BEGUN mop-up operations, let alone repairs.”
“I am envisioning this all as an ill-conceived but long-running chem experiment with say, formic acid bubbling away in a gooseneck to some end, various compounds being added from time to time with no apparent effect, when suddenly, the technician, lacking proper restraints and common knowledge of basic material science, makes one small adjustment, and the mess in the flask takes on a life of its own, self-generating until it begins to breach the containment vessel. Now it is threatening to blow up the lab and contaminate the whole campus. But you can’t just turn it off, you have to let the reagents coalesce on their own. Cracks appear in the beaker. HOLY MOLEY it’s boiling over, it’s running out the sides, it’s gonna BLOOOOWWWWW! (And glagh, the deadly stink!) Lights flash! Buzzers sound! People run screaming from the building!”
“So we’re frantically wrapping tape around and around the exterior container as quickly and gingerly as possible, trying to stem the flow of caustic liquid and keep the glass from cracking clear through–not to save the contents so much as to let enough out slowly to save at least a portion of what’s left to study ‘for next time’ and keep the toxic spew from eating through to the foundation. After the managed outflow, THEN we can figure out whether to attempt hugely expensive repairs to the equipment or design a new vessel and start completey over again with new, uncontaminated materials. Or something like that.”
“Sorry for the extended metaphor…it’s just that what’s happening in our financial world right now reminds me of the time I nearly blew up the Keck lab.”
One noted. “I was looking at the comment about rebuilding a manufacturing base. Rebuilding the base might be doable, but is it profitable? The industrial base eroded because the products were too expensive compared to foreign competitors. It pains me to say this, but until wages in the western world are more in line with the rest of the world, I don’t see this changing (allowing for productivity differences and transportation costs of course). That is unless we reject capitalism.”
A reply, “I see it another way: corporations wanted to increase their profit margins. By exploiting slave labor overseas, they could bring down their costs significantly, but only dropped their prices a little bit. The consumers of these goods were predominantly Americans. As our wages stagnated/declined, we continued to pay high prices by going deeper and deeper into debt.”
‘Free trade is good when we’re talking about buying a product that is better or more easily made in another country, and we export something that we’re better able to make (or have more readily available resources to make those goods). Free trade is not exploiting the workers of the world in an attempt to drive the living standards of **productive people** down while enriching the capitalist class (corporations, investors, and bankers, etc.).”
“We need to move to fair trade, and harshly punish companies that try to skirt their responsibilities to their employees.”
And another, “The whole problem with ‘rebuilding the manufacturing base’ is that it won’t bring back anywhere near the amount of manufacturing jobs that were sent offshore. For the last several years no country on this planet has had a net increase in the number of manufacturing jobs, not even China. This is because of increased automation. Bringing manufacturing back is probably a good idea regardless of the number of jobs generated, but bringing back manufacturing will only increase the demand for automation. In other words it isn’t going to help out much with the job picture at all. For instance, Japan has a lot of domestic manufacturing, but it is the most automated manufacturing by far in the world. That is what the US would be looking at with manufacturing back in the country.”
“Like I said, this doesn’t mean we shouldn’t bring manufacturing back, but we have to realize that manufacturing will never be a large scale job generator ever again.”
To which was posted, “It still needs to happen because it will help the balance of trade. Wages are a small part of the manufacturing cost when automation is used heavily. US manufacturers need to focus on high-margin products where the profit margin offsets the increased cost of labor in the US. I worked for a manufacturer like that… their products were in the mid-high end of their industry due to the heavy emphasis on engineering value and were priced accordingly.”
“Also consider the supply chain. A manufacturer will increase employment along the supply chain, and if time/distance is a factor, which it often is, that means jobs in the same area/region/country.”
“Manufacturers that don’t compete on price alone can do very well in the US. Of course, nationalized healthcare would go a long way towards making us even more competitive, as many other countries already have this, putting US companies that offer health care coverage at an immediate cost disadvantage.”
One asked, “I would love a discussion on the impact going forward of retiring baby boomer’s on housing, the markets and the overall economy…I really think understanding the coming changes due to this would be helpful and profitable…”
One has this, “Modern politicians in America know that most Americans are like spoiled children and don’t know how to save money, so the free market fix is not an alternative (no stimulus but just let the inefficient businesses and individuals go broke). So without the free market fix, we have the junkie’s delight of another stimulus to last another short term before we suffer severely for a decade or so.”
“With that, if one must be in stocks, they should be dividend paying stocks and stocks of emerging economies where the middle class is emerging (India, China). House prices in great locations (clean air, great schools, great climate, great jobs, great transportation) have yet to fall, and they will fall. Probably stay flat for 15 years after 2012. Gen-x and Gen-y would be better off saving in dividend stocks for their retirement than to consider a house as an investment.”
And finally, “I would humbly recommend reading the Federalist. Publius’ words aren’t necessarily the ‘truth’ ; however, like most documents of this sort, they are thoughts on a subject. That notwithstanding, the Federalist is an excellent source - especially the facets dealing with monetary issues - that actually debates the issue of money, who should have it, who should create it, how it should be regulated, and how it dovetails into the tax issue (used to be such a thing as a direct/apportioned tax but not anymore).”
“It is actually a debate with a pro and con, not just varying degrees of the same idea. We must also realize that the proposed monetary system was compatible with a system of governance based on the concept of establishing justice and securing the blessings of liberty for them and their posterity - us.”
“The cornerstone of all our symptoms today was debated then. We don’t have that system anymore, and are reaping the pernicious effects of a system they feared.”
