Concerns About Imbalances Around Overbuilding
A report from Mansion Global on Canada. “The number of residential sales in the Greater Toronto Area (GTA) fell 26.7% year-over-year to 7,118 in October, according to the Toronto Real Estate Board, suggesting that the government’s cooling measures might have taken effect. Luxury home sales, those priced above C$1 million (US$780,000) and above, amounted to 1,317 in October, falling 31% year-over-year. For C$2 million (US$1.56 million)-and-above homes, the number of sales dropped to 208 from last year’s 325, down 36%. In October, there were 18,859 homes available for sale in the Greater Toronto Area, up 78.5% from the same period last year. The Canadian federal government is poised to implement new mortgage rules at the beginning of next year, while the city of Toronto is considering a potential tax on vacant homes.”
From CBC News in Canada. “House prices in Hamilton are continuing their decline from April’s high, according to the Realtors Association of Hamilton-Burlington. The median sale price for a residential property in October was $452,600. Compared to April’s median sale price of $535,000, that’s a 15.4-per-cent decrease. Mortgage applicants are expected to pass a stress test starting January next year. George O’Neill, CEO of Realtors Association of Hamilton-Burlington, said the market dynamics may change as a result. ‘It is going to put some people out of the market, they’re just not going to be able to afford to quality at that higher rate.’”
“He said homeowners who are on the fence now may want to think about selling. The new rules in January may affect them negatively. ‘It may take longer or they have to be more aggressive on their pricing.’”
The Canadian Press. “One of Alberta’s largest home builders has been placed in receivership by an Edmonton court. Alvarez & Marsal Canada says in a posting on its website that it was named as receiver for insolvent ReidBuilt Homes and several subsidiaries by the Court of Queen’s Bench of Alberta. The company’s failure comes as Alberta recovers from an oil price-induced slump that led to concerns about ‘imbalances around overbuilding,’ according to Richard Cho, principal of market analysis for Calgary at the Canadian Mortgage and Housing Corp.”
“Last month, Postmedia reported the company was attempting to sell its Calgary division, and had stopped construction on dozens of houses. Several media outlets reported that some contractors had not been paid.”
From the Daily Telegraph in Australia. “Sydney’s housing market may be cooling but one man is definitely feeling the chill — celebrity real estate agent John McGrath lost $3.5 million on paper yesterday because of the slumping share price of the company that carries his name. The man who made his name making multimillion-dollar sales in the boom times has seen his fortune erode since floating his real estate firm on the stockmarket in December 2015.”
“The value of McGrath’s founding stake in the company has now dropped from $78m to $19m in two years. And experts are worried investors may not have seen the worst of it, given that the property market during that same period has been strong and is only now starting to soften. The latest setback came after McGrath Limited announced a surprise 25 per cent cut in expected earnings because of lower property listings, tighter lending requirements and restrictions on foreign buyers.”
“CMC Markets chief market analyst Ric Spooner said the property company’s woes were making shareholders nervous. ‘I think the concerning thing is that to see such significant downturns (in McGrath’s share price) in what has been very early stages of any downturn in the property market listings,’ he told The Daily Telegraph. ‘It makes investors nervous about what might happen if the downturn becomes a bit more pronounced.’”
From News.com.au in Australia. “Home hunters have been gifted a rare opportunity to nab units in popular lifestyle areas at cheaper prices as buyer demand continues to cool. An analysis of sales activity revealed competition for properties has been falling in the Parramatta, inner south and Homebush regions as banks restrict investors’ access to new loans. The drop in demand has coincided with rampant housing construction, which increased the supply of homes available.”
“Home sellers have had to adapt to the changed market by lowering their price expectations, creating chances for wannabe homeowners to get into the market for less, according to the Price Predictor Index. A decline in sales across an area suggested there was downward pressure on prices. The areas around Homebush, Sydney Olympic Park, the inner south and Parramatta were showing signs of being oversupplied with housing, the research revealed.”
“The increased development, coupled with a decline in buyer demand, resulted in sales volumes dropping from 300 per quarter in 2013-2014 to 190 per quarter over the recent year. It was a similar story in suburbs near the airport such as Mascot and Wolli Creek, where high-rise residential development has taken pressure off buyers to move quickly on sales or bid up prices. The long pipeline of apartment projects in Homebush and some of its surrounding areas like Homebush West and Sydney Olympic Park created another glut of properties for sale, which remains well above demand.”
“Real Estate Institute of NSW president John Cunningham said that while there are dangers involved, investing in these high supply markets could prove worthwhile. ‘Property is a long term play and you need a long-term strategy,’ he said. ‘Opportunities can exist in these markets but making a smart investment with the timing and how long you hold it is critical.’”
“However, one of the challenges of buying a property in an area where short-lived price drops were on the cards was that buyers would find it more difficult to obtain financing. Banks have traditionally demanded larger deposits in city regions they have deemed to be oversupplied with housing. Financial services company Citi recently released a list of suburbs where buyers needed a minimum 35 per cent deposit to gain access to finance to buy units. The majority of the 34 Sydney suburbs listed were centred around the Sydney Airport, Parramatta, the inner city, Chatswood and Sydney Olympic Park.”
From Domain News in Australia. “Properties in in-demand areas prompted the most combative bidding duels at auctions on the weekend as Sydney real estate agents warned of a ‘fickle’ market. Phillips Pantzer Donnelley selling agent Nick Quilkey said the $2 million to $4 million segment was an increasingly fickle market in which some properties did very well and others struggled.”
“‘It is really about pricing at the moment,’ he noted. ‘The point at which you start your guide price can be paramount in terms of the interest you get and how your auction goes. Even if the price is set just $100,000 or $200,000 too high, a property can struggle at the moment, whereas in previous years it didn’t matter. There would be a lot of interest and an auction property would pass that point anyway.’”
“It’s becoming apparent that vendors, at all price points, need to ensure that they analyse truly comparable properties and sales results when setting their asking prices. These should be properties that have sold in the last couple of months, not 12 months ago. Ric Serrao, of Raine & Horne Double Bay and Bondi Beach, handles a lot of sales in the eastern suburbs and is seeing a more patchy market across different types of properties and suburbs.”
“He said the demand for free-standing houses in Bondi Beach was continuing to grow: ‘However, if it is a semi in Bondi Beach, we have had quite a few of them come in and that market has softened slightly, albeit I think it is short-term. If we are talking Vaucluse, I personally think that because there has been more supply, that market has come off by 5 to 10 per cent.’”
The Newcastle Herald in Australia. “Rental prices across Newcastle have stagnated over the last three years, with growth at just a third of the rate recorded in the rest of New South Wales. It’s a reversal of fortunes for tenants, after a rental accommodation ‘crisis’ gripped Newcastle a decade ago. A spokesperson for Leah Jay property management specialists said there was often a misconception that because house prices were booming, there would be steep increases in rents too. ‘Rents are dictated by supply and demand, even in a seemingly hot property market,’ she said. ‘Over recent years we have seen more investors coming to the region and significant property development, this provides additional properties to the rental market.’”
“Some landlords have admitted it is dampening returns and proving increasingly difficult to find tenants. ‘It was pretty easy to let out when I first bought it,’ landlord Ryan Meredith said of his investment property at Merewether, which he purchased nine years ago. ‘There were lots of people wanting to move in there. They wanted to be near the beach and there weren’t many places up for rent. The rent was definitely a lot higher back then.’”
“But when Mr Meredith’s unit on Dent Street fell vacant earlier this year, it was a different ball game. The weeks flew by and there was little interest. ‘Every week it was on the market I was losing money,’ he said. ‘I decided to put a brand new kitchen in to get more people through it.’”
“Eventually, Mr Meredith was able to secure tenants, but only after he had dropped the weekly rent from $420 to $340. He attributed his difficulties to greater levels of supply, as low interest rates encouraged more renters to enter the housing market. ‘When I jumped online and looked at how many places were available, you could see why I was having trouble,’ he said. ‘There were 20 other units available.’”
“The Leah Jay spokesperson said a wave of new apartments coming into the mix in the next 12 months could also affect the dynamics. ‘Quality tenants have a selection of properties to choose from and those properties with all the ‘mod cons’ in desirable suburbs will always see more interest if priced correctly,’ she said.”
This is pure insanity:
‘Even if the price is set just $100,000 or $200,000 too high, a property can struggle at the moment, whereas in previous years it didn’t matter’
I will take “Bubble Economic Decisions” for $200 Alex…
‘Even if the price is set just $100,000 or $200,000 too high, a property can struggle at the moment, whereas in previous years it didn’t matter’
Wouldn’t it be great if it were actually that easy to make a quick $200k?
This actually reminds me of the hedge fund speculators who were buying houses in bulk. They bought up several hundred or more for a song, then they went back in and overpaid for a few to “set the new comps.” Presto!! All their previous house purchases were suddenly worth millions more.
Even better, just cross-sell a few of the houses between some buddy hedge funds. That way it would not even cost anything to increase the comps used to value your holdings. Who is to say that those transactions were not arms-length transactions?
Personally, I like how the qualifier “just” is used in that quote, as if $100K or $200K is chump change.
Aussie dollars, not real money!
Waller, WA Housing Prices Crater 10% YOY
https://www.zillow.com/waller-wa/home-values/
Oh you never fail to disappoint, HA, cherry-picking data as usual for a postage-stamp-sized chunk of suburbia that even the locals don’t know the name of:
http://www.city-data.com/city/Waller-Washington.html
Hello my good friend.
Seattle, WA 98117 Housing Prices Crater 9% YOY
https://www.zillow.com/seattle-wa-98177/home-values/
Bueller?
HA is such a fool. Just because his mom’s home in the rust belt is falling down around his basement bedroom and declining in value, he thinks it’s the same story in Seattle!
Seattle has job growth, population growth, and a strong housing market. It may see a down cycle in the future, but I can tell you the housing market is very solid today.
HA has slipped out enough legit info to prove that he certainly does not live in mom’s basement.
DebtDonkey
Evergreen San Jose, CA Housing Prices Crater 9% YOY
https://www.zillow.com/evergreen-san-jose-ca/home-values/
*Don’t forget to select price from dropdown menu under first chart
Get triggered, snowflake:
CT Valley Homes awared Houzz badge for client satisfaction 2016: http://www.ctvalleyhomes.com/docs/about-builder/awards-and-affiliations.asp
DebtDonkey
Mount Vernon, WA 98274 Housing Prices Crater 12% YOY
https://www.zillow.com/mount-vernon-wa-98274/home-values/
What eight years of obama’s TARP, HARP, QE1, QE2, QE3, QE4, ZIRP, record deficits and cheap and easy money produced….
++++++
Homelessness soars on West Coast as cities struggle to cope
San Francisco Chronicle | November 6th, 2017 | Gillian Flaccus and Geoff Mulvihill
Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do.
“I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing,” said Seattle City Councilman Mike O’Brien. “There’s nowhere for these folks to move to.”
People who were once able to get by, even if they suffered a setback, are now pushed to the streets because housing has become so expensive. All it takes is a prolonged illness, a lost job, a broken limb, a family crisis. What was once a blip in fortunes now seems a life sentence.
Rising rents are the main culprit. The median one-bedroom apartment in the San Francisco Bay Area is more expensive than it is in the New York City metro area, for instance.
Timmings used their last savings to buy a used RV for $300 and spent another $300 to register it. Now, the couple parks the RV near a small regional airport.
They have no running water and no propane for the cook stove. They go to the bathroom in a bucket and dump it behind a nearby business.
Above all, the West Coast lacks long-term, low-income housing for people like Ashley Dibble and her 3-year-old daughter.
With an eviction on her record and little income, no one will rent to her.
“I’ve had so many doors slammed in my face, it’s ridiculous,” Dibble said, wiping away tears.
“Housing prices are soaring here thanks to the tech industry…”
I can’t read an article when the first sentence is a BS lie.
Today, reading the fake legacy progressive media is like reading the Soviet Pravda in the 1970s.
You have to look for what they do not say.
And you have to look at the data they present without the editorial spin.
People have JOBS in Seattle. They can’t find anywhere they can afford to live.
IT WAS NOT ALWAYS LIKE THIS.
In spite of the fact there is plenty of excess, empty housing units there. Just like everywhere else. Millions of them.
“I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing,” said Seattle City Councilman Mike O’Brien. “There’s nowhere for these folks to move to.”
That means there is money to be made renting to them but it’s not happening. In a functional economy money like that doesn’t get left on the table. So what is preventing someone from making that money? I bet it has something to do with policies that you might know something about, Mike.
For all of China’s faults that’s one thing I like about their society. Being poor is the default…it’s not stigmatized. So nobody gets too freaked out by living within walking distance of poor people. This means there is lots of housing for poor people because the “haves” aren’t always trying to get rid of it and move it farther away. With cheap housing and cheap basic medical care the remaining problems can usually be worked around.
I don’t think Americans object too much to the “poor.” The objection is to the crime, blight, drugs, public health issues, mental issues, and the like that come with being poor (the children of the poor are especially prone).
NO such thing as poor people in America, relative to the rest of the world. Some are poor-ER than others, sure. But nobody in America is poor.
You want poor? Take a trip to Rio or Mumbai. That’s poor.
There’s roughly 120 million house poor DebtDonkeys in the US. They’d all be on the stree if it weren’t for HELOC’s and refi’s.
Hungry kids aren’t getting the resources they need.
Effective nutrition programs help kids get the food they need.
Federal nutrition programs play a critical role in helping children build healthy minds and bodies. Unfortunately, statistics show that these resources are not reaching all of the kids who need them. Consider the data below, all from the year 2010:
Food Insecurity
48.8 million Americans—including 13 million children— live in households that lack the means to get enough nutritious food on a regular basis. As a result, they struggle with hunger at some time during the year.
Food-Insecure Families
Food insecurity—the limited or uncertain availability of nutritionally adequate and safe food— exists in 17.2 million households in America, 3.9 million of them with children.
Rates of food insecurity are substantially higher than the national average among households with incomes near or below the federal poverty line, among households with children headed by single parents (35.1% of female-headed households with children are food-insecure) and among Black and Hispanic households.
Food insecurity is most common in large cities but still exists in rural areas, suburbs and other outlying areas around large cities
https://www.nokidhungry.org/problem/hunger-facts
“food insecurity…with incomes near or below the federal poverty line…”
If I’m not mistaken, that’s how the Feds define the poverty line, so it’s a circular statement.
Food can be aplenty way below the poverty line, but not when other lifestyle decisions aren’t in line, at least in my experience.
Poor people having kids. There’s the root of the problem.
Poor people having kids. There’s the root of the problem.
When cheap housing and cheap basic medical care are available kids are good even when poor.
I don’t think Americans object too much to the “poor.” The objection is to the crime, blight, drugs, public health issues, mental issues, and the like that come with being poor (the children of the poor are especially prone).
OK…but as a result being anywhere near poor people is looked at fearfully or at least distastefully in the USA, because everybody seems to associate the poor quite closely with all those things.
One thing I hadn’t thought of is that our method of funding public school systems makes it a lot worse. In China the kids with money aren’t going to the same school as the poor kids so there’s less self segregation away from poor due to that factor.
I doubt Chinese people have to worry about locking their doors and hiding from MS13 gangbangers in poor areas like we do around here in the United States. This is a violent, dangerous society we have.
I doubt Chinese people have to worry about locking their doors and hiding from MS13 gangbangers in poor areas
Correct. But why? Living around poor people in China is a plus…more good cheap food and housing and labor easily available. There’s no reason it couldn’t be that way here too…once upon a time it was that way here.
Plenty of Americans subscribe to the Just World Hypothesis and therefore look down on the poor. It makes no sense, but it doesn’t matter.
That means there is money to be made renting to them but it’s not happening. In a functional economy money like that doesn’t get left on the table
There are plenty of people making minimum wage in every city. It’s theoretically possible that the cost of providing them with housing is more than they can afford to pay.
It’s theoretically possible that the cost of providing them with housing is more than they can afford to pay.
Depends on what you are trying to provide them. I can totally believe that a standard American apartment in a location with jobs is more than they can afford.
Putting aside that ideally the housing market should not be manipulated to the point where that is the case, what is to prevent even cheaper housing from being provided? Such as group barracks? My guess is that it’s not allowed due to NIMBYism/zoning. Yet it would still be a much better solution than the current situation. It’s not an unsolvable problem unless we want it to be.
I think it is a matter of incentives. Our tax policy really skews the incentive to build more expensive units. Imagine if the MID was capped at below $200k, or even below $100k? That which you subsidize you get more of, that which you tax you get less of. If the market is not creating enough affordable housing, figure out how to get the incentives right.
By the way, the “housing first” approach to homelessness is light years ahead of figuring out that the first thing people need is shelter before any meaningful progress can be made towards addiction recovery, mental illness, poor health, etc.
‘if the MID was capped at below $200k, or even below $100k?..figure out how to get the incentives right’
Or 25k? How about just end the damn thing once and for all?
I’m completely okay with that, but it might be difficult in practice due to politics. I’ve found that some changes need to be evolutionary rather than revolutionary. But if it could be done, then by all means we should do it! Economists from the right and the left universally agree that the MID, in it’s current form, does nothing to really boost home ownership, and it certainly doesn’t make it more affordable, quite the opposite is true.
But a different type of incentive might. If the incentive were a fixed dollar tax credit, I think that would actually incentivize different behavior. Builders might need to innovate and figure out how to build and design more affordable structures in order to get their units down to the level where they get the credit.
Putting aside that ideally the housing market should not be manipulated to the point where that is the case, what is to prevent even cheaper housing from being provided? Such as group barracks? My guess is that it’s not allowed due to NIMBYism/zoning.
In some countries poor people find bits of plywood and other materials and build themselves a dirt floor shack on a piece of land that they don’t own. So, if want to go down the road of manipulation, you could building codes along with zoning.
‘Economists from the right and the left universally agree that the MID, in it’s current form, does nothing to really boost home ownership’
I disagree. These clowns have howled the opposite for years.
See NPR’s “No-Brainer Economic Policy” episode:
An excerpt:
There have been mountains of papers written on all the bad things that the mortgage interest deduction does. For one thing, our economists said, the bigger your mortgage, the bigger the tax break you get. The richer you are, the more money the government gives you back. Here is a liberal and a conservative - Dean Baker and Luigi Zingales.
BAKER: It just makes no sense that, you know, if we have Bill Gates or whoever, some very wealthy person, we’re subsidizing them to get an expensive home.
ZINGALES: So because rich people receive a much larger subsidy, the price of houses increase so much that it actually makes less affordable for the poor people. So it’s a really perverse form of subsidy.
I’ve read scores of articles where economists from both sides of the ideological spectrum rail against the MID. The politicians, on the other hand, seem to love them because the industry lobby groups fight tooth and nail to keep them. We know this though.
what is to prevent even cheaper housing from being provided?
The same crime and blight that I mention earlier, that’s what is holding back cheap housing. 40 years ago, city authorities *did* provide cheap housing in the form of “projects.” Apartment towers, garden apartment complexes, even some very basic row housing with small yards and playgrounds. The projects were in the middle of the city so the residents could easily commute to almost any job. The projects were trashed by the residents. If I understand correctly, the parents (usually single moms) did work hard and tried to get ahead. But the kids roamed the streets and produced a whole lot of stereotypes, and a whole lot of new single moms too.
Mighty Mike, I think that even conservatives wouldn’t object to providing housing to the poor. However, if the provided housing just gets trashed and ganged, the conservative viewpoint is: “you had your chance and you ruined it. Fine, either kill each other, or starve, since you’re so hell-bent on doing that anyway. We’re done with ya.”
Can you blame the conservatives for thinking that? In fact, this thinking is one of the main reasons Trump was elected. The conservatives’ plan is to kick out illegal immigrants, which would re-open the jobs for the poor. Then, cut off the welfare for the poor so that the poor (i.e. blacks) will be forced to take those newly opened jobs, relocating if necessary. In fact it was mostly blacks who “worked hard” and “paid taxes” and “took care of your kids” and “mowed your lawn” and “butchered chickens” … until the illegals immigrants flowed in and did the jobs for below minimum wage.
In some countries poor people find bits of plywood and other materials and build themselves a dirt floor shack on a piece of land that they don’t own. So, if want to go down the road of manipulation, you could building codes along with zoning.
What’s your point? That you would rather people be homeless than house them in anything less than a standard American apartment? I assume we’re both in agreement that ideally the housing market would be free enough that the price of a standard American apartment would fall to the point that it can be afforded on minimum wage, but since we don’t seem to have the political will to make that happen, then what? There are more legitimate options between a standard American apartment and squatting on a trash pile.
what is to prevent even cheaper housing from being provided?
The same crime and blight that I mention earlier, that’s what is holding back cheap housing. 40 years ago, city authorities *did* provide cheap housing in the form of “projects.”
I’m not talking about “providing” anything via government. If there’s profit in it the market will provide it. My question is: what is preventing that from happening?
I think the answer is that it is not economical to provide housing, at least the way it is setup now, to the poor. The market has failed.
I think the answer is that it is not economical to provide housing, at least the way it is setup now, to the poor. The market has failed.
Your use of the term “the way it is setup now” is critical. It’s not the market that has failed.
The question is, how would you change it to make it meet the needs of the poor?
Simple. Stop using Fed policy to artificially support housing prices to save bankers, undo the FASB 157 change. If that’s not enough, get rid of things like the mortgage deduction. If that’s not enough force communities to allow group housing to be built. Make it a civil rights issue. Just these things should be enough to make low end housing cheap enough for workers to afford.
If all else fails start reducing hotel/Airbnb regulation to make it easier to run old fashioned boarding houses.
As much as the middle class might scream, all those things are better than having working people living under bridges but ALSO better than artificially subsidizing low end housing ala Section 8 as a gift to low end landlords that only helps those lucky enough to get in on it.
I like all of those suggestions. I also like what some Canadian cities have started exploring: adding a surtax to unoccupied empty housing. I’m fine with people owning multiple properties, but having them sit empty when people could be living in them and paying seems wrong when there is such an acute need.
My feeling is that in order to solve low income housing, you have to get the incentives right. Right now, there is not a lot of pain felt my the upper class and upper-middle class when the poor and homeless have few or no affordable housing. I would propose some sort of mechanism that ties the fates of these two groups together. You almost need something like a surcharge property tax on higher income properties that kicks in and is earmarked explicitly for lower income housing development when housing becomes out of reach. That way, the upper crust can’t stay insulated and say “not my problem.”
LOL, right on cue the MSM finds out there are homeless people on the street. It only ever seems to happen during Republican administrations. The homeless appeared out of thin air in 1981, went away in 1993, came back in 2001, went away in 2009 and now in 2017 they’re baaa–aaaack!!
Amazing how this works huh?
IIRC, the cheap and easy money was produced during the Bush II administration.
The parabolic expansion of credit goes back to around 1980 at least, depending on how you look at it. We were freaking out about it during Nixon.
We were freaking out about it during Nixon.
Sounds like you’re saying things went parabolic as soon as we completely decoupled the currency from gold?
On the contrary. My impression then was that credit expansion forced us to abandon the gold standard. The US was about the last place to do it.
I’m going to think out of the box here: things went parabolic when the US abandoned the PAPER standard (paper money and paper checks) and went to doing all finance by computer. Easier to swipe credit cards to buy stuff; much cheaper to evaluate a loan app by software than to pay armies of accountants to do it by hand. So more people got credit.
“Rising rents are the main culprit.”
The homeless seem to truly have become priced out forever.
Many of these homeless have family in their chosen area, but they have become incorrigible and exhausted any good will.
Realtors are liars.
I post this because it just makes me laugh.
Do we really need a study for the stupendously obvious?
University education in America - on the cutting edge of research.
And less inclined to own a house too!
+++++
Binge drinking and smoking marijuana will make you less ambitious in life
India Times | 11/08/2017
Researchers at the University of Connecticut in the US tracked the effect of teenage alcohol and marijuana use on the achievement of life goals, defined as educational achievement, full time employment, marriage and social economic potential.
The study included 1,165 young adults from across the US whose habits were first assessed at age 12 and then at two- year intervals until they were between 25 and 34 years old.
Overall, individuals who were dependent on either marijuana or alcohol during their teen years achieved lower levels of education, were less likely to be employed full time or get married and had lower social economic potential, researchers said.
Nonsense!! Very smart liberals in my state assured me legalizing pot would have zero negative side effects. Pot is harmless they said.
Your study must be from one of those anti-freedom, right wing places like Faux News.
Good day to you sir.
Do 4 hits of pot and your legal booze level and try to drive.
It’s legal and impossible.
‘ 4 hits of pot and your legal booze level’
We call that Friday night movie night at my house!
Very smart liberals in my state assured me legalizing pot would have zero negative side effects.
Yeah, those people don’t realize that we need Bog Government to tell people what to inhale.
tracked the effect of teenage alcohol and mj use on the achievement of life goals,
It would be interesting to see the details of this study. Did the researchers run controls to filter out socioeconomic status, household income, geographic location etc? It’s possible that alcohol and mj use are a symptom of low achievement, not a cause.
It’s possible that alcohol and mj use are a symptom of low achievement, not a cause.
Correlated maybe. I think it’s all symptoms of various brain issues along the lines of anxiety disorders (whether genetic or due to trauma or abuse) and stuff like ADHD. For those kids anything that numbs pain and boredom is like a moth to a flame and the low achievement is just a side effect.
“I think it’s all symptoms of various brain issues along the lines of anxiety disorders (whether genetic or due to trauma or abuse) and stuff like ADHD. For those kids anything that numbs pain and boredom is like a moth to a flame and the low achievement is just a side effect.”
Remember AVERAGE IQ is 100. There is a wide variation of intelligence. There is also a wide variation in terms of motivation/drive, etc.
Blaming it “all” on brain issues and ADHD and anxiety is BS. Sure, there is some of this. But there are also plenty of folks who simply aren’t “Type A”, and content to live in their parents house playing video games and smoke weed as long as their parents will let them.
Will taxpayers pay for a professional “listener” for potheads n “victims of options
=expensive
Binge drinking and smoking marijuana will make you less ambitious in life
Based on the article, it looks like they identified a CORRELATION, not causation.
An alternative theory is that the less ambitious drank and smoked more. The more ambitious were too busy studying to drink or smoke very much.
BTW, in a world of attempting to cast blame, my comment (blaming lack of ambition on the person, not the booze/weed) is no popular.
However, there is another study that I’ve heard that would be similarly unpopular that found a stronger correlation for financial success from where students were accepted, and NOT where they attended.
- So, if you were accepted to Stanford but went to a local state school to be close to an ailing relative, you were more likely to have the lifetime earnings similar to others who were accepted to Stanford, and not your classmates in the local school who were NOT accepted to Stanford.
In other words, often times, success comes from who you are, and not what you do (or do not do).
That’s interesting. But I suspect a) the sample size was pretty small. Other than extreme circumstances like a sick family members, who gets in to Stanford and decides to go to State U instead?
b) even if you do go to State U, chances are all your equally smart HS friends also got accepted to Stanford (or Yale or Princeton or whatever). And since you are smart , you make sure to keep in touch with those HS friends that are at Stanford. And when it comes time to getting a job, the network is there for you.
That’s the value of a Stanford/Ivy degree after all. Not what you learn there, but who you meet there.
“the sample size was pretty small.”
My understanding is that they did not just look at who was accepted to Ivy’s–where I would assume most go if they can.
“who gets in to Stanford and decides to go to State U instead?”
In 2004, out of about 2,400 acceptances, about 800 Stanford admittances didn’t go…most opted for MIT, Harvard, Princeton, Yale. The rest went to “other” (31%).
Compare this to Pepperdine (a pretty darn good private school), where 4,800 were admitted, and only 1,000 enrolled.
Money matters, and some folks don’t think you should leverage your house to send your kid to college (although schools think you should). To get financial aid, home equity is considered an asset that counts toward your ability to pay for school.
I wish I could find the study…I just remember hearing an interview on the subject.
“That’s the value of a Stanford/Ivy degree after all. Not what you learn there, but who you meet there.”
I guess my experience is much different. Aside from a few well known examples (PayPal mafia, etc.), the “who you meet” doesn’t matter as much as the name on your resume.
Most folks only keep in touch with a few friends from college. With an Ivy on your resume, you can get your foot in lots of doors. HOWEVER, whether you amount to anything depends on what happens to you after you walk through the door.
Without the Ivy name, it’s harder to get through the door, but if you perform, you can rise just like you would with any Ivy on your resume.
After you start a job, the school on your resume is meaningless, because I guarantee you that many people who are in management above you don’t give one sh*t about where you went to school.
I like the Michael Spence’s thought on information asymmetry as it relates to higher education.
Mr Spence’s flagship contribution was a 1973 paper called “Job Market Signalling” that looked at the labour market. Employers may struggle to tell which job candidates are best. Mr Spence showed that top workers might signal their talents to firms by collecting gongs, like college degrees. Crucially, this only works if the signal is credible: if low-productivity workers found it easy to get a degree, then they could masquerade as clever types.
This idea turns conventional wisdom on its head. Education is usually thought to benefit society by making workers more productive. If it is merely a signal of talent, the returns to investment in education flow to the students, who earn a higher wage at the expense of the less able, and perhaps to universities, but not to society at large. One disciple of the idea, Bryan Caplan of George Mason University, is currently penning a book entitled “The Case Against Education”. (Mr Spence himself regrets that others took his theory as a literal description of the world.)
From The Economist “Secrets and Agents”:
https://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information
There’s some signaling, but a lot of people overestimate its importance. Certainly, education must “benefit society by making workers more productive” to certain degree. If every American was completely illiterate and innumerate, we’d have to be a much poorer country.
Completely agree that people overestimate its importance. But information is expensive, and spending enough time and energy in the hiring process to vet job candidates can be tough. This is why some HR managers make shortcuts and go with someone from a reputable institution, because they think they are the “safe” choice.
to certain degree
Yes. To a certain degree.
http://www.econtalk.org/archives/2014/04/bryan_caplan_on.html
Here was the interview.
I haven’t re-listened to it, but the point made was the the bulk of the monetary benefit from college only comes if you actually obtain a degree.
If the monetary benefit was all about what you learn, then you should get approximately 25% of the benefit from each year of college…and even if you argue that the first year is worthless, you should probably assume 75% of the benefit from 3 years (since the senior year has some, ahem, party characteristics).
But that is not what the data show. The data shows significantly less than 25% of the benefit for each non-graduating year, and most of the benefit coming from actually getting your degree.
If your perspective is that an employer SHOULD give more credit to the person who finishes 75% of a degree, you are right.
But they don’t. The degree is what matters for many employers.
My father finished his degree 16 years after he started it…going to work to support our family. He went back to school to take night classes to get his degree when he was no longer able to get a promotion without a degree.
He had 10+ years under his belt with the same company, and so they knew who he was, and what he could do. However, not having that piece of paper stopped his ability to get paid more.
He ultimately got the degree, got the promotion(s), and ended up retiring after putting in 40 years at one company.
Was that barrier rational? No.
Was it reality? Yes.
Unless you want to tilt against all employer’s perspective on degrees, then we should not be putting so much focus on getting folks INTO college. The number show that the worst off of college borrowers are people who finished SOME college, but don’t have a degree.
We need to bring attention to making sure that 1) a 4-year college is the appropriate choice for a person (rather than, say a trade school, etc.) and 2) that if a person starts a 4-year degree, that they have the support to finish it.
Last time I checked, the nationwide college completion rate at a 4-year institution was something like a paltry 50%. Lots of time and money is being wasted at a personal and federal level for such a low completion rate.
The data shows significantly less than 25% of the benefit for each non-graduating year, and most of the benefit coming from actually getting your degree.
Your observation and the personal anecdote from your father is consistent with the signaling hypothesis, which is that a degree is like a “gong” and serve as signaling mechanisms where information asymetries exist. A degree is shorthand for “this person is a good candidate, hire her.”
Personally, I believe someone with 1 or 2 years of college experience likely did get something valuable–maybe even useful–to an employer, but the employer might not have the framework in place to be able to assess this, so it is disregarded. The degree is kind of an all-or-nothing thing. The degree becomes a signaling mechanism for behaviors (e.g. ability of an individual to grind it out to the end). There are plenty of jobs that don’t take a degree but for which employers like a degree. The degree isn’t relevant in many instances for the work being done, but it serves as a proxy for conveying information to employer: this person can persist and has gone through some sort of structured learning framework.
Lots of time and money is being wasted at a personal and federal level for such a low completion rate.
yes, everyone should get a participation trophy, right?
yes, everyone should get a participation trophy, right?
I think the point was that some people shouldn’t be there, not that they should be given a participation trophy.
“I think the point was that some people shouldn’t be there, not that they should be given a participation trophy.”
my answer was a metaphor. yes, some people shouldn’t be there, but most won’t know until they try. and the more people that can earn a degree, the less valuable it is.
There are pretty good predictors of college success. Sending everyone to college, whether they even want to be there is fool-hearty.
I kind of like the approach that this start-up is taking, I hope it works out for the students and employers:
http://money.cnn.com/2017/04/14/pf/college/missionu-tuition-job/index.html
After completing MissionU, a student still doesn’t owe any money until they land a job that pays at least $50,000 a year. Then, students pay 15% of their pre-tax income each month for three years. The bigger their salary, the more they’ll pay. At a minimum, a student will end up paying $22,500 total.
That’s comparable to the average cost of one year at an in-state public college, including tuition and room and board.
“There are millions of individuals in this country for whom a college degree is not worth the cost,” Braun said
There’s plenty of data that show, however, that it’s better than not going at all. College grads make more money over their lifetime than those who don’t, and are much more likely to own a home by age 33.
But Braun says “a bachelor’s degree is not one-size-fits-all.”
“But Braun says “a bachelor’s degree is not one-size-fits-all.”
yeah, especially not in gender studies.
Amen.
BTW, in a world of attempting to cast blame, my comment (blaming lack of ambition on the person, not the booze/weed) is no popular.
Oh, I’m sure plenty of people approve of that sentiment.
In other words, often times, success comes from who you are, and not what you do (or do not do).
This would certainly apply to Ivanka, Donald Jr. and Eric Trump.
“This would certainly apply to Ivanka, Donald Jr. and Eric Trump.”
Still got Trump raging in your skull huh Mighty.
https://www.youtube.com/watch?v=S87612I2eO8
Mike needs to get his rage-ravaged empty skull on the TrumpTrain.
“This would certainly apply to …Trump.”
It applied to Screech most excellently.
No, there’s no indication of any rage in my remarks.
No Trump, there’s no indication Trump of any rage Trump in my remarks Trump!
OK
“No, there’s no indication of any rage in my remarks.”
Presuming your remarks start out in your skull…
“This would certainly apply to Ivanka, Donald Jr. and Eric Trump.”
According to Merriam-Webster Trump is still raging up there.
“Still got Trump raging in your skull huh Mighty.”
Definition of Raging by Merriam-Webster
raging
adjective
1 :causing great pain or distress
https://www.merriam-webster.com/dictionary/raging
Unless, of course…
Definition of Raging by Merriam-Webster
3 :extraordinary, tremendous a raging success
There’s no indication of pain or distress. You need to pay attention to my remarks. You’ll never learn by playing these games.
not what you do (or do not do).
Your own example contradicts this. Modifying your life’s plans to accommodate the needs of an ailing relative falls under the category of “what you do (or do not do)” In ye olden times, they called that “character”. Same thing used to be honored in ancient China.
You seemed to miss my point.
The implication from the article is that alcohol and marijuana CAUSED people to be less ambitious in life.
However, from what I read in the article, they just found a CORRELATION between drinkers/smokers and less ambition.
It could very well be that less ambitious folks decide to drink and smoke more. In my experience, it is very often that who you are leads to what you do, not the opposite.
Now (again in my experience), who you are is much more influenced by your parents, friends and family and their involvement in your life than whether you got drunk or high when you were 12.
The direction of causality is often confused in many instances. One thing we know from the social science research is that children from stable two-parent households with plenty of money do much better than single-parent households. They are exposed to higher level language, they have more cultural experiences, they are less likely to lack a crucial basic need (e.g. shelter, food, clothing, love, acceptance, etc.).
There is so much going on here that it is impossible to teach out and isolate variables. The best we can do as a society is focus on meeting Maslow’s hierarchy of needs for those closest to us, give charitably where we can, and enact policies that help those who most need it.
“The implication from the article is that alcohol and marijuana CAUSED people to be less ambitious in life.”
https://www.youtube.com/watch?v=JTSk5cbaZso
Fast Times at Ridgemont High - Jeff Spicoli
https://www.youtube.com/watch?v=rv8pkRpqXbg
2banana’s article details the human suffering that is a direct result of the money printing. Add to that all the elderly who prudently saved, only to get no interest on those savings. Be proud Bernanke & Yellen, be proud.
It’s made even worse by government programs like Section 8, which is a give to the rentier class.
Bradenton Beach, FL Housing Prices Crater 19% YOY
https://www.movoto.com/bradenton-beach-fl/market-trends/
oil $54 another 10,20,30 and you can sell your oily portfolio stuff
I need $4 ngas
We’re going to need another “China Miracle”. An even bigger one.
Unfortunately, the math is catching up with them.
http://chinastocks.net/2017/11/01/china-real-estate-pain-begins-as-credit-growth-slows/
Every slowdown in credit becomes a crisis. Each time the can is kicked, more credit is needed to restart growth. The system must scale up. The next crisis will be larger. On and on, until the music stops. Or the system is “bailed out” by a massive debasement in the currency.
I used to think the music would stop. But it appears we will accept the destruction of the dollar to avoid that. Because the first requires those with power to bear the brunt the consequences of their actions and the second allows some workarounds for them and socializes the pain. In trying so hard to avoid another great depression we may find that there are worse things than a great depression.
Chinese water torture.
We’re going to need another “China Miracle”. An even bigger one.
If the median family gets another 20 bucks a week in take home pay due to tax cuts, they’ll spend a lot of it on stuff made in China. So Trump will help out the Chinese a bit.
Try $57 and change. Another bubble bubblin’.
And just as or more likely to go to $10.
As long as fools rush in, it can go as high as their fake wealth takes it.
Where did Albuquerquedan say oil would be by now? $80? $100?
Financial Times
Oil
Oil climbs above $64 a barrel after Saudi crackdown
Concerns about stability and policymaking in world’s largest crude exporter
Saudi Arabia is the world’s largest crude exporter © AP
9 hours ago
by David Sheppard and Anjli Raval in London
Oil surged above $64 a barrel to the highest level in two years on Monday after Saudi Arabia’s crackdown on dozens of princes and business tycoons raised concerns about stability and policymaking in the world’s largest crude exporter.
The sharp move in Brent crude, the international benchmark, came shortly after Saudi officials warned that they had found “widespread corruption” among the suspects detained in the weekend sweep and threatened to freeze assets of those being held.
Brent settled for the day at $64.27, a rise of $2.20. This takes its gains since June to more than 40 per cent, a move that is likely to be closely watched by central banks already monitoring rising inflation. US benchmark West Texas Intermediate hit $57.41 a barrel, its highest in two years, before settling the day at $57.35, up $1.71.
…
David Kamin
Professor of Law, New York University School of Law
Nov 5
Is There a Gaping Hole for the Best Off in the House Bill’s Limitation on the Deduction for State and Local Income Taxes?
The House bill’s limitation on the deduction for state and local income taxes has generated plenty of commentary and controversy. However, one key issue has not received attention: Does the House intend to give a huge preference to owners of companies and even passive investors (think law firm partners or Donald Trump) over employees by allowing the owners and investors to write off their state and local income taxes, while employees can’t?
That seems to be the intention based on the description of the legislation offered by the Ways and Means Committee and also the Joint Committee on Taxation. The actual statutory text of the legislation is ambiguous, and so there is a mystery right now at the very center of what is perhaps the most important revenue raiser in the entire legislation. House Republicans need to provide a clear answer to this question, and they shouldn’t do what they seem to be attempting, according to their own descriptions.
…
Here’s what the Ways and Means Committee seems to be attempting: Employees wouldn’t be able to write off their state and local income taxes, while owners and investors would. Take a law firm partner or any other owner of a business (see Donald Trump) drawing a profit share from a company. If the company is a “pass through,” there is no tax directly on the company — only at the individual level on their profits. So, that owner pays state and local income taxes at the individual level and then, under the House plan, the owner apparently might still get to deduct the state and local income taxes. The law firm partner (and Donald Trump) would then be unscathed. By contrast, any employee paying state and local taxes on their wages wouldn’t get a deduction.
https://medium.com/whatever-source-derived/is-there-a-gaping-hole-for-the-best-off-in-the-house-bills-limitation-on-the-deduction-for-state-5e79634153b4
Perhaps you should start a business and change the way the world treats you.
Now, there’s a bizarre and pointless remark.
This is problematic on many levels if preferential treatment is given to pass-throughs. The bigger issue, in my mind, is that capital gains is taxed differently than wage income. I think the right move is to move towards a system where treat all income as one type and tax it accordingly. That solves a lot of these tax loophole shenanigans, especially the carried interest stuff that Trump rightly rallied against during the campaign.
“Treat all income as one type”
Agree. But would that include the estate tax?
Capital=Ordinary
Basis in capital investments increases with inflation
No Estate tax
No automatic step-up in basis
If you are like Bill Gates and you have a basis of effectively $0 in MSFT, then you (and your heirs) are paying 40% forever on any money you obtain from selling MSFT.
If you invest your own money in long-term investments, then you pay much less in tax as a percentage of what you (or your heirs) get when you sell the investment.
Those would be good reforms, probably the right one. Piketty and Saez generally think that capital income should be taxed higher than wage income, and I tend to agree. Today’s tax system is the reverse: capital gains (especially long-term capital gains) are taxed preferentially.
“It appears that the optimal capital income tax rate is higher than the labor income tax rate.”
http://equitablegrowth.org/equitablog/optimal-tax-capital-income/
Independence, MN Housing Prices Crater 11% YOY
https://www.zillow.com/mn/home-values/
*Select price from dropdown menu under first chart
Paradise Papers reveal how Apple moved untaxed cash reserve from Ireland to Jersey
https://www.rte.ie/news/2017/1106/917722-paradise-papers/
A little nugget in this article (besides Apple paying a 0.005% effective tax rate but supporting every far left “tax and spend” politician in America).
U2 Singer “America needs to tax its citizens more to pay for the world’s poor” Bono sure seems to like to shelter his own wealth using real estate and low tax jurisdictions.
2banana’s Rule #2
Conservatives and more than happy to live under the same laws and taxes they want for everyone else.
Liberals/progressives expect to exempted from the to live the same laws and taxes they want for everyone else.
+++++
Paradise Papers reveal how Apple moved untaxed cash reserve from Ireland to Jersey
Monday, 6 Nov 2017
The Paradise Papers reveal how Apple has managed to sidestep a 2013 crackdown on its controversial tax practices in Ireland, with a new tax structure that continues to enable the company to avoid paying billions in taxes.
Up to 2014, Apple had been exploiting a loophole in tax laws both in the US and here known as the “double Irish”, which allowed the company to funnel all its sales outside of the Americas through Irish subsidiaries that were effectively stateless for taxation purposes, and so incurred hardly any tax.
The EU Commission calculated that the move allowed Apple to to pay an effective tax rate of 1% on EU profits in 2003, down to 0.005% in 2014.
Meanwhile, it has emerged that U2 frontman Bono is among a line-up of high-profile celebrities to be named in the Paradise Papers.
It is alleged he used a company based in Malta, a low-tax jurisdiction, to pay for a share in a shopping centre based in Lithuania.
The leaked papers reportedly reveal that Bono, under his real name Paul Hewson, was an investor in the Maltese company Nude Estates, which bought the shopping centre.
A spokesperson for the singer said that Bono was a “passive, minority investor in Nude Estates Malta Ltd, a company that was legally registered in Malta until it was voluntarily wound up in 2015″.
The tax arrangements of Bono and U2 have come under fire in the past.
In 2009, protesters outside the Department of Finance accused him of robbing the world’s poorest people by storing some of his wealth in a tax haven in the Netherlands.
In 2011, a protest was held against the band’s tax status during their set at Glastonbury, with activists inflating a three-metre balloon emblazoned with the message “U Pay Your Tax 2″.
I think I recounted the story before, but a memorable meeting that we had was with a very wealthy individual who railed on the wealthy needing to pay more in tax, but then left the lunch early because they needed to do tax planning (to reduce their bill).
Ms. Clinton would NEVER get rid of the estate tax, or replace it with something simpler, because she uses all the loopholes to the greatest extent possible.
I think it is a travesty that Apple pays such a low effective tax rate (but so do plenty of other US companies, just do a Google search to find them). Also, if Bono shelters his income, that’s no good either. But he’s hardly the first to do so.
I think you should reconsider making blanket generalizations that conservatives do X and liberals do Y. It’s pretty evident that plenty of wealthy conservatives AND liberals use tax policy to their advantage. Rather than making this a partisan issue, better to focus on the substance of what needs to happen to level the playing field. I fear your paradigm of “conservatives and republicans are always good” and “liberals are always bad” will get in the way of critically examining an issue.
better to focus on the substance of what needs to happen to level the playing field.
you mean ‘better to focus on leveling the players on the field’, don’t you?
No, I don’t. Please don’t put words in my mouth.
oh come on. that’s what all the lefties want. you know, ‘equality of outcome’. besides, if you check, i didn’t accuse you of saying it, only wanting it.
When I say “level the playing field” I mean that if the corporate tax rate is 35%, it should be 35% for everyone. If it’s reduced to 20%, it should be 20% for everyone, no exceptions. It shouldn’t be that Apple (or any other large corporation wealthy enough to employ IP transfers and book revenue in low tax jurisdictions) gets to pay near nothing while Joe Plumber’s small business is a sucker and pays the full 35% because it can’t do what Apple or GE can do. Apple can be wildly profitable, more than Joe Plumber’s small business, but it still should pay the same tax rate. That is the equality and level playing field I’m talking about. That is not equality of outcome, so please don’t twist the discussion and make it a referendum on redistributive social justice. You shouldn’t make everything out to be some leftist plot.
“You shouldn’t make everything out to be some leftist plot.”
sorry to have misjudged you. you are a conservative then, right?
I’m not anything. I consider those labels simplistic and I don’t like when people try to simply use an “us” vs. “them” mentality. I try not to let my thinking be pigeon-holed into one mold. I try to look at the data and look at all sides and make a judgement that I feel is best. I am always open to changing my mind, and indeed I have, if I can be convinced that my past thinking was erroneous in some way. I will take a look at any idea out there, be it a conservative ideas, a liberal idea, a libertarian idea, a socialist idea (heaven forbid), or an environmentalist idea.
I will take a look at any idea out there
you’re easier to read than you think you are.
Ms. Clinton would NEVER get rid of the estate tax, or replace it with something simpler, because she uses all the loopholes to the greatest extent possible.
That’s an odd explanation. What benefit does she derive from using the loopholes. Why wouldn’t eliminating the estate tax save her and her heirs a bunch of money on planning fees?
And now no mortgage deduction over $500k!
+++++++
A 58-story skyscraper in San Francisco is tilting and sinking — and residents say their multimillion-dollar condos are ‘nearly worthless’
November 6, 2017 - Yahoo
The lawsuits are piling up at the “leaning tower” of San Francisco. Millennium Tower is a luxury residential high-rise that has sunk 17 inches and tilted 14 inches since it was completed in 2008. Though an inspection by the city showed it’s safe to occupy, the situation has sparked an exodus from the building.
The city’s fourth-tallest skyscraper contains over 400 multimillion-dollar condo units. It soars 645 feet, providing residents with panoramic views of the Bay Area.
Residents say they’re selling multimillion-dollar condos at a loss, with the value of their homes tumbling $320,000 on average. There are at least 20 parties involved in lawsuits related to Millennium Tower, according to a “60 Minutes” segment that aired on Sunday. One disgruntled resident told producers that with so many lawyers involved, it takes the court 30 minutes just to take attendance.
And now no mortgage deduction over $500k!
I’m not holding my breath on this one. The FIRE sector has enough members of congress in its pocket to ensure that it will never happen. And I don’t think that will change on Nov 2018.
It turns out that cryptocurrency and houses have quite a bit in common. In an era of easy money without end, the prices of both Bitcoin and housing are certain to always go up. And it turns out that investors never want to let go of assets whose prices continually rise, so there’s a never-ending short squeeze on Bitcoin and housing. Both asset classes squander vast amounts of energy with relatively little productive value to show for it. And both are in for a hard landing when interest rates eventually normalize.
The Financial Times
Bitcoin
The environmental costs of bitcoin are not worth the candle
To make the cryptocurrency more sustainable, vested interests would have to be confronted
Izabella Kaminska
© Bloomberg
4 hours ago
by Izabella Kaminska
The recent spike in the price of bitcoin to over $7,600 has delighted cryptocurrency speculators and early investors the world over. Many consider the windfalls as vindication of their belief that bitcoin is not just an experimental currency but a viable asset class in its own right.
Adding credence to that view was the decision last week by one of the world’s top derivatives exchanges, CME Group, to launch bitcoin futures in the fourth quarter of 2017.
Yet there is an irony here. The further bitcoin mutates into a price-defying asset class, the less useful it becomes as a medium of exchange and, worse still, the more expensive and energy intensive it becomes to maintain. This is an awkward situation for investors who are supposedly becoming more aware of the implications for environmental, social and corporate governance (ESG) when making allocation decisions.
When I recently asked a room of approximately 50 students how many had heard of bitcoin, almost all raised their hands. Asked how many had bought bitcoin, about a third of them raised their hands. But when I asked how many had used bitcoin actually to buy something, only one raised a hand.
That people would prefer to hang on to their bitcoin than spend it is not surprising given its soaring value. This clingy behaviour is an instance of Gresham’s law, which states that bad money always drives out the good, and that if there are two forms of commodity money in circulation, the more valuable one will disappear as it is hoarded.
But these days there are other reasons to hang on to your bitcoin. The era of costless bitcoin transactions is long gone. For some time, fees have ranged from $3 to $6 per transaction, depending on the network’s available capacity. The situation makes small, day-to-day payments from coffee purchases to bus ticket sales increasingly impractical.
In energy terms, meanwhile, a recent analysis by Motherboard estimated that a single bitcoin transaction requires 215 kilowatt-hours of electricity to process. That is the equivalent of what an average American household consumes in one week.
…
It turns out that cryptocurrency and houses have quite a bit in common.
Are you out of your mind? If I have all my wealth tied up in a house, and the value crashes, at least I can live in it.
If I have all my wealth in a cryptocurrency and the value crashes, you are screwed.
Professor, if you are a follower of the bitcoin mania, I hope you read Matt Levine’s Money Stuff column at Bloomberg. He is my favorite financial commentator, and he’s extremely witty to boot!
He wrote this the other day about Bitcoin’s inherent link to the drug trade:
The other day Dan Davies published this 2014 estimate of bitcoin’s value based on the size of the market for illegal drugs. “The criminal uses of Bitcoin are essential to the value,” he wrote, “whether or not they’re a majority of Bitcoin transactions”: Just as the value of the U.S. dollar is in some theoretical sense underpinned by the fact that you need U.S. dollars to pay U.S. taxes, so the value of bitcoin is underpinned by the fact that you need bitcoins to buy illegal stuff on many of the most convenient platforms for buying that stuff. If there is a reliable bid for bitcoin from the drug dealers and murderers, then it’s a perfectly plausible store of value for everyone else.
To be clear, I think Bitcoin is a terrible investment, and I don’t own any. But you can see why some people would be attracted to it (borderless currency, not subject to whim of central bankers, finite amount of currency, etc.). Yet I agree with Jamie Dimon: this will end badly, for a number of reasons.
I don’t agree that it will end badly; to the contrary, I believe that the globalist bankers will, through force of government, move in at some point to appropriate the currency for their own purposes.
Right now, they are letting it do its beta testing to get all of the bugs worked out.
There are apparently many bright people working long hours on that nonsense. Just imagine if they spent their time on something useful.
I just realized that this whole thing is betting someone can borrow more…
Back in early 2006 many southern California homeowners with interest-only loans had the same epiphany.