This Isn’t Shrewd Investing, It’s Desperate Speculation
A holiday weekend topic starting with Business Insider. “Central bankers are like ‘pyromaniac firefighters’ creating crisis after crisis that they then try to solve, a hedge fund manager and economist has told Business Insider. Daniel Lacalle, a chief economist at Tressis SV and a fund manager at Adriza International Opportunities, told BI in an interview that he blames the 2008 financial crisis on central bankers who don’t understand modern financial markets and are using tools from the 1960s to try and control them. ‘Central Bankers presented themselves as the solution to the problem that they created themselves. I call it the pyromaniac firefighter,’ he said. ‘You create a massive fire and then you present yourself… to stop it.’”
“Lacalle believes that central banks are currently repeating the same mistake that led to the last crisis, creating the next bubble through the ongoing purchase of government debt (now at around $20 trillion). This has pushed up the price of bonds, inflated the value of financial assets, and injected excess money into the economy.”
“‘There is a point where the perception of value from investors starts to crack,’ said Lacalle, ‘The problem of these policies is that we completely obliterate what money is… By making money completely worthless, you basically promote mall-investment and indebtedness. I think central bankers genuinely believe that bubbles created in financial markets are some sort of benign collateral damage,’ Lacalle said, adding that the policies have been a ‘lottery’ for investors but have pushed the rest of the population further into debt.”
From The Daily Mail the UK. “Lee McIntosh loves his flat in Finsbury Park, North London. The one-bedroom property in a council block, which he bought for £233,000 in 2012, was valued at £290,000 two-and-a-half years ago by his mortgage lender, Halifax. Since then, figures from the property website Rightmove show house prices in his area of the capital have risen by more than 15 per cent — in theory adding another £43,500, taking the price to £333,500.”
“So, when Lee’s fixed-term mortgage deal came to an end last month, he thought he’d benefit from the hefty increase in value by qualifying for the bank’s very best fixed-rate deals. But, to his astonishment, Halifax has instead decided that the value of his home has fallen in the past two-and-a-half years. Initially, it claimed the flat is now worth just £278,000 — £12,000 less than the value it gave it two-and-a-half years ago. So Lee, who runs a theatre ticket business, demanded the bank reconsider its decision. Halifax sent out its valuer again, but only bumped up its estimate to £285,000 — still £5,000 below the valuation from the end of 2015.”
“He believes he will now end up paying around £200 more a year. Lee, 36, says: ‘I think it’s an utter disgrace. How can Halifax say my flat is worth so much less than it was in 2016, when house prices have risen?’”
“Experts say Lee is not alone. One of Britain’s biggest mortgage brokers, John Charcol, has seen the number of so-called down valuations — where a lender values a property at less than a buyer believes it is worth — double over the past year. Nick Morrey, product technical manager at the firm, says that staff are dealing with 20 to 30 cases of down valuations each month, with lenders stating that houses are worth up to £100,000 less than their owners believed.”
“‘It is the valuer’s head on the block if the property market dips and the bank is left with lots of loans that are greater than the value of the property,’ says Mr Morrey. ‘When things are as uncertain as they are at present, valuers are going to err on the side of caution.’”
“The surge in down valuations is just one of a growing number of red warning signs flashing over the property market after years of rapid growth, particularly in the South. Houses price growth is trickling downwards nationally, buyers are borrowing record amounts for record lengths of time and estate agents are struggling to shift homes for their asking price. Meanwhile, banks and building societies have started offering 100 per cent mortgages with a twist again in a desperate bid to keep borrowers coming through their doors.”
From ABC News in Australia. “If you’ve ever spoken to a real estate agent, you would know there are only two scenarios when it comes to Australian property. When the market is running hot, you need to get in quick. And when it’s cooling, it’s an opportunity to grab a bargain. Either way, there’s never been a better time to buy.”
“Right now, Australian property is running hot and cold. After nearly six years of either spectacular or frightening gains — depending on whether you own a home — capital city real estate is in reverse, particularly in Melbourne and Sydney. High-end property has been hit hard while less expensive real estate continues to advance. And while the two major capitals are in decline, regional values are not only holding up, they’re stacking on gains. In the three months to the end of April, Sydney, Melbourne, Brisbane and Adelaide all clocked up declines with Hobart the only capital to continue the kind of boom time gains to which we’ve all become accustomed.”
“The reasons? Some analysts argue last year’s crackdown by the banking regulator on investor loans, who mainly use interest-only finance to maximise the benefits of negative gearing, finally is having an impact. But that doesn’t really explain these trends. Tightening investor credit was supposed to take the heat out of the market, particularly at the lower end. Clearly, that’s not happening, at least not yet.”
“There are only two things that keep senior Reserve Bank officials awake at night; China and Australian real estate. RBA boss Philip Lowe has become increasingly vocal about China’s massive debt mountain and the dangers it poses for Australia should it implode. But our housing market is equally as unnerving. Our major banks have a decidedly unhealthy exposure to domestic real estate, with up to 60 per cent of their total loans allocated to Australian mortgages.”
“After being burnt by big business in the 1987 stock market meltdown, they decided en masse that real estate was a safer option and poured trillions of dollars into home loans, which we consumers happily lapped up. The problem is, if Australian real estate declines in any significant way, it will put a serious handbrake on the economy. When the value of your major asset is going backwards, you’re less inclined to spend and less likely to be given credit. That, in turn, weakens the domestic economy which eventually leads to higher unemployment, mortgage defaults and, potentially, a banking crisis.”
“It’s not just the banks who have a vested interest in keeping the property bubble bouncing along. Every layer of government has become addicted to the great Australian dream, which in the past 40 years has transformed from owning your own patch of dirt to making a motza from property. The Federal Government needs rising property prices to maintain a stable economy while state and local governments feed off the enormous fees and taxes it generates.”
“Since the latest boom began in late 2012, a boom deliberately orchestrated by the Reserve Bank to absorb construction workers leaving the mining industry as the resource investment boom wound down, state and local governments have seen property revenues rise by 65 per cent. So the next time you hear a politician talk about the need for affordable housing, don’t believe a word of it. None of them offer any serious solutions primarily because they know there are only two options, neither of which are palatable.”
“Either property prices need to collapse, which would only occur as part of an apocalyptic economic event, or wages need to take off which no major party is likely to endorse. Everything else is just window dressing. When it comes to property prices, population growth has been every federal government’s secret weapon.”
“For years, we’ve been told our skyrocketing housing costs has been a supply problem. Instead, there has been a deliberate effort to keep piling on the demand, just to maintain the illusion of economic growth and to keep the real estate sales clicking over.”
From The Globe and Mail in Canada. “When things go wrong in the housing market, people get angry. So expect to hear a lot of irate commentary on whose fault it is if house prices keep falling in Toronto and other places where people have been making lots of money off the housing boom. The narrative is already taking shape: The introduction of mortgage stress tests for home buyers by the federal government’s banking regulator has ruined the housing market and, in particular, hurt first-time buyers.”
“Allow someone who doesn’t make a living off the sale or financing of real estate to set you straight on all of this. What’s happening in housing is actually healthy. Slowing the market down now lessens the risk of a plunge that would traumatize this country worse than any stock-market crash ever.”
“The stress tests ensure you can afford a mortgage if rates climb well above current levels. In some cities, people are finding that the house they want to buy wouldn’t be affordable if they had to pay a higher mortgage rate. The housing-industrial complex says this is bad – a cruel denial of every Canadian’s right to live the dream of home ownership. Buyers knocked out of the market by the stress test are being saved, not persecuted.”
“In the real estate sector’s blame game, the economy is another victim of the misguided attempt to address soaring home prices. Housing is a pillar of the economy, the argument goes. Constraining it hurts us all if the result is an economic slowdown.”
“Given how far house prices have risen in some cities, a pullback of some sort is pretty much inevitable at some point. We have zero chance of avoiding a situation where the housing sector acts as a drag on the broader economy. Should we still be angry at the mortgage stress tests for triggering a housing slowdown in some cities? Couldn’t we have waited and let things unfold without intervention?”
“No way. There’s a housing mania in this country that has to be stopped before it collapses the entire market. Recent example: A report by CIBC World Markets and Urbanation Inc. found that investors accounted for at least 48 per cent of all buyers who took possession of newly built condos in the Greater Toronto Area last year. At least 44 per cent of those investors with a mortgage are currently in a negative cash flow position, which means rents charged to tenants don’t cover their mortgage payments and condo maintenance fees.”
“This isn’t shrewd investing. It’s desperate speculation that distorts the housing market and adds to the danger of an outright crash in housing that is worse than anything caused by the mortgage stress test. In Toronto and surrounding cities, the mortgage stress tests are doing the important work of protecting lenders and borrowers in overheated markets at a time of rising interest rates. Given how emotionally and financially overinvested we are in housing, it’s natural that some people are angry about this.”
‘I think central bankers genuinely believe that bubbles created in financial markets are some sort of benign collateral damage’
The article says this guy has worked for three central bank chiefs, and this statement is important. It means all the talk we hear about “monitoring markets” is just a cover so they can continue to do what they want. Remember the direct Federal Reserve quotes about a “floor” in housing prices? What happened when the floor turned into a trampoline?
‘US Fed must put floor under home prices’
By By Garry Shilson-Josling
26 February 2008
‘Housing prices in the US must not be permitted to continue falling, says the chief investment officer of a fund with $US750 billion of fixed-income assets under management. The outlooks for Australia and the US are at two different extremes, said Bill Gross, chief investment officer for US fixed interest funds management giant PIMCO.’
‘The US economy was financial asset-based while the Australian economy was driven by commodity exports, he told funds management professionals in Sydney through an international video hook-up.’
“And so Australia is doing well, the US is not, really because of the nature of the economies themselves” he said. He said the US economy has had “a long wonderful secular run”.
“Ever since 1981 lower interest rates and in effect accelerating asset prices, whether they’re stocks, bonds or real estate/housing, have led to the continued success of consumption, and indeed over-consumption, in this finance-based economy.”
‘But this has come unravelled. He said the current situation had not been seen since at least the 1980s and probably since the 1930s. “For the first time in decades the totality of US finance-based assets - stocks, bonds, real estate - are going down in price, are deflating,” he said.’
“It means simply that this finance asset-based economy, which is so dependent on rising asset prices is now beginning to experience a lengthy period of time, over two years in fact, when these asset prices are declining.”
‘He said the US Federal Reserve had tried to reverse the outgoing tide by reducing interest rates but without success. “It’s not working,” Mr Gross said, He said bank loan and other market rates are much higher than they were before the Fed starting cutting official interest rates last year. “The totality of private credit is higher in yield, lower in price since the Fed began to cut interest rates.”
‘It was “paramount” for the Federal Reserve through fiscal policy measures “to in effect put a floor under housing prices in order to stop the deterioration in this asset-based economy”, he said. He said it was a “very dangerous situation at the moment”.
‘He said home prices in the US were declining at an annual rate of seven to nine per cent. “This is something that truly cannot be permitted to continue if in fact the US economy is to stay above the line as opposed to below the line,” he said.’
‘He said it was a “very dangerous situation at the moment”
That’s really all it takes to justify creating trillions to put us right back in the same position, or worse.
‘He said it was a “very dangerous situation at the moment”
That’s really all it takes
If it’s dangerous to the wrong people, yes.
“As of right now U.S. economic growth is zero. We are at stall speed.” —Alan Greenspan, 2008-FEB-25
‘The only things that could conceivably be done within the system to stabilize the economy, Sweezy stated at Harvard in 1994, would be greatly to expand civilian state spending in ways that genuinely benefited the population; and to carry out a truly radical redistribution of income and wealth of the kind “that Joseph Kennedy, the founder of the Kennedy dynasty” referred to “in the middle of the Great Depression, when things looked bleakest”—indicating “that he would gladly give up half his fortune if he could be sure the other half would be safe.” Neither of these radical proposals of course is on the agenda at present, and the nature of capitalism is such that if a crisis ever led to their adoption, every attempt would be made by the vested interests to repeal such measures the moment the crisis had passed.’
‘The hard truth of the matter is that the regime of monopoly-finance capital is designed to benefit a tiny group of oligopolists who dominate both production and finance. A relatively small number of individuals and corporations control huge pools of capital and find no other way to continue to make money on the required scale than through a heavy reliance on finance and speculation. This is a deep-seated contradiction intrinsic to the development of capitalism itself. If the goal is to advance the needs of humanity as a whole, the world will sooner or later have to embrace an alternative system. There is no other way.’
Yeah, I can’t see that it matters how much confiscatin’ the government does when they can conjure up trillions without saying boo. Isn’t that a stealth redistribution? Money isn’t wealth, it’s a claim on wealth.
But the cycle of bubbles can be viewed as a recurring reaction to stagnation of the “neoliberal” economic status quo. Who really defends it any more? Shriek?
Long ago I posted and editorial from antiwar.com where the long history of the “new world order” was plainly laid out. It began in what was to become the CIA after WW2. They drafted Greenspan and Volcker to draw up how it would work and it was built around the idea of permanent US dominance. Hence NATO, etc. Ever wonder why the US happily pays to protect rich countries like Germany, Japan and South Korea? It’s part of the deal put together back then. And the plan all along was for common markets, European unions, NAFTA/WTO type arrangements. All we got was a few thousand Chinese with lots of colored bills in their wallets and decades of stagnation in the US and elsewhere. If these socialist want an new alternative, ditch the globalism.
‘The hard truth of the matter is that the regime of monopoly-finance capital is designed to benefit a tiny group of oligopolists who dominate both production and finance. A relatively small number of individuals and corporations control huge pools of capital and find no other way to continue to make money on the required scale than through a heavy reliance on finance and speculation. This is a deep-seated contradiction intrinsic to the development of capitalism itself. If the goal is to advance the needs of humanity as a whole, the world will sooner or later have to embrace an alternative system. There is no other way.’
There is perhaps no paragraph which better sums up the situation, and the position we find ourselves in, than this. The system itself, the entire model, is a complete and total failure.
Making rich people poor doesn’t make poor people rich.
I think it may even be a step beyond that. The central banks want to create asset bubbles because if soon-to-be-retirees have a lot of wealth in assets, that takes the pressure off the public pension systems so they can weather the imminent demographic storm without reforming. Just a theory.
There’s more mines out there than Vietnam in the 60’s.
‘behind the scenes, the $200 million center’s own survival was less than certain. Insurers were hesitating to cover procedures at the Baltimore facility, affiliated with the University of Maryland Medical Center. The private investors who developed the machine had badly overestimated the number of patients it could attract. Bankers would soon be owed repayment of a $170 million loan. Only two years after it opened, the center is enduring a painful restructuring with investors poised for huge losses.’
http://thehousingbubbleblog.com/?p=10445
The central banks may want these investors made whole, and good luck with that. The Australian article above points to one sticky issue with asset prices. If the price is high, they build more. If it goes on long enough, you get way too much.
In 2013, Larry Summers said bubbles may be necessary for full employment. Krugman heartily agreed. This article by Krugman laid out the PTB’s thinking at the time. The one thing obviously different is they’ve backed off the need for negative interest rates, as the current Fed head (Powell) is actually pushing up interest rates; and there’s been less talk of a cashless society, as that is only workable as long as the power stays on (see Puerto Rico) and the software doesn’t crash or is hacked.
What they avoid is the concept of using monetary policy to redistribute purchasing power as they see fit. They’ve had 10 years of it, and I’m sure the attitude is, ‘with just a little more tinkering, we’ll get it right’.
Prosperity is hard. You need people to be inventing things that improve the standard of living, and then find ways to distribute purchasing power in some semi-equitable way so that those people can choose to purchase those things.
Manipulating the money supply after poring over some graphs of data which pull out one thread at one point in time, is much easier.
NOTE: I haven’t quoted the whole article here, just snippets.
1. When prudence is folly
Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.
And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.
Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future…. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.
OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process. [ed. note: the communists tried divvying up purchasing power as they saw fit, rather than through an equitable means, and we saw what that kind of system brought them]
2. An economy that needs bubbles?
So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.
3. Secular stagnation?
4. Destructive virtue
Yet this crisis isn’t over – and as Larry says, “Most of what would be done under the aegis of preventing a future crisis would be counterproductive.”
He goes on to say that the officially respectable policy agenda involves “doing less with monetary policy than was done before and doing less with fiscal policy than was done before,” even though the economy remains deeply depressed. And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.
Oh, and one last point. If we’re going to have persistently negative real interest rates along with at least somewhat positive overall economic growth, the panic over public debt looks even more foolish than people like me have been saying: servicing the debt in the sense of stabilizing the ratio of debt to GDP has no cost, in fact negative cost.
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right.
https://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/
From the article: And he says, a bit fuzzily but bravely all the same, that even improved financial regulation is not necessarily a good thing – that it may discourage irresponsible lending and borrowing at a time when more spending of any kind is good for the economy.
But the problem here is that it “builds up future trouble” to quote Krugman. And while Keynes said, “In the long run we are all dead”, the future still gets here while we, and our children, are very much still alive.
This is economic crackhead logic - it’s going to make me feel good now, and I’m suffering now, and anyway in the long run everyone’s dead.
The problem is: the future gets here a lot sooner than everyone thinks.
‘In 2009, Lew Rockwell posted this quote of Paul Krugman’s from a 2002 New York Times editorial: “To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
‘The quote caught on in the blogosphere, to such an extent that Krugman actually responded in his New York Times blog: “Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.”
https://mises.org/library/krugmans-call-housing-bubble
And then Bernanke reflated it.
‘Will no one rid me of this turbulent priest?’
https://en.wikipedia.org/wiki/Will_no_one_rid_me_of_this_turbulent_priest%3F
They put so many layers between what they’re doing (”redistributing purchasing power”) and how they’re describing what they’re doing (”pushing down interest rates”, “injecting stimulus”, “quantitative easing”), they might even be fooling themselves that they’re advocating a high degree of central planning.
“A rose by any other name would smell as sweet.”
The rejoinder is that yeah but look at WWII - government spending brought us out of that an into an era of sound and stable economic growth. They ignore the growth of technology (which is the big one IMO), the GI Bill and the US position after WWII relative to the rest of the world.
They also point to Japan as a success story for the monetary-policy redistributionist model. Heavily redistributionist policies do seem to work for the Japanese. But it sure didn’t work for the Soviets.
The WWII thing is interesting:
• When government is faced with an existential threat, it will deploy public resources in a socially beneficial way which has long term benefits. Such things like R&D spending.
• When government is NOT facing an existential threat, government spending quickly devolves into waste and cronyism.
So even government spending must be disaggregated, based on the context in which it is done.
I think all the developed countries have a Japan in their future. In terms of improved standard of living, Japan has invented/ customized everything. As I learn and understand more of how Japan works, I can make this observation: Salary of the average Japanese worker is not rising, even though food and other essentials are slowly rising. People are economizing just to make ends meet. Hence demand for new products us just not there.
Also in the article, there was this: “So with all that household borrowing, you might have expected the period 1985-2007 to be one of strong inflationary pressure, high interest rates, or both. In fact, you see neither – this was the era of the Great Moderation, a time of low inflation and generally low interest rates. ”
High debt and high inflation? Isn’t debt deflationary, on account of people having to restrict their spending to pay it back?
Ray Dalio talked of the “Debt Supercycle” in which household debt had been increasing since post WWII (see also NY Fed report). And then his thesis of the “Beautiful Deleveraging”, which didn’t really happen like that (financial institutions were still able to realize profits on bad debt by the socializing the losses, i.e. having the government and central bank buy it off them at face value).
Then Summers last year reconfirmed his “secular stagnation” theory.
They never talk about the elephant in the room - debt.
And they never disaggregate the type of debt - debt used by a business to build out, versus debt used to buy a car or go on vacation.
I think their ultimate model is that the US government take on all responsibility for debt, and intermittently forgive debtors their debt, while monitoring inflation. But that would encourage an entirely new set of behaviors which would lead to longer term (!) socially destructive behavior.
It would put another layer between redistribution and how it’s described.
“A rose by any other name would smell as sweet.”
Now here’s something interesting: “The Great American Debt Boom 1949 - 2013″, posted on the St. Louis Fed site, by, I assume St. Louis Fed economists.
On page 6, there are two charts:
1) Income 1949 - 2013
2) Household debt 1949 - 2013
• The income index rose from 60, in 1950, to 130 in 2010. About a 100% increase.
• The debt index rose from 30, in 1950, to 240 in 2010. A 800% increase.
Here’s a crazy thought: Maybe it’s debt that’s the major drag on the economy.
And another thought - that income index is aggregated, and so is the debt. Imagine disaggregating it between the top 10% and the bottom 90%. I’ll bet it’s even more stark.
Very interesting. As you pointed out above, on the aggregate I think what matters is where this debt is going and how it is being used. If it is being used purely as consumption, then that would be bad. But if it is investment, then that could be good.
Also, I think of the concept of hormesis in medicine in that there is a therapeutic dose that is beneficial. Any where outside of that (too high = toxic, too low= non-therapeutic). Same goes with debt. At some level, debt is probably okay (again, depends on what it is used for). As someone has more assets and earning power, their capacity for debt increases. So a rise in debt can be synonymous with enhanced financial position.
Another thing to think about is that we had a mass shift in women entering the workforce, so the capacity for debt did increase. I’m not saying that these figures are justified, just showing some areas where it might not be as bad as it seems.
It is worse than it seems.
The investments were largely stupid.
I really enjoyed this piece on the economics of negative interest rates as they apply to a commodity-backed money system. It does a good job of explaining how negative interest rates can arise in a natural environment (e.g. without a central bank) when the supply and demand for money swings too far in the direction of savers.
Why sub-zero interest rates are neither unfair nor unnatural
The Economist
February 3rd, 2018
https://www.economist.com/finance-and-economics/2018/02/03/why-sub-zero-interest-rates-are-neither-unfair-nor-unnatural
Hmmm. To me it seems like a stretch to equate negative interest on a debt based medium of exchange with with depreciation of an actual commodity that might get traded as money.
There are too many people living off of some poor bastard servicing a debt load that can never be repaid, and they’re worried what will happen when the debt slave collapses.
Likely true. I wish there was a national statistic that was collected that was something along the lines of “percentage of income spent paying interest on debt”. If this were collected for various income groups over time it would be very instructive to see just how much of someone else’s wealth and income is related to rent-seeking and usury.
‘I think it’s an utter disgrace. How can Halifax say my flat is worth so much less than it was in 2016, when house prices have risen?’
Somebody is a lion Lee.
‘expect to hear a lot of irate commentary on whose fault it is if house prices keep falling in Toronto and other places where people have been making lots of money off the housing boom. The narrative is already taking shape’
The media almost never mentions the REIC. These people have a ton of money and power.
‘Allow someone who doesn’t make a living off the sale or financing of real estate to set you straight on all of this. What’s happening in housing is actually healthy. Slowing the market down now lessens the risk of a plunge that would traumatize this country’
Allow a blogger in Arizona to set you straight: you guys are fooked because you waited waaaay to long too take action.
now lessens the risk of a plunge…
Don’t look down. You might be well past the “risk of a plunge”.
Is this Freudian or just a typo:
By making money completely worthless, you basically promote mall-investment and indebtedness.
Mall-Investment for mal-investment?
Send me all your worthless dollars.
Everyone else is desperate and will do anything to get their hands on them.
It is a process, the Weimar mark was not worthless the first day inflation started. The key is to buy an item today at one price and then pay for it thirty years later with the devalued currency. Wait I think that is called a mortgage. So is that why people do it?
“The key is to buy an item today at one price and then pay for it thirty years later with the devalued currency.”
Me too, you also pay me over those thirty years. You work, I reap.You work hard at a job to obtain money and then you agree to ship some of this money to me each and every month for thirty years.
“Wait I think that is called a mortgage. So is that why people do it?”
People do it because they have been conditioned to do it.
A nation of sheep.
The point is a sound gold backed and convertible currency would end housing speculation in its tracks. It would also end art speculation etc.
Ah. I see. And thank god the FED is there at all times to keep it fair and balanced for both sides of the financial arrangement. Not all heroes wear capes.
The FED is not there to keep the system fair, it is there to keep it working.
“The point is a sound gold backed and convertible currency would end housing speculation in its tracks.”
And just why would anyone want to end housing speculation in its tracks? The end result of housing speculation is rising prices for houses. These rising prices translate to rising equity for houses which in turn is seen as an increase in wealth.
The actions of a few buyers - speculators if you will - creates massive amounts of wealth for the many neighbors that just happen to live in the vicinity. So why should anyone want to end this?
‘why would anyone want to end housing speculation in its tracks?’
Fatigue. Even now, bay aryan newspapers have turned from “shacks skyrocket, yah!” to “can we please get some shipping containers in here and lower shack prices?”
Look at Seattle. No longer swooning over runaway shack prices, they are turning on Amazon and dedicating monies for said shipping containers.
That article someone posted the other day showing huge QE in 2016 was interesting cuz in it they mentioned to expect more QE when the SHTF. But I don’t think the outcome is certain. Does the PTB really want more Brexits? More Trumps?
The other day a couple of nominees to the Fed (held up by the resistance dontchaknow) were discussing getting out of the mortgage back security market 100%. Like right now. They said we shouldn’t be “allocating capital.”
And just why would anyone want to end housing speculation in its tracks?
It goes back to the malinvestment discussed in the beginning of this thread. Prior to the creation of the Federal Reserve in 1913, everyone knew that housing was a consumptive item. You invested in productive items and when you had made enough money, you could afford to buy a home. You did not speculate in housing. The Federal Reserve encouraged mortgages, then the government during the depression did away with gold convertibility and then in the 1970s the link between currency and gold was severed. Systematically speculation over investment has been encouraged the frog is being boiled and wealth and power is being concentrated.
The key is to buy an item today at one price and then pay for it thirty years later with the devalued currency. Wait I think that is called a mortgage. So is that why people do it?
At a certain level of inflation, mortgages at even today’s high multiples would make sense. The only caveat is that we’ve had housing inflation and price inflation and the wage inflation is absent, so the real value of the mortgage debt would not get eroded. Only broad based inflation would really make buying at today’s prices in most geographic areas a smart move. And only if you had a crystal ball. But of course, the lenders would get screwed by this as the real value of their loans would decline precipitously, which is why I don’t think it would happen.
“allocating capital”
Aka transferring wealth where the Fed central planners decide it should flow.
Dan -
“Systematically speculation over investment has been encouraged the frog is being boiled and wealth and power is being concentrated.”
It’s worse than that, Dan. “Wealth” and “power” are being concentrated in non-productive assets, which includes housing.
Housing isn’t a productive asset.
Those who have access are making the money, not those who are being productive.
Mr Banker and the other speculators on this board believe this to be a good thing, something to be encouraged.
Mr Banker and the other speculators on this board believe this to be a good thing, something to be encouraged.
Mr. Banker’s comments are satire and are chocked full of irony.
I suspect that’s exactly what Mr Banker wants you to think, OAM.
I used to think that as well. My opinion has changed.
Mr Banker is a parody, a point lost on some.
What inflation?
Turkey. Currency collapse still happens and sometimes really fast. And Turkey has a ginormous real estate bubble.
“What inflation?”
There’s massive inflation everywhere you look - asset prices, commodities, rents, groceries, etc., but as Ben has highlighted in the long game it ends in deflation, because there’s tremendous overcapacity due to the easy money which runs into production.
“because there’s tremendous overcapacity due to the easy money which runs into production.”
Which is exactly why there are 25 million excess empty and defaulted housing units out there.
Big Sur, CA Housing Prices Crater 5% YOY As Coastal Property Market Values Dive
https://www.movoto.com/big-sur-ca/market-trends/
This is a Socialist soapbox, was written in early 2008 and is “spot on” IMHO.
“The Financialization of Capital and the Crisis”
https://monthlyreview.org/2008/04/01/the-financialization-of-capital-and-the-crisis/
This is actually worth your time to read despite its length. There’s lots of good stuff here all packed into one article.
ph which better sums up the situation, and the position we find ourselves in, than this. The system itself, the entire model, is a complete and total failure.
Yes, very good article. If the current capitalist economy is only working for an elite few, while everyone else is becoming poorer and more in debt, then it isn’t working. There are lots of political remedies that could be put into place that would bolster the working and productive class and limit the financialization and rent-seeking class.
“If the current capitalist economy is only working for an elite few, while everyone else is becoming poorer and more in debt, then it isn’t working.”
It’s beginning to seem like Karl Marx may have nailed it.
He nailed the problem. It’s too bad his solution ends in so much death and misery.
There are some very important insights and aspects that he got right. His prescriptions and understanding of human nature have been off. The welfare state, unions, and progressive taxation was an attempt to blunt the effects of massive wealth inequality and some of the harsher elements of capitalism. Most of those checks have been eroded, especially with global trade and automation.
The globalists are quick to send U.S. troops to the Middle East in the name of democracy, but when democracy endangers globalism whether it is in Great Britain or Italy, democracy should be ignored:
http://www.breitbart.com/london/2018/05/27/sabotage-italian-president-blocks-eurosceptic-coalition-govt-populist-leader-impeachment/
And just (((who))) benefits from thousands of US dying and wounded there? The same (((banksters and their cronies))) discussed above that schemed to destroy nations, their currencies and their cultures. When you see the same names pop up 90% of the time as being the perpetrators, you have to make some sort of correlation unless you’ve been cowed to deny the reality spitting in your face. Hell, we have to dance around it otherwise they’ll try and get this website shut down just like so many others. Free speech is like sunlight to these vampires.
“‘Central Bankers presented themselves as the solution to the problem that they created themselves. I call it the pyromaniac firefighter,’ he said. ‘You create a massive fire and then you present yourself… to stop it.’”
After that come the self-congratulations, followed by lucrative speaking engagements.
This would not work on an enlightened population but it will work quite well when inflicted upon a population that has been sufficiently dumbed-down.
“enlightened population” …
Iffin’ folks of the world only needed a working bicycle & clean water to live a enlightened life, a $olution is quite po$$ible … That 7 Billion Human$ need per$onal $helter that alway$ add$ per$onal wealth increa$es, that’s where thing$ get into “here’$ the ea$y answer$” to everyone’s problem$.
has been sufficiently dumbed-down…
Rather, it is a moral corruption, to offer to pay on some Tuesday future for gratification today.
Arrogance that knows no bounds, thy name is Central Banker
“If you’ve ever spoken to a real estate agent, you would know there are only two scenarios when it comes to Australian property. When the market is running hot, you need to get in quick. And when it’s cooling, it’s an opportunity to grab a bargain. Either way, there’s never been a better time to buy.”
The Australians are really funny about this. Repeatedly they will run articles that go like this: “Sydney is getting it’s ass kicked. So where is the next bonanza?” Canadians are doing this right now. “Toronto, put your head between your knees and brace for a …wait Ontario! It’s the next big thing!”
Toronto, put your head between your knees and kiss your butt goodbye.
I received the below from one of Florida’s US Senators:
“Dear Friends,
Over 1.3 million Americans have died in combat since the founding of our country, each one with their own unique story, and each with their own list of accolades and achievements.
The brave men and women who voluntarily put their lives on the line to protect us all are true American heroes - in every sense of the word. And today is the day that we honor them.
Memorial Day is a day that we pause to pay tribute to those who made the ultimate sacrifice while serving our nation. So I hope you’ll join me by taking a moment today to remember these selfless warriors - and thank them for their service.
I hope you’ll also take a moment to honor those who are currently serving around the world, and their families that support them.
The men and women who serve in our nation’s armed forces make tremendous sacrifices every day so the rest of us can continue to enjoy the freedoms we often take for granted. We owe all them - and their families - a tremendous debt of gratitude.
To all my fellow veterans who are no longer with us, we salute you. You are missed, but never forgotten.”
How does someone dispense this swill with a straight face? Even more to the point, why are so many currently “serving around the world”?
“Even more to the point, why are so many currently ’serving around the world’?”
“War is the continuation of politics by other means.” - Clausewitz
Even more to the point, why are so many currently “serving around the world”?
Religion.
And nationalism.
Religion and nationalism = tools.
“They’re saps because they risk their lives for strangers.”
https://youtu.be/435mkg6_eGQ
‘The rise of Trump, the vote by Britain to leave the European Union and the spread of opposition to globalization have worried central bankers and many mainstream economists who feel that the problems associated with globalization have overshadowed the benefits and morphed into broad opposition to it.’
‘In a panel on trade, there was more direct skepticism of Trump’s approach, even as economists and central bankers here agreed they had ignored for too long how difficult the adjustment would be for workers.’
“We have lost the rhetoric on trade in terms of explaining to those who benefit why they do, such as cheaper products, while all of the focus has been on those who have lost,” said Gita Gopinath, professor of international studies and economics at Harvard University and financial advisor to the chief minister of the Indian state of Kerala.’
‘It was a day when the president’s calls for financial deregulation and “America First” economic nationalism were countered by Yellen’s reminder of how a deep financial crisis wrecked the economy a decade ago, and economic research arguing that China and Mexico are less to blame for job losses than forces like technology.’
“For some, memories of this experience may be fading - memories of just how costly the financial crisis was and of why certain steps were taken,” Yellen said in arguing for only modest changes to existing regulations.’
Reportibly the happiest day in Winston Churchill’s life was December 7, 1941.
‘the president’s calls for financial deregulation and “America First” economic nationalism were countered by Yellen’s reminder of how a deep financial crisis wrecked the economy a decade ago’
‘Central Bankers presented themselves as the solution to the problem that they created themselves. I call it the pyromaniac firefighter,’ he said. ‘You create a massive fire and then you present yourself… to stop it.’
presented themselves as the solution to the problem that they created themselves. I call it the pyromaniac firefighter,’ he said. ‘You create a massive fire and then you present yourself… to stop it.’
https://i.pinimg.com/originals/2c/69/80/2c69806360700aeafae3080323821460.jpg
Mr. Banker (if you even are one)
I do not like your disrespect for veterans.
Money for a bank costs them money too. Your reconning time is here.
The only reason why you have a chance of survival is because of all those persons who protected your inalienable rights.
Got to you, didn’t I.
Ahhhh, the power; Type a few words onto my keyboard and a total stranger gets pissed. Maybe several total strangers get pissed, who knows?
More to come. Stay tuned.
😁
The Parable of the Broken Window
That Which is Seen, and That Which is Not Seen
Frédéric Bastiat
…
Communists believe in neither religion nor nationalism, yet since the ideology started in the latter part of the 19th century communists have killed more people than religion or nationalism have killed through out human history. Mao killed more people than Hitler and he killed most of them outside of war.
China (gina) Making steel in your back yard killed millions
Yeah, 3 main causes to lump war into: 1) Extreme nationalism (WW1 & WW2) 2) Political ideology (communism) and 3) Religion
https://en.wikipedia.org/wiki/List_of_wars_and_anthropogenic_disasters_by_death_toll#Wars_and_armed_conflicts_whose_highest_estimated_casualties_are_1,000,000_or_more
“Why are so many serving around the world?”
To protect “American interests.” Notice how politicians slip that in whenever they talk about US forces in foreign countries. Not values or people, interests. My guess is that these American interests are multinational facilities in China or Vietnam where all the Wal-Mart merchandise is made. And IT shops in India.
who voluntarily put their lives on the line ??
Yeah, well tell your fooking Senator to tell that to my dead brother who was drafted out of High School.
I’d be delighted to. On this point we can agree wholeheartedly.
God Bless President Trump. And God bless America.
Your a POS
Get your rage-ravaged skull on the Trump Train.
“Your a POS”
For what blessing Trump, blessing America or bringing God into it?
Davey is a really really good guy (he says). Because of this he hates and harms anyone in his way. It’s ironic. Realtors are ironic.
God bless America and God bless those who protect the weak, and Davey. God bless our President.
“God bless” isn’t a certificate of merit. It is a prayer to set a thing or person aside for a special purpose (of God). As if you would need to encourage God to do what he is going to do.
“Realtors are ironic.”
…. And liars too.
Getting drafted in High School was unheard of. The draft didn’t apply to anyone under the age of 19.
It’s best to dismiss the chaotic braying of DebtDonkeys.
I listened to this article on my Memorial Day run this morning. I actually had to listen to it twice to grasp the thesis that this guy is putting forth regarding the housing bubble (past and present).
A lot of it jives with what posters on this forum say regarding equity locusts, loose credit, foreign/speculative demand outstripping organic demand, etc. What is refreshing is to hear the writer talk about how the lowering of prices we are seeing in New York, London, Australia, and Canada should be cheered.
The part of the article is counter-intuitive is his explanation of why the housing bubble happened in the first place. I have never thought of it this way, but it does make a lot of sense. I would be curious to see what others think.
Seeking Alpha
Housing: Part 300 - The Global Bubble Hypnosis Is A Larger Problem Than NIMBYs
Kevin A. Erdmann
May 27, 2018
“There is a broadening realization that the lack of access to urban labor markets and the lack of access to affordable urban housing are the prime challenge of early 21st century economics. The problem is, solving that problem requires economic dislocation and upheaval of urban housing markets. If you see falling real estate prices in urban centers should your reaction be to worry about “clouds hovering” over urban real estate markets? I say, celebrate.”
“If our primary economic problem is that a lack of housing in urban centers causes it to be overpriced by a factor of 2 or more, then the DIRECT solution to that problem is that urban real estate needs to lose 50% or more of its value. This article begins by noting that the median price per square foot in New York City has declined by 18% from last year. Your reaction to that should be, “That’s a great start!” Full stop. If that’s not your reaction, then what are you doing? What’s your purpose?”
“Reasons given in the article for this drop in New York prices include: (1) Removal of tax benefits, (2) “glut” of luxury supply, (3) globalization, (4) “financialization”, (5) “ultra-loose” money. Your reaction to that should be, “Oh. OK. Those must all be good things. Let’s do more of those things.” Full stop. If that’s not your reaction, then what are you doing? What’s your purpose?”
One area where I think this writer misses the mark is that he omits the demand side of the equation by glossing over the high number of unoccupied urban dwellings that are mere investments and places to park money by foreigners and domestic speculators. Canada seems to be grasping that. I wish that in the US could ensure that every property is tied back to a social security number. Those that cannot be tied back to one (because they are sheltered in LLCs and/or are owned by speculators) would be assessed a speculator surtax. The idea would be to increase the carrying cost and force speculators out of the market and incentivize the builders to build for domestic residents, the actual consumers of housing, rather than specuvestors.
But other than that, this is how the author views it:
1) The housing bubble, such that it was, was caused by an extreme shortage of urban supply.
2) Because of that shortage of supply, the process of meeting the public need for housing requires a “bubble” and the availability of credit that is flexible enough to allow for ownership where rents regularly take 50% or more of a household’s budget.
3) Since supply in those cities barely responds to price, prices in those cities have to be bid up to high enough levels to induce outmigration so that new housing can be built in the rest of the country where supply can react to high prices and high demand. (e.g. equity locusts).
4) At the peak of the US housing “bubble”, credit markets were just beginning to push market prices to a level that induced that new supply.
“I wish that in the US could ensure that every property is tied back to a social security number. Those that cannot be tied back to one (because they are sheltered in LLCs and/or are owned by speculators) would be assessed a speculator surtax. The idea would be to increase the carrying cost and force speculators out of the market and incentivize the builders to build for domestic residents, the actual consumers of housing, rather than specuvestors.”
I very much agree with you on this; I imagine many on this board would also agree. Speculators, including hedge funds and individuals, need to shoulder a much greater share of both the cost and the risk of speculation.
That they have carte blanche to behave as they do doesn’t make their behavior ethical, nor does it make it beneficial to society.
I might feel somewhat differently if housing were a productive asset, but it isn’t.
I better not hear a housing speculator pretend otherwise, especially speculators who are not in favor of corporate bailouts. Housing is not a capitalist enterprise these days, and don’t pretend that it is.
To speculate in the necessities of life is evil.
That said, it wouldn’t happen so much if the government wasn’t shoving cheap fiat up speculators asses to stimulate the “economy”. I think it is obvious that anyone in power who wants to stimulate the economy this way is corrupt. Not stupid.
It’s the builder/developers (or whatever MafiaBlocks wants me to call them) who are at least somewhat to blame. They are the ones who sell stupid City Councils on providing housing and tax money. And grease the skids with green handshakes and brown envelopes. Of course, builder/developers are building only luxury units which house nobody.
I think you also have to lay part of the blame at the steps of the tax structure. The mortgage interest deduction has 73% of it’s benefit going to the top 20%. It is essentially a massive subsidy for the well-off. There is a cap on section 8 housing funds and other housing assistance geared to the poor. There is no cap on the total dollar amount on the mortgage interest deduction.
The structure of production would look very different if the only dwellings eligible for the tax credit were 2x-3x an area median income. The incentive to build such structures would rise.
Had a garage sale over the weekend.
A few people asked if they could use the bathroom
I sent them to Starbucks
Hahahahahaha
“1) The housing bubble, such that it was, was caused by an extreme shortage of urban supply.
2) Because of that shortage of supply, the process of meeting the public need for housing requires a “bubble” and the availability of credit that is flexible enough to allow for ownership where rents regularly take 50% or more of a household’s budget.
3) Since supply in those cities barely responds to price, prices in those cities have to be bid up to high enough levels to induce outmigration so that new housing can be built in the rest of the country where supply can react to high prices and high demand. (e.g. equity locusts).
4) At the peak of the US housing “bubble”, credit markets were just beginning to push market prices to a level that induced that new supply”.
Just complete BS. There was no demand in most of those areas until it was created artificially by giving loans to people with low credit scores, no savings and low incomes. This artificial demand did create building in dying cities but we needed building in financially viable areas. Consequently, while those housing units slowly decay we see building in areas such as Texas where there really is population growth. The artificially low mortgage rates and special programs still cause some building where supply is not needed which only ensures that the imprudently built and empty and decaying units never get fully absorbed since people buy what they want instead of what they really can afford.
Just complete BS. There was no demand in most of those areas until it was created artificially by giving loans to people with low credit scores, no savings and low incomes.
Well, I don’t know about that. What major urban areas of the country you are thinking about right now where there is slack demand? You should qualify your statement by saying demand at a given price level. I think the demand is there, but not the demand at the (current) price. But landlords and developers have residents in these high-cost cities over a barrel because they have to live somewhere, even in the absence of truly affordable housing. So the choice is to either 1) Pay exorbitant rent/mortgage 2) Move or 3) Get creative (live with family, double up, become homeless, live in an RV, drive ’till you qualify).
I know that there is demand in many major urban hubs right now, but the price is out of reach for almost anyone but those who are too rich to care (e.g. price insensitive) or have ill-gotten or laundered money and so are happy to overpay. But since a lot of the people in areas cannot afford to buy where they hare, you have miserable commutes (”drive until you qualify”) or mass exodus, like in California.
Communism is the most deadly ideology man has ever created and it believes in neither religion nor nationalism. This anti-religion and nationalism meme is just a way to promote global government.
There aren’t any Communists.
I visited a “Commune” in the ’70s. It was a totalitarian hell-hole.
Pitiful Police Officer
Police Officer Captured On Video Punching Woman In Head On New Jersey Beach
Emily Weinman Claims She Passed Breathalyzer; Cops Involved Reassigned During Investigation
May 27, 2018 at 11:31 pm
The woman was confronted about underage drinking, but things got heated quickly after officers pinned the 20-year-old to the ground, one punching her in the head in front of a shocked crowd.
http://newyork.cbslocal.com/2018/05/27/police-officer-captured-on-video-punching-woman-in-head-on-new-jersey-beach/
He hit a GIRL!!
While his partner restrained her. Weak.
Dallas, TX Housing Prices Crater 11% YOY As Oil Bust Ravages Oil States
https://www.zillow.com/dallas-tx-75219/home-values/
*Select price from dropdown menu on first chart
How to spark a bubble: Japanese business man spends 29K USD on two melons (yes, the fruit).
Just gotta have a supply of greater fools, before the last ones are stuck with, you know, just melons.
…nothing compared to DJT spending 140K on two melons
@Drater - timely faux pas. LMFAO!
It seems like emerging market turbulence is the way forward.
The Financial Times
Italian politics
Markets hit as Cottarelli named Italy’s new PM
Fresh elections likely after president intervened to block populist coalition plans
2 hours ago
…
Does a sudden raft of political uncertainty strike the urge to dump your risk assets? “Sell in May and go away.”
Dow futures fall more than 150 points as Italian drama grabs the spotlight
By Victor Reklaitis
Published: May 29, 2018 6:26 a.m. ET
Traders also assess efforts to save U.S.-North Korea summit, political uncertainty in Spain
…
Itlexit ahead?
The Financial Times
US tax
Blue states clash with Washington over tax law
Democratic areas move ahead with plans to maintain breaks scaled back by Trump
an hour ago
…
Westford, MA Housing Prices Crater 12% YOY As National Housing Demand Plummets
https://www.zillow.com/westford-ma/home-values/
*Select price from dropdown menu on first chart
Tommy Robinson.
If you don’t know who he is, and what happened to him this weekend, the globalists are winning…
I’m surprised they haven’t arrested Nigel Farage on some bogus charge.
Tommy Robinson interviews Canadian Lauren Southern about her being detained and banned from the UK earlier this year:
https://tommyrobinson.online/2018/03/lauren-southern-breaks-silence/
Ben Jones, is it ok to say that globalists are the problem here?
F*ck globalists, and f*ck the UK. Not another drop of American blood will be shed to save your failed empire and sh*tty 21st century globalist slave plantation state.
Stanley Kubrick’s, “A Clockwork Orange” (1971) was prescient regarding the UK’s socialist imagination.
“The Funeral of Queen Mary Extended-Clockwork Orange HQ”
https://www.youtube.com/watch?v=KfEx4ZII-Os
No coverage on the various rallies for Tommy from the MSM. Not. One. Word. Because England said so. This, combined with the British interference in and spying on our elections, should tell you who is running the show. Fvk Britannia.
the 2nd wealthiest county , fxco, has 50% higher pension liability than cook co IL ?
the tax hikes commeth