Housing Prices And The Income Level To Support It
Readers suggested a topic on how housing prices and incomes will be resolved. “How about inflation vs. deflation? Most of those who post on this blog believe housing prices and consumer spending will have to collapse back to the level income can support, but there seems to be a difference of opinion as to how it is going to happen. I see it, in part, as a choice — and the choice that is being made is inflation, even if that means the dollar will no longer be the world’s reserve currency and the rest of the world will never lend to us again.”
Another said, “We’ve had 3 solid months of rising consumer prices and over a year of falling home prices. What’s more, the credit crunch is widening its grip. People are so hopeless, they are walking away from their homes. The entire financial system is in chaos. Unless wages rise for the masses, we are heading for depression.”
One responds, “But how, exactly, would this come about? Government/city workers may have the safest and most recession-proof jobs, but the bureaucracy in those institutions moves so slowly that it would take a couple of years before any wage increases were instituted. City and state revenue will fall in a recession, making a wage increase unlikely.”
“In the private sector, of course, sky-high CEO wages could come down and regular worker pay could come up, but how likely is that? If anything a tanking economy will result in more layoffs and more downsizing while the suits keep getting bonuses. This will continue until shareholders finally realized they’ve been getting fleeced for the last couple decades and demand an end to over-the-top CEO compensation. I won’t hold my breath on that.”
“So what’s that leave? Maybe increase the minimum wage to an actual livable level, like 15 bucks an hour? Corporations would fight that tooth and nail. I see no viable scenario for wage inflation.”
One said, “In a perfectly globalized world a factory worker in Bangalore or Shanghai or Des Moines would have exactly the same standard of living and there aren’t enough resources for 6B people to live like north Americans. So the inevitable end of globalization is a drop in American standard of living.”
One added, “I have wondered how China will avoid going through a similar downturn if the U.S. stops spending like it does.”
A reply, “China and India’s economy is based on us buying their crap (China’s) and their services (India). If we consume less, China and India also hit a recession, demand drops for commodities, and all those people trying to hedge against inflation, end up getting burned by less demand and less purchasing power from their consumers which means deflation.”
One had this, “A good friend of mine just returned from a visit to China last week. He said real estate prices in Beijing are outrageous — sub-500 square foot apartments for the wage equivalent of 300K USD. They are displacing tens of thousands of people for the Olympics, and Beijing is one big construction zone. China has gone into development overdrive, but it can’t be sustained forever.”
A reply, “It takes 6-12 months for our spending slowdown to hit China. They are already drastically trying to increase domestic consumption but once the Olympics is over, it’s game over for them as well. Commodity prices (cement, copper, iron, oil) will drop like a rock once their building binge stops, as our binge here has already stopped.”
To which was posted, “The more pedestrian commodities will certainly suffer from the world-wide slowdown, but Gold is a special case. There is only enough to satisfy 1 out of every 50 units of fiat moneys in the world.”
And lastly, “As a corollary to the inflation/deflation debate, how about some discussion as to indicators of the commodities bubble topping out? Are there any already present?”
“I previously believed that there wasn’t another asset class big enough to replace real estate as a bubble, but I’m beginning to believe that commodities as a whole may just fit the bill.”
Great choice for a topic Ben !
I believe what we’ll see if higher commodity prices based on the falling dollar and a slow economy for years to come. I expect interest rates to skyrocket any week now as the long end of the rate curve has been going up little by little. The banks are trying to keep a lid on the system along with government but I think once the top blows everyone will be better off. The longer this goes without happening the higher inflation will get before capitulatoin occurs. IN the late 70s it happen for the entire Carter administration and into the Reagan administration.
My cash is locked and loaded and already for the higher yields but I’m a bit skeptical that it will happen a’la early 1980’s.
the trend in treasuries is still down, and if you look outside the US (e.g. most of Europe) mortgage rates are trending down as well. As long as central banks keep inflating to the max and manage to push rates down, the game continues. As long as rates are going down, and certainly when government assumes most of the risk (removing loan limits for Fannie and Freddie, providing the downpayment or other forms of subsidy for ‘disadvantaged citizens’, offering mortgage guarantees etc), home/income levels can remain elevated for much longer, despite increasing inflation.
I think most Americans have no idea how bad things are in Europe. In my country the median home costs 8.5x median income, and in my own region (with lower wages) it is probably 10-12x median income. Fifteen years ago you could get a 3x income loan if you had a good job and were lucky; with that standard less than 5% of the homes on the market would be affordable (and only to people who would never want to live in those homes).
But most people think the current price level (and price/income ratio) is normal. As long as they get the loan and can pay the monthly cost everything is fine - whatever funny construction is used to bring the cost down. And of course people in Europe (but maybe not in the UK) KNOW that whatever happens and no matter how stupid their past decisions, there is always government to bail them out.
In countries like Netherlands home prices have to come down more than 75% and even then they would still be far above the historical trendline. There is no way this is going to happen without total destruction of the economy and the social structure. So politicians simply try to keep the pyramid game running as long as possible, at least until the next elections.
Great topic.
One said, “In a perfectly globalized world a factory worker in Bangalore or Shanghai or Des Moines would have exactly the same standard of living and there aren’t enough resources for 6B people to live like north Americans. So the inevitable end of globalization is a drop in American standard of living.”
I believe the reduction in the US standard of living was the only logical conclusion to globalization. In this regard, every US citizen/consumer who aided the outflow of jobs and enabled the movement of manufacturing overseas was complicit.
Now, when I call any service center, if I here a non-US accent, I ask to be connected with the US. The rep usually replies with the standard, “we are a multi-national” company and are trained, blah, blah, blah..
My reply is, “that’s nice, now please connect me with the US”.
I almost always get connected to the US right away. I suggest that every US citizen should do this.
So you think that 8 dollar and hour call center wages are going to allow people to buy 500k houses ?
no, but it’s still better than simple allowing them to bend us over…
part of the problem is that everyone thinks it’s always someone else’s job getting shipped out..
I’m just suggesting that getting bent over is a lot deeper problem then most are willing to admit.
Great post, Michael.
Our problem in the USA isn’t job structure. It’s demographics. And the tens of millions of 60-year-olds who lived high on the hog their entire lives and are discovering they need to work until they are 85 because their demographic gravy train has derailed. D*mb@sses.
It’s a damn good thing we have jobs heading to India. Who do Americans think is going to cover their penniless butts 20 years from now? Billions of uneducated, non-Westernized workers living in Asia, Africa and South America? It sure ain’t gonna be Americans aged 40 and younger. (Unless, of course, we let in 10 million illegals annually).
Better these emerging economies understand Western-style economies NOW than wait until the year 2020. Otherwise, we’ll be poorer than much sooner.
Thats true in Europe also. Probably the best answer is actually to move as much as possible to robotic manufacturing along with a guest worker program as long as we keep the mega-corporate structure.
The real answer is a return to smaller business ventures with the profits re-invested locally. Without this the US stands little chance of restoring itself. The mega-corp was created from the post WWII military and auto industries and it wiped out localized capitalism and allowed money to concentrate without regards to local needs.
This is our real problem.
Few Americans are willing to admit we messed up big time.
“The real answer is a return to smaller business ventures with the profits re-invested locally. Without this the US stands little chance of restoring itself. The mega-corp was created from the post WWII military and auto industries and it wiped out localized capitalism and allowed money to concentrate without regards to local needs.
This is our real problem.
Few Americans are willing to admit we messed up big time.”
Excellent insight. Thank you.
Thanks, Michael. I concur.
Referencing your “mega-corporate structure” concept, eventually it will become cost effective for mega corps to begin producing goods and services locally once again as they discover they’ve done about all they can with wages. (The aggregate insanity of governments and agencies/unions worldwide will prevent full supply/demand efficiency of wages).
Naturally, it won’t be nearly as easy for mega corps to profit from international disparities in distribution systems as compared to profiting from international disparities in wages. Many mega corps may have a tough time surviving once they have exhausted their potential for capitalizing on wage disparities.
Enter the resurgence of mercantilism.
Governments worldwide (state and federal) and constitutents that understand this, and protect individuals and small businesses rather than screw them, will do quite well.
Governments and constituents that insist on providing social welfare instead of defense and ensuring a transparent, efficient business climate will suffer greatly.
So, in other words, what else is new? Same shit, different day.
Nah, you just get a rep with better english skills.
an Indian rep that is.
I’m American. I work in China and deal with Japanese customers. I get the “please connect me to a Japanese person” blowoff all the time, and every time it hurts.
Just so you know.
Going out on limb, I’d venture to guess that the PTB would rather deal with a sea of foreclosures rather than the long term ramifications of wage inflation. Yes, it is a counterintuitive argument but, under the cover of globalization, they now have their first chance in more than a half century to completely rewrite the playbook.
I think you are attributing far more competence to them than they deserve.
At this point, they want to save the banking system. They will deal with the side effects later.
Yeah - this is the poster commentary that jumped out for me, too. And it’s a foregone conclusion. And I think the USA took the correct course re: globalization and free trade. What is the alternative? Have 4 billion people living in perpetual squalor who have greater access to increasingly cheap weaponry? That’s no solution.
Where the USA and other western-style econonies are screwing up right now I think is their lack of support for individual rights. In a global economy, those countries that come out ahead will be those who are pro-individual.
I think you should read about the Industrial Revolution.
The individual is effectively powerless in a global economy.
The real question is was the concept of a fairly wealthy middle class stable in the first place ?
I’d suggest from history that it was a anomaly resulting from the after effects of WWII coupled with cheap oil.
To be honest I’ve never understood why Americans assume that the suburban middle class lifestyle was somehow normal. Its always mystified me.
Basic economics result in the 1% elite class owning 90% of the wealth a small support staff of about 8% of the population controlling 8% and and 89% of the rest of the people living in various levels of poverty.
Thats the way things really work a 40 year blip recovering from WWII and the cold war is just that a small blip just barely a generation.
Right - 89% of American living in some part of poverty. I’ve seen what is considered poverty in the USA - what a joke. I’ve also read about all those going hungry every day in the USA. If there is any adult going hungry today, they deserve it. There are so many government and private handouts today, that if you are so inept you can’t even figure out how to get freebees, let alone get an education an support yourselve (novel concept) - you deserve your fate!
Your view is so distorted by the recent past you can’t even see the real world. In the real world a certain percentage of people in any given country are really starving to death.
Take any country outside of Europe or the US and you should be able to find cases of real malnutrition to outright starvation.
Its been that way for thousands of years and was that way in the US right into the 1930’s and even afterwards in Europe. Somehow the fact that a very small percentage of the population with control of the majority of resources managed to eliminate the absolute misery of normal existence is taken as the norm ?
Wait till things get back to the real normal and lets see what your saying when its your kids starving.
Yes your correct you deserve your fate in the sense that thats the way thing work, your just not clear on who the you’s are.
I believe my comment stated “the USA”
Correct but the point is your utterly missing the point. A few areas have gotten wealthy enough that they can afford to feed the poor. And in these countries the wealthy are disgusted that this happens you are wealthy.
I’m just saying consider the society where we no longer feed these people and they starve. Its in a lot of ways your choice. Allow a few people to live miserable lives but at least not starve to death or revert back to the normal society where these people beg borrow steal and join insurrections to stay alive.
I hope we can continue to feed these “worthless” people because when we stop they are not going to get jobs they are going to get guns.
It’s a difficult calculus. Food handouts to irresponsible people who then proceed to produce 5-10 kids is not sustainable.
Aside from the Global Poverty aspect, the problem in this country is indeed concentration of capital. The top 1% do indeed control 60-80% of the wealth. This is obscene. There is no reason why we shouldn’t be reinvesting the capital we have on ourselves — South Central, Appalachia, Fly Over Country, Florida — to create more self-supporting neighborhoods, communities, and economies.
We all need to produce sufficient food, water, energy, consumables. It’s not rocket science, it just takes intelligence.
We’re screwed.
Michael Emmel
Your comment “Yes your correct you deserve your fate in the sense that thats the way thing work, your just not clear on who the you’s are.” was right on.
Most Americans do not travel much. Most Americans do not own a Passport. Until a few years ago, I was in the majority and did not travel much outside the USA. I certainly know only a just a little about the world, but what I have seen traveling in the last few years has shocked me. If someone would like to understand the downside risk of globalization to the US, and the inability of the planet to support 6 billion+ people, just go visit Burma, Cambodia, Nepal, Philippines, Indonesia and on and on. What has been achieved in the United States is nothing short of a miracle. We need to be smarter and faster if we are going to continue to hold on to our present status, and help the rest of the world hold on to what amounts to very little. The alternative is very ugly indeed. The countries that somehow manage to live off of the developed world’s crumbs, will be even worse off than they are now. What will they do when there is no hope and nothing to lose?
The real question is was the concept of a fairly wealthy middle class stable in the first place ?
I’d suggest from history that it was a anomaly resulting from the after effects of WWII coupled with cheap oil.
To be honest I’ve never understood why Americans assume that the suburban middle class lifestyle was somehow normal. Its always mystified me.
I am going to disagree with you here. The US since it’s founding has always had a “middle class” It may not seem like it to modern folks but there was a middle. One of the problems after the Civil War was a lack of middle. You had rich and former slaves, on top of the lack of reconciliation that held the southern states back.
I do agree the suburban part is post 1900 industrial , but the large middle class is a unique part of American society that much of the rest of the world fails to account for in their economic practices. Still Rich/Poor nothing else in between.
Michael, my guess is that a majority of Americans under age 50 place very little credence in the notion of a “stable middle class”. No one I know would say such a thing, having experienced nothing but constant upheaval in the work world since earning their first paychecks.
I’d wager there’s a great many more workers under age 50 that have had more than 5 jobs since finishing their education (regardless of level) than those having had 1 or 2 jobs.
Not that there’s anything wrong with any of this. In fact, I think it’s a significant plus. Many people in the USA and across Europe need to understand they aren’t entitled to a job that pays them enough to go to Disneyland or Malta once a year.
There was some study somewhere (sorry to be vague, I have totally forgotten where.)
Basically, didn’t matter how you measured. People changed jobs every 3 odd years.
What is it about average folks that you despise? Why the venom?
Exter I don’t despise them. Just to reply to a few posts America had a unique opportunity. And I don’t disagree that we have had a fairly wealthy middle class for a long time. Considering the shear amount of resources available in the US its not surprising. But what have we done with it ?
Thats they key we have the best chance in the world and we blew it.
“I believe the reduction in the US standard of living was the only logical conclusion to globalization.”
I’m gonna hafta gong you on that statement. Wealth is not a a zero sum game, where one party loses when the other party wins.
Everyone on the planet can have a higher standard of living. Wealth is created by investing capital into processes that divide labor.
So say you; to me the evidence overwhelming discounts that belief. Charity begins at home!
Everyone on the planet can have a higher standard of living. Wealth is created by investing capital into processes that divide labor.
yes, but we are talking mostly longterm then. And one should add that over the last generation, the first world and especially the US has invested mostly in VERY unproductive activities like private real estate (so people enjoy not working), consumer toys and war (destroying others investments).
So is the argument that division of labor will increase everyone’s standard of living ? What about when the skillset of the labor is mostly the same across the globe ? Who gets the capital then ? I would argue it goes to the lowest cost place in the world based on that world’s reserve currency - in this case its the US dollar.
I’m gonna have to gong you right back.
Obviously it goes to the lowest cost producer, but that is not in the best interest of the single entity called the US.
US consumers have used their dollars borrowed aginst bubble assets to selectively buy cheaper goods made elsewhere. The sentiment justifying flight to cheaper (or imagined better) foreign products was “when American manufacturers decide to build a better product, I’ll buy it”.
Toothpicks are now all imported from China. Do you remember thinking: “Darn, these US made toothpicks suck. When will US toothpick manufacturers learn how to make a good cheap product?” Multiply this a thousand-fold to include everything used in everyday American life; thus the manufacturing base has been driven overseas within a relatively short 30 years or so.
Now we are a nation of real estate agents, stock brokers, bankers, insurance agents, accountants, day traders, salesmen, personal trainers, limousine drivers, and of course sports enthusiasts! We PRODUCE very little.
I am sad to say that I belong to the first generation of Americans that leaves a country in worse shape than we found it. I have children and grand children and it makes me weep to envision what we are leaving them. To hell with the rest of the world; to hell with all the liberal “We are the World” feel good crap! To hell with the pseudo conservative globalization is So Good!
Gong beyond imagination. The absurdity of “globalization is the correct course” is mind numbing. Further, to excuse the failure of globalization by suggesting this countrys penchant for radicalizing smaller, weaker countries is nothing more than outrageous.
I think someone needs put down the National Review.
And how would it all look w/o globalization? So many people bash globalization - where are all the successful F500 companies that support this position? IMO, U.S. production is as fat and lazy as the majority of U.S. workers and that’s why we get our a$$es kicked when we try and compete on a global scale. Again, where are all the anti-globalization big companies? How is it that none of the millions of liberal-minded folks aren’t big-time CEOs who can practice what they preach? Why do Americans support the Wal-Marts of the world so much? And don’t give me ‘b/c they drive all the SBs out’ crap - the local people chose the WMs over the SBs and that’s why they close. What’s the alternative to free markets? Tariffs and taxes? I’ll pass on a national Detroit-minded biz environment (job banks, crappy products for decades, etc) thank you.
“IMO, U.S. production is as fat and lazy as the majority of U.S. workers and that’s why we get our a$$es kicked when we try and compete on a global scale.”
Yeah… Competing against tyrants who enslave their people is acceptable huh?
Get a grip junior.
Ok Exeter, get a grip please. do tell what the alternative is to competing against the tyrants? Put up walls and tariffs? Ok Hoover.
Why don’t you stop demonstrating the worst of american stupidity and try and understand how the world works. The spoils go to whoever offers the best products cheapest. Walling off the economy results in massive stagnation.
Let me know if you need some examples.
way to not answer the question - where is your successful, U.S. based, anti-globalization company?
Who cares about companys for God sakes? If your beloved corporations are so wonderful why are you still here?
“Let me know if you need some examples. ”
Bring it.
Who says globalization has been a failure?
I don’t agree with your premise. On the contrary, I think that *globalization* has been quite successful.
Have you ever asked India-based workers whether globalization is a good thing? I have. They are thrilled!
Such irony! Followers of those who have long talked about “It Takes a Village,” indirectly casting dispersions on those overseas who’d also like to do well in life. How elitist!
This reminds me of people who live in Boulder, Colorado: I’ve got mine, so screw you. I can pave over beautiful land, erect 5,000 square foot McMansions and look at beautiful mountains, but YOU cannot! Why not? Because YOU aren’t environmentally responsible! And, by the way, even if you are MORE environmentally responsible than I, I have convenants that won’t let you have your piece of the pie as well. So, screw you!
**************************************
Exeter, are you a unionized GM worker? If not, what kind of government work do you do?
Kindergarten level innuendos and smears based on a worn out political ideology destined to be left for dead on the scrap heap of history does little to make the case for globalization. No different than me using the “you hate america” stupidity for your cheerleading of Indian workers.
Now… care to provide any evidence that globalization has been good for the United States? ANY?
lmao - exactly
You know what, exeter? I was in the middle of writing a lengthy response to you but decided it wasn’t worth the trouble.
Instead, I think I’ll go count the 35% profit I made in domestic and international stocks during the past three years - a figure that takes into account the 15-20% losses the market has seen lately.
“Now… care to provide any evidence that globalization has been good for the United States? ANY?”
Um, maybe that all Americans now have the ability to buy higher quality cars and trucks for less than the lower quality crap from Detroit - many of which are now built in the US? And where are the Honda and Toyota “tyrants”? And the added benefit that Americans don’t have to pay/subsidize unskilled Detroit autoworkers $85/hr to sit for years in a Job Bank reading comic books and sleeping. How is the auto industry not a great example of the benefits of globalization?
Now… care to provide any evidence that globalization has been good for the United States? ANY?
Um, I’m enjoying this marvelous inter-exchange from Singapore and and it’s not costing me (US) penny?
re: mnant wrote that wealth is not a zero sum game.
I wholeheartedly agree. Wealth is created. The proof? 40,000 years ago the only wealth were food, fire and pelts from animals to keep you warm. Even in most third world countries, the average person is very wealthy compared to how most people lived very long ago!
that is true, on the other side I think this is one of the first generations where many in US and Europe are worse off than their parents when it comes to standard of living (I’m not counting the number of cheap gadgets or megapixels on your TV or camera for judging that).
Again, nhz, for what it’s worth, I think it’s largely a function of demographics.
Provided Western governments don’t ruin options for individuals of all stripe to succeed in the marketplace, our countries have a good chance of doing quite well once those born from 1940-1965 die off. It’s a cyclical numbers game.
If you were born in the USA or Europe from 1953-1970 or so, (domestic) demographics have not been your friend. At least not thus far.
50 years from now, demographics will be a significant economic drag on India, the Middle East, Africa, etc., just as they are on us now.
so how come no one has mentioned the money supply when speaking of wealth. Given a fixed or even shrinking supply, I’d say it is a zero sum game and prisoner’s dilemma. Given that M1 and M2 have shrunk since last september, I’d say for now it is a zero sum game.
“40,000 years ago the only wealth were food, fire and pelts from animals to keep you warm.”
Yeah, but 40,000 years ago, we didn’t have multi-nationals like Exxon, Union Carbide, Mosaic, etc. taking a crap all over the happy hunting grounds.
I agree and a part of capital is intellectual capital. Like the dumb statement that was made in the article that may be if we raised the minimum wage to $15 that would solve the problem. I am all for that, if your employer believes you are worth $15/hr. I don’t believe low skill, no education jobs deserve even the current minimum wage and raising it certainly is not going to help the economy. So few people, especially if you exclude teenagers and those still in school, make the minimum wage that it would not help the economy, certainly not home prices, and would only reduce entry level jobs
Then why is it that those states who raised minimum wages above the federal minumum had an acceleration in GDP yet the states that held the federal minimum had zero increase in state GDP? Some detached folks really need to wrap their minds around the fact that labor needs to “take profits”. They won’t be given away.
Raising wages will have a second-order effect of raising rents. Give everyone $400/mo in free money and it will end up in the landlords’ pockets at the end of the day.
I agree that the intellectual capital component of wealth — how to farm efficiently, manage, entertainment, patents, etc. — is DEFINITELY not zero sum.
But that intellectual capital is not per se wealth.
Wealth is that which satisfies human needs and wants; the capital goods and tooling that creates it is capital.
The history of the 20th century is rife with Americans — ALCOA, UFC, Standard Oil — exploiting the worlds’ wealth, leaving the 3rd world poorer while we became richer.
OK…so next time you got to a posh hotel and your toilet is cleaned, your room is made, and your sheets changed, remember that poor dumbfk you think isn’t worth your time should be getting paid a decent living wage.
Man…you’re pretty freaking arrogant.
I think the Olympics, because they’re being hosted by the Chinese, are a super-interesting subject because there are so many facets to it. China has enough of our dollars in reserves that they cannot possibly “go under” before the games end, so economic issues are not their top priority right now. I can’t think of another country except Japan to which the success of the games would be so important, in a visceral way and broadly across the population. The Chinese remember well how we hosed the Soviets when they hosted the games. And our Man Behind the Curtain might be very anxious for China to have less than stellar success for reasons I’m never going to understand.
So I’d think the Chinese economy should perk along well for another year or so without much to worry about. The cost of housing there shouldn’t matter much during that time, and house price deflation in China after the Games, should that occur, probably won’t faze their rulers very much.
My critical-thinking questions will be, how will the Chinese look at their perceived need after that time to prop up our economy? Might they be willing to take an economic hit in order to cripple us? And how does all that fit with their relationship to Russia? Is it in their interest to see us engulfed in hyperinflation? Or deflation?
All IMO and probably way too tin-foil for most, but I suspect that the Great Enigma of the East will be capable and ready to make trouble for us as soon as the Games, and probably our elections, are over.
“All IMO and probably way too tin-foil for most, but I suspect that the Great Enigma of the East will be capable and ready to make trouble for us as soon as the Games, and probably our elections, are over.”
I agree, Chip. I don’t think it is tin foil hat at all. I’m sick to my stomach that, as a country, we’d do anything with China, let alone the Olympics. But hey, all the rules are changing so fast and there could be a bright side to all of this. It means we can do what we want in the US. Why should we be hostages to the failed policies of the military/industrial complex, to Washington and Wall Street? If it’s that easy to change the rules, then let’s make the currency oak leaves or Joshua Trees, for that matter.
“Keep your friends close and you enemies closer.”
I disagree with your view that every other country is out to get us in some way. I think the better question is who does deflation and hyperinflation help inside of our country. Why was it allowed to happen when it was so easy to predict?
“China” has absolutely no interest in deliberately hurting the US.
Actually, 99% of them aren’t even aware there are so many Americans that hate them. China’s government has had the same goal for 100 years: to be strong and independent enough that no one can boss them around.
“Most of those who post on this blog believe housing prices and consumer spending will have to collapse….”
I am not sure, but I think I witnessed the first scenes of this yesterday. I was out an about doing some shopping and having lunch. After visiting several retail stores and the grocery, I noticed that it was somewhat “quiet” out there. Mall traffic seemed very light, box store parking lots were not packed, even the grocery store was relatively quiet.
I wonder if the impact is finally starting to take hold here in Mass. or if it was just the “first of the month” syndrome?.
I went on a shopping trip to Binghamton NY yesterday (my wife and I bulk-buy dry goods 6 months at a time and it is the nearest place with a Sam’s — no Costco anywhere nearby). Walmart and Sam’s were packed, more so than I have seen in a long time. But many of the more upscale stores nearby were extremely quiet.
Furthermore, the shoppers at Sam’s were dressed more like your traditional Target market than your Walmart market. I am not sure if anything can really be inferred from this anecdote, but make of it what you will.
WalMart is sneaky. People assume that WalMart has the least expensive price on everything. I have noticed that their prices are frequently the same and plenty of items are more expensive.
I read somewhere that 20% of their items are more expensive. From what I’ve seen I believe that number is correct.
Now there’s the stuff of a decent Website, from which you or someone might make some decent click-money — compare prices on a broad array of products, between W-M, the big bulk stores, Target and the major supermarkets and retailers of competing products. Maybe let viewers note the items or categories in which they’re most interest, to maximize return clicks. Or maybe there’s already something out there like this - a much-broader, grocery-store version of the Priceline concept.
My observation in Loveland is that Sam’s and Walmart demographics do not overlap very much at all. Sam’s shoppers have more money and buy nicer stuff. YMMV.
“Sam’s shoppers have more money and buy nicer stuff.”
This may be because a large number of Sam’s shoppers are buying bulk for their businesses. eg Gas/Food marts and Small Restaurants, thus they have more $$ to spend. My experience tells me that they are not just buying for personal home use.
You can usually tell who the small business buyers are. They are the ones pushing the flatbed carts stacked with huge amounts of a few products. All I’m saying is that I don’t see the $12/hr Walmart crowd at my local Sam’s. They don’t have the cash flow to make the cost effective bulk purchases (like the 24 packs of TP).
One thing about commodities thats different from housing is they are consumed thus respond to traditional supply and demand curves. With housing you could buy five houses and hold them empty thus inflating the demand side of the equation. Trying to do this with commodities is problematic at best. Financial bubbles are underpinned by speculators distorting the demand side faster than supply can keep up. A good example is the silver bubble of the 80’s or diamonds.
Or the grand daddy tulip mania where bulbs could be stored by speculators.
Trying to corner the market on large volume commodities is impossible so blowing real bubbles is impossible. So commodity bubbles are more short term speculation on top of underlying demand.
On the demand side a 1-2% negative GDP translates roughly in a 0.1-0.2% change in commodity purchases. Given GPD growth is still largely positive in the rest of the world and we are reaching our limits on the supply side for a range of commodities either from depletion or inability to scale to meet demand. You can see that even if the US economy starts shrinking commodity prices while respond slowly.
Also in general commodity demand is inelastic.
Also the biggest issue is oil. OPEC holds large reserves of dollars. As we try to devalue they will simply with hold more supply to ensure that they keep their purchasing power up. Tied with this is they are for the most part food importers so they are facing inflation internally. So again they will withhold supply to keep purchasing power up. The naked truth is OPEC now controls the purchasing power of the world regardless of what central banks do with fiat values and no one can do anything about it.
The petrodollar is real.
When I did some in one of the biggest oil communities in the Gulf not that long ago, I was struck that the supermarkets not only had an astonishing array of consumables, but also that the prices were “too” reasonable. My conclusion, unsubstantiated, was that the government must be subsidizing the goods, most likely through concessionary transportation arrangements.
Whoops - “did some *work* in…”
And I omitted the important point that virtually all of the goods were imported, mostly from Europe, but a lot from the U.S. and Asia.
there have been riots over escalating food prices (up more than 40% within a year) in some Gulf countries lately, so I wonder if the subsidy argument still holds.
It would help to know to which countries you refer. My reference was to supermarkets in Saudi Arabia, Qatar, Bahrain and the UAE, and even more narrowly to the supermarkets where Westerners shop. I suppose the governments there could discriminate between the food brought in for supermarkets and that for the “souks,” but I don’t see how that would make any sense. The lowest level workers in these countries are almost all from third countries and if the complain, they get sent home, so they don’t complain.
Saudi Arabia had a problem for a few years when oil was at $25 and there was rising discontent among the lowest-rung Saudis in a fast-growing population. But I think that has abated, probably completely, in the past few years because oil revenues are so high.
Iraq is obviously an entirely different case and Iran can keep its people fed if it chooses to. Otherwise among the Gulf nations, as opposed to the “Middle East,” only Oman has a weak enough economy that I could imagine recent riots of any significance over food prices.
Whether they inflate or deflate, the bottom line is Americans will have a much lower standard of living. A greater and greater percent of income will go to basics, including food, energy, housing, transportation, etc. Although I think this administration has been disastrous, a lot of this has to do with globalization. The world is a zero sum game. If one country rises another will fall. We are the one that is falling, and it will last many years. Superpowers don’t fail overnight. One last comment about globalization. If our government had acted to slow it down, this could have given us more time to adjust. But instead incentives were put in to encourage corporations to send millions of high paying jobs overseas. This is a far cry from the reaction countries like Germany had when Nokia decided to send manufacturing jobs to eastern Europe. They basically boycotted Nokia phones in government and it sent a very strong message to corporations thinking about doing the same. Not here. We’ve done the opposite and paid the price. Until the swamps called Washington and Wall Street are drained, this country is screwed.
” Until the swamps called Washington and Wall Street are drained, this country is screwed.”
Testify, brothah!
The decrease in the American standard of living started years ago, but we just haven’t realized it due to very easy credit. Credit has filled in the gaps when true income didn’t stretch far enough.
Many millions of families have already spent a portion of next years income on trying to maintain this years standard of living. I think most people are very optimistic in this country and truly feel that tomorrow will be better than today, so they have no problem borrowing a little bit of money to makes ends meet this month, because they just KNOW that next month will be BETTER. Or they wil pay off the debt with next years tax return, next bonus check, pay raise or big commission check. After several years of carrying this debt and more, they will come to the conclusion that things aren’t getting any better.
If this problem was an isolated incedent of over-consumption it wouldn’t be a big deal, but whenever it is the new American Way-it is a huge problem.
The only way to fix these problems are to increase income or decrease consumption. Decreasing consumption will decrease someone else’s income, which causes more problems. Increasing borrowing was last years solution, and unfortunately for many is no longer available to them. Incomes in general are not even keeping up with inflation, so increasing ones income in a recession isn’t usually an easy answer either….
Decreasing consumption, or right-sizing one’s budget is the only long-term solution. Not exactly the answer that most Americans are willing to accept at this point. I think most will fight this trend all the way to Bankruptcy.
Energy independence would be the only thing that could reverse the trend and keep more of our money in the country.
“Decreasing consumption, or right-sizing one’s budget is the only long-term solution. Not exactly the answer that most Americans are willing to accept at this point. I think most will fight this trend all the way to Bankruptcy.”
Let ‘em fight, hopefully when they reach bankruptcy, they’ll finally have reached a point of exhaustion where they can’t eff with their neighbors anymore.
NO, THE WORLD IS NOT A ZERO SUM GAME.
Sorry to shout. But I hate slogans that have long been disproved.
Disproved only to your satisfaction. Your opinion there is no better than others and it surely is just that; an opinion so quit shouting.
Have you visited any poor families lately?
The ones I have visited lately all have running water, heat, TVs, dvd players, cable, cell phones, nicer NIKEs than I wear and plenty of money to pay $5/pk for cigarettes.
A greater and greater percent of income will go to basics, including food, energy, housing, transportation, etc.
No not housing. Housing is locally consumed and locally priced. If food and energy costs go up, J6P will have less to spend on housing. Prices and rents will go down (prices are going down already of course and so are rents in many areas).
“I previously believed that there wasn’t another asset class big enough to replace real estate as a bubble, but I’m beginning to believe that commodities as a whole may just fit the bill.”
..b, b, but commodities are different, everybody wants to buy them…
Pen, the entire commodity market would not satisfy the current account surplus of China, let alone the other $10B overseas (Sen. Evan Bayh for dollar figures).
The next major bubble will depend on the election in November (IMHO). If the Democrats win, look for a massive increase in infrastructure spending. If the Republicans win, look for massive increase in bogus green energy spending. In both cases there will be a large increase in energy facilities.
‘The next major bubble’
Not sure if you’re referring to a financial mania, but I find it curious that the ‘next bubble’ is referred to now, even in the mainstream press, I guess it is the result of having two so close together. But we’ve had 2 in 50 or 70 years (excluding the gold/silver bubble in the 80’s - small). It is possible we’ll never see another in our lifetimes.
keep in mind that bubbles occur all around the world; the RE bubbles of the last generation were not very well synchronized. Having two (related) bubbles shortly after another in the same country may be a rare event, but most of the economy and stockmarket is now global. If there is a budding bubble anywhere, WallStreet and the kleptocrats can be counted on to make it as big as possible and profit nicely from it. So when it comes to financial manias, you can probably count on the next one being just around the corner.
The US has been in a rolling bubble economy since the late ’70s (paraphrasing Mr. Alan Greenspan, August 2005, Jackson Hole). The Federal Reserve will try to implement a new bubble. I do not know if it will be successful or fail. There are few things that can absorb $6T, the one area that is in desperate need of fixing is the infrastructure of the US. It is third world. At the same time there is little profit for the multi nationals if the US goes that route. The most profitable (for the multis) is alternative energy.
Yes, I think there will be another bubble. I think it will be a “financial mania”. I think when the next bubble bursts, there will not be any further bubbles for decades.
The next bubble is already here - Inflation. Enjoy the ride.
There are few things that can absorb $6T, the one area that is in desperate need of fixing is the infrastructure of the US.
A bubble is not “something that you spend a lot of money on”. It an asset or commodity that is priced beyond its fundamental value, i.e. its value in generating economic output. You can’t have a bubble in infrastructure unless it is privately owned so people can pay more for shares in it than it’s worth. An excellent recent example was the bubble in telecoms like Global Crossing. There was also a railway bubble in the US post Civil War.
But somehow I don’t think you’re going to have a bubble in stuff like sewers or turnpikes even if you privatize them. Reason is the user charges are subject to regulation. Plus they aren’t very sexy so that doesn’t attract the dumb money. “Everyone wants to drive on this road” doesn’t quite cut it.
‘The next major bubble’
http://tinyurl.com/2t4tkj
oil shale in Canada and the U.S. the sign of the end of the age of fossil fuels.
or maybe they could increase medical spending some more, by introducing lots of new technologies (e.g. stuff based on new genetics technologies) that everybody just MUST have while Medicare pays for it all? The major argument in favor of that is thatm unlike with a home, it is difficult to walk away from your upgraded body
It takes to long to train people for medical work. And its a dead end business
that is another nice argument in favor of a medical bubble: you don’t need to buldoze cheaper homes from time to time like they do in my country to keep home prices rising.
First, bubbles used to be once a century phenom. Greenspan gave us two in a decade. We don’t necessarily have to have another bubble.
Second, neither infrastructure or alternative energy spending are bubbles. Both should have a net positive effect on the economy.
Most bubbles did have positive effects on the economy or made some sense economically, at least when they started. The fact that they are backed by some good arguments usually makes them more compelling. Even the Dutch tulip bubble made sense from an investment point of view (put a tulip bulb in the ground and the next year you have ten of them, if you are lucky - keep one and sell nine of these rare bulbs for a nice profit). Because of this, commodities and alternative energy would be good candidates for the next bubble.
Sure, but not my point. Government spending on infrastructure or alternative energy ARE NOT bubbles. Bubbles should be a rare occurance, it took Greenspan to make them common.
Winnipeg’s Smallest House is Up for Sale!
http://sandiego.craigslist.org/csd/rfs/592268270.html
Talk about negative value…
That home is worth whatever on of the two neighbors is willing to pay for expanding their house/yard. Perhaps they would buy it as a mother in law guest cottage.
Thanks for the laugh!
Neil
This tiny house is almost directly across the street from me.
http://www.washingtonpost.com/wp-dyn/articles/A31199-2005Jan23.html
480 sq ft of living space, on a 350 sq ft lot — just assessed for $291K
“I previously believed that there wasn’t another asset class big enough to replace real estate as a bubble, but I’m beginning to believe that commodities as a whole may just fit the bill.”
I would suggest that Treasury prices are in a bubble. Inflation, year over year, is 6% and the 10 yr is yielding 3.60%.
People talk about the fiasco in the muni market, but you could make the argument that munis are trading where they should, just not in relation to treasuries as investors take flight to the “safety” and liquidity of T-notes. Was the back up in yield last week in munis telling? I think so.
Off topic but open houses all over the place in Dutchess Co. NY. Wife wants to stop by just for entertainment purposes but I’m inclined to puke when listening to real-tards.
I don’t bother with the open houses, even for entertainment. I’m finding that the people doing open houses are the ones with over priced properties. They’re trying to compensate for their high price with aggressive marketing.
Exactly. I’d end up getting arrested for ripping the real-tard a new one. It’s not worth it.
Your thoughts please?
Give me some feedback on running these kinds of numbers. I look at the local NAR garbage stats and they make no sense, which has me thinking of putting together a different kind of stat. What I’ve noticed is the number of homes priced under 250k in my county used to be extremely low, but inventory was also low. We’re talking 2005. Here’s where it gets interesting: the inventory has exploded, but the number of homes priced under 250 is way out of proportion now with the inventory gain.
An example would be that in Nov 06 we had 796 listings with 67 of those being under 250k. This month we have roughly 950 listings with 250 of those being under 250k.
The question: can we get an idea of how much price decline has occurred by charting this inventory percentage in homes priced under 250k?
You certainly can’t make any sense out of how much prices have declined by reading the NAR hype, so I’m looking for ways to more accurately break down their data. I don’t think Case/Shiller is capturing it accurately either.
You can, but you’re going to need more bins that just those two (e.g. =250k). For example, just looking at the counts in the lower bin, you don’t know if the prices have decline $2 (from $251k to $249k) or $500,000 (from $700k to $200k).
I started tracking inventory by bins for a couple of zipcodes in NoVA starting in 2005. It’s not perfect, and in retrospect I wish I had chosen a few more bins, but it let’s me have a rough estimate of price trends for each zipcode.
For example, if you have 4 bins
A = 100-200k
B = 201-300k
C = 301-400k
D = 401-500k
…and inventory in those bins looks like this:
2005 2008
A 0 4
B 10 40
C 20 6
D 3 0
Then if you multiply the midpoint of each bin by the proportion of each bin, you get these mean prices: $329 for 2005, and $265 for 2008.
Of course, the finer the granularity, the more accurate your estimate.
Interesting observation. If anything, the listing prices have tended to be too high during the period of declining prices and sales. How many of this increasing number of listings below $250K are actually selling? To be priced low enough to actually sell now would result in price declines even larger than Case-Shiller is currently showing. Case-Shiller has it’s limitations too. It only includes certain properties (SFH’s, I think) and tracks values only as transactions occur. You never see the highest and lowest values for a particular property unless those transactions coincided with the broader market peaks. If you could separate out recent sales that sold previously near the time of bubble peak, you might better be able to see the true type of declines that are actually occurring.
I think you are correct in that prices have declined more than shows up in the official stats. When you can find properties that recently sold and also had a sale near the time of the bubble peak, you typically find declines that are larger than Case-Shiller and the NAR median.
One had this, “A good friend of mine just returned from a visit to China last week. He said real estate prices in Beijing are outrageous — sub-500 square foot apartments for the wage equivalent of 300K USD. They are displacing tens of thousands of people for the Olympics, and Beijing is one big construction zone. China has gone into development overdrive, but it can’t be sustained forever.”
Are you sure he wasn’t in Vancouver?
On some of the satellite channels, you can get shows produced in mainland China that are about that very thing- the running joke is that you might go to work in the morning and come back to no”home sweet hovel” at the end of the day, because the city is trying to revitalize its image for the Olympics. Makes gentrification look like small potatoes.
I’ll put my deflationist thoughts out there.
We have a bunch of over priced assets. They will probably go down in price to align with income. So that will be deflationary.
We also have a bunch of bad loans going away by default or writedown. Again lowering the velocity of money and deflationary.
The government has a lot of obligations. Now, there is some debate as to deflation will lower costs and obligations more than defaltion lowers revenue.
So, I think the government deflates things till its not viable for them. Then the government increases M0 to inflate wages directly.
About Globalization: also deflates wages to align with other countries wages. So even more deflation.
Again wages drop but costs also drop. So, in real terms I’m uncertain what we will see. Do costs fall further (in percentage terms) than wages? Will this actually result in a decrease in standard of living? I’m not sure. Not sure how sustainable the situation is over seas. If the prices of goods drops substantially then the you need less income.
This is similar to the arguements about inflation.
If the inflation is permanent then it will show up in wages. If not it shows up in an unsustainable bubble.
Right now, the last and most deadly bubble is happening in commodities. This could cause the final aspect of needed items (beyond shelter) to inflate beyond reason. It will be very bad if it causes a problem with the food supply.
There seems to be a lot of data out there that indicates that deflation is happening. There is also some inflation. However, we will have to see if the inflation is permanent or temporary. That is the inflation is predicated on expectation of rising demand and costs. If those do not materialize then prices will correct.
I expect that the oil bubble will be a memory in 2010. People are buying more and more alternative fuel vehicles. They shouls be a substantial fraction of the market soon. That will significantly cut use and cause a glut.
http://tinyurl.com/2t4tkj
Oil is finite. $200 to $300 per barrel in the next few years. The commodities bubbles usually last 20 years. We are year number 7 into precious metals price rises. High fossil fuel prices will also mean higher spot prices for precious metals.
Gold - $5,000 per ounce in 2018?
I think oil and gold are going much higher over the next few years. Yes, we are going through a deflationary phase, but the Federal Reserve and the US gov’t have many tools at their disposal (beyond simply printing cash) to make inflation run rampant. Much larger tax stimulus packages, refinancing of loans at 1% fixed, 0.5% discount rate, direct borrowing from the federal government for all sorts of things, just waiting for the creativity to begin.
Uhm. I think the Treasury department and Fed are the ones causing the deflation; though a substantial amount it contraction of M3 in bad loans.
So, if the new administration changes the course then we will see.
If its Obama then expect rampant inflation. Democrats love inflation till it bites them in the ass (real economic activity plumets)
Yeah, I wanted Ron Paul.
Of course he is arguing with Bernake these days but has not realized the Fed is deflating.
Meh.
What is money?
Paper money has really only been used extensively for around 100 years, and in our country, it had to be backed by either Gold (up to 1933) or Silver(up to 1968), because people had long memories of it not being worth anything, because during the Colonial era right up until the 1860’s, when private banks issued their own, which inevitably went bk, thus the name “Broken Bank Notes”.
Cold hard cash is backed by the fact that you can still buy “stuff” with it.
Nothing more.
“Cold hard cash is backed by the fact that you can still buy ’stuff’ with it”.
The “stuff” you can buy is what backs the cold hard cash, it’s what gives it its value.
Nothing more is needed.
I guess if there is enough coconut oil, and we grow enough coconuts, we will continue to have energy for airplanes to fly.
We are running out of cheap oil.
LOL
“Are you suggesting coconuts migrate?”
Not at all. They could be carried.
You are mistaking ability to supply oil vs total reserves or joking.
I think history shows a pattern like this. Oil is cheap. We build clunky inefficient cars that use too much. Prices skyrocket.
We build efficient cars because prices are too high. Oil producers gear up production because they want to maximize profits.
Prices collapse on over supply and falling demand.
Happened in the 70s. Happened in the 80s.
I’m sure costs are going up and oil is getting more expensive to pump. Just not sold that it is the major driver at this point.
There is one big difference between now and the 70’s and 80’s. Hundreds of millions of new gasoline consumers are coming online in Chindia and in other developing economies. Even if we traded in all our trucks and SUV’s for hybrid sedans oil consumption worldwide will continue to rise.
Hell, no one will ever read this. If the China/India fellows are not getting paid as per many discussions then they will not be buying cars and using gasoline.
Since the US uses a far greater per capita amount of oil per person it would take a lot of use increase in China.
They might be using mass transit and effect coal prices.
If they are getting paid more than it takes the same amount of effort to build a car in the US vs anywhere. So, there isn’t a real cost advantage. You would expect there would be an economic windfall when the market size increases. Since the debt/currency will flow back to us then wage inflation will result and clear part of the bubble.
Oh but they will. Annual auto sales in China are already about 6 million. Just because they earn less than we do doesn’t mean that they won’t buy a car.
“If the inflation is permanent then it will show up in wages. If not it shows up in an unsustainable bubble.”
That’s been the Fed’s position. What the “core” rate says is that it’s OK if people are paying more and more for necessities, as long as their wages don’t rise.
I think, however, globalization and the national debt make inflation without rising wages possible.
The falling value of the dollar means prices of many goods can rise in dollars even if their value in other currencies doesn’t increase.
And the government will keep putting more and more money into the hands of senior citizens who don’t work — there is no “core rate” for Social Security, the retired get the whole CPI, and pension costs are soaring too. More dollars into the hands of those who do not work means they will outbid those who do for a limited supply of stuff. And once the rest of the world stops subsidizing us, that supply will get more limited.
I’m pretty new to this WTec. Deflation is a weird animal, and I don’t have a complete grasp on what is happening.
If you accept that inflation/deflation is tied to the money supply then sounds like we have deflation.
The price jumps you are seeing may in fact be temporary.
Its hard to be precise with any of this stuff because I am struggling with the velocity of money aspect. Not sure what a sustainable velocity of money is and how to relate that to the real economy.
I think, however, globalization and the national debt make inflation without rising wages possible.
I agree. And I believe that the masters of the universe are banking on it.
I know this must be a misprint, but the irony just cracks me up!
http://tinyurl.com/2wsp88
LOL - I wouldn’t give more than a quarter billion for it.
“Not sure if you’re referring to a financial mania, but I find it curious that the ‘next bubble’ is referred to now, even in the mainstream press, I guess it is the result of having two so close together. But we’ve had 2 in 50 or 70 years (excluding the gold/silver bubble in the 80’s - small). It is possible we’ll never see another in our lifetimes.”
Perhaps we’ve had two national bubbles, but in the 1980s the Northeast had a real estate bubble that was identical to this one. And after it crashed I thought “that’s a lesson and this will never happen again.” WRONG!
I still think inflation is a strong possibility. The 1950s and 1960s generations have proven over and over they don’t care about the future. The loss of our currency’s reserve status is a long term cost. The insolvency of major financial institutions is a long-term cost. Thus, print money.
Census Facts:
“Nationally, in 2000, the ratio of median value of owner-occupied housing ($111,800) to median household income in 1999 ($42,000) was 2.7″
Click on the pdf for housing here:
http://www.census.gov/population/www/cen2000/censusatlas/
Bernanke:
“U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, “largely reflect strong economic fundamentals,” such as strong growth in jobs, incomes and the number of new households.”
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
Bernanke is Mr. No Credibility.
“The more pedestrian commodities will certainly suffer from the world-wide slowdown, but Gold is a special case.”
LOL, it’s different here!
Gold has a history of thousands of years of being money, with the last 75 years being an exception, fiscal madness that worked ok, as long as nobody questioned anything too much…
What other commodity can claim that?
Silver.
Remember that Florida has competition from snowbirds, retirees and foreign buyers. This causes house prices to be way out of whack with low local wages. I don’t understand why anyone is willing to get paid in sunshine when they could relocate, earn more and buy much cheaper houses. Even Texas would work well for them and $100k gets them like 1800 square foot of house!
For the last 30 years or so, this society has glorified those who “break the rules” - Sam Kenison, Monty Python, and the rest taught the younger generation that outrageous behavior begats success. Our young prison guards/soldiers laughed at the embarrassment of nudity/sex on other cultures, but when those guys hold the precious commodity that we need? Who’ll get the last laugh? Not a pretty future that our young people will face.
Having spent 6 months in Europe it is becoming increasingly obvious to me that the USA is coming out the big loser in all this. Talk to your average European in Germany, Italy, France, UK, etc. and you can see how their way clearly has helped them compared to ours. For starters, their standard of living is actually pretty good compared to ours. Their access to health care is much better, and the long waits we heard about are actually shorter than we have in this country now. It’s also essentially free. The investments they’ve made in infrastructure make it possible for them to travel practically anywhere relatively inexpensively thanks to rail. And even if oil goes to $500 a barrel they are not going to see huge increases. Most use trains, not cars. They also seem to be much more fiscally responsible, as is evident in the strength of the Euro. The truth is when the smoke clears the citizens of the USA will be the big losers. It really is true that if you run your country like shit it will eventually implode. We have nobody to blame but ourselves.
While I agree with much of what you’ve written, I differ strongly about the transportation because of the huge disparity in size. If you include Russia, which is entirely huge and does not have the utopian transport system you laud, all of Europe contains 3.93 million sq. miles. The U.S. is 9.83 million sq. miles.
What you admire is what is in Western Europe, and because of the relatively compact space and population density, spider-web transport is possible and practical. The U.S. is not comparable in that respect. To go to the other extreme, in a ludicrous way, why is there no mass transit in Fiji?
Yes, but where we do have population density we don’t have the transport structures we need in place. Plus building good transport actually increases density around transport hubs.
BTW, where exactly in Europe did you spend the six months - in what city /cities were you living?
You are correct Chip, it was mainly Western Europe, although we did venture to the Czech Republic, and Turkey, which are further east. I guess the intent of my post was to say I see that Europe’s “socialized” system eating our lunch. In the end millions of Americans may find themselves with no retirement, extremely expensive medical services they won’t be able to access, while gas prices and overall inflation sapping what little purchasing power they have. And from where I am sitting, Europeans are doing far better. I think what we see today has all the markings of a failed economic system in the USA. The fabulously wealthy are sucking the life out of this country.
hear f’in hear
“The fabulously wealthy are sucking the life out of this country.”
With that, I agree. It is a shame that so many people consider oligarchy to be part of a free market and accept getting fleeced because they do.
Everything said about China is true. Part of it is exuberance because of the olympics, and the rest is just plain overconfidence. I have a friend in Beijing who is buying his first house this year. I told him the market was overpriced, fueled by hype generated from the games and he should wait until next year when it’s over and the prices go back to normal. He answered that it was his dad’s decision, and his dad believes that prices only go up, *never* down. During the last 50 years in China that’s certainly been true.
Oh another thing though, China only sends 20% of its exports to the US. The shares going to Europe and Japan are considerably bigger, believe it or not. So while it could be ugly, I don’t think it will be the end of the world. China has manufacturing and can feed itself. I’d be much more worried about Japan, which can do neither.
Seems property in all countries suffers from the same malaise.
Here in Bangkok property is outta sight. 4 million baht (135K) is routine for an unspectacular apartment. OK prices in parts of Queens, but this is in a country where the minimum wage is 160 baht a day. (That’s approximately $5.35 at today’s plummeting US$ exchange rate. For all you potential vacationers, the betting here is that the $ goes down another 20%, to the historical 25 baht to the dollar range.)
The number of foreigners pouring money into unbuilt, amazingly overpriced vacation home complexes near the beach as investments is scary. Almost all Thais are priced out of popular beach areas. And don’t even ask about land title disputes in Thailand.
Anybody else expect the effect from the US subprime to move eastward later this year? Many people on this continent seem to have an “Asian property can’t come down now!!” mindset. It’s as if people believe what happened in Japan and the dip in HK prices a decade ago were single abberations.
There’s no doubt Asia contains the new growth economies, but nobody seems to remember the word “bubble.”
The Bubble situation continues to grow worse: the tech Bubble creamed a few areas harder than most and wiped out some stocks and companies; the housing Bubble could topple the economy; a commodities Bubble could leave people starving in the streets. It is amazing what the Wall Street Pigs will do to their fellow man to get a few more bucks (which they don’t even need!)
After gas hits $4 a gallon and stays there and inflation works its way through the system, the average ex-middle class American will have a lot less money to blow on housing (assuming he even still has a job!) - housing prices can only be crushed by all this.