A Decision Done Right?
By The Mysterious Flying Miser -
The other day, I was reading through a few of today’s big ideas for solving the housing crisis, and I started to wonder whether or not there were any good solutions being proposed by the Federal Reserve Bank. It crossed my mind that a few of these wise guys might be able to offer some insight into what caused this mess. I’ve always found it easier to solve a problem when I know what caused it. So I take a look at their website thingie, and this is what I find. It turns out these guys had nothing to do with it. Really!:
From Productivity Swings and Housing Prices, by James A. Kahn, Federal Reserve Bank of New York, July 2009:
“The housing boom and bust of the last decade, often attributed to ‘bubbles’ and credit market irregularities, may owe much to shifts in economic fundamentals. A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.”
Remember this one from Alan Greenspan, Former Federal Reserve Chairman, in 2007?
“Mr. Greenspan, who calls himself a ‘lifelong libertarian Republican,’ writes that he advised the White House to veto some bills to curb ‘out-of-control’ spending while the Republicans controlled Congress. He says President Bush’s failure to do so ‘was a major mistake.’ Republicans in Congress, he writes, ‘swapped principle for power. They ended up with neither. They deserved to lose.’”
“‘We wanted to shut down the possibility of corrosive deflation,’ he writes. …‘It was a decision done right.’”
“He attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates. Mr. Greenspan returns repeatedly to the far-reaching importance of communism’s collapse. He says it discredited central planning throughout the world and inspired China and later India to throw off socialist policies.”
From Monetary Policy and the House Price Boom across U.S. States, by Marco Del Negro and Christopher Otrok, Federal Reserve Bank of Atlanta, October 2005:
“We use a dynamic factor model estimated via Bayesian methods to disentangle the relative importance of the common component in OFHEO house price movements from state- or region-specific shocks. Our sample consists of quarterly data from 1986 to 2004. We find that historically fluctuations in house prices have mainly been driven by the local (stateor region-specific) component. Indeed, growth rates in OFHEO house price index are less synchronized across states than are the growth rates in real per capita income, which are a measure of the business cycle at the state level. In the recent (2001-2004) period, however, ‘local bubbles’ have been important in some states, but that overall the increase in house prices is a national phenomenon. We then use a VAR to investigate the extent to which expansionary monetary policy is responsible for the common component in house price movements. We find the impact of policy shocks on house prices to be small relative to the size of the recent housing price increase.”
Some one sent me this a long time ago, from 2003:
‘FRBSF Economic Letter 2003-06; March 7, 2003
House Price Bubbles
House price dynamics
The unusual strength of the housing market
How far would house prices have to fall?
The possibility of a “bubble” in house prices has received considerable attention lately. To be sure, house price appreciation has been strong in spite of the slowdown in the economy. From the beginning of the recession in the second quarter of 2001 through the third quarter of 2002, house prices rose at an annualized rate of 7%, according to the Office of Federal Housing Enterprise Oversight (OFHEO). By contrast, in the comparable period around the last recession in 1990-1991, house prices rose at a more modest 2% annualized rate.
A key concern about a house price bubble is that gains in housing wealth–either unrealized gains or gains extracted through home sales or refinancing–may be partly responsible for the relative strength in consumer spending. If a bubble exists, and it bursts, causing home prices to fall, then an important prop for consumption would be gone.
A house price bubble can be defined simply as a deviation of the market price from the fundamental value of the house. The definition implies, however, that identifying a bubble as it is developing will not be so easy, since the fundamental value of a house is generally unobservable. In this Economic Letter, rather than trying to identify deviations from a fundamental value, I will adopt two different strategies to evaluate house prices. The first is to compare the recent price appreciation with the behavior of house prices in similar stages of past cycles. In this analysis, I show that house prices continued to grow much later into this business cycle than in the early 1990s cycle. The second strategy assesses whether house prices are high relative to their underlying rental value. This analysis shows that house prices are indeed high relative to rents, but that only mild declines in house prices and average growth in rents would be necessary to restore their long-run relationships.
A must read, ‘Greenspan’s Bubbles’, by Bill Fleckenstein. Peter Schiff also wrote an entertaning little book called The Little Book of Bull Moves in Bear Markets.
I see no mention of average incomes.. which is probably the best gauge to use when trying to determine if residential property prices are out of whack or not.
Aforementioned rental value pretty much covers this.
Rent might be a valid indicator, unless the renter is devoting too much of his income towards rent.
This is oh so true as I know some people who are paying 60% of take home pay to say they live in Manhattan. Rents will crash in NYC…only a matter of time.
Summary of all 3 pieces:
It’s someone elses fault.
He attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates.
I’m getting a headache.
Downward pressure on prices causes housing inflation? Wouldn’t downward pressure on prices cause housing prices to go down too?
I think the point is that downward pressure on wages/prices lowered interest rates, which put upward pressure on housing prices… which personally I think is bunk.
Lower interest rates = higher prices. Lower interest rates=more people qualifying. Lareah and Lay lying= higher demand=higher prices. Freddie,Fannie,Franks, Raines,Dodd=unqualified people qualifying=higher —— well you get the idea. Where’s Getstucco anyone ???????
Hey it worked for a while right? Sort of like getting a new Credit Card and living good. Once it is running out of steam you get another and keep living good while paying on the other one. Now you have REALLY good credit the cards keep coming. The party goes on and on and on ….. Until …
One day someone looks over and says are you mad and all that is left is the hang over! Welcome to 2009!
My first thought, upon reading this, was, “Is he on crack?”
Seriously, the fall of communism? No, Mr. Greenspan, that does not have a direct correlation to interest rates… it seems to me that there’s some government body that has something to do with those… on the tip of my tongue…
He has to be! Have you seen his wife ? Some hag info babe (Mitchell), on NBC or MSNBC.
Wife and he must be using the same plastic surgeon as Joan Rivers.
…on the tip of my tongue…
Izzit vomit? This thing government thing that you’re experiencing right now?
Oh, yes, durbin, while you’re here, tell us how your new house is going, and your garden, and things! I love to hear happy stories.
The fall of communism did put millions of low wage workers into the global work force. This put deflationary downward wage pressure on first world economies. The end result, right or wrong, was low interest rates to combat the dreaded deflation. I think they over-reacted to the threat of deflation and then Bernanke over-reacted in raising them too fast. In baseball terms, they over-managed the game.
Oh, a communist low wage global work force caused a deflationary downward pressure to keep interest rates low ,in America . Do we even have borders anymore ?
Gee ,here comes that wonderful low wage global work force again
that is touted as progress by the talking heads ,that Americans have to compete with .
I think this notion is pure poppycock. When Communism fell apart in the early 90s, all of the Soviet Union’s constituent states were badly underdeveloped and lagging most other 1st world countries in terms of industrialization. Consequently, it’s difficult to imagine how the fall of Communism could have coincided with worldwide wage deflation given that many workers in the former Soviet Union were (and still are) unemployed. It also took those states an awfully long time to get their acts together economically, and they arguably weren’t a strong player in the globalized economy until at least the early 2000s (some still aren’t today).
A better explanation for this “wage deflation” may have been the increasingly open trade with China and other developing Asian countries during the 1990s.
China is still a Communist country.
China has not failed (yet).
No kidding - that’s my point. I don’t think the disintegration of the Soviet Union had much of any direct effect on American wages or interest rates. When was the last time you heard of American manufacturing being outsourced to Russia (or any other CIS state, for that matter)? Never - it’s usually going to China, Mexico, India, or southeast Asia.
BTW, China is a communist country in name only; I would dare call its current regime “authoritarian semi-socialism” or “fascist state capitalism” or something similar.
Actually, the disintegration of the Soviet Union led to waves of highly skilled Soviet scientists and engineering moving to the US and taking jobs here.
The good side is that they brought world class skills and education with them.
The bad side is that US born scientists and engineers saw their opportunities and salaries diminish. So, they went into finance, law, etc.
Our government has pursued a policy that emphasizes low labor costs over domestic talent. I don’t know if this is good or bad. I can and have argued both sides, often with myself. But, I suspect the policy should be made explicit and debated. Because in the end, it is the politicians who are supposed to decide policy.
LongIslandLost, good comments.
The eastern bloc had good schools and skilled workers, just not functional economies. The main impact was in the labor market.
kirisdad,
Well said. Not only does over-managing seldom produce the desired results, it’s annoying and adds hours… to the game! The Fed and others were so convinced the economy couldn’t make it through the week unless there was constant intervention and jaw-boning.
There just wasn’t any confidence back then to let a relief pitcher struggle through a “rough patch”. What we have now isn’t a depression or a recession ( it’s a “replacement economy” ) Where’s the starters?
Greenspan sounds as if his hands were tied during this period because “central planning” had been “discredited” by the fall of communism. Wasn’t he being lauded as the “maestro” who had conquered economic cycles at this very time? He could have done a whole lot more to head this thing off, other that once warning of “irrational exuberance” in the stock market and referring to some “froth” in the housing market.
Economic elites will always be with us. But to earn that position one should be a steward of the economy, not its chief vampire.
If our elite couldn’t see this coming, or did and couldn’t (or wouldn’t) seek to stop or slow it, then they don’t deserve to be the elite. They’re like GM’s top execs. Stick a fork in their a$$ and turn them over. They’re done.
Key findings by Fed researchers on the housing bubble:
1. It wasn’t our fault.
2. Nobody could have seen it coming.
On the contrary, the OFHEO modeling at the end of the OP’s blog entry suggests something was fundamentally different mid this decade. That should have been a clue of macro forces (bubble credit) overwhelming the local.
3) don’t look at Goldman. They just rock. That’s all.
“A key concern about a house price bubble is that gains in housing wealth–either unrealized gains or gains extracted through home sales or refinancing–may be partly responsible for the relative strength in consumer spending. If a bubble exists, and it bursts, causing home prices to fall, then an important prop for consumption would be gone.”
Well, they got this one right.
The only thing this editor would do is erase the words “May be partly”, and replace them with the word “were”!
So sad that they wasted their one chance to get something right this century in 2003, and no one paid attention.
Oh well. Only 91 more years to go until there is a chance they’ll get something right again.
BC,
Well, this is the big question of the day, IMO, and I’m not sure why it’s left to the HBB to explore it. Why isn’t this digging and reconstruction of decisions being done by the major media? We face a serious financial situation by all accounts, yet what got us here is largely untouched, even as more power is being proposed for the central bank!
Because the modern mainstream media is a biased, corporate-tainted joke that couldn’t find its way out of a wet paper bag?
Seriously, the business section of just about any major newspaper reads like it was ghostwritten by Wall Street money men - who still, frankly, don’t have the foggiest notion as to what is actually going on in the American economy.
We have an economic system with perhaps 70 billion variables (approximately ten per person on the planet) and we have no hope of ever analyzing it to any degree of accuracy for the purposes of future prediction, let alone being able to crunch the numbers to figure out how the equation spiked or dipped in the past. We know it happened - and that might be all we’re capable of figuring out. While we on the HBB agree on some of the macro level inputs into the bubble and bust (artificially low interest rates, favorable tax treatment in the US, stagnant wage growth) we can’t even agree - let alone imagine some of the other variables. Declining birth rates? Maybe. Did increased automotive engine efficiency add to the bubble? Possibly. Did the ability to get the urban coffeehouse experience in a suburban Starbucks add to the bubble? Maybe. How do you model and control that data?
That leads to a possible reason why the MSM isn’t digging at the truth: it is too complex to explain in a year long broadcast or book. And what is the point anyway, because we already know the answer: at the end of the day is that we just don’t know the entire reason this happened.
Furthermore, will the masses be comfortable knowing that at the end of the day we cannot predict - let alone control - the economic future? Every financial product is sold as having some control - even holding cash or gold, yet how much control do we really have? Very little. In a financial system with more and more information feeding the ever-more complex feedback mechanisms to control it; the system gets smoothed out until something spectacular happens. And when that happens, the feedback systems make the problem worse. That is where we are today. The San Francisco Fed guessed the answer right, but had things turned differently the HBB and that Fed paper would be historical footnotes showing the folly of predicting the future. Here we thought something was wrong, but would have things turned out differently had wages started growing 8% a year?
We have multitudes of religious texts to answer the question of what happens to our id when we die and we have the Wall Street Journal to answer the questions of our financial future. Both may be nothing more than fanciful publications with the primary purpose of placating the masses. Choose your gods wisely. Even more so hope you get lucky.
Great post ,but some things are predictable . The housing bubble was a predictable crash . What unknown factor is going to come in here and offset the unemployment problem ? How are people going to start spending when they are already in debt up to their eyeballs ? I think when something has failed ,you go back to the tried and true . You can look through the Bible and see that people keep making the same mistakes over and over again .
Maybe the World will all of a sudden discover a cheap energy
source and be able to produce food for the entire world cheaply by some innovation ,or maybe a painful crawling out of the ashes is the future . All great Civilizations have fallen ,some have taken longer than others to fall ,still doesn’t mean this one will fall . I don’t think anybody can say with the sort of government interference we are getting ,what investment is the best one . Who knows what the rules are going to be . Maybe we are headed for a ONE WORLD ORDER
and nobody can stop it .
I agree with HW that the housing bust was predictable. I believe a continuing decline of house prices is also predictable, based on the present decline of rents and the fact that house prices are STILL high relative to rents in almost all parts of the USA.
I also agree with HW that nobody can say which investment is best, and with his suggestion that public policy is always the wild card. Just now I am obsessed with the erratic and whimsical nature of public policy as an important obstacle to economic recovery. Who would start a small business when it’s impossible to predict what penalties will be imposed the day after tomorrow?
Ben - Reuters is owned by the Rothchilds and the Associated Press is owned by Reuters. Does that answer your question? They also control the Fed and probably Goldman. We’re toast.
“…We use a dynamic factor model estimated via Bayesian methods to disentangle the relative importance of the common component in OFHEO house price movements from state- or region-specific shocks. Our sample consists of quarterly data from 1986 to 2004. We find that historically fluctuations in house prices have mainly been driven by the local (stateor region-specific) component.”
Bugs: “eh Daffy, what’s your take on what he talkin’ about?”
Daffy: “Consequences, Schmonsequences, as long as I’m rich.”
Eh complex statistical model without all the required input. OOPS!
They used data from 1986 to 2004. I wouldn’t call that “historical.” How about 1926, 1936, etc.
I had a well educated engineer bring a math problem to me the other day: 60 years of flow rates in a river, at hourly intervals.
X = time
Y = flow rate
The desired output? A nth-order polynomial to predict what the flow will be for the 40 years following the end of the data set. The problem is that no matter the complexity of the data analysis (even getting away from the polynomial and going to a sine curve-fit) there are thousands of other variables that influence the flow rate in a river. My model is useless because no matter the degree of the polynomial the future prediction is always either infinity or zero due to the curve fit. Economically we’re looking at the future using equations that only model what has already happened and we’re crossing our fingers we get it right. Getting it right isn’t skill, it is dumb luck, and if you think the reason you got it right is your skill you’re in for a rude awakening.
I agree that for those of us here on the HBB the bust was predictable based upon the macro- level variables that were known at the time. But there could have been any number of public policy decisions that could have extended the bubble for years, just like there were policy decision that influenced the bust to occur much earlier (forgiven mortgage debt being made non-taxable). We predicted the bust here based upon the current public policy; but we couldn’t model every single variable of the boneheads in Washington. What if Barney Frank had a hot 20-something intern that was about to lose his condo in the South End due to a 120% LTV mortgage? Would have he proposed that all mortgage payments - both interest and principle - were tax deductions? What would have that done to our economic model and imagine what house prices would have done in that case - risen 28%? All our models are pretty much based upon current policy yet policy is changing all the time in ways we can’t even imagine.
I think we’re in universal agreement that we’re no longer passing laws based upon rational analysis of the cost and benefit for all but rather so one special interest group gets ahead of the other. What is AARP going to propose next that utterly destroys our model for predicting the economic future? That anyone over the age of 65 is exempt from paying property taxes?
Shorter Alan Greenspan: “Whatever is good for the Vampire Squid is good for America.”
And now I’m craving calamari.
Do you think it makes its own sauce?
Its called “ink”. Mostly used in the printing of money.
I guess I’ll stick with geoducks.
James A. Kahn, Federal Reserve Bank of New York, July 2009:
“A resurgence in productivity that began in the mid-1990s contributed to a sense of optimism about future income that likely encouraged many consumers to pay high prices for housing. The optimism continued until 2007, when accumulating evidence of a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.”
It was optimism, not easy money from the Fed coupled with the abandonment of traditional prudent lending standards, that caused the bubble?
Those tomato-pickers got way too optimistic about their future income. That is what enabled them to buy $800k houses. Yes, something like that.
Optimism will take you a long ways, but it isn’t powerful enough. “Certainty” is more appropriate, imo. They knew.
Greenspans comments about the Communist low wage work force
connection . Why does Greenspan always say things in such a convoluted way ?
Anyway ,the point is that America would not have to worry about what a low-wage Communist work force was doing in its quest to improve its lot by capitalist means ,if we had not merged into
a global work force ,and money supply force ,at the expense of American jobs . Now the ups and downs of the rest of the World have a direct bearing on
our economy ,even when these other Countries don’t share our
same laws and rules and regulations ,or Constitution ,or pollution standards or wage standards . All that matters is that American Companies or even foreign Companies can somehow take advantage of that desperate low wage work force .
Also never mind trade balances ,or proper tariffs ,or anything like that .
I think we all know that I have been bringing up the global low wage work force connection as being major regarding the housing
crash set up . I still don’t get why Greenspan kept the interest rates low for to long when he saw so much inflation taking place in
housing prices .
Excellent point on inflation in housing. They didn’t factor MEW into the equation and should have left int. rates higher.
“Optimism will take you a long ways, but it isn’t powerful enough.”
Money talks, bullsh!t walks.
Irrational optimism is what causes *every* bubble. Easy money simply enables it.
Leo,
So very true. Had cheap money -alone- been a driving force ( the March 2000-May 2003 bear market would have ended on Jan 20th 2001! )
In terms of “optimism about future income” I’m sure they meant future income from Housing ATM Machine, right?
Where did the Mortgage brokers go?
This will make you sick. Or pissed off. Or those two and more.
http://www.nytimes.com/2009/07/20/business/20modify.html?hp
“Come over here you cute little lamb.” [snip snip]
“I dunno. You sheared me pretty damn good just last month.”
“I think I see a spot I missed. Come here.”
“Well, ok.”
CHOP!
Fool me once, shame on you.
Fool me twice, shame on.. you?
This article does make me sick . The fraudulent people who were
conspirators in putting people into liar loans and toxic loans have the never to want to go back and try to fleece the people again .
Again we go back to moral hazard . The powers decided not to bust the fraud of the housing boom so it comes back in a different form . You can’t keep the fox in the hen house .
The world is full of hustlers.. nobody can protect citizens from them.
My dad tried to protect me. He pulled me out of my crib, patted me on the head and said “Joey, there’s a bunch of hustlers out there, in all walks of life, and they’ll tell you all sorts of lies just to get a piece of you or your money. Be careful”.
——-
HW.. Since this is the bottom of an old page, i think we might hijack this thread and talk about globalism if you like.
I agree with most of what you say. My disagreement springs from your proposal that our best path forward is to move ourselves backward.
I bet the Industrial Revolution came as a shock to many. I bet a lot of ways to make a living were crushed and discarded. There must have been huge imbalances in the labor force while people learned new skills.
And it’s easy to imagine that a lot of people longed for the old days. They may have even protested and demanded we somehow regulate industrial growth.
What happened to the industrial revolution? Where did it go? Is it still with us? No. We grew our way through it and came out the other side..
Globalization is no different… we’ll suffer some pain, but it’s just growing pains.
Good comparison.
Taking it a step further, many of those growing pains associated with Globalization may very well have fundamentally changed the equation behind house ownership from what it was 1950-2000. And at the very least those pains most certainly do not support a quick return to bubble prices.
Globalism is great and lifts all boats until you run short on resources like say oil. Then it becomes a great tool to strip wealth from the middle class and keep the poor working for less and less. Those that control resources become wealthy, those that are smart or workhard do not.
Global Luddite!
but seriously.. If you agree there is similarity between globalization and the Industrial revolution, tell me is that what happened to the middle class due to the Industrial Revolution? No.
While a very few became unimaginably wealthy.. controlled huge industries along with their resources… the quality of life rose across the board.
A couple lines cherry picked from the Wikipedia Industrial Rev page..
..life had not been easy for the poor before industrialisation…
And granted there were problems with things like child labor, diseases in the cities, etc, at first.. but
The Industrial Revolution created a larger middle class of professionals such as lawyers and doctors…
“Globalization is no different… we’ll suffer some pain, but it’s just growing pains.”
True, but the same can be said of any number of disasters as well. The Black Plague came as a shock to many, but we worked our way through it. The fall of the Roman Empire came as a shock to many, but we worked our way through it. Just because there are growing pains doesn’t mean that the triggering event itself was worthwhile or necessary.
The big problem with globalism is that it creates huge imbalances because you open borders to the traffic of goods and services, but not of people. If you advocate true globalism, all the cheap labor would disappear because people would simply move to places with higher wages.
..because you open borders to the traffic of goods and services, but not of people…
Perhaps that’s the next phase of Globalism. Let people move to higher wage states.
The place they left will then be short of labor.
Labor becomes more dear in places abandoned.
Wages must rise according to supply and demand of labor., (low supply, high demand= high wages).
Then, people have no reason to leave. That phase is complete. What happens next? Who knows.
What happens is wealth and population become evenly distributed and population continues to rise exponentially, so we all live the life of the average citizen of China or India today. We end up with no open land, no wildlife, low quality food and housing, and tons and tons of people. Which would be why many wealthier countries want to limit immigration.
We don’t necessarily “end up with” the conditions you predict. Predicting anything is tough. Predicting all that you’ve tried to would require extraordinary powers approaching that of a Supreme Being.. i’m not saying you aren’t.. just seems unlikely.
Society is no different than any organism.. It evolves and adapts and changes constantly. Social Imbalances, while they might last longer than a human lifespan, do not last forever.
No open land? No quality food and housing? Then people die. Populations shrink. Open land appears. Housing appears. Food becomes plentiful.
Your last sentence.. “wealthier countries want to limit immigration” is only half true.
Mexico treats immigrants coming up from their southern border brutally.. far worse than the USA does Mexicans on the worst day. Is Mexico wealthy?
China has big problems with a steady influx of illegals from N Korea looking for work. Is China wealthy?
Nobody, including poor countries, wants immigration for reasons that go beyond simple economics..
You are correct, it was only one possible answer to the question of what happens next in a hypothetical scenario of a “completely globalized” world. I concede that immigration policy is complicated and diverse. I only meant that some more affluent countries do limit immigration due to such economic concerns.
I hope that a uniform distribution of everything worldwide is not in our future. It could make life very bland.
Again we go back to moral hazard . The powers decided not to bust the fraud of the housing boom so it comes back in a different form . You can’t keep the fox in the hen house .
Our government is corrupt to the core. Unfortunately it appears there will never be prosecutions on the scale that is warranted.
People with these bad loans should walk away en masse. That leaves nothing to modify and no business for these hucksters.
The next step is voting out incumbents en masse at every level of government.
EggMan,
And notice how one of the very first “firms” out of the gate proved to be nothing more than hucksters? With a very official sounding FedMod name no less. If you read the article, Orangeman’s son ( Chris Mozilo ) got into the act as well.
So many people here chip their teeth over a grand many things we have absolutely NO control over but then treat this stuff like it was nothing more than a sidebar. And THAT is what frustrates the hell out of ‘me’.
And the best part is that the crooks who created this disaster will get rich from it!
Mmm…what happened to the BB?
yeah, I wanted to know that too!
Joey …It is the low wage Countries that are backwards . There was a time
in American history also when employees were treated like slaves ,working back-breaking hours for pennies . Than we advanced as a civilization and
the employee started demanding a greater share of the pie,better working conditions ,on and on ,until the great middle class evolved . It is you who is backwards in thinking that one section of the population should exploit another section of a population regarding work . We require some pollution control in America ,China doesn’t .i guess they are more advanced than America ,or is it that they are more like we were in our industrial past ?
You consider it progress that the Corporate Machine side of production gets to exploit labor for a bottom line bigger profit and you call that progress because someone gets richer at the expense of what would be fair regarding the Employer/employee contracts . Why don’t we just progress to paying desperate people 25cent a hour and tell them to
to like it or else .Hell why should labor even want anything in life ,why ‘doesn’t the greed machine just go forward and put chains on the workers and that way they won’t need fair wages .
Globalism is simply undoing all the progress America made in 200years .
I think there might be a way out the whole mess without starting a war with China. If we gradually nudge people away from Chinese exports and towards establishing non-service businesses in this country, while China slowly develops the consumer side of its economy (and reforms socially), then maybe over 20 years or so we can become two independent economies that trade with each other as respectful peers.
Now your talking jbw, thats my vision exactly .
China cannot afford environmentalism at this point in their economic evolution.. it’s been mentioned before. Environmentalism is so far down the list of survival-necessities it can be considered a luxury..
The big picture of human history is worthy of note, imo. Monumental changes and upheavals that make our current situation look like a cake walk have occurred throughout history. All the while doom and damnation is predicted no matter which fork in the road we might select.. often by our brightest minds. So far, no doom.
I think it’s safe to say that if globalism is our short term destiny we will not just survive it’s difficulties but we will capitalize on it’s benefits and advantages and we’ll all live better for the experience. Eventually we’ll pass through it and be confronted with our next evolutionary challenge.
What?
umm… I’m agreeing with you. Yeah.
Now say “Oh”, breathe your sigh of relief, and we’ll just close off this thread and act as if it never happened.
http://news.yahoo.com/s/ap/20090720/ap_on_bi_ge/us_home_buying_frenzy
Read this. Especially this part— “Now, the Thorsons have taken up a tactic not seen since the heydays of the housing bubble — they are making offers on homes before they’ve seen them, as many as three per day”.
LOL. Have people learned nothing over the past 2 years. Making offers on houses before you’ve seen them!
This is expected behavior and will occur at certain steps on the way down. As these investors lose their shirts, and have to dump their properties the slide will intensify and continue it’s trend down.
In Phoenix, no less. Good lord. I can’t help but feel like the marines in Full Metal Jacket while the sniper is shooting their buddy in the legs as they watch.
Doc Jay: Cowboy!
Private Cowboy: What?
Doc Jay: We can’t leave him out there!
Private Cowboy: We’re not leaving,we’ll get him when the tank comes up.
Doc Jay: He’s hit three f*ckin’ times, he can’t wait that long.
Private Cowboy: I’ve seen this before, that sniper is just trying to suck us in one at a time.
Private Cowboy: [Eightball is shot a fourth time by the sniper and screams]
[Animal Mother opens fire]
Private Cowboy: Goddam it! No! Goddamit cease fire!
Doc Jay: Man, f*ck this! F*ck this shit! I’m going in to bring him out.
Private Cowboy: No you sit the f*ck down!
Doc Jay: Cover me!
[Runs out in the open to save Eightball]
Private Cowboy: Goddamit! F*ck!
[the Lusthog Squad opens fire]
How’s this for an analysis? Since at least the 1980’s two trends began. One was the phasing out of high-paying unskilled and semi-skilled jobs domestically through automation and foreign outsourcing. The second trend was the development of more and more complex financial markets granting access to larger amounts of credit. Fast forward these two trends 25 years and you see many people working for less than a living wage, credit tapped to the max, finally relying on borrowing against housing as the last chance to maintain quality of life. Once that final source of credit started to run dry, the whole house of cards collapsed.
It’s time to start a new trend, come up with ways to start growing a sustainable domestic economy from the ground up (i.e. entry-level jobs with a future). That is what Ben means by the post-bubble economy, right?
Sounds like a good post-bubble economy to me. So, howzabout if we get to work on building it?
…finally relying on borrowing against housing as the last chance to
maintain quality of lifebuy that Hummer they’ve always wanted.Joey ,
it’s true that some people got a little to greedy with the luxury items
during the housing boom ,and no doubt the housing boom was riddled
with fraud , but, jbw has a good post above on what happened overall ,IMHO.
Joey, you never seem to think that we need a “sustainable domestic
economy “,as jbw put it . Unemployment ,or low wage jobs for the masses ,doesn’t seem to bug you to much .Why should the American people give up a reasonable standard of living ? Do you realize how much more crime will be rampant if the unemployment rates continues to climb ? Maybe you think that the rich elite that were smart enough to game the system can stay safe beyond their mansion walls ,but there reaches a point were if to many people start hurting, chaos could result .
i am not in favor of the Entitlement Society concept or the get rich quick mentality that came out during this housing mania . But still ,now after the bust ,where are the jobs ?
..phasing out of high-paying unskilled and semi-skilled jobs domestically through automation..
The last time I noticed, which mighta been a couple years ago, fully half of all industrial automation machinery in the entire world was located on the tiny island of Japan. The USA has some small portion of the remainder. Kinda counter-intuitive when you think about it..
We prefer to limit our industrial progress and use manual labor to perform the tasks that existing machines could do. This keeps people employed. It’s difficult not to view the situation as a sort of make-work program.
How has this affected our price/production capabilities and overall competitiveness in the world markets? Negatively, imho. And how has that affected our (relatively expensive) manual labor force lately? Another big N.
That is interesting. It goes against the innovation idealogy of finding smarter ways to get things done, doesn’t it? It sounds like an issue that needs to be addressed in tandem with the others. Is there some sort of middle ground that doesn’t involve unemploying everybody while making a transition?
Good point about automation . In my youth ,automation was the greater fear we had for the future regarding jobs . But how much automation is China using ? When I was young we use to wonder what would replace all those jobs lost to automation ,never dreaming that
more jobs would be lost to a global work force than automation would ever dream of taking .
Look how computers have taken away a lot of time consuming work that use to be done manually . Farm machines took a lot of back breaking work out of farming .
In a world where average salaries are on the order of a few hundred dollars a month, we still have a long way to go down.
Would that be massive deflation as wages plummet, or massive inflation that devalues the dollar to the point where the current average salary here is equal to the smaller wages in other currencies? It looks like we are still leaning towards the latter. Otherwise, it might be nice to buy the whole town with the cash I have in the bank one day.
Our government is quite schizophrenic on this issue. On one hand their corporate clients demand cheap labor while on the other the government is very indebted and needs inflation. At some point I believe survival will take over and Inflation will the game. Besides, with deflation does that not by definition imply that 100% of all debts are defaulted on as the value of the debts increase beyond any possibility of repayment? Looks like what is not understood is that the money has already been spent. Remember the big party? This is the hangover take it anyway you want deflation, inflation whatever… The money was spent and now has to be repaid - or not!