Weekend Topic Suggestions
Please post topic ideas here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
November 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
Assuming we won’t get out of this mess any other way, which should you hope for if you were rich, middle, or poor: inflation, deflation, or stagflation? Why?
Why hope for deflation when the great gods of monetary policy are failing to stop it?
Who will this deflation benefit or hurt the most?
Everyone benefits from increasingly affordable prices.
Then why does the Fed fight deflation so aggressively?
Because you love them so much. They’re your friends. Help them Alpha help them.
Why does the FED fight “deflation” so aggressively? That’s easy to figure if you think about it for a minute.
Money is loaned into existence. Central Banks insure a “debtor” society by creating the money for lending. As long as the “value” of the loan exceeds the “debt”, the probability of keeping you working to pay off the debt is a good bet. You become a servant of the Lender.
Look at housing. People “walk-away” not because they can’t pay the debt, but because they owe more than its current market value.
The goal of the FED is always to keep “positive” inflation. That is why Bernanke and fellow stooges at the FED want to push down interest rates and keep up prices. It is a policy that insures continual slavery of the masses.
Contrarily, Deflation is Good for people who have worked and saved and are net “lenders”.
The “value” of their savings buys more and more. It assures that you can retire a current market value of your savings and will always have enough money, without risking it in the “markets”. The FED hates this situation. You are no longer a slave to the Banksters and will not need to go back to work at age 70 when your life savings have been siphoned off by government money-printing.
DEFLATION is the natural tendency for all capitalist societies. Everyone is looking to produce more for less, competing with new products and innovations. IF the government didn’t have Central Banks printing counterfeit currency, most products would be like the electronics industry….cheaper every year. Cheaper is always better for the frugal and industrious who’s savings SHOULD provide loans for investment. Instead, the FED has stood in the way of savings and investment and pushed private savers “over the cliff”, substituting freshly printed dollars to their friends in Banking.
The FED is your enemy unless you work in government, or you are a big-time gambler.
Oh, I forgot to add the other salient point.
Inflation also creates the delusion of wealth expansion, i.e. “growth”.
When the prices go up, and you sell the same amount of stuff, the government can claim that your business “grew”, which it did not.
However, just like we saw with the housing whores in the local governments, although your house is the SAME house you’ve been living in for the past 10 years, it is now worth 2x the money (2007 pricing).
Therefore, you should pay 2x the taxes and the government should “invest” the money in more government projects and higher salary and benefits for government workers.
Inflation makes all these wonderful things happen, until the drainage to real wealth overwhelms the system and we have a financial collapse.
The FED helps justify higher wages for government workers and those on “entitlement” programs.
Yes, I know why the Fed fights inflation. I was curious if the poster stating that deflation benefits everybody knew. Or cared to admit he knew.
I know why the Fed fights
inflationdeflationdebtors, if they intend to pay.
How does deflation help debtors? Doesn’t it make their debts harder to pay off?
oops. you’re right..my mistake.
“Doesn’t it make their debts harder to pay off?”
Not if they have the option to hand back the keys to the creditor and walk away…
and then buy again 3 years later… with another FHA loan.
SHAZAM!
Alpha likes inflation because he is a boomer, and he owns.
I am a saver, rule follower, hard worker, and averse to risk.
I would like deflation, please.
Everyone in this scenario is predictably rational.
he is a boomer, and he owns
On the contrary, I am a gen Xer, I own a pre-bubble house that’s paid off, and I’m mostly cash. Deflation would benefit me, and it’s actually what I expected. I would love to snap up some stocks at PEs of 7 or less, and I’m ready to do so should that ever occur.
But I try to think beyond my own interests.
“try”
http://www.youtube.com/watch?v=5Ptuzx_aHkM
- It will hurt most young people with no assets or jobs.
- It will most help old people with savings parked in conservative (low risk) investment portfolios (think Mrs. Watanabe), provided it does not get so bad for young people that high crime rates or revolution ensue.
If I were a rich man, and had a good crystal ball, I would opt for inflation.
Why?
1. I would be in a position to buy inflation hedges when the 99% are down on their heels, financially speaking.
2. Inflation is consistent with an improving labor market, reducing the chance of revolution by young discontents.
3. Old folks don’t tend to revolt much.
1. I would be in a position to buy inflation hedges when the 99% are down on their heels, financially speaking.
But if you were rich, wouldn’t it be easier just to sit on cash during a deflationary period, and ’snap up’ the bargains?
I think if I were rich, I’d prefer deflation, for just that reason. It’s safer, I could just stay in cash, and do fine. Inflation requires fancier footwork to stay ahead.
“But if you were rich, wouldn’t it be easier just to sit on cash during a deflationary period, and ’snap up’ the bargains?”
That could work out fine. But I would still worry more about social unrest, at least here in America (not so much in Japan), under conditions of deflation, cascading debt default to depression, and higher resulting unemployment.
Would deflation be more likely to lead to social unrest than inflation?
Social unrest, to me, is a joke at present.
I marched in the ’70s and volunteered for McGovern.
Working at a record store, I sold hundreds, if not thousands of politically-based bumper stickers.
Occupy nothing has no resolve. Dead. Nada. Zip. Zilch.
Not for lack of trying except I truly believe it is.
Did I change anything? Likely not.
Has OWS changed anything? Likely not.
GIGO.
Being rich generally means that you own assets. Most assets react well to inflation. If you are the rare rich person that only holds cash, and no other assets or debt (no artwork, no real estate, no stocks, no precious metals, no mortgage), then you would like to see deflation.
“Being rich generally means that you own assets. Most assets react well to inflation.”
Assets usually come with government expenses, so it’s necessary to have a reliable cash-flow that can keep up with the demands. I vividly recall having a fire sprinkler system requirement imposed during the mid-seventies, and let me tell ‘ya those were scary years; lost a lot of sleep. Local government didn’t give a chit about the recession either. Then again in the early nineties following the Loma Prieta earthquake seismic retrofit requirements arrive, but the cold war had ended too, so once again expensive mandates right in the middle of another recession. Same story, local government didn’t give a chit.
Being rich generally means that you own assets
The rich also own a lot of bonds and the like, which do quite well during deflation. The classic rich strategy is to sell your assets at the top of the bubble, then await deflation until you can ’snap up’ the bargains in the deflationary crash.
I saw one of the Rothschild’s interviewed on CNBC several years ago- at the start of the crash. He said he was mostly in gov bonds.
http://www.youtube.com/watch?v=7Fw1RMKWypo
Assuming we won’t get out of this mess any other way, which should you hope for if you were rich, middle, or poor: inflation, deflation, or stagflation? Why?
Inflation/Deflation Face-Off: Harry Dent vs. James Rickards
https://www.youtube.com/watch?v=pSOGwthC_JQ
FWIW, Dent loses his patience (credibility?) in this 15-min clip.
“…stagflation?”
Yup, that’s my prediction right there.
Are fiscal and monetary austerity substitutes or complements in the optimal level of federal economic governance?
The Tell
The Markets News and Analysis Blog
Post-cliff tax teeth nipping paychecks with new IRS guidelines
January 4, 2013, 9:14 AM
With the ink on the new fiscal cliff bill in Washington barely dry this week, the Internal Revenue Service has quickly issued guidelines for employers on tweaks to weekly paychecks for working Americans.
…
Social Security tax deductions on paychecks will increase by 2% to 6.2%, up from 4.2% in 2012 and 2011, The Wall Street Journal reported. The increase comes as tax cuts expired after a two-year extension approved by Congress in 2011.
While the U.S. continues to add jobs, Uncle Sam will be taking a bigger bite out of taxpayers’ wallets, leaving less money left over for consumers to boost the economy by buying cars, vacations and real estate.
– Steve Gelsi
ECONOMY
January 3, 2013, 2:12 p.m. ET
Fed Divided Over Bond Buys
By JON HILSENRATH
A new fault line has opened up at the Federal Reserve over how long to continue bond-buying programs aimed at spurring stronger economic growth.
Minutes released Thursday of the Fed’s Dec. 11-12 policy meeting showed that officials were divided. Some wanted to continue the programs through the end of 2013, others wanted to end them well before then and a minority wanted to halt the programs right away.
While exposing the divide, the minutes didn’t indicate which course the central bank would choose. Since September, the Fed has said it would continue the programs until the job market improves “substantially,” a benchmark it hasn’t defined.
Stock prices fell after the minutes were released, with many investors surprised to learn the programs could end sooner than they thought. The Dow Jones Industrial Average finished the day down 21.19 points at 13391.36.
The reaction was a potential warning from investors, who have grown accustomed to repeated Fed stimulus efforts since the 2008 financial crisis. The market reaction showed that even discussion about ending the programs, also known as quantitative easing, or QE, could jolt stocks and bonds.
“Any big shift in the assessment of the future for QE is going to have pretty significant repercussions in the markets,” said Stephen Stanley, chief economist at Pierpont Securities.
…
Which asset class would get hammered the worst if QE-to-infinity-and-beyond were suddenly ended?
Possible candidate (and sorry to harsh on the gold bugs’ mellow):
Gold - Electronic (COMEX) Feb 2013
Market open
$1,640.60
Change -34.00 -2.03%
Volume 131,284
Jan 4, 2013, 8:33 a.m.
Quotes are delayed by 10 min
Previous close $1,674.60
Only down by a perfect 1% by the end of the day. ‘Tis a mere flesh wound.
I’d also vote gold (down near term, also down medium term, IMHO).
However, a close second would be long-dated treasuries (biggest fall would be short term, however, as the Fed’s buying at all cost goes to $0, and long-dated rates would rise quickly to a level supported by the market).
Question for the gold investors on the board:
Do you plan to dump your gold holdings before QE ends, or stand your ground, like the revolutionaries behind the barricade in Les Miserables?
CRATER!
QE end? It does not make any difference at this point there is so much gasoline on the floor, it is the spark that is needed and will set off the inflation fire. If we ever had enough growth to reach 6.5% unemployment, inflation would be through the roof and the FED would be behind the curve trying to prevent it. If you had read my posts carefully a few months ago, I told people that I was protecting my positions in mining stocks by writing calls. The action by the metals is just what you want if you have written call options, essentially sideways. When they expire in two weeks, the bull market can resume.
Of course it will! lmao
Carry on my inflationista pimp.
Good question, and one I often ask myself.
I took a modest position in GLD in 2006 and another modest position in a precious metals (silver and gold bullion) closed end fund in 2008. Both have done very well over that time frame. The precious metals now account for more than 5% (but less than 10%) of my financial assets. They have provided a great deal of stability to the overall portfolio.
Even when the prices of gold and silver drop I’m inclined to hold on to them because of the diversification and possible negative correlation to other asset classes.
If they drop to the point where they approach my acquisition costs then my psychology may change.
I don’t see QE ending anytime soon, as having to pay real interest rates would wipe out the Fed Gov. And as long as big inflation does not rear its ugly head, why would they even think of stopping?
My guess is that the current discussion is a jawboning exercise designed to start the adjustment process to the absence of QE before it actually begins in 2015 (or whenever). Once the expectation for an early exit by the Fed is priced in, the stock market can enjoy a future rally on the announcement that QE will end ‘later than expected.’
Which asset class would get hammered the worst if QE-to-infinity-and-beyond were suddenly ended?”
Long Bonds for sure. Maybe RE see my question below
If interest rates go up will it halt the RE recovery ?
By Hibah Yousuf | CNNMoney.com
“After three decades of declines, interest rates are near rock bottom, and many Wall Street experts think the bond bubble may be about to burst.
In fact, nearly 40% of the 32 investment strategists and money managers surveyed by CNNMoney think that interest rates will begin to rise in 2013, and another 30% say the shift will begin in 2014.
That would be even sooner than the Federal Reserve’s projections. The central bank doesn’t expect to raise the federal funds rate, the key interest rate that influences overall interest rates, until some time in 2015. The Fed said last month that it will keep its stimulative policies in place until the unemployment rate falls to 6.5%, which it doesn’t think will happen before then.
“Like it’s been in the case of Japan, low interest rates can go on much longer than expected, but right now it seems that all the stars are aligned for interest rates to rise,” said Jeff Weniger, senior investment analyst at BMO Private Bank. “But ultimately, whether it happens in 2013, 2014 or 2015 doesn’t matter too much. What matters is that you’re not invested in bonds when they do rise.”
That’s because investors could get stuck with big losses if they wait to sell until after rates rise, since the value of bonds decline when interest rate move higher.
If you correctly understand that a “housing recovery” is dramatically lower prices by definition, then the answer is no. In fact higher interest rates would accelerate the housing recovery.
Given QE-to-infinity-and-beyond, what would make interest rates go up?
Is the Fed the tail that wags the interest rate dog, or do factors beyond the Fed’s control wag the tail?
“…and many Wall Street experts think the bond bubble may be about to burst.”
Is this based on the presumption that the Fed faces factors beyond its control that will prematurely terminate its low-long-term rate policy? Or is the belief that the Fed will decide to stop suppressing interest rates earlier than expected?
I’d be interested if anyone can offer a scenario which would force the Fed’s hand before they want to exit…
I hear this argument all the time that the FED is only “following the market”. It is total B.S.
IF the FED ONLY set their interest policy as the money on FED loans to banks, that would be largely true.
HOwever, the FED is becoming the SOLE buyer of bonds printed up by the Treasury.
What does that tell you?
The MARKETPLACE won’t buy at the current rate.
So, yes, the FED is controlling interest rates by not allowing free market bidding for Treasuries.
Additionally, the collusion of Central Banks world-wide, working with Goldman-Sachs and the other big banks has created international instability.
Treasuries are bought because “other” investments are even worse than T-Bills.
If you’ve got YEN, do you think they are going to hold their value? No. So, Treasuries will probably lose less. A Real investment incentive.
It’s like the old story when Commercial Real Estate was largely bought for tax write-offs. The Salesman would ask you “How much do you want to lose?” A stupid question for an “investment”, unless you figured you were better off than the alternatives, in that case via tax “savings”.
“Additionally, the collusion of Central Banks world-wide, working with Goldman-Sachs and the other big banks has created international instability.”
Industry structure, conduct and performance was OT in Yellen’s talk today, aside from a myopic focus on derivatives trade counterparty networks…
I know this may be somewhat OT, but the recent news about how cutting off subsidies would make milk prices double made me wonder about what people would think if they knew the “real” cost of things.
(Think about it, what if that gallon of milk had a price tag that said “retail $3.99, $4.00 value in subsidy”.)
I think one problem with Americans is they don’t have a real sense of what they “get” for their taxes.
Now, I’m not arguing that some taxes may not be spent inappropriately, but that this “taxes are evil” meme is possible because people don’t seem to have a sense of benefiting in any way.
Perhaps discussion about what you “should” get for your taxes?
The shift from Republicans selling out the future when they had the power to reward the rich with tax cuts by doing so, to Democrats selling out the future. Even though the less well off will almost certainly suffer the consequences some day.
Note liberal thinker — Krugman et al — now claim that deficits don’t matter. Do they think the U.S. should try to inflate its way out of its debt disaster? If so, they should say so.
The $1 trillion coin is the latest absurd idea.
“The $1 trillion coin is the latest absurd idea.”
I begin to suspect economists are quite gifted in coming up with these.