The Real Problem With Housing Bubble Era Thinking
This topic suggested was cross posted from an exchange earlier this week. “What is the real problem with Housing Bubble era thinking?”
“The big-name economists who have bought into the Housing Bubble paradigm have lost sight of the fundamental equilibrium relationship between home prices and incomes. The traditional perspective of housing as a consumption good providing shelter to owner-occupant households has been supplanted by a New Era view that owning homes is the sure path to investment gains.”
“Since the leaders of government agencies with an interest in housing policy have generally bought into the view of housing as a financial investment, rather than a source of shelter, policies have been adopted to try to drive increases in the investment ‘value’ of housing, and metrics (e.g. Case-Shiller/S&P Index, Zesstimates, etc) have been devised to measure the success of government programs to increase the value of housing.”
“Although the fundamental equilibrium relationship between household incomes and home prices has not gone away, it is routinely ignored by the stumped experts who can’t figure out why the flow of housing market transactions is in the toilet again. Why is it whatsoever surprising that policies engineered to pump up home prices would end up pricing most U.S. households out of the market?”
A reply, “The fact that, after six years, the pooh-bahs running the show haven’t figured out that falling incomes = falling house/car/retail sales tells you all you need to know about their intelligence. Or that their income streams depend on the various fantasies associated with home ownership.”
One said, “Worse - due to their cheap free money policy they have actual pulled in future demand and burned it all.”
And this, “Oh I think they’re smarter than that, but in their greed they’ve decided to loot their country’s treasury via guaranteed mortgages because they don’t know what else to do other than wait for “American Innovation” to rescue the economy. Off-shored jobs, obesity, retiring boomers, etc., add up to a perfect economic storm.”
The original commenter said, “They may indeed be smarter than that, in which case their official pronouncements to the contrary are thinly-veiled lies.”
One added, “The banks loaned out too much money, and it can’t be repaid. The short term solution is to loan out more. The long term solutions is….well…they don’t seem to have a long term solution.”
The Columbus Dispatch. “Just a few months into his job, Federal Housing Finance Agency Director Mel Watt has signaled that government-backed mortgage giants Fannie Mae and Freddie Mac again will promote easy lending standards for homebuyers. Never mind that it was this approach that created the housing bubble and crash that precipitated the Great Recession.”
“Watt was among the strongest defenders of Fannie and Freddie even when there were clear signs of trouble by 2007. After he was nominated last year, The Dispatch editorialized that in his 20 years in Congress, ‘Watt has been directly involved with and personifies the actions that led to the housing bust and resulting financial crisis of several years ago that still haunts the U.S. economy.’”
“The game, started in the 1990s, goes like this: Politicians call for programs to boost homeownership, especially among minority buyers who they say are being unfairly shut out of the American Dream. They get votes by playing the populist, while reaping big donations from financial institutions that stand to benefit from more mortgage business with little risk, based on the expectation of a government bailout in case of trouble.”
“The problem is, this scheme of policymaking-for-votes-and-donations ended up sending the U.S. economy into crisis, from which it has not fully recovered. But the opportunity to look like a hero while raking in donations apparently is too seductive for many politicians to abandon.”
PBS News Hour. “Chris Martenson runs PeakProsperity.com as an ‘econoblogger.’ The Ph.D. neuroscientist, who also has an MBA, explains to Paul Solman in the web exclusive video above, the power of exponential growth means that the American economy is constantly multiplying in size. But since the 1980s, so have our debts. In fact, debts have grown at nearly twice the rate of economic growth. What’s even more worrisome to Martenson is that no one, certainly not the Fed, seems to be doing anything about it.”
“Martenson:We have an economy that’s based on growth. We want to grow all the time. Not a lot — 3 percent real, maybe 5 percent nominal growth. We want jobs to grow; we’d like to see more auto sales next year, we want more houses sold. And it’s always on a percentage basis. Whenever anything is growing by some percent amount over a unit of time, it sort of takes this characteristic curve shape. It’s not a straight growth…If we said we want our town to grow by 5 percent a year, in 14 years, that means twice as many people are going to be living in that town.”
“So even if our economy’s growing at just 3 percent a year, we’re going to be doubling it every 24 years, right. When your child grows up from an infant and is 24 years old — a young adult with still a lot of life in front of them — the world is twice as big. So how many more times can the world be twice as big?”
“And [we see] the same thing when we look at the credit markets. All total credit market debt — state, federal, local, household, corporate — it’s been growing exponentially as well. And here’s where the story got a little odd for me: it’s really only been since the early 1980s that we and most of the OECD countries, but the United States [especially], started doing something really uniquely different. We started growing our debts at a rate roughly twice what the underlying economy was growing at.”
“What the Federal Reserve is doing is running the biggest social monetary experiment ever, and I say ’social experiment’ because money is the glue of any society. It’s an act of trust. They are eroding that trust consciously and I believe with precious little training or history to guide them.”
“I see all the central banks acting in cahoots at this point in time to maintain this apparent stability that we’ve got, but the pressures are building, not relieving, is how I look at it. The time I wish, like 2008 — that was the moment to have the conversation with ourselves. It wasn’t a housing bubble; it wasn’t Lehman. Those were symptoms. It was a 40-year-long credit bubble experiment where we thought we could borrow faster and more than we were earning and that would have been the moment to say: How do we get back in line here?”
“As long as we’re just perpetuating the status quo, papering over, saying: let’s just get joblessness down and then we’ll open this up to conversation. Listen, an emergency’s no time to have a hard conversation. What they’re really doing here is they’re denying us the opportunity to say, what should we be doing differently?”
” a 40-year-long credit bubble experiment…”
I think the only experimental part of it was testing the tolerance of the people for wealth transfer to the financial sector. 2%, 10% per year skim of the wealth of the nation; how much is too little, how much is too large? This is what we get for letting the private banking interest print the nation’s money.
If a gang of bikers ripped off 1% of the wealth of even a little town, an army would be raised to wipe them out. If a gang of bankers rips off 2% of the wealth of the country every stinking year what do we do? We join up and borrow ourselves to the eyeballs, hoping to get in on the rip off.
Not that I am innocent, I just find it curiously ridiculous.
“I just find it curiously ridiculous.”
I find it enormously profitable.
“We join up and borrow ourselves to the eyeballs, hoping to get in on the rip off.”
“Willingly”, you left off the term “Willingly”, as in “We willingly join up and borrow ourselves to the eyeballs, hoping to get in on the rip off”.
Life is good and people are smart.
“And [we see] the same thing when we look at the credit markets. All total credit market debt — state, federal, local, household, corporate — it’s been growing exponentially as well. And here’s where the story got a little odd for me: it’s really only been since the early 1980s that we and most of the OECD countries, but the United States [especially], started doing something really uniquely different. We started growing our debts at a rate roughly twice what the underlying economy was growing at.”
The president in office when this starts (Ronald Reagan) gets to enjoy a historical legacy of revitalizing the economy.
Somewhere down the line, at the point of debt collapse, another president will fall victim to a legacy of economic failure.
P.S. I remember my dad showing me a chart that someone put together in the late-1980s that documented the decoupling of debt growth from revenues that took wing while Reagan was in office, largely due to a huge military buildup. He could get away with it in part because he represented the fiscally conservative party.
‘He could get away with it in part because he represented the fiscally conservative party’
As I’ve said before, it takes a comrade to sell you out.
A lot of things appeared about this time; much was made of “saving” social security. Remember Bob Dole and Greenspan and others were on some sort of “bi-partisan” committee that came up with quadrupling the tax rate and making employers match it? Problem solved, for 30 years or so. Here we are.
It was about this time that we were told, with a straight face, that we were to become a consumer driven economy. And we were also told the US was the worlds economic engine; we would borrow, buy the worlds stuff and lift all boats. The only thing left to do was NAFTA and the WTO. Here we are.
(That said, even if we all agree that this period in time is the beginning or all our ills, does that solve our problems?)
You topic is something I’ve been thinking a lot about recently. Mainly because I’m sick of wrestling with the BS thought process about the housing bubble. Like Janet Yellen talking about affordable housing! Is this bizzaro-world or what? You can’t argue with nonsense. You just reject it. State the truth, and people will recognize it. I think with the housing bubble, we’ve got a lot of work to do.
“You can’t argue with nonsense. You just reject it.”
“Tune in, turn on, drop out.” Timothy Leary
I’m not crazy about the middle part (”turn on”) but I like the first part and the last.
“State the truth, and people will recognize it.”
A bit of pain also helps.
“State the truth, and people will recognize it.”
A lot of people have a vested interest in not recognizing the truth.
“State the truth, and people will recognize it.”
I am feeling pretty tired of my self-appointed role of truth-stater. How many times does one need point out the obvious before collective recognition reaches a pervasive tipping point?
The company I work for has unfunded retirement commitments. This is no secret because each year they are require to report to us, the employees, the status of these commitments. Nevertheless the status of these unfunded commitments is “explained away” not by the company but by potential retirees.
These potential retirees are dead set on retiring no matter what. Numbers mean nothing to them. At least they mean nothing until they have actually retired and then - surprise! - these numbers have suddenly acquired a reality that “no one could have seen coming” in that the company’s commitments get cut back.
And there is no learning curve: Potential retirees should be able to see what is happening to others who went before them but for some reason or other they cannot or they will not.
‘before collective recognition reaches a pervasive tipping point’
This gets to something I am amazed by. I can clearly remember a few years back, I would overhear people say, “those house prices weren’t real. It was inflated, it was unsustainable.” The media was full of such comments. But hardly a peep when those prices returned.
It’s really not new and it is bubble era thinking. It’s rationalizing. See, it wasn’t the prices that were out of line; it was the loans. It was wall street and fraud. No one said seven years ago that those prices were fine, we just needed it to go up that high with purely government loans. What we are seeing now is after-the-fact rationalizing of prices that were commonly considered insane just a few years ago.
‘At least they mean nothing until they have actually retired and then - surprise! - these numbers have suddenly acquired a reality that “no one could have seen coming” in that the company’s commitments get cut back.’
In principle the Employee Retirement Income Security Act (ERISA) is supposed to prevent post-retirement pension cuts. In practice, if a company goes BK and ends up dumping its pension shortfall on the Pension Benefit Guaranty Corporation, benefit cuts are likely.
Some firms purchase annuities from independent insurance companies for new retirees, which effectively decouples retirees’ financial fortunes from those of their former employer.
One also generally has the option upon retirement of cashing out your benefits in a lump sum. Even though this implies a loss relative to taking monthly annuity payments from the plan, due to elimination of forfeiture gains (long-term survivors get an insurance benefit from fellow pensioners in the covered group who don’t live long past retirement), it may be the better choice in case you doubt your company’s future financial survival.
“Potential retirees should be able to see what is happening to others who went before them but for some reason or other they cannot or they will not.”
Pure cowardice. They won’t believe it because to believe it would be to admit that they bent over and took it willingly all those years, and now they are well and truly f**ked.
Same thing when I tell people I saved up enough cash for a house. The very idea of an austere lifestyle terrifies them, and they just can’t believe it’s possible because of what their inability to do it says about them.
Ben Jones: No one said seven years ago that those prices were fine, we just needed it to go up that high with purely government loans.
Government and central bank insuring the profit of a small group of people.
In policy making, we can see policy as a step in the right direction or a step in the wrong direction. No one goes off the cliff in one fell swoop. It’s the result of a bunch of steps, typically.
Having government insure private debt reduces the population’s standard of living by encouraging debt and increases profit of a small group of companies. It’s a step in the wrong direction. The candidates that stand for election are first vetted by the supreme council (aka party bosses and run through the primary). Rest assured very few to none will oppose any option which will reduce their access to money and power once in office. They all agree on those things. The government is under regulatory capture.
“We’re going to help you get a loan” - a very cynical statement indeed.
I retired two years ago and took cash rather than a pension as I did not trust my retirement fund or the PBGC’s long term viability…the artificially low interest rates that inflated Bubble 2.0 were a big factor too, my cashout was MUCH bigger than it would have been rates were say 6-8%. (it was based on the GATT and corporate bond rates) I’m convinced that there will be hell to pay in the long run thanks to the QE nonsense but decided to bail out while I still had a cashout option with an all time high payoff….in the meantime the formula used has become much less favorable to retirees and I suspect cashing out will not be an option eventually at my former employer (FWIW a well known Fortune 100 corporation)
“In policy making, we can see policy as a step in the right direction or a step in the wrong direction. No one goes off the cliff in one fell swoop. It’s the result of a bunch of steps, typically.”
It’s the live frog that never gets around to jumping out of the pot of water in which it swims as the temperature is gradually heated up to boiling.
“I retired two years ago and took cash rather than a pension as I did not trust my retirement fund or the PBGC’s long term viability…the artificially low interest rates that inflated Bubble 2.0 were a big factor too, my cashout was MUCH bigger than it would have been rates were say 6-8%.”
Given the abnormally low interest rates, I believe you made an excellent decision.
In a normal interest rate environment, cashing out of a defined benefit pension plan is costly because you lose forfeiture benefits from staying in the covered group.
“You can’t argue with nonsense. You just reject it. State the truth, and people will recognize it.”
There it is.
Reject it, ridicule it, harrass it. Then state the truth.
BTW Jone-Z… you have a keen memory of the timeline of all this. I remember distinctly all these events going back into the 70’s but I don’t have the ability to chain it all together.
ben, it may be worse than we think!
Looking at the arming of the government agencies, the path of the police, the lack of justice in government, it seems to me that I see in the future the creation of a force to provide a dictator with what the dictator would need to control the people.
What with population explosion, immigration, and the Malthusian concept, I can visualize that in 20-50 years the supply side of the economy will collapse as the overwhelmng demand of increasing population over runs the supply side resulting in shortage of necessities.
And the result of that would be rationing of services and necessities, resulting in dis-satisfaction among the masses, and desires to control masses in the wealthy.
Plato’s, The Republic’ describes the future pretty well in regard to the democracy failure.
we are reaching the Gestapo stage in the near future.
Forget Reagen for a moment; let’s take this back to the 1960s when riots were common and assassinations were happening with some regularity. There was a lot of pervasive fear back then and societal changes were happening at such a rapid pace that people were very uncomfortable.
It was sometime in the mid-1970s that I read an article from a think tank that noticed riots and crime were less prevalent in areas where there was a high percentage of home ownership.
I’ve often wondered if the development of rules which foster home ownership for minorities and the poor was a result of the social turmoil of the 1960s and early 1970s.
Perhaps the banks making all this money and being backstopped by the federal government is merely an unintended consequence of a larger public policy.
“I’ve often wondered if the development of rules which foster home ownership for minorities and the poor was a result of the social turmoil of the 1960s and early 1970s.”
I believe there is something to that argument…at least low-income areas near where I grew up (e.g. Jennings, MO) became more stable when homeownership rates increased.
However, given the enormous flow of subsidies into housing to improve ‘affordability,’ prices became misaligned with local incomes, turning a potentially beneficial policy for low-to-moderate income communities into a nightmare foreclosure hangover.
‘Politicians call for programs to boost homeownership, especially among minority buyers who they say are being unfairly shut out of the American Dream.’
When the American Dream has been reduced to a lifetime of crushing debt servitude through predatory lending, those politicians truly looking out for the less fortunate would do everything they can to keep them as far away from home-debtorship as they possibly could.
Americans seem to be waking up to this reality slowly, but the damage that continues to be done in the meantime is really saddening.
From the Columbus Dispatch editorial:
‘As far back as the 1990s, many economists and lawmakers have championed winding down Fannie and Freddie. But each time the political will was lacking in the face of opposition from the well-heeled executives running the agencies, along with the support of lawmakers who labeled as racist and elitist any effort to rein in the agencies.’
And like Ben noted above, this is a perfect example of one of the most financially distressed groups in the country being sold further down the river by their supposed comrade.
And at the worst possible time (i.e., pricing peak).
Every bubble has its voluntary bagholders.
The timing is telling. Long ago, I found a chart showing that prime housing loans crumbled in 2003. The same chart also showed subprime loans exploded at the exact same time. Coincidence?
What that tells me is they have to keep the bubble going or it falls apart. It’s the same today. The problem is, it has to stop somewhere, and it will fall apart.
I’ve been trying to put the core problems into words. When Bernanke decided to make house prices the center of his stimulus efforts, what was wrong with that? Basically that Bernanke doesn’t know what houses should cost. His massive effort to drive house prices up hinges on the idea that he did know what houses should cost. That once lifted, prices will stay there, because that’s where they should have been all along. It’s fundamentally flawed.
I don’t know what houses should cost either. What I do know is we should let the market decide, without manipulation. And before anyone gets all bent out of shape about markets, remember that the market is you. You deciding what is best, and the seller deciding what’s best. And the person lending you their life savings. You all come to an agreement (or you walk away). And then, you live by the agreements you have made. And if you die, there are laws and rules that decide who gets what and who loses what.
I think we can all agree that things should cost the minimum. We can agree that if we are spending more for gasoline, we have less to spend on food and clothes and save for retirement. The system that is is best is the one that provides houses at the lowest cost.
“His massive effort to drive house prices up hinges on the idea that he did know what houses should cost.”
There is also the notion that home prices were at the ‘right’ level before the nasty Housing Bubble collapsed ‘em in the 2007-08 period. So the rise of prices to levels above those reached before 2008 in some areas amounts to a return to normalcy.
“Basically that Bernanke doesn’t know what houses should cost.”
This is a recurring theme, and one that comes up increasingly often. Just yesterday, folks on this board were commenting on the stocks vs bonds scenario, and how it is difficult to decipher.
Markets supported artificially yield artificial results.
In turn, this yields poor decision making because no one knows quite what to do.
Therein lies the danger in government mandates and the printing press.
You can’t make a good decision even if you tried.
To put a finer point on it, people end up blowing their life savings buying stock in companies that are intrinsically worthless, like Facebook and Twitter.
I do know what houses should cost.
In the era of lifetime jobs and sound credit, houses penned out to a purchase price of 2.5 times the income of the major wage-earner. The middle class turned into weenies and so they packed into another wage, and then bought at 3.0, 3.5, and more, and then pushed down the capital requirements.
In the new era of limited jobs, unsound credit (i.e. needing much larger capital requirements (i.e. you have to give a big down payment)), that metric must be lower. By the middle of the 21st Century in this nation, the target price should be 1.0 to 1.5 times the income of… well, we’ll continue to cheat by counting the household income instead of the the major wage-earner, so it’s 1.0 to 1.5 of the median household income. If the MHI even holds steady, then by the year 2050 the median house price should be about $70K to
I don’t think Bernanke cared what a house cost at all. He didn’t want a cascade of defaults on bank loans on his watch. The club that appointed him didn’t want a cascade of defaults. Primary directive. Up is good. Up and down is not.
All the talk about housing, stocks, employment and balancing budgets was/is cotton candy. He was the Top Banker. Period. JMO.
Ben Jones:: When Bernanke decided to make house prices the center of his stimulus efforts, what was wrong with that?
• There are unintended costs and benefits to it.
• The known benefits advantage the cronies, guaranteed. Further enhancing crony capitalism and regulatory capture of the government.
• It is picking winners and losers among the population with group money - public money.
It’s inefficient and unjust. But as long as it keeps politicians in power, it will continue.
I don’t know what houses should cost either. What I do know is we should let the market decide, without manipulation. And before anyone gets all bent out of shape about markets, remember that the market is you.
If only it could be that way. But Mr. Banker won’t have any of that. And what Mr. Bankers wants, Mr. Banker gets.
‘As headlines trumpet a full recovery in the housing market, a new report finds that this wave of prosperity has missed Black and brown communities. In 71 of the 100 hardest-hit cities, Blacks and Latinos make up at least 40 percent of the population. (The five hardest-hit large cities are: Hartford, Connecticut; Newark, Elizabeth, and Patterson in New Jersey; and Detroit). According to the report, in these 100 cities, home prices are still up to 57 percent lower than their peak offer. These “underwater” homeowners are up to 200 percent more likely to lose their homes to foreclosure, because they owe more on their mortgages than their homes are worth.’
‘Since 2008, nearly 5 million families have already met this fate. The report points out that 92 percent of Black net worth is wrapped up in homes. The subprime loan crisis largely obliterated that asset; between 2005 and 2009, African-Americans lost more than half of all household wealth (Latinos lost 66 percent). Today, African-American household net worth is less than 5 percent of its white counterparts.’
‘Since 2008, nearly 5 million families have already met this fate. The report points out that 92 percent of Black net worth is wrapped up in homes. The subprime loan crisis largely obliterated that asset; between 2005 and 2009, African-Americans lost more than half of all household wealth (Latinos lost 66 percent). Today, African-American household net worth is less than 5 percent of its white counterparts.’
I’m sure this has nothing to do with a gazillion affordable housing
initiatives to turn all American households into Ownership Society members…
When the government “helps” people get into too much debt, the most vulnerable are “helped” the most.
If ‘owning’ a house is the path to prosperity for the middle class, how is it that all the ‘homeowners’ are so poor?
I know a number of wealthy San Diego homeowners. Perhaps coincidentally, all of them are either trust fund babies or at least children of very wealthy parents who handed them large amounts of money to help with their home purchases.
I don’t think Bernanke cared what a house cost at all. He didn’t want a cascade of defaults on bank loans on his watch. The club that appointed him didn’t want a cascade of defaults. Primary directive. Up is good. Up and down is not.
This exactly why America can’t function anymore, more people in DC are worried about legacy, if they think it will work but won’t benefit them or the party,the legislation dies on the vine?
And he got a cascade of defaults anyways. And now a much larger cascade of defaults is on the horizon.
How do you like that?
now a much larger cascade of defaults is on the horizon.
How do you like that?
As long as it stays on the horizon (like fusion-powered electricity is always 30 years in the future), that’ll be just fine.
‘Thomas Piketty’s contentious thesis about ever-increasing inequality rests on the surprisingly conventional premise that aggregate wealth grows faster than overall income. Financiers and public officials have peddled virtually the same idea for decades in claiming that stocks and homes will always keep ahead of GNP and inflation. Unfortunately, this is a fantasy.’
‘Worse, because the belief that wealth grows faster than incomes is now so deeply embedded, it threatens our financial security, helps inflate bubbles, and by promoting a perverse redistribution of income, undermines the legitimacy of profit-seeking enterprise.’
‘Unlike total income, which is simply the sum of everyone’s earnings, total wealth isn’t the sum of everyone’s expectations.. Rather, the value of the assets in which our wealth reposes reflects a few transactions and the expectations of their specific buyers and sellers. All apartments and houses are appraised at values set by the prices of the few that are actually sold.’
‘Thus during the Japanese housing bubble in the 1980s, the grounds of the Imperial Palace were claimed to be worth more than the value of all the real estate in California, when neither the Imperial Palace ground nor all the real estate in California was actually being sold.’
‘In earlier times, the ephemeral nature of wealth encouraged attention to the stream of hard cash that it could be counted on to provide. Bonds were purchased for their coupons and property for rents received or avoided. Stocks were considered a prudent investment only to degree that they paid dividends large enough to compensate for their volatile prices.’
‘Nowadays, the prevailing orthodoxy couldn’t be more different. Safe, income-producing bank deposits and bonds, we are warned, shrink with inflation whereas assets that provide little to no income such as stocks, commodities, art, collectibles and prize properties more than hold their value, appreciating faster than the economy as a whole.’
‘Magical thinking about house prices also poses hazards. In deciding whether to rent or buy a home, especially in desirable locations, people routinely factor in robust appreciation in prices—and dismiss the possibility of declines. After several years of double-digit gains that have made renting a more compelling choice in places like Cambridge and Manhattan, buyers expect appreciation without end because “everyone wants to live there.” Few ask why that desire might have intensified in the last few years—and whether it will continue to intensify.’
‘Indiscriminate buying, whether of stocks, commodities, or houses, stoked by expectations of ever increasing prices helps create bubbles. Manias stoked by cunning practice will always be with us, but typically they are well separated by time and space…Thanks to a virtually institutionalized “can’t lose” mindset, the current debacles have been much more closely spaced.’
‘Our government’s complicity in these investment fantasies is long-standing and manifold. The US Federal Reserve’s failure to control inflation in the 1970s eroded investors’ faith in bonds and bank deposits while pension rules and regulators encouraged a shift to stocks and other higher risk assets. Until 1968, for example, public funds in California and 15 other states did not own any stocks. The state laws prohibiting stock purchases were then repealed.’
‘Rules intended to ensure that pension plans were properly funded encouraged state and other pensions to buy stocks that are thought to have greater upside than bonds. Now, 65% of public funds are invested in stocks, real estate and other alternative investments.’
‘Securities laws enacted during the New Deal and their vigorous enforcement have made buying and trading stocks respectable. Previously and for much of America’s history, “the public reaction to the stock market was one of general distrust.” Shady activities were rampant through the nineteenth century, and in the early twentieth century, the stock market was still “a shadow world in which only the initiated could find their way.”
‘The Fed, established to prevent collapses in old-fashioned bank loans, has also become a stalwart supporter of stocks. Chairman Alan Greenspan created the impression that the Fed would do everything it could prevent stock prices from falling.’
‘Government mortgage guarantees and purchases of mortgage-backed securities have turned millions of the not particularly well off into leveraged speculators in real estate. Earlier, bank regulators frowned upon mortgage lending, so until 1930 banks extended mortgages to borrowers who could pay off their loans in three years or less, while demanding 50% down payments.’
‘These interventions may have been well-intentioned efforts to give everyone a share of the miraculous transformation of good economic growth into great wealth. But far from spreading the riches around, the government has bestowed great fortunes on a few who would otherwise merely have been prosperous. And promoting Wall Street’s self-serving fantasies has jeopardized the legitimacy of a capitalist system that provides great reward for great contribution.’
Great article and wise advice.
The notion that capital gains increase at a faster rate than income resulting from the production of _____(fill in the blank) is truly laughable. And production is easily gauged by anyone. A mason and a casual observer can measure the production rate of the mason. There is no way to fluff it. Capital gains are ephemeral, vague and require a whole lot of wishful thinking.
Like the bugs in Ben’s garage, we are entering an economic world that people do not understand. Capital gains do outstrip earnings in a credit expansion. Credit expansion is all that we have known in our lifetimes. Most are not prepared to think about any other reality, so will beat themselves senseless against the glass while the door is wide open.
“Capital gains do outstrip earnings in a credit expansion.”
Ah, so. And this magic works because …
(drum roll)
… money borrowed from tomorrow adds buying power to money that is earned today.
If you earn a buck today and can borrow a buck from tomorrow then you have just doubled today’s buying power.
Pure F’-ing Magic (PFM).
If enough people do this then - presto! - you have before you an economic boom! And this boom will only end when the borrowing ends. So to keep the boom going you have to keep the borrowing going.
Oh, and then there’s this pesky interest-charged thingy. To keep the boom going you have to keep borrowing so as to keep spending PLUS you have to keep borrowing in order to keep up with the ever-increasing interest payments you will have to make on all the money that was borrowed.
And the interest charged - the interest rate charged - is sure to increase as the amount of borrowed money increases because the more money you owe the less likely you are to pay it back, and this less-likely-to-pay-it-back thingy increases the risks of loaning you money and these increased risks will be accompanied by an increase in the rate of interest that you will be charged.
And this will go on until it cannot go on any longer and if it cannot go on any longer then it will stop and if it stops then the economic boom for you also stops and this is when you will be left stranded.
Careful Combo, or your head will explode. Then what good will you be after the credit collapse?
“And the interest charged - the interest rate charged - is sure to increase as the amount of borrowed money increases because the more money you owe the less likely you are to pay it back, and this less-likely-to-pay-it-back thingy increases the risks of loaning you money and these increased risks will be accompanied by an increase in the rate of interest that you will be charged.”
Isn’t this the point where quantitative easing saves the day by preventing interest rates from adjusting upwards to reflect the risk?
“Isn’t this the point where quantitative easing saves the day by preventing interest rates from adjusting upwards to reflect the risk?”
IOW isn’t this the point where total control of the economy moves on over to the Central Bank?
It used to be Central Banks INFLUENCED economies, now Central Banks TOTALLY CONTROL economies.
“…now Central Banks TOTALLY CONTROL economies.”
That’s the claim, anyway.
Command-and-control worked out badly for the former Soviet Union. Maybe central banks will have better luck?
“Unlike total income, which is simply the sum of everyone’s earnings, total wealth isn’t the sum of everyone’s expectations.. Rather, the value of the assets in which our wealth reposes reflects a few transactions and the expectations of their specific buyers and sellers. All apartments and houses are appraised at values set by the prices of the few that are actually sold.”
A beautiful statement.
And the appraised values set by these few apartments and houses that are set by the few that are sold is set so high that few individuals can buy one UNLESS they can somehow get the money.
And this is where I get to come into the picture.
peter schiff on piketty..
piketty’s envy problem:
There can be little doubt that Thomas Piketty’s new book Capital in the 21st Century has struck a nerve globally. In fact, the Piketty phenomenon (the economic equivalent to Beatlemania) has in some ways become a bigger story than the ideas themselves. However, the book’s popularity is not at all surprising when you consider that its central premise: how radical wealth redistribution will create a better society, has always had its enthusiastic champions (many of whom instigated revolts and revolutions). What is surprising, however, is that the absurd ideas contained in the book could captivate so many supposedly intelligent people.
Prior to the 20th Century, the urge to redistribute was held in check only by the unassailable power of the ruling classes, and to a lesser extent by moral and practical reservations against theft. Karl Marx did an end-run around the moral objections by asserting that the rich became so only through theft, and that the elimination of private property held the key to economic growth. But the dismal results of the 20th Century’s communist revolutions took the wind out of the sails of the redistributionists. After such a drubbing, bold new ideas were needed to rescue the cause. Piketty’s 700 pages have apparently filled that void.
Any modern political pollster will tell you that the battle of ideas is won or lost in the first 15 seconds. Piketty’s primary achievement lies not in the heft of his book, or in his analysis of centuries of income data (which has shown signs of fraying), but in conjuring a seductively simple and emotionally satisfying idea: that the rich got that way because the return on invested capital (r) is generally two to three percentage points higher annually than economic growth (g). Therefore, people with money to invest (the wealthy) will always get richer, at a faster pace, than everyone else. Free markets, therefore, are a one-way road towards ever-greater inequality.
Since Pitketty sees wealth in terms of zero sum gains (someone gets rich by making another poor) he believes that the suffering of the masses will increase until this cycle is broken by either: 1) wealth destruction that occurs during war or depression (which makes the wealthy poorer) or 2) wealth re-distribution achieved through income, wealth, or property taxes. And although Piketty seems to admire the results achieved by war and depression, he does not advocate them as matters of policy. This leaves taxes, which he believes should be raised high enough to prevent both high incomes and the potential for inherited wealth.
Before proceeding to dismantle the core of his thesis, one must marvel at the absurdity of his premise. In the book, he states “For those who work for a living, the level of inequality in the United States is probably higher than in any other society at any time in the past, anywhere in the world.” Given that equality is his yardstick for economic success, this means that he believes that America is likely the worst place for a non-rich person to ever have been born. That’s a very big statement. And it is true in a very limited and superficial sense. For instance, according to Forbes, Bill Gates is $78 billion richer than the poorest American. Finding another instance of that much monetary disparity may be difficult. But wealth is measured far more effectively in other ways, living standards in particular.
For instance, the wealthiest Roman is widely believed to have been Crassus, a first century BC landowner. At a time when a loaf of bread sold for ½ of a sestertius, Crassus had an estimated net worth of 200 million sestertii, or about 400 million loaves of bread. Today, in the U.S., where a loaf of bread costs about $3, Bill Gates could buy about 25 billion of them. So when measured in terms of bread, Gates is richer. But that’s about the only category where that is true.
Crassus lived in a palace that would have been beyond comprehension for most Romans. He had as much exotic food and fine wines as he could stuff into his body, he had hot baths every day, and had his own staff of servants, bearers, cooks, performers, masseurs, entertainers, and musicians. His children had private tutors. If it got too hot, he was carried in a private coach to his beach homes and had his servants fan him 24 hours a day. In contrast, the poorest Romans, if they were not chained to an oar or fighting wild beasts in the arena, were likely toiling in the fields eating nothing but bread, if they were lucky. Unlike Crassus, they had no access to a varied diet, health care, education, entertainment, or indoor plumbing.
In contrast, look at how Bill Gates lives in comparison to the poorest Americans. The commodes used by both are remarkably similar, and both enjoy hot and cold running water. Gates certainly has access to better food and better health care, but Americans do not die of hunger or drop dead in the streets from disease, and they certainly have more to eat than just bread. For entertainment, Bill Gates likely turns on the TV and sees the same shows that even the poorest Americans watch, and when it gets hot he turns on the air conditioning, something that many poor Americans can also do. Certainly flipping burgers in a McDonald’s is no walk in the park, but it is far better than being a galley slave. The same disparity can be made throughout history, from Kublai Khan, to Louis XIV. Monarchs and nobility achieved unimagined wealth while surrounded by abject poverty. The same thing happens today in places like North Korea, where Kim Jong-un lives in splendor while his citizens literally starve to death.
Unemployment, infirmity or disabilities are not death sentences in America as they were in many other places throughout history. In fact, it’s very possible here to earn more by not working. Yet Piketty would have us believe that the inequality in the U.S. now is worse than in any other place, at any other time. If you can swallow that, I guess you are open to anything else he has to serve.
All economists, regardless of their political orientation, acknowledge that improving productive capital is essential for economic growth. We are only as good as the tools we have. Food, clothing and shelter are so much more plentiful now than they were 200 years ago because modern capital equipment makes the processes of farming, manufacturing, and building so much more efficient and productive (despite government regulations and taxes that undermine those efficiencies). Piketty tries to show that he has moved past Marx by acknowledging the failures of state-planned economies.
But he believes that the state should place upper limits on the amount of wealth the capitalists are allowed to retain from the fruits of their efforts. To do this, he imagines income tax rates that would approach 80% on incomes over $500,000 or so, combined with an annual 10% tax on existing wealth (in all its forms: land, housing, art, intellectual property, etc.). To be effective, he argues that these confiscatory taxes should be imposed globally so that wealthy people could not shift assets around the world to avoid taxes. He admits that these transferences may not actually increase tax revenues, which could be used, supposedly, to help the lives of the poor. Instead he claims the point is simply to prevent rich people from staying that way or getting that way in the first place.
Since it would be naive to assume that the wealthy would continue to work and invest at their usual pace once they crossed over Piketty’s income and wealth thresholds, he clearly believes that the economy would not suffer from their disengagement. Given the effort it takes to earn money and the value everyone places on their limited leisure time, it is likely that many entrepreneurs will simply decide that 100% effort for a 20% return is no longer worth it. Does Piketty really believe that the economy would be helped if the Steve Jobses and Bill Gateses of the world simply decided to stop working once they earned a half a million dollars?
Because he sees inherited wealth as the original economic sin, he also advocates tax policies that will put an end to it. What will this accomplish? By barring the possibility of passing on money or property to children, successful people will be much more inclined to spend on luxury services (travel and entertainment) than to save or plan for the future. While most modern economists believe that savings detract from an economy by reducing current spending, it is actually the seed capital that funds future economic growth. In addition, businesses managed for the long haul tend to offer incremental value to society. Bringing children into the family business also creates value, not just for shareholders but for customers. But Piketty would prefer that business owners pull the plug on their own companies long before they reach their potential value and before they can bring their children into the business. How exactly does this benefit society?
If income and wealth are capped, people with capital and incomes above the threshold will have no incentive to invest or make loans. After all, why take the risks when almost all the rewards would go to taxes? This means that there will be less capital available to lend to businesses and individuals. This will cause interest rates to rise, thereby dampening economic growth. Wealth taxes would exert similar upward pressure on interest rates by cutting down on the pool of capital that is available to be lent. Wealthy people will know that any unspent wealth will be taxed at 10% annually, so only investments that are likely to earn more than 10%, by a margin wide enough to compensate for the risk, would be considered. That’s a high threshold.
The primary flaw in his arguments are not moral, or even computational, but logical. He notes that the return of capital is greater than economic growth, but he fails to consider how capital itself “returns” benefits for all. For instance, it’s easy to see that Steve Jobs made billions by developing and selling Apple products. All you need to do is look at his bank account. But it’s much harder, if not impossible, to measure the much greater benefit that everyone else received from his ideas. It only comes out if you ask the right questions. For instance, how much would someone need to pay you to voluntarily give up the Internet for a year? It’s likely that most Americans would pick a number north of $10,000. This for a service that most people pay less than $80 per month (sometimes it’s free with a cup of coffee). This differential is the “dark matter” that Piketty fails to see, because he doesn’t even bother to look.
Somehow in his decades of research, Piketty overlooks the fact that the industrial revolution reduced the consequences of inequality. Peasants, who had been locked into subsistence farming for centuries, found themselves with stunningly improved economic prospects in just a few generations. So, whereas feudal society was divided into a few people who were stunningly rich and the masses who were miserably poor, capitalism created the middle class for the first time in history and allowed for the possibility of real economic mobility. As a by-product, some of the more successful entrepreneurs generated the largest fortunes ever measured. But for Piketty it’s only the extremes that matter. That’s because he, and his adherents, are more driven by envy than by a desire for success. But in the real world, where envy is inedible, living standards are the only things that matter.
Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.
Also see,
See No Evil
http://www.rightwingnews.com/column-2/pikettys-envy-problem/
OMG what a piece of crap. Honestly, a joke and I read the whole mess.
Which do you mean? Picketty’s book or Schiff’s commentary?
Unfortunately Schiff’s commentary seemed to be little more than an attempt to use ALL the logical fallacies in one essay. Which is too bad, usually his stuff is better than that. Certainly great advertising for Picketty’s book, if the only bad stuff that can be said about it is completely ridiculous, almost like a parody. I saw it in the zerohedge feed (I think?) perhaps a week ago and was surprised at the lack of quality of Schiff’s essay.
‘peter schiff on piketty..’
The book must be getting a lot of publicity. Every copy of this book that my local library could order via inter-library loan is either checked out or has a hold order placed on it. It is like a ‘50 Shades of Grey’ mania for a book on economics. Yawn. We know how the movie turns out. The rich will always eat steak.
yep, piketty is hot. and he’s a moron, like schiff says.
there was another liberal that wrote a hot book in the 70s.. ‘in the vein’ of something or another. chavez was a big fan. the guy is 72 now and says his own book is terrible. says he thought he knew it all back then about economics. says he didn’t have enough life experience to know that things don’t work like he thought. too late now. just like the moron piketty, he already influenced a lot of people.
found the blurb that mentioned..
“The author of an iconic leftist tome on Latin America now denounces the book’s “awful” leftist rhetoric.
Eduardo Galeano has been one of the darlings of the Left for more than four decades, ever since his hugely popular bestseller, The Open Veins of Latin America, was published in 1971. Now the 73-year-old Uruguayan writer has backed away from his landmark book, saying at a conference in Brazil that the leftist rhetoric of the book is “awful” and shows how little he knew at the time about economics and the way the world really works.
This was the book that President Hugo Chávez of Venezuela presented to President Barack Obama when the two met in Trinidad in 2009. At that time, Chávez declared that Galeano’s book had helped him understand Latin American reality. Now it appears that “reality” was a fiction, spawned by immaturity and ideology.”
“yep, piketty is hot. and he’s a moron, like schiff says.”
If you can’t come up with an intelligent critique, by all means feel free to call someone a derogatory name.
schiff’s critique is fine. and piketty is a moron.
a reply is coming, but also, i wasn’t trying to critique piketty. why don’t you buy his book? it would fit you fine.
“it would fit you fine.”
Calling people names instead of offering intelligent critiques fits you fine.
when are you going to regale us with more of your boring bitcoin coverage?
are you shedding a tear yet for that moron piketty? comical.
At the risk of tempting another lengthy preachment on the true nature of currency, I would be happy to oblige.
Opinion
Bitcoin’s Futile Quest to Be a Currency
The IRS treats bitcoins as property, and any transaction using them triggers a taxable event.
By Lawrence Parks
June 1, 2014 6:26 p.m. ET
Bitcoin is a fascinating and ingenious technology, but most promoters are mindful of neither the monetary nor the tax issues. For all practical purposes IRS regulations issued in March preclude bitcoins from being used as an alternative currency.
The IRS treats bitcoins as property. The result is that bitcoin transactions trigger a taxable event. Buyers incur a tax liability for the difference in dollars between what they paid for a bitcoin when they acquired it and the dollar value attributed to the bitcoin when they spend it. Sellers of course are subject to a tax based on the dollar value of the bitcoins they receive for a good or service.
To comply with these tax regulations, buyers and sellers must log all bitcoin transactions and report them at tax time. For transactions that require future payment, buyers and sellers undertake an exchange-rate risk involving the dollar value of bitcoins. This will greatly reduce, or perhaps eliminate entirely, using bitcoins for settling future payments, which is the principal use of money.
Some bitcoin zealots reject the effect of triggering taxable events on the theory that bitcoin transactions are anonymous. That is arguable. What is not arguable is that one who doesn’t report a taxable bitcoin gain is guilty of tax fraud, which is a felony.
In other words, the future of bitcoins depends on users willing to log all transactions, report them at tax time, and pay a tax or to engage in tax fraud. As soon as one of them ends up in prison, that will be the end of it.
Why bitcoins to begin with? We already have a virtual currency, the dollar, which has the purported benefit of being the world’s “reserve currency.”
Some people see a problem because dollars can be created at the whim of the Federal Reserve, and as former Fed Chairman Alan Greenspan once put it, “without limit.” This depreciates the purchasing power of dollars saved or promised for future payment, such as pensions. At least the quantity of bitcoins is supposedly limited by the mathematical algorithm that creates them. As an interesting aside, the bitcoin folks call the creation process “mining,” an allusion to real money.
Bitcoin supporters understand that dollars are no longer money in the classical sense, i.e., something that has a unit of dimension defined in the physical world, as Sir Isaac Newton put it circa 1699 when he was England’s Warden of the Mint. With neither debate nor anyone voting for it, the dollar has been transmogrified into an ethereal concept of money without any tie to the physical world, created out of nothing, and forced into circulation with legal tender laws.
As Australian comedian Michael Connell so brilliantly put it, what we used to call money has been transformed into “the idea of money.” Mr. Connell’s metaphor is that it’s like playing musical chairs, but instead of chairs there is the “idea of chairs.” It is absurd.
This brings to mind a related issue: U.S. Gold and Silver Eagles, which are legal tender for their face amounts under Title 31 of the United States Code. Yet as with bitcoins, the IRS arbitrarily treats these coins not as currency but as property, thereby preventing their use as money.
…
good. i can hardly wait. all the crickets chirping around those posts really does them justice.
some come here to argue and call names. others come here to read and learn.
to each his own.
i called poor ol’ piketty names, not anyone else. not anyone on this board.
do you serve wine with your whining for poor ol’ piketty?
Ah, the same old hard-liner conservative canard about “relative standard of living” which compare apples (necessities) to oranges (bread and circuses) and pretend as if they poor have gained anything.
The rest is merely straw-manning policies such as progressive taxation or even taxation of capital gains at the same rate as income by applying an absurd extreme like “wealth caps” and “if everyone had the same amount by law”.
It’s been scientifically proven dogfood has more nutritional value than the junk food which “keeps the poor from starving”.
In the mean time, housing, education, medical, nutrition, and energy, the 5 pillars of subsistence, are skyrocketing even out of reach of the so-called “middle class”.
In the old days serfs were at least guaranteed a plot of land on which to live, allowed to build a shelter without interference, and allowed to grow his own food stuffs.
Not so anymore, the various plutocratic interests want you to pay THEM to do all these things, so they make strangle the average man in red tape.
Ah, the same old hard-liner conservative canard
better than the same old illogical liberal tripe that’s always trotted out.
about “relative standard of living” which compare apples (necessities) to oranges (bread and circuses) and pretend as if they poor have gained anything.
they have gained plenty. your childish foot stomping denials mean nothing.
The rest is merely straw-manning policies such as progressive taxation or even taxation of capital gains at the same rate as income by applying an absurd extreme like “wealth caps” and “if everyone had the same amount by law”.
obviously you’re an economic illiterate or you’d know how destructive heavy taxation is, much less progressive taxation. why don’t you try to explain how benign progressive taxation is? don’t just give meaningless correlations, try to explain it logically.
It’s been scientifically proven dogfood has more nutritional value than the junk food which “keeps the poor from starving”.
even if that’s true, what’s your point? wait.. let me guess.. you think big business is out to treat people worse than dogs. sounds like bill ayers. let me ask you, why would they do this? how would they profit from treating people worse than dogs? maybe they like dogs more than people? but isn’t that how you feel? there are too many people here on earth, right?
In the mean time, housing, education, medical, nutrition, and energy, the 5 pillars of subsistence, are skyrocketing even out of reach of the so-called “middle class”.
first, your ’5 pillars’ are a farce. second, why do you think those things are rising out of reach for more and more people? why? if you were the only one in existence, who should provide for you? would you stomp your little feet and hold your breath until what you wanted magically appeared? probably.. you’d live about as long as you deserved to.
if you want those things for everyone, then you’d better pray that people make big profits and are allowed to keep them so that the wealth of the world increases. but you can’t think that way, can you? it’s a zero sum game to you. the more someone else has, the less you can have, right?
In the old days serfs were at least guaranteed a plot of land on which to live, allowed to build a shelter without interference, and allowed to grow his own food stuffs.
that’s right. the productive are allowed to keep less of their earned wealth today than the old time serfs. i’m all for the productive to be able to keep more than 90% of what they earn.
and you can thank your precious socialism for the hard plight of today’s poor. even though the modern poor have it much better than the ancient poor, they could and should have a much better life than they do now. yes, the rich would have it even better also, but you want to punish the poorest just to get back at some false injustice by the ‘rich’. their injustice is false because you blame the wrong entity. you should blame big out of control government, not the ‘rich’. but your biases blind you to all that.
Not so anymore, the various plutocratic interests want you to pay THEM to do all these things, so they make strangle the average man in red tape.
and there’s only one way out. a way that you’ll never see because you think it’s impossible.
Actually I hold a degree from one of the better institutions. Not only can I explain this logically, but I can place some evidence and historic context to it.
Logic lesson 1:
Logic: when you don’t give preferential tax treatment to capital gains, you’re not “picking winners” in the weighing of “real production” vs “securities speculation”. Now, the financial and securties sector is supposed to exist and gain value in service to real production, and the continued preferential tax treatment to capital gains is effectively subsidizing speculative “asset bubbles” as people pour money into a financial sector which is nothing more than shuffling deck chairs rather than real production.
Evidence:
Capital gains tax rate was 28% (equivalent to normal income) before the slashing began starting with the massive drops in 1997.
There is a nice graph (http://fixingtheeconomists.files.wordpress.com/2014/05/finance-share-of-gdp-us-nihon-uk-deu-fra.gif) which shows that since the cuts which began in 1997 the financial sector has exploded as an % of our overall economy with no correlating real production to back it. (it’s essentially all “bubble”). This is reflected in the lack of real wage growth among every other sector and the repeated “pops” and “re-inflations” the speculation continues to crash into the economic reality of flat or shrinking disposable income in the majority of the populace.
Logic: When you tax corporate executive salaries heavily, they are compelled to accept compensation which ties them to the fate of their company. This discourages “pump and dump” short-term management by CEO’s. It also encourages job growth by encouraging owners to re-invest rather than claim excessive income.
Historic Corollary:
Until the mid 70’s, we had more tax brackets, and the upper 0.5% had tax rates in the 80-90% range. As a result, most execs accepted stocks and company perks as a major potion of their compensation package. Owners, like my grandparents and great uncles, chose to preserve their net worth by re-investing in the growth of their businesses. (For those who can’t put 2 and 2 together this means JOBS).
We didn’t hear Enron or Tyco stories before the massive tax cuts on the upper income brackets because they had skin in the game they were playing.
The lack of taxation parity between real income and capital gains and the lack of proper progressive taxation are feeding the ever deeper dependence of this nation upon credit by encouraging speculation over real economic activity. This has been going on for some 40 years, resulting in a nation dependent upon trillions in consumer debt and losing ground by the billions each day to the third world.
Actually I hold a degree from one of the better institutions.
if your degree is in economics, it’s keynesianism. studying keynesian economics is like studying alice in wonderland. totally worthless. it’s what all the major universities like haavaad teach now. you should sue them for teaching you bs. you don’t like to admit you’re a keynesian, do you? why are you ashamed of it? why not declare it proudly, since you obviously believe in that trash.
Logic: when you don’t give preferential tax treatment to capital gains, you’re not “picking winners” in the weighing of “real production” vs “securities speculation”.
false. it’s exactly what you’re doing. people will put their money where they have tax advantages or government protection. that will have a huge influence on the allocation of capital. capital then gets misallocated to inefficient companies. all courtesy of self-aggrandized people like you in government that think they know how the world works. thing is, they don’t have a clue. they cause one disaster after another.
Now, the financial and securties sector is supposed to exist and gain value in service to real production, and the continued preferential tax treatment to capital gains is effectively subsidizing speculative “asset bubbles” as people pour money into a financial sector which is nothing more than shuffling deck chairs rather than real production.
what utter rubbish. there’s no connection from low capital gains taxes to asset bubbles. asset bubbles arise mostly through government and FED interventions in markets, and that creates manias. give us a free market in money, and bubbles or manias would be nearly impossible to get started.
Evidence:
Capital gains tax rate was 28% (equivalent to normal income) before the slashing began starting with the massive drops in 1997.
There is a nice graph (http://fixingtheeconomists.files.wordpress.com/2014/05/finance-share-of-gdp-us-nihon-uk-deu-fra.gif) which shows that since the cuts which began in 1997 the financial sector has exploded as an % of our overall economy with no correlating real production to back it. (it’s essentially all “bubble”). This is reflected in the lack of real wage growth among every other sector and the repeated “pops” and “re-inflations” the speculation continues to crash into the economic reality of flat or shrinking disposable income in the majority of the populace.
no correlation to real production? first of all, GDP (i’ll assume your graph is using GDP since i’m not going to look at it) isn’t a proper measure of an economy. it’s related, but it doesn’t accurately reflect what’s really going on. second, there are many more variables that simplistic graphs can’t show.
This is reflected in the lack of real wage growth among every other sector and the repeated “pops” and “re-inflations” the speculation continues to crash into the economic reality of flat or shrinking disposable income in the majority of the populace.
you keep trying to treat the symptoms instead of the disease. you don’t have a clue why real wages are falling and our standard of living is declining. do you have any idea how the dollar gets its value? if you don’t, you’ll never understand the movement of wages.
Logic: When you tax corporate executive salaries heavily, they are compelled to accept compensation which ties them to the fate of their company. This discourages “pump and dump” short-term management by CEO’s. It also encourages job growth by encouraging owners to re-invest rather than claim excessive income.
more government meddling is what you desire. government rules and regs are already the reason for the pump and dumps.
further, exactly what is the mechanism by which high taxation on executives compels them to accept compensation that ties them to the fate of the company. how does that happen?
Historic Corollary:
Until the mid 70’s, we had more tax brackets, and the upper 0.5% had tax rates in the 80-90% range. As a result, most execs accepted stocks and company perks as a major potion of their compensation package. Owners, like my grandparents and great uncles, chose to preserve their net worth by re-investing in the growth of their businesses. (For those who can’t put 2 and 2 together this means JOBS).
We didn’t hear Enron or Tyco stories before the massive tax cuts on the upper income brackets because they had skin in the game they were playing.
correlations are useless and i knew you were going to try to give me this kind of crap. that’s why i asked you to just use logic and forget the correlations. but just to play along.. no one paid those high tax rates. there were deductions galore. we have higher EFFECTIVE rates now because there are far fewer deductions. plus, there are more tax jurisdictions.
and your grandparents had skin in the game because government didn’t have nearly the power back then for bailouts at taxpayer expense.
The lack of taxation parity between real income and capital gains and the lack of proper progressive taxation are feeding the ever deeper dependence of this nation upon credit by encouraging speculation over real economic activity.
wrong again. the ever deepening dependence on credit is caused by interest rates being artificially low. we need to let interest rates be set by the market. in other words, a free market in money. artificially low interest rates is the cheap money fuel that gets directed by government through socialist policy engines like the CRA.
This has been going on for some 40 years, resulting in a nation dependent upon trillions in consumer debt and losing ground by the billions each day to the third world.
we aren’t losing ground to the third world, we’re becoming a third world. we never needed to become dependent on anything. again, let the market set rates and this problem solves itself.
funny how i keep answering you line by line and you don’t bother to answer all the points i was making in my prior post. i’ll tell you this. i won’t respond to any useless correlations anymore. you know the old saw ‘correlation doesn’t prove causation’. so stick to the logical discussion and i’ll answer you. try to respond at least to the majority of the points i made.
I’m rather saddedned you’ve chosen to make a fool of yourself rather than actually engaging in proper reading and comprehension.
For example, thank you for making my point for me despite your own partisan blindness:
You ask me for logic while displaying nothing but blind rage and parroting convenient crony-capitalist talking points.
“Government Intervention” is what gave birth to the modern economy. Court systems, laws against fraud, thef, and violence, laws limiting investor liability, laws delineating fair competition. You cannot, therefore, simply dismiss any government intervention as fundamentally economically unsound. It only crosses into this territory when the intervention is tipped in the favor of one player or sector over another: picking winners.
I find it interesting you then jump repeatedly from the idea that any intervention by government is un-sound to insisting that interventions which do distort the market are not a problem and should remain as they are — crony-capitalist partisanship apoparently trumps the economically sound concept that the government should not be picking winners.
Your continued mis-invocation of “correlation doesn’t prove causation” as an excuse to ignore the lessons of history and empirically observable market trends shows me all the proof I need to cease all conversation with you, as you are not discussing this subject in good faith.
I’m rather saddedned you’ve chosen to make a fool of yourself rather than actually engaging in proper reading and comprehension.
i’m rather happy that you continue to parrot the same old liberal lies. makes it rather easy to counter.
For example, thank you for making my point for me despite your own partisan blindness:
Logic: when you don’t give preferential tax treatment to capital gains, you’re not “picking winners” in the weighing of “real production” vs “securities speculation”.
false. it’s exactly what you’re doing. people will put their money where they have tax advantages or government protection. that will have a huge influence on the allocation of capital. capital then gets misallocated.
You ask me for logic while displaying nothing but blind rage and parroting convenient crony-capitalist talking points.
you counter nothing. you don’t understand it, but it is actually you that is the unwitting crony capitalist. figures that all you’ve got is whimpering. poor thing wants sympathy. you’ll get none from me.
“Government Intervention” is what gave birth to the modern economy.
typical communist talking point by the radial left. no truth to it and further proof you don’t know what makes an economy.
Court systems, laws against fraud, thef, and violence,
these are laws i’ve said many times on this forum that i have no objection to.
laws limiting investor liability,
picking winners again i see. you mean like limiting the ‘investor’ liability of those ‘investing’ in homes? you’re a partisan hack. and a bad one at that. i’m a self described, unashamed, far right winger, and you’re afraid to admit just how leftist you are, precisely because you’re ashamed of it.
laws delineating fair competition.
who gets to decide what ‘fair’ competition is? you? i want no part of your ‘fairness’. let’s say the truth about what you’re really for. price fixing. that’s what ‘fair’ trade or ‘fair’ competition really is. all you socialists serve your ‘fairness god’ at the expense of everyone else.
You cannot, therefore, simply dismiss any government intervention as fundamentally economically unsound.
keeping long held, standard law and order has nothing to do with market intervention. so i can and most certainly do dismiss any government intervention as fundamentally unsound. there’s never an instance where ‘fair trade’ doesn’t involve price fixing. you’re not for freedom. you’re for chains. you’re for oppression. go bow to ‘fair trade’ price fixing god.
It only crosses into this territory when the intervention is tipped in the favor of one player or sector over another: picking winners.
government market intervention is always tipped in favor of someone. that’s how your ‘fairness’ price fixing god works. the result it that it hinders everyone, but economic illiterates like you are too politically biased to see it.
I find it interesting you then jump repeatedly from the idea that any intervention by government is un-sound to insisting that interventions which do distort the market are not a problem and should remain as they are
you must be dyslexic. where have i ever said i’m for any interventions? i’m for free markets. that means that governments and other outside authorities stay out of them. i don’t know where you get that i’m for intervention in the markets. unless there’s a typo somewhere, you’re nuts.
— crony-capitalist partisanship apoparently trumps the economically sound concept that the government should not be picking winners.
as i said above, you’re the unwitting crony-capitalist. can’t you see that ‘fair trade’ and ‘not picking winners’ are antithetical? how do you keep ANY straight thoughts in your head?
Your continued mis-invocation of “correlation doesn’t prove causation” as an excuse to ignore the lessons of history
the many lessons of history are against the things you believe in. for instance, not only does ‘fair trade’ invite trade wars because it’s thinly veiled price fixing, but the initiator of ‘fair trade’ is the one hurt most by it. yet hardly anyone believes this, so they continue to do it. free trade ends with fair trade. so the ‘fair traders’ get hampered trade for everyone instead. and of course they believe they’re better off. they, like you, aren’t knowledgeable enough to see what’s really going on.
and empirically observable market trends
market trends? pick a trend and then tell me what will happen in next year. if you pick a large enough sample, you’ll be close to 50%.
shows me all the proof I need to cease all conversation with you, as you are not discussing this subject in good faith.
good. you’re a waste of keystrokes. i knew you’d run away.
Bernanke didn’t care at all about how much a house cost. He did worry about how much the banks would lose if the real value of a house was ever permitted to be known. He took a page from Bernie Madoff’s playbook and quietly inserted the FED’s name as the author.
If the Fed does it, it’s legal.
dont bite the hand that feeds you!
They only feed you for a while, as long as it’s in their best interests. Then they take it all away, or, it simply vanishes, completely out of their control.
‘Apartment communities across the Triangle are feeling the pinch from all the new apartment communities opening for business as the new unit deliveries begin to outpace new renter demand.’
‘The vacancy rate for the Triangle apartment market increased to 7.6 percent in March from a vacancy rate of 5.6 percent in September… However, the apartment vacancy rate is projected to increase even more over the next 12 months when another 6,600 new apartment units are scheduled to open.’
‘The 9,712 units that were under construction as of March 30 was the highest level reported during any period since 1997, the report stated. At the same time, net absorption – or the number of new renters moving in versus the number of renter moving out of apartments – for the six-month period was 795 units.’
And a shortage becomes a glut. It’s interesting that the same thing is happening in pricey Beijing and Shanghai. The shortage was always a perception, a narrative hyped by real estate interests to scramble buyers into action.
“The shortage was always a perception, a narrative hyped by real estate interests to scramble buyers into action.”
Capture the MSM and you get to capture perceptions.
Mark Twain: “People who do not read newspapers are uninformed. People who do read newspapers are misinformed.”
“You can’t lose with the stuff I use.” - Rev Ike.
Yet, in Oxide Nightmare fashion, the rents keep rising.
Yeah. That freakazoid notion is a real beaut.
how lazy can you get- the realwhore only has to change the first pic=too much effort
https://homes.yahoo.com/virginia/springfield/7727-viceroy-st-473883e3896035906ccbeca97ab9cd26.html
when I sell my house to an obama bedside irs agent I’ll do it myself.
The core driver of the bubble among the public was that “Housing is the path to riches.”
Housing was the “magic asset” - the thing that never goes down in price. A “magic asset” is the foundation of any bubble, be it tulip bulbs, stocks or real estate.
That magic asset mentality was about to be pricked until massive intervention by the central bank and government, who are sending deceptive signals to the market.
But one actor buoying price above market clearing levels reduces volume and puts pressure on prices to come down. This love of debt also crowds out other spending in the economy, further reducing the ability of the population to take on debt. I don’t know if it’s going to be a bang or a whimper but there are definite downward pressures on price.
test
In McLean, VA (very attractive suburb of DC) I noticed that nominal teardowns and vacant lots are selling for $800k -$900k. They don’t sell quickly but small scale local builders are paying this to put up McMansions.
During the last bubble leading up to the peak in mid-2005 it was in the high $600s maybe low $700s for a teardown.
This is quite remarkable. I nearly bought a house because of its architecture and was looking at some comps. I found a ranch house around the corner purchased in 2013 for $870k (had been thoroughly renovated) and when I went to the county website it lists a new house in 2014 with McMansion sq footage. The house has an interesting history as it was sold in Oct 2004 for $660k by an owner holding since early 1970s, and then sold April 2005 for 802k, which shows the insane price appreciation in late 2004 through mid 2005. Then it sold again in 2010 (probably at nadir of market) for 857k. My guess is that it was renovated in 2005-2010. It had listed in 2009 for 895k.
On the lower end of the scale in the same area, crappy condos that blasted up in price 2000-2005 by 250%+ are still 33%+ below peak. I also think that if you look at the area, the exurbs and low income areas (e.g. PG County, MD) are still far below bubble peak. But the prime areas seem to have exceeded 2005-6 in some segments by a substantial amount.
It’s pretty expensive to be that close to the center of the universe!
in democratic hungary the gov stole everyone’s 401k- the gov elites get their pensions- private sector gets screwed. In 2012 both hungary and us were 80% debt to gdp