WatchPoliticians, economists, private citizens, public and private unions all want to have highly paid jobs. Not many such jobs exist. Why not these folks focus on cutting down the cost of living? For instance, food is damn cheap in the states. In countries like India, those in Africa, majority of their earnings go to the food. In the states, majority of it goes to paying rent (mortgage), health insurance, etc.
Manufacturing jobs are not coming back: even Foxconn in China is replacing humans with robots. JC Penney is replacing cashiers with self-check out counters. Big expense items for any company is labor and their health insurance. Companies, in order to beat the competition, find creative ways to cut down these expenses.
Why don't academics, thinktanks, politicians, economists, focus on CUTTING down the cost of living? Why waste time on generating highly paid jobs, only to have these wages taken away by rentiers?
What do you say?
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bgamall4 says
I guess we aren't entirely disagreeing. I agree the economy and markets are broken, but I believe that even most of the bankers strongly wish we could go back to more regulation and to when things weren't completely broken (eg our bond market where prices are propped up buy the US buying our own bonds, while
the real interest rate is basically negative)
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bgamall4 says
Lack of Govt regulation even with required disclose didnt prevent the stock bubble in later half of 90s. We still saw the public at large speculating on internet stock as they did before in the 20s, yet the SEC act of 1933 and 34 were still on the books.
The housing bubble was equally created by the public at large with talk of "buy now" mania. Shiller provided all the proof needed, and yet today much of what he has proved is still ignored by the public when it comes to financial valuations.
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bgamall4 says
All RE in many metros did thank long before the repeal of Glass Steagall back in the late 80s and early 90s. Again, the RE mania corrected accordingly, without the need for regulations.
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thomaswong.1986 says
Please clarify. It appears you are babbling. What does "All RE in many metros did thank long before the repeal of Glass-Steagall" really mean?
The S and L bubble was also a scam and Greenspan was behind that one as well. The home loan bank guy wanted to put a stop to easy loans and Greenspan said no. It ended in a mini disaster, far smaller than the housing bubble in the Great Recession, though.
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thomaswong.1986 says
This is patently false, Wong. The housing bubble was created at Basel 2 when risk management became a scam and risk was mispriced to get investors to buy securities made up of mortgages. That scam allowed easy money to flow and keep flowing. The real bubble heated up when the bogus AAA bonds became the rage. This occurred because the banks set it up. How do you not know this after as long as you have been studying this?
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bgamall4 says
Keep dreaming... Home Prices over the long run appreciate at about the rate of inflation. Prices became unfordable for many .. reaching 10x incomes. We had back then the same crazy public mania over RE (but not as bad as more recent.)...
There is no amount of regulation which will change the publics attitude over speculation on some crazy nonsense.
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All bubbles are ultimately created by the public. Different bubbles may have different contexts and catalysts buy in the end it is all down to crowd behavior.
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Peter P says
No, all bubbles are created by the banks. It has been that way from the beginning of time because they control the supply of money and they control the markets.
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bgamall4 says
oh yes, blame it on this or that... get over it! RE prices dont appreciate as the public wrongly believed regardless of Basel 2,3,4.. or 10 in the future.. The public lost their mind and their wallet!
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thomaswong.1986 says
You can stop the securitization in real estate and you can stop the hoarding of oil contracts which causes speculation.
Do that and you won't have bubbles.
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bgamall4 says
Invest in a Beanie Baby lately! How about a couple of Lotto tickets! Any baseball cards you collect for big bucks! Banks have little control over the emotions of the pubic.
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Thomas, surely you are right.
Like when someone like Eliot Spitzer got entrapped, well, he made the choice.
I think s/he meant the Bubbles are enabled by banking.
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Peter P says
Okay. But take away the catalyst of sub-prime loans, liar loans, etc, which were TOTALLY tied to deregulation and what is really large scale fraud, and we have no idea of how much smaller the boom would have been.
Would it have existed at all, under old fashioned mortgage lending practices ? How can we say it would have, considering that virtually all homes bought for residence are bought with a mortgage. Investment buying and "flipping" is gone without the upward trajectory, and when rents don't cover the mortgage payments.
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thomaswong.1986 says
But they happen to finance virtually ALL home purchases.
Would it have existed at all, under old fashioned mortgage lending practices?
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Actually, TPTB have been reducing the cost of living for some time. Look at the Core CPI: inflation at 2% or less, thanks to careful government/Fed marshaling of the economy. (Of course, this figure is reached by excluding "volatile" items such as food and gasoline.) Just look at how much cheaper housing has become in places like Lancaster, CA, or Homer, GA. Factor that in and, metaphorically, we are almost as well off as the 1%.
As I understand it, the BLS includes food & energy in its calculation of the CPI, but doesn't take into account product shrinkage (or package amplification). Get less, pay more, but the CPI is blessedly stable. There's a whole field called "Hedonics" which assures us that a person who is used to eating steak will, when confronted with higher beef prices, switch to chicken or tofu or fish sticks, so, BONUS! his grocery budget actually comes out ahead. I am not sure where you go when fish sticks become too expensive; I'm thinking the plan would involve trapping neighborhood pets and possum for protein, and this activity would show up in the CPI as "FREE MEAT ALLOWS UNGRATEFUL CITIZENS THE CHANCE TO SPLURGE ON MAC-N-CHEESE!"
Note also that the cost of coveted "toys" are parsed and prettified by experts who point out that your new TV or laptop is so much bigger or faster than what was available last year that it counts as an upgrade, even if it's the most stripped-down entry model and costs more than last year's equivalent. In my own household, we find that hand-me-down clothes and the box of leftovers from the neighbor's garage sale gives us a more extensive wardrobe than we could ever afford by shopping at Walmart. The scarecrow look and Shabby Chic are so popular now.
As you now can see, the CPI--against which wage adjustments or retiree's benefits are calculated-- has de facto reduced the cost of living! They calculate that there's no inflation, so you don't need a cost of living increase. You just need to recalibrate your personal hedonics.
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thomaswong.1986 says
You don't need easy money for those and you know it Wong. You need easy credit for oil and housing bubbles and the banks supply that. Stop the easy money and you stop those bubbles and force people to bubble up postage stamps. I don't care about that. I care about the bubbles the banks are involved in. Do you really think your position out Wong before you post it??? Just wondering.
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marcus says
Hmm... what about the South Sea Bubble and the Tulip Bubble?
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Cautious1 says
No, the reduction is in the means to pay for the cost of living which is still elevated by speculation. But I get your point, that wage inflation is not to be feared. Still commodity inflation is pure stealing if you don't get a better wage!
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bgamall4 says
How oil speculators jacked up oil price, which affects other basics like food.
http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html
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bgamall4 says
There was no expansion of credit when it came to stock bubbles..that was all based on disposable incomes/savings.
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Peter P says
Brain fart ?
I wasn't making a generalization about all bubbles.
And I don't know how familiar you are with logic, but the fact that public mania can cause a bubble in tulips or whatever without bank involvement is nothing like a proof that it is the only factor in all bubbles.
It's a chicken and egg question. It doesn't take a lot of capital to get the price trend going strong enough in something like tulips to then generate some crowd behavior buying mania.
But in the real estate boom, there were financing practices, which weren't necessarily a conspiracy, that allowed the buying to occur for several years with people bidding prices up up up, leading to more people doing the same, again often buying and bidding up prices when a huge percentage of these bidders/buyers would not have been able to even participate with lending practices of 30 years ago.
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thomaswong.1986 says
Sorry, margin betting went wild. But even so, the places where bubbles are completely based on credit are housing bubbles and commodity bubbles. Those are bank caused.
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marcus says
not that long ago... I, like many put down 20% with a fixed loan during more sober times. You will find more than 50% of homeowners today did the same.
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Tulip bubble was based upon a futures market and speculation that was forced to end, if Angry Bear has it right.
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Listen to Wrongwong's video of Schiller.
He talks about people in Los Angeles in 2006 on average thinking that RE was going to go up 23% per year.
Yes, this is buying mania public crownd behavior at it's finest. But it's based on the increases they saw in the 5 years before that. And that was based on a lot of buying and demand that was financed with liar loans and low down payment loans and a fraudulant mortgage securities market that was begging lenders to write more morgages.
The lenders said, oh, you want us to generate more fees and make more money ? Oh,...alright... I guess we can do that...
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thomaswong.1986 says
And who do you think provided the easy money liar loans Wong? And guess what Wong, they came from the UK where they were tried first. That is where bad finance has it's home: http://www.businessinsider.com/smoking-gun-liar-loans-were-imported-from-the-united-kingdom-2012-1
I wrote that and watch the video too.
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bgamall4 says
An unregulated futures market.
There is a distinction between regulated derivatives regulated by the CFTC and other regulated dervitives versus the so called "shadow banking" markets that trade unregulated derivatives.
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marcus says
Who has those, Marcus? :) Most of the damage comes from deregulation wouldn't you agree?
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bgamall4 says
We have had them for a very long time. Futures markets in everything from metals, to oil, livestock, grain. They are well regulated.
There are regulated financial futures in such things stock indexes and treasury securities that have only been in existence about 30 years.
The Commodity Futures Trading Commission (CFTC) is the one who brought suit against Barclays in the recent Libor scandal, presumably because what was essentially massive insider trading of treasury security futures or euros was creating severe damage to the liquidity of these regulated markets.
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marcus says
Can you say the same back in 1989 - 92... yet prices went up and eventually fell.
Much was actually with cash.. not loans.
And fast forward to his NYC example.. not made with liar loans! Its all about valuations.
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thomaswong.1986 says
Which in turn are all about the market. I'm not making an absolute generalization one way or the other here.
marcus says
I don't claim that the lending practices accounted for 30 or 40% of the boom, or that is was 80%. Just saying it's an obviously huge factor.
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marcus says
We had the 1933-34 SEC act for some 75 years.. A good set of regulations, but did little to prevent mania in many markets.. including commodities.. since reading the company and industry wide MDA would provide transparency to those markets.
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marcus says
Wrong, the amount of folks in those markets recently have gone berserk. The numbers are making the contracts scarce. They need to be regulated differently by massive raising of margin requirements.
You read this right? http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html
You really need to read it Marcus. Our banks are scum.
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bgamall4 says
This makes no sense, and no offense but it's obvious you know very little about these markets. "the number of people in these markets ?"
Increasing the participants just increases liquidity and lowers the profit potential it doesn't cause the market to be priced wrong.
As for what caused the crazy prices of 2008, I don't know. If it was speculators, believe me, many of them got burned. For all we know it was the Saudis. What they say or what their spokesman says doesn't impress me.
I read about it back them. Whenever there is craziness in markets, traders and speculators are blamed. I don't buy it. PRicing of finite resources is tricky. Who knows, maybe prices of oil are being held artificially low now and really should be much higher. A good argument certainly could be made for that case.
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B.A.C.A.H. says
Thanks. Sometimes I get lucky when I spew out a thought that seems clear and logical, but it gets flamed by the Defenders of Right; that is the Right that Might made Right.
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bgamall4 says
Bubbles are not "created". To be created implies something done intentionally. Bubbles are "allowed" and incidental in the process of seeking maximum economic harvests (whether they be profits or debt write-offs by government through weak dollar policies). The active process is the economic extraction process and the bust is a symptom of growth-based thinking (as opposed to utility-based thinking). Whether it is 'the' solution or not, a government should be basing its policy actions on the utility of its people's activities to the future of the nation, and nations should work toward the future of the world. This, however, is anathema to the concept of God-given rights, Might is Right, and Humanism (it would require humans to become subservient to their own future selves, rather than enslaving themselves with instant gratification debts). This would be called "leadership".
I know, I know,...an anachronistic idea in a world of Cash-based Deities.
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Auntiegrav says
This is the part I don't agree with Auntie. Read my ebook Ponzi Housing Scheme 21st Century and you will see that the banks did plan the housing bubble and absolutely planned to make money for the elite with it. It was a plan of failed risk management that I say was predetermined. At Basel 2 in 1998 the central banks allowed off balance sheet accounting to hide bad loans. They allowed CDO's to be unleashed in the future that would be based upon phony lack of risk.
They already knew that the Japanese RE tanked en masse. Yet they deliberately assumed, and plugged into their math formulas, that our real estate could not tank all at once. That was a fraud and they knew it was fraud.
The plan was implemented in July of 2003, and bogus AAA bonds were issued to unsuspecting investors, allowing the liar loans to flow.
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david1 says
Liquidity trap doesn't explain. In fact, mainstream economists and Mish like austrians are wrong about how modern fiat money system works. I was disabused by Randall Wray's Modern Money Primer.
http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html
Here, Bill Mitchell of MMT (modern monetary theory) trashed Krugman's Liquidity CRAP!
http://bilbo.economicoutlook.net/blog/?p=6617
BTW, I was wrong about reserve requirements. Capital requirements are different from reserve requirements. What constrains lending is capital requirements.
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raindoctor says
It has been my thought that liquidity is not the problem, but rather, how the liquidity is used, to enable the TBTF banks to buy treasuries and to speculate in commodities and stocks.
Therefore, QE could only work if there were strict rules against speculation by these middlemen in oil and food, etc. That money has to somehow be filtered into the real economy. What do you think about that raindoctor?