patrick.net

if cash buyers exit the market, mortgage apps are relevant. There is one theory that as investors leave the market , mortgage buyers will fill the void.
Not sure I agree with it-that is why I want to pay attention to mortgage applications to see if the "normal" market is buying-

Back around 2000, Enron manipulated the energy market in California and rates skyrocketed. Even though Enron is long gone and their shady practices exposed, prices haven't come down from that manipulation.

Same with gas prices, and same with home prices.

It just takes one fraud to raise them, and they aren't ever going to go down. Ever.

interesting thought
is it possible the same theory in reverse is true for gold and silver?

My theory and capitulation only holds for things that are classically "necessary" commodities (food, housing, fuel), and not pure investments. People don't need gold and silver to survive, so price manipulation isn't as effective long-term.

That is a good distinction also your theory applies to things they want to manipulate higher not lower

agree.

Oh, why not? I'll throw in my 2 cents.

Yes, defying logic, historical patterns, and general economic theories, the housing market should have 'crashed' years ago. And it did, in some markets.

Do I think it will crash now? or in the near future?
Not so sure.. I will not be holding my breath.

1.) Every other 'news' article, alongside Amanda Bynes (don't care if I got the spelling right !!) blue hair and breakdown, is an article on housing:
A.) 'We are not re-inflating the housing bubble'
B.) 'Waited to buy? Just cost you 50k!'
C.) 'ARMs are back', 'Reduce your mortgage', and on and on.
My deduction: Someone is dead serious about the bottom line and keeping house prices high and will do whatever it takes to achieve that goal, print money, write more articles (propaganda imo), and importantly, keep the suspension of Mark to Market accounting laws in place.

clearly the fed believes that the key to "recovery "is housing-as if people moving in and out of houses is productive activity.

smaulgld says

clearly the fed believes that the key to "recovery "is housing-as if people moving in and out of houses is productive activity.

At 6% per move, yes it is. Add in the movers, and the crap people buy to get the contractor specials liveable and you're talking a good chunk of change.

yes the realtor commission is money but nothing is produced in the transaction-
the construction and sale of new home provides a bigger bang to the economy than the sale of an existing homes
BTW home sales are not that plentiful-its the price that is rising not volume

Agree 100% with Bastiat's broken window and revisitation by Henry Hazlitt

The war is good because it destroys things that need fixing theory has been expounded upon by neo keynesians like krugman who love this type of economic activity and want the government to encourage it-Krugman once called for an alien invasion so the government would spend money repelling it!

The Fed is pursuing this policy with low interest rates hoping that people will engage in economic activity that they other wise would not but for Fed zero interest policy

robertoaribas says

Instead of breaking things and fixing them, investing in infrastructure that benefits society and has a long term payback for society is the keynesian response.

IMHO, the neo-Keynesians have had enough exposure to real economics to realize that it is inefficient for government bureaucrats pick and choose what the next big thing is. For example, all the countries dumb enough to invest tens of billions of dollars in monorails and high speed rails will soon discover their investment obsolete as self-driving cars emerge. So neo-Keynesians are reduced to proposing breaking things and fixing them, just to pump up GDP numbers and keep people busy. It's a sorry state of affairs.

robertoaribas says

is hardly economical for any car owner to build a road? a college system? a bridge ever? electricity to all the homes, or the telephone system?

it seems it was economical for the gravel company to provide the material,
steel company to provide material for a bridge, electricity and phone company to provide equipment and services. Govt acted only attaining services from the private sector.

public streets to pave the roads were govt owned, not owned by private parties,
the same is true with all other products and services.

Yes, they would have such systems on private property regardless of govt intervention. If Govt wants it for its own then they to can purchase the goods and
services.

robertoaribas says

you do realize without government intervention, we would have never had a road system, since it is hardly economical for any car owner to build a road? a college system? a bridge ever? electricity to all the homes, or the telephone system?

They got built just fine when government spending was a fraction of what it is today. The fallacy is that we need the government to do everything for us.

Reality says

exposure to real economics to realize that it is inefficient for government bureaucrats pick and choose what the next big thing is.

Got to disagree these mutts haven't learned anything beyond the most perfunctory.

robertoaribas says

you do realize without government intervention, we would have never had a road system, since it is hardly economical for any car owner to build a road? a college system? a bridge ever? electricity to all the homes, or the telephone system?

Turnpike roads were built by private investors to collect toll before government got involved in the road building a century later. Colleges were built by the private benefactors more than two centuries before government got involved in building land-grant colleges. Bridges were built by private investors/benefactors for hundreds if not thousands of years. Electricity was delivered by Thomas Edison's private company first, then Tesla came up with AC, massive competition ensued and was settled in favor of AC before the government got involved in granting monopolies to companies delivering electricity to given areas. Telephone system? AT&T was a private company with publicly traded stocks, not a government entity.

You don't know what keynesian is,

Do you really want to have that debate? considering what you just wrote above and how it reflects on your grasp of economics and history?

Realty correctly wrote
"Turnpike roads were built by private investors to collect toll before government got involved in the road building a century later. Colleges were built by the private benefactors more than two centuries before government got involved in building land-grant colleges. Bridges were built by private investors/benefactors for hundreds if not thousands of years. Electricity was delivered by Thomas Edison's private company first, then Tesla came up with AC, massive competition ensued and was settled in favor of AC before the government got involved in granting monopolies to companies delivering electricity to given areas. Telephone system? AT&T was a private company with publicly traded stocks, not a government entity."

Those are good examples and you can add to that "public" transportation like the subway systems and cable cars were originally developed by private companies and only later taken over by governments (with the impact of poor service and fare increases)

Its a myth that without government we would not have essential services.

Governments also control money and mail delivery. Do you think its possible for private entities to do better?

Look what happened when government was in charge of making cars and bread in the soviet union.
poor quality cars and bread lines.

What we would not have right now is a housing bubble but for government interference in the housing market via fannie mae, freddic mac and the Fed's easy money policies.

Indeed government interference in housing has made housing LESS affordable.
Ditto for a college education.
It's governments guaranteeing of loans that causes housing and college tuition to rise,.

Ironically the Fed WANTS housing prices to rise and WANTS inflation.
If you stop and think for a moment that is nuts-we should all want lower priced homes and for our dollar to buy more.

smaulgld says

Ironically the Fed WANTS housing prices to rise and WANTS inflation.

If you stop and think for a moment that is nuts-we should all want lower priced homes and for our dollar to buy more.

What's truly ironic is that central bank and government policies to prop up and instigate mal-investment have decidedly deflationary effect in the long run: as all credit money has to be paid back with interest added (except for the final hyperinflationary blow up, even in that case the real purchase power of money collapses even faster than printed nominal increase). Any and all zero-return and negative-return investment (most government run investments are) taken out on public credit will have to take a pound of flesh from the real productive private sector to pay back the public debt.

In a healthy free market driven economy, inflation would take place even as ordinary goods prices go down: as more goods and more productive capacity are built, there are more assets that can be used as collateral for credit money creation. Money supply increase (i.e. inflation) as a consequence of economic growth not as a result of central bank manipulation. The value (relative to other goods and service) of housing in that environment would increase as a result of productivity increase.

Contrary to what the political adherents of the government-god religion believe, the economic logic in Keynesianism is literally book cooking: debasing the money to reduce effective debt burden and the value of existing labor contract. The problem is of course that over time, the bureaucratic monopolies through which the Keynesian borrowed money funnels through have negative returns! or returns lower than even the low interest rate. Instead of creating inflation, the resource misallocation combined with having to pay the debt back with interest creates deflation a few years down the road . . . and we are at the few years down the road point now! It is a little like waking up in the morning with a hang-over after drinking too much from the punch bowl the night before, and decide to drink some more to alleviate the head ache for a few hours, then faced with the inevitable bigger head ache in the afternoon . . . we are in that afternoon!

"and we are at the few years down the road point now! It is a little like waking up in the morning with a hang-over after drinking too much from the punch bowl the night before, and decide to drink some more to alleviate the head ache for a few hours, then faced with the inevitable bigger head ache in the afternoon . . . we are in that afternoon!"

Time for a drink! Can you loan me a few bucks to buy one?

robertoaribas says

new home builders do not build on spec, they build when they have a signed
contract, credit approval, and a deposit. So, you don't even know this? and yet
you write your opinions?

roberto, I think you mis-spoke here. You are seldom wrong on this type of point, so I will give you the benefit of the doubt and let you adjust what you meant to say.

Here in sunny central mexifornia there has been lots of spec building in the Section 8 welfare multi-housing arena (ok, there is no doubt the welfare will fill the appartment, so this dont really count) .. ..

Seriously, in the "SFH unit" area there have been 6 new starts of the speculatory type in my neighborhood, started in the last 4 months. All are absolutly spec homes as per direct communication with the site work and well diggers on the sites. There was no owner/builder or custom build for a known owner. 100% spec. These are not tract homes, and are upper-level in cost for the area. In the tract level building there has been no new starts, spec or otherwise, in my area at all.

There are 3 owner/builder types going on also.

I think they are all flipping crazy. The end is right around the corner for mexifornia. This entire spurt is built on the same bullshit.

robertoaribas says

you do realize without government intervention, we would have never had a
road system, since it is hardly economical for any car owner to build a road? a
college system? a bridge ever? electricity to all the homes, or the telephone
system?

wrong, wrong, wrong, wrong, and wrong.

I think someone hacked roberto's patnet entry. He's much better than this.

sbh says

For my part, I don’t see the central bank as apriori evil. It is not the sole source of wealth disparity in America [as some of your brethren would posit] and its actions do not solely benefit the wealthy [ditto], but it clearly mitigates the virtues of the so-called free market and disrupts our standing relationship to capital when it seeks to weaken or strengthen money.

It is very likely a priori evil, or at least a priori corrupt. Power corrupts and infinite power corrupts ad infinitum. Most modern governments are designed to have checks and balances and have separation in judicative, executive and legislative. When you introduce an entity that can create money/credit out of thin air, this is already a problem. Having no checks and balances on this is even worse. The Fed releases "minutes" where they dictate the money "policy". Have you ever seen anybody outside that entity veto their policy, investigate it, remove it? Sure there are distortions in the free market that can tilt power towards large corporations. But lamenting about that possibility here on patnet while you have the most powerful unchecked entity run the world (if you control the money supply you control pretty much everything) and assume, hope, or - even worse - blindly postulate that they are oh-so benevolent and uncorrupted (bailouts anybody?) is a contradiction that you cannot recover from in this discussion. You've already had your unchecked, overpowering (monetary) aristocracy run affairs for quite a while, it's called the Fed.

indigenous says

Reality says

In a healthy free market driven economy, inflation would take place even as ordinary goods prices go down: as more goods and more productive capacity are built, there are more assets that can be used as collateral for credit money creation.

The consensus at the Mises org seems to be that the natural disposition of the economy is deflation as a result of ever increasing production capability.

I don't understand how money supply is controlled without government this may trump increased production capability?

It was a subtle point that I was trying to make: price "deflation" would take place as goods (and better goods) become more plentiful. Inflation in the classical sense as measured by rising overall money supply will also take place because more goods and production capacity provide greater debt service capacity allowing more money borrowed into existence (in a metal standards economy would also see more metal being dug up). It's something like the computer and electronics industry: while the unit cost of processing power keeps dropping, the overall industry (including computers, phones, tablets and whatever new form the innovators can think up) sales volume continue to go up. That's the sort of healthy economy that would be taking place in a free market environment. The computer/internet/communication/electronics industry is able to do this because innovations are a couple steps ahead of the grubby hands of the regulators and tax eaters.

robertoaribas says

you do realize without government intervention, we would have never had a road system,

What the Sam Hill are you talking about?

Sam Hill built a lot of roads for his 23 cars, and friends that would come visit him in Southern Washington.

robertoaribas says

new home builders do not build on spec, they build when they have a signed contract, credit approval, and a deposit. So, you don't even know this? and yet you write your opinions?

Wow!

Builders own dirt that may go up in value, but they own it for cash. If they just hold the building lots in an appreciating market that could be good. We get phrases like they aren't making any more dirt, and some such nonsense. We may not be making more dirt, but we can have higher density.

Once houses are built on the dirt they can be mortgaged. This is tricky because banks aren't stupid. Banks can calculate things like salability. They look at the entire balance sheet, and track record of those holding the dirt in a ratio to what has been built.

According to you we would have a permanent shortage, and not thousands of vacant housing units in places like Phoenix Arizona.

robertoaribas says

carry on with your ranting on this thread. you don't know enough about economics to have an informed opinion, but that isn't stopping you!

This person has provided an excellent forum that has produced good quality results in a communicative way. You're just insulting.

It's more, and more difficult for me to believe you are an economics teacher. I'm coming to the conclusion that you are simply creating controversy.

sbh says

Your quote above utilizes a thought about which I had planned to query you, namely, the inflationary and deflationary influences of central banking actions.

Central banking tend to produce debasement of the fiat currency over the long to very long term. However, in the intermediate term it can exacerbate both inflation and deflation, at different times.

FED induced bubbles in the late 1920's, late 1990's and mid-2000's led to the massive crashes. All the monetary profligacy early in the crash would have to be paid back with interest added in a few years, exacerbate deflationary pressure a few years after the initial crash. It is not hard to see how the exacerbated ups and downs can provide trading opportunities for the insiders, especially if you have friends at the central bank to set policies after you make your bets.

More importantly, "flations" do not give the full picture. Beware of the "averages." If a mugger takes $200 from your wallet, the average wealth between the two of you have not changed. It is the transfer of wealth carried out by the FED and government in all their market interventions that change the behavior of the ordinary people, and the structure of the economy (e.g. manufacturing being shipped overseas to make room for financial industry; engineers/scientists chose financial engineering as their career, etc. etc.)

Without central banking, there would never have been the speculations of ancient Rome, the depredations of the London financial markets from 1690 onward, and any sort of job ever going overseas. The multiple bubbles (tulip, South Sea, etc.) and financial panics, such as the Panic of 1819, the Panic of 1825, the Panic of 1837, the Panic of 1847, the Panic of 1857, the Panic of 1866, the Panic of 1874, and the Panics of 1890, 1893, and 1907, all before the existence of the Fed, are made up by corrupt historians in the pay of the government.

Everyone knows that.

central banks benefit other banks (and the politicians that support them) under the guise of helping the population

sbh says

the Fed as the government’s most efficacious counter party to private capital actions,

I don't see the FED as counter-weight to the private capital actions at all. Private capital controls the FED (which has the TBTF banks as shareholders), which in turns captures the government.

how do we scale out of the situation without devastating our population of consumers/debtors? Could you compile a rational austerity for America that differs substantively from trickle-down?

There will be two possible ends:

1. Abolish the FED, like Andrew Jackson abolished the Second Bank of the United States, the second instance of a central bank in the US history. The FED (Federal Reserve) is the 3rd instance of a central bank in the US.

2. Hyperinflation destroying the Federal Reserve Note itself.

Critics like me only serve to put some pressure on the FED so as to moderate its actions (and deflect other politically player demanding even more reckless actions from the FED), ironically most probably prolonging the life span of the FED ;-)

BTW, Sovereign debt default wave is also coming. That will the solution to the debt load problem. It's a tough call whether TPTB will choose to let the US government default or let the FRN become worthless in order to keep the USG nominally solvent, if push comes to shoves. I'm sure there are elites advocating both positions.

Are the inflators succeeding? Gold spiked and fell. Oil has recently spiked. Housing is reflating at present. Equities are at highs.

The net effect is enriching those with assets and/or transacting assets, at the expense of the middle class and the poor who see their cost of living increase dramatically.

HydroCabron says

Without central banking, there would never have been the speculations of ancient Rome, the depredations of the London financial markets from 1690 onward, and any sort of job ever going overseas. The multiple bubbles (tulip, South Sea, etc.) and financial panics, such as the Panic of 1819, the Panic of 1825, the Panic of 1837, the Panic of 1847, the Panic of 1857, the Panic of 1866, the Panic of 1874, and the Panics of 1890, 1893, and 1907, all before the existence of the Fed, are made up by corrupt historians in the pay of the government.

Speculation is just another side of the same coin called "price discovery." Many of those bubbles listed also had significant government intervention components in them (e.g.South Seas bubble literally was about a government granted monopoly to trade with Spainish Empire, the world's leading hauler of spice and specie at the time).

The key issue with the FED (and other central banks) is in _exacerbating_. The FED put makes speculations that much more profitable. Cutting off the statistical tail risk makes the expectation value on return much much higher, and drastically reduces co-variance.

Reality says

Cutting off the statistical tail risk

Please define this.

indigenous says

Reality says

Cutting off the statistical tail risk

Please define this.

It's better illustrated with a hypothetical example:

Say if a gambling house that lets you toss coins for $100 per coin, if you get 10 heads in a row the house promises you a $1mil payout. It's a game the house can justify on expectation value (1/1024) but the margin is very thin. For a long time the house can rake in from gamblers paying $1000 for the 10 coins that they toss but don't get 10 heads in a row. So the CEO's of the place gets paid hour after hour as the house is raking in. However, eventually someone will get the 10 heads in a row, but the house doesn't have the $1M to pay out! but have to count on the FED to bail it out. Multiply the numbers by 1000x or 1Mx to make sure the nominal value of the bet and the institution involved is too big to fail.

This cutting off of the statistical tail risk dramatically changes the entire pay-off profile for the house operator: it becomes a pure money making machine with no pay-out risk.

Reality says

it becomes a pure money making machine with no pay-out risk.

Ok thanks, thus changing Milton Friedman's profit and loss system to a profit only system.

You are discussing centralized vs democratic governments. There is a difference. Sometimes private does much better, but other things government does much better. It will be a debate for centuries...and should be debated and changed when necessary. No one entity does everything well IMHO...great debate.

Imbalances happen in free markets but they correct themselves rather quickly. The great depression went on and on due to government programs designed to "fix" the economy (work projects) as well as imposing tariffs and nationalizing and revaluing gold and central bank interference

retire59 says

You are discussing centralized vs democratic governments. There is a difference. Sometimes private does much better, but other things government does much better. It will be a debate for centuries...and should be debated and changed when necessary. No one entity does everything well IMHO...great debate.

Murray Rothbard

Says the government does nothing better

smaulgld says

What Happens if the Real Estate Market Crashes?

Crash = correction... never has so many went overboard on overpaying on RE,
Only second to the stock market.. all for the same reasons.. all wrong.

sbh says

I don't see the FED as counter-weight to the private capital actions at all. Private capital controls the FED (which has the TBTF banks as shareholders), which in turns captures the government.

I'm not clear what you mean by this. Are you saying the Fed is bound by private capital as its bailout slave and is ultimately defined by this?

Yes. The FED (Federal Reserve) is a private corporation which has the largest commercial banks as its shareholders. Its real purpose is to cut out the statistical tail risk for big Wall Street banks, so they can take reckless gambles for high profit.

2. Hyperinflation destroying the Federal Reserve Note itself.

Do you think hyperinflation can occur coincident to slack consumer demand? Healthcare and tuition (and now housing) are rising remarkably, but most Americans squander their money on crap (and debt service, let's not forget that one). However one may measure consumer price inflation, the spending ability of Joe sixpack looks feeble from here on into the future.

I listed it as a 2nd possible way in which a fiat money system can end (besides #1, which is being abolished). Hyperinflation is usually the result of political necessity. Often times, it is the need to keep the enforcement class paid. The enforcement class has been mushrooming in recent years. In a hyperinflation, Joe and Jane Sixpack only get into the action after the enforcement class started dumping the fiat in exchange for something more durable, then everyone tries to get rid of the medium exchange in their hands in order to have their wealth in store of value (which can be anything from a can of tuna to a chicken farm)

Realty : "In a hyperinflation, Joe and Jane Sixpack only get into the action after the enforcement class started dumping the fiat in exchange for something more durable, then everyone tries to get rid of the medium exchange in their hands in order to have their wealth in store of value (which can be anything from a can of tuna to a chicken farm)"

This I believe is an example of what Mises would call a "crack up boom"

I am going to create some pages on Smaulgld.com that define commonly occurring economic phenomena

Yes, yes, when this all comes to pass in 500 years time, you will all see how correct they were.

Austrian Economics is the Scientology of the social sciences.