patrick.net

Another problem: After page 658, suddenly the next page number was 16198 and then kept going up from there. This occurred on or around 2009-01-31, when the thread/page 658 ended.

This big discontinuity can’t be right.

Creative Destructionism will leave the economy is ashes and from the ashes will arise new technology and industry. Panics, severe recessions and depressions have the factual history of America. We will come back better and stronger.

For years I have argued that there would be The Crisis in the Fall of 2009. Obama will bring on another big bailout as a response. Obama will seek to take the millions of empty, vacant houses off the market with a rent-to-own program. Inflation will start to gain traction in 2010 and the financial world as we know it will end in 2012-13.

jeffolie,

Note that the DOW took a sudden dive right after your post.

Nice video, TOB

I would like it better if they mentioned how the easy credit to the irresponsible caused house prices to rise much faster than normal.

By 'managed' you mean that someone determines what something should cost and either makes policy towards it or flat out puts a price floor or ceiling? I guess if that is what you mean by managed, you're probably trying to turn a discussion into the typical government or no government debate.

No depressions are not necessary in a capitalist society. Depressions and stagnation are the rule in the end though for pure free markets though because innovation and new business development reach maximums that the markets on their own can't exploit.

1. Should asset prices be managed?

Only the free market can reliably determine prices. All efforts to "manage" prices have or will likely fail.

2. Are depressions necessary to the business cycles?

Business cycles in the broad sense that I believe you are referring to are themselves unnecessary, caused by efforts to control prices and allocate resources by government.

Depressions and stagnation are the rule in the end though for pure free markets though because innovation and new business development reach maximums that the markets on their own can’t exploit.

I would believe the complete opposite. Is this your own opinion or can you site some references? I can't imagine how one would necessarily come to this conclusion.

On the other hand, we've been shown time and time again that intervention causes up and down cycles as markets try to correct for the incorrect calls made by government.

Business cycles in the broad sense that I believe you are referring to are themselves unnecessary, caused by efforts to control prices and allocate resources by government.

I believe boom-bust cycles can completely be attributed to human emotion. If this is true, unless we all become Vulcans, they will exist even if governments cease to control prices and allocate resources.

Intervention is just another variable. It makes business cycles even less predictable.

Hello guys,
It is long since I last posted here. I have been reading this blog, I guess, since 2005. Thank you Patrick and all you guys for helping me make decision not to buy a house. A couple fo my cowrkers who bought at the peak of the bubble lost nearly 40% of their home value in San Ramon area.
I wish I had followed Patrick's lead in investments too. I beleive he blogged about investing in only CDs and/or gold back in 2007. I went long on equities, about 85% of my portfolio, I have lost nearly 40% in it since 2007.
What do you guys think of tech or other jobs in bay area? Nearly every hi-tech company in bay area have hiring freeze. When is it going to end? I do not not think stock market has bottomed-out till hiring freeze is over and companies start hiring like back in 2007.

I believe boom-bust cycles can completely be attributed to human emotion.

Human action, whether a result of individual emotions or reasoning, between market participants is what is at the heart of a free market. Trying to arrest booms or busts caused by the free market would be a mistake. Furthermore, a free market is unlikely to cause the broad business cycles we see as a result of government intervention (I'd be interested in hearing about any).

The point is that boom/bust cycles are unnecessarily caused by government intervention. At least that much we can agree on.

What do you guys think of tech or other jobs in bay area

I think we haven't seen the end of the job losses. Furthermore, if we continue down the path of trying to sustain the insolvent banks, jobs are unlikely to return any time soon.

@justme:

The sudden jump in page numbers is the result of my adding all the nursing homes in the US to this blog, one per page, but in a different topic.

Frank,
Thanks for the comments. With the current job loss, I already see empty stores and restaurants.

Let me think of a hypothetical job loss scenario:
1) Job losses continue, albeit at decelerated pace, till Q2. Net cumulative job loss hit the nadir by end of Q2'09.
2) Hirings slowly start by early Q3'09. It would take atleast an year from then to employ most of the unemployed back to productive jobs and to get the bay area economy humming.

So, the earliest recovery that I can think of is in mid 2010. Well, I hope so, else we are all doomed, because it wouldnt matter if you are renter or owner when you dont have income/job.

frank Says:

February 26th, 2009 at 3:56 pm
M-"Depressions and stagnation are the rule in the end though for pure free markets though because innovation and new business development reach maximums that the markets on their own can’t exploit.

F-I would believe the complete opposite. Is this your own opinion or can you site some references? I can’t imagine how one would necessarily come to this conclusion."

Yes, it was my theis research that led me to that conclusion. It has to do with many different factors. Government actions cause new opportunities and spinoffs, which grow free markets. The private sector has limitations, which in many cases can only be overcome with government involvement.

thesis - sp

Patrick,

Thanks for the clarification. I was worried something had gone bad in the database.

Business cycles:

I've been wondering whether the real reason for boom-and-bust cycles is how interest on debt is defined in our financial system, namely as an exponential function of time.

Basically, one needs a "reset" once in a while to avoid debt growing exponentially.

Notice how the function of the central bank is to suppress the interest rates on deposits when the bust occurs, so that the savers are screwed and the banks get extra profit margin to offset losses on bad loans (which are reset) more quickly.

Government actions cause new opportunities and spinoffs, which grow free markets.

History is full of examples where government involvement in the markets caused malinvestments. Through manipulation of interest rates, subsidies, entitlements, restrictions etc., government causes mis-allocation of resources. They believe they know better than the free market, but this is both naive thinking and has been shown to fail time and time again.

But let's look at the other side of your argument... why do you believe we need government direction in order to be innovative?

While it is true that government has had it's hands in many innovative endeavors, claiming that government was necessary or is good for innovation based on this is like claiming that Hilter was good for nuclear research.

Capitalism recognizes that all innovation is based on the individuals ability to think, choose and act free of coercion and strives to protect these freedoms. When government becomes involved, the freedom of choice is compromised and therefore so too is innovation. If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise. To think this is beneficial would be to assume that the culmination of judgments of market participants is inferior to that of a handful of bureaucrats... I think not and history gives multitude of examples that support this view.

>>If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise.

For example, accepting 0.25% interest in their savings account?

Banking is the ultimate "heads we win, tails you lose" business.

Banking is the ultimate “heads we win, tails you lose” business.

How do we join?

You could buy some Citibank today, it appears to be trading at -35% relative to yesterday.

But seriously: The fact that C dropped today is a good thing. It means that USG did not overpay as much in the share conversion as most had assumed they would.

We already live in a hybrid economy and it generally works pretty well. The springboard effect of the free market from visions and investments of the government are what has made this country stand out as the world leader.

Yours is not the only view, and it is not coercion for the government to create opportunities that wouldn't exist due to inherent limitations of private firms. I'm honestly not really interested in your POV on this since it is a tired and antiquated ideology, which misrepresents anything contrary to its rhetoric.

Malcolm, it does seem very rhetorical for Peter P to start a thread that asks "Should asset prices be managed?" I think we know how he feels about that already ;).

"How do we join?"

You could start a bank.
You could buy stock in a bank.
You could make a deposit in a bank, nice and safe.

Nice to live in a free society.

If you think about it, the only thing government can bring to the table is to be able to coerce people to do something they would not rationally do otherwise.

The same can be said for the mob or any racket. :)

You could start a bank.
You could buy stock in a bank.
You could make a deposit in a bank, nice and safe.

Buying stocks does not work. It seems controll is infinitely more important than equity ownership. Anyone who own bank shares is getting hosed. Anyone who owns banks still owns the world.

The news just reported San Diego home sales up 100% over this time last year. This could be good news, at least the world isn't ending in San Diego. I'm still not buying here but the low interest rates with the low prices mean someone could buy a house with a conventional mortgage with a payment in the 1990's levels.

For example, accepting 0.25% interest in their savings account?

Of course, they could also coerce you to do somethings you wouldn't rationally want to do either. Such is the faith of these misguided efforts to control the market.

We may want both volume (sales) AND price confirmation. Are the sales in SD mostly conventional or REO?

No Peter, it is capitalism. If you own shares doesn't that mean you own the bank? There is no corruption, cronyism, or excesses in private companies. How can you suggest a disconnect?

Hmm....

The springboard effect of the free market from visions and investments of the government are what has made this country stand out as the world leader.

Sorry, I just don't buy that.

inherent limitations of private firms.

We're still waiting for examples.

not really interested in your POV

Well, there's a whole nation that's obviously fed up with your POV here today.

Peter P Says:
February 27th, 2009 at 9:48 am
"We may want both volume (sales) AND price confirmation. Are the sales in SD mostly conventional or REO?"

I'm sure a lot of it is REO, and although it is interesting it is irrelevant to the more important point that things are starting to move again. I was happy to hear the news because it might indicate the economy (at least here) is back into a gear, what gear that is? Who knows.

Right, as we all ought to know by now, only Gubberment can be self-serving, corrupt and incompetent. Why? Because Rush LImbaugh says so.

The same can be said for the mob or any racket.

A very appropriate analogy!

RE: inherent limitations of private firms

Don't forget the inherent limitations of humanity. And don't even think that humanity can oversome its own limitations.

If God could adopt a relatively laissez-faire approach (He even allowed Holocaust to occur), we must think hard before adopting any overzealous policy.

I’m sure a lot of it is REO, and although it is interesting it is irrelevant to the more important point that things are starting to move again.

I firmly believe that any the right price (could be $0 or lower sometimes), anything moves. This is why an auction-based price-discovery system is superior and it should be considered even for non-REO sales.

Justme, if Rush Limbaugh can afford a G550, he deserves some respect. Similarly, I also like Oprah. She has a GLEX.

(G550 = private jet)

No he doesn't deserve much respect. He just needs the G550 to feel like he's a big shot.

"Sorry, I just don’t buy that."
And I shoudl care why?

"inherent limitations of private firms.
We’re still waiting for examples."
Not sure who we is but OK, you sucked me in and I can't resist but I'm not going to continue a debate because you don't have anything other than tired Peter P (who I actually think is OK) type pure free market theory rhetoric.

Private industry doesn’t have the time or resources to conduct fundamental research (Lyons-Johnson, 1998). Companies on their own will correctly not take into account the full social benefits of fundamental research.
From a societal view, the free market has an inherent flaw in that there is no incentive for firms to place any value on the spillover benefits from R&D, since they cannot recognize all of the returns from those spillovers. There is credible theory that says firms invest less than the socially optimum level, and that an infusion from the government can rectify this market failure. On average a firm will recoup a 20-30% return on investment in R&D, however society will recoup a 50% or more return on the investment. This happens as others build upon the innovation and take it in directions the original innovator could not have imagined. Without some intervention certain projects that would yield a positive net result are not undertaken (Stiglitz & Wallstein, 1999).
The United States will soon find itself falling behind in technology development, standards of living, and overall quality of life unless different entities work together. Traditional views of markets, and government roles are being blurred by the new global marketplace, and now seem outdated (Larkin,1994).
Public private partnerships have existed in the United States since its beginning. One could make the point that the discovery of the new world in itself was a partnership since Columbus’s voyage was funded by the Spanish government. The Constitution of the United States affirms the role of the government in promoting commerce through different vehicles. The founding fathers of this country recognized the role of the government in promoting private sector innovations by the patent system established by one of two clauses in Article 1 Section 8 of the United States’ Constitution which are commonly cited as the basis for the use of government to promote our free market system.
1. Congress is to make laws to provide for the general welfare of the United States..
2. To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;
Additional laws
This tradition is upheld by some of the more recent laws cited in the literature:
The Stevenson-Wydler Technology Innovation Act of 1980 expanded the authority of the Department of Commerce to promote a policy of supporting technology transfer and the use of government scientific and technology resources (Stiglitx & Wallsten, 1999).
The Small Business Innovation Development Act of 1982 (SBIR) required government agencies in charge of R&D to set aside a percentage for grants (Stiglitx & Wallsten, 1999).
The National Cooperative Research Act of 1984 loosened antitrust research on private collaborations (Stiglitx & Wallsten, 1999).
The 1986 Technology Transfer Act made it easier for government researchers to work with entrepreneurs. This law allowed government agencies to enter into R&D agreements with the private sector (Lyons-Johnson, 1998).
An executive order in 1996 by President Clinton encouraged the development and use of technology through the transfer to the private sector, which he believed was best at developing new technologies and bringing them to market (Stiglitx & Wallsten, 1999).
It wasn’t through legislation that the potential for partnerships was established. In fact most federally sponsored R&D was not undertaken with the goal of yielding commercial applications. It was just through observation that many leaders realized that the government was unexpectedly leading the development of things like jet engines, semiconductors, microelectronics, computers, advanced energy, environmental technologies, biotechnology, and pharmaceuticals (Stiglitz & Wallsten, 1999).