patrick.net

sbh says

There is no "Austrian deflation"

Are you out of your mind? Are you born stupid?

What is an "Austrian deflation"? How is it different from a "Keynesian deflation" or just "deflation"?

Reality says

Job destruction is not due to "deflationary depression"

Of course it is.

Nope. Job destruction is due to market not clearing. Widespread job destruction without replacement jobs is what leads to "deflationary depression." You have the cause and effect backwards.

sbh says

Oh, so the best way to create jobs is to destroy the value of wages so they are so low that no one can live by means of them.

No, you idiot. The nominal prices for wages are more sticky than nominal price for capital assets and commodities (the very reason why Keynes invented Keynesianism). Keynesian inflationary policy is designed to redue the value of wages without explicit reduction in nominal wages.

sbh says

As they are falling there is some ephemeral gain just before massive unemployment when the price of a car is near 99 cents and every store miraculously innovates from being Barneys to being a 19 cent store. And they'll innovate and sell cars too, for 19 cents. (They won't run or even have a motor, there will be a hidden charge for delivery and set up and registration and they"ll be made in Botswana, you'll pay extra to ship them.)

What the heck are you talking about? Nominal wage reduction during a time of massive commodity price drop would save the job without damanging the purchasing power of wages, so there is no need to ship the job to Botswana or anywhere else. More importantly, deflation is fundamentally about debt restructuring. The company, or a new company buying up the liquidated assets of the old, would be able to hire the employee without the burden of the old debt.

But this is the Austrian deflationary remedy at work.

You are making up shit as you go. You have zero understanding of either Austrian School or Keynesian Economics, or pretty much any economics.

This is the sweet spot BEFORE a depression?: your vaunted rising standard of living.

The goal of nominal wage reduction is to save the job; the goal of liquidating old over-endebted company is to enable new companies buying up the assets at fire sale prices so it can afford to hire workers.

Then the great disparity of wealth really kicks in and despite your cowardice wrt bob's point, the income producing instruments of the wealthy continue to run on......mostly because they own.....wait for it.....treasuries....oh God, how disgusting....and the hardening of money hammers all the debt ridden unemployed working stiffs you sacrificed for the sake of an Austrian wet dream. What's not to like about that?

You are once again tossing together a bunch of words that you have zero understanding. I addressed Bob's point, but you are the fraud and coward chopping up posts lying through your teeth in your ass, as you bury your head deep in your ass.

Debt restructuring is first and foremost making sure the capital owners who made the bad investments are held to account. So new investors have a better chance at competing for the labor and resources. Competition among capital owners is what fundamentally bids up the real wages for workers.

Don't wait to buy when it crashes...don't buy at all...ever. Lose interest in real estate entirely, as I have (except as an amusing source of potential social upheaval). Do you feel the beauty of living out of the 20th century distortion field? Retirement? What the hell is that? Dying only a little bit? Half a million bucks for a shack? Damn, it gets funnier every time I think about it!

Carolyn C says

Holy crap! That was just the information I needed to hear in order for me to let go of my properties when it comes time.

Sound like you are a leverage RE investor. The more pertinent question is where to park your cash?

John Bailo says

We're really talking about the guaranteed Fed inflation of the money supply which has been the principal driver of the DOW and relatively low risk stocks which have done nearly zero to earn their continually increasing valuation.

John Bailo says

It's the entire propped up system of 1980s companies that have been bubbled along for decades with no real increase in their basic technologies, or value, or product innovations.

I think you're wrong about that--companies ARE more valuable now. See this:

Reality says

Nope. Job destruction is due to market not clearing. Widespread job destruction without replacement jobs is what leads to "deflationary depression." You have the cause and effect backwards.

He's got it correct. When consumers run out of money (demand), jobs get destroyed. And until they get more money, these jobs are not replaced.

Once again, I'll remind you--companies hire becuase they can't meet demand. NOT because they have extra money.

marcus says

Not only is there a correlation (that holds over long terms and large changes in interest rates), there is an even more clear and obvious logical connection between the cost of capital, and the price of capital assets.

Marcus-- You are incorrect. There is basically no historic correlation between interest rates and (nominal) real estate prices. And the very small correlation is actually positive--higher interest rates tend to give higher prices.

Do the research yourself--you'll be surprised!
marcus says

What you say is the same as suggesting that the income approach to real estate appraisal is irrelevant, and that for that matter the income produced by a property is totally irrelevant to its value.

Nope--what history is saying is that personal income is a much better predictor of real estate and personal income has a strong positive correlation with interest rate.

tatupu70 says

Do the research yourself--you'll be surprised!

You sometimes seem intelligent.

Trust me, I understand where the connection begins and ends.

Inflation which can drive price increases also drives interest rates, which is the source of your confusion. But you're totally wrong, and I have investigated it.

I guess you didn't comprehend my comment.

I will grant this:

IT's more than possible (and it has happened in the past) to have a period when LONG TERM interest rates and real estate values are both increasing.

It's far less possible (not totally impossible) to have a period when LONG TERM interest rates are dropping and real estate values are not increasing.

But what I said about capitalization rates and all other techniques to value future income streams is the simple key to understanding this basic little bit of finance. Interest rates are a part of all such methodologies. Higher interest rates translate to lower values.

tatupu70 says

Nope--what history is saying is that personal income is a much better predictor of real estate and personal income has a strong positive correlation with interest rate.

You're reminding me of Fort Wayne now.

Personal income has NOTHING to do with the rise in RE prices the last few years. If it did, RE prices would have fallen further.

marcus says

You sometimes seem intelligent.

lol--sometimes is better than never I guess.

marcus says

Trust me, I understand where the connection begins and ends.

Inflation which can drive price increases also drives interest rates, which is the source of your confusion. But you're totally wrong, and I have investigated it.

I don't think you do or else you wouldn't be debating this topic. And if you verified it, you'd know.

marcus says

It's far less possible (not totally impossible) to have a period when LONG TERM interest rates are dropping and real estate values are not increasing.

Less possible? How about 2008-2011? Probably every recession.

marcus says

But what I said about capitalization rates and all other techniques to value future income streams is the simple key to understanding this basic little bit of finance. Interest rates are a part of all such methodologies. Higher interest rates translate to lower values.

Yes--all else being equal, you are correct--but unfortunately all else is never equal. And in the real world, interest rate effects are drowned out by income effects.

marcus says

Personal income has NOTHING to do with the rise in RE prices the last few years. If it did, RE prices would have fallen further.

Huh? You think nominal incomes haven't been rising for the last few years?

This is real income so nominal growth is even higher:

This isn't rocket science. IT's true for stocks, bonds and yes even real estate. Yields dropping go hand in had with prices increasing. (No this doesn't mean the opposite never occurs).

Do you really think that back in 1980 when people were expecting double digit yields in stocks, and bonds, that was because middle class incomes were so much lower? Or because of how much they expected incomes to increase?

marcus,

When was the last time interest rates increased for a sustained period? What did housing prices do?

Were there other times of sustained increases in interest rates? What did housing prices do then?

Are you predicting a long term increase in rates and decrease in house prices? In my mind, long term would be greater than 2 year period of interest rate growth and 2 point increase in interest or so? Or are you talking about shorter term fluctuations of 3 months to two years?

marcus says

Your graph is more about the number of new Walmart jobs, or cities that were able to bring back teachers and cops that had been laid off, than it is about salary increases.

So what? A cop or teacher that is now employed certainly might want to buy a house.

marcus says

This isn't rocket science. IT's true for stocks, bonds and yes even real estate. Yields dropping go hand in had with prices increasing. (No this doesn't mean the opposite never occurs).

It isn't rocket science. The only explanation is that people don't buy a house for the same reason that they buy a stock or bond. Because, you know, they actually LIVE in a house.

tatupu70 says

It isn't rocket science. The only explanation is that people don't buy a house for the same reason that they buy a stock or bond. Because, you know, they actually LIVE in a house.

But prices aren't allowed to fall in a way that simply reflects the supply and demand relative to prospective homeowners.

Enter the investor, who is attracted to the yield relative to other investments
who's yield is tied either directly or indirectly to interest rates.

Marcus got this one right. This has nothing to do with the minimal rise in incomes, but with the huge crony support of the government and Fed of the housing market, using backstop guarantees and special investor programs to prop up a market thats shouldn't. Lending standards have eased a bit again, jumbos are back so more qualify to overpay. Pair that with the foreign money trying to find a safe haven in some of the better areas in the US, ZIRP, and you have the perfect storm. It's housing inflation which the Fed calls "subdued" ;)

mell says

Marcus got this one right. This has nothing to do with the minimal rise in incomes, but with the huge crony support of the government and Fed of the housing market, using backstop guarantees and special investor programs to prop up a market thats shouldn't. Lending standards have eased a bit again, jumbos are back so more qualify to overpay. Pair that with the foreign money trying to find a safe haven in some of the better areas in the US, ZIRP, and you have the perfect storm. It's housing inflation which the Fed calls "subdued" ;)

blah blah blah Fed blah blah government blah blah blah crony...

Like I said, add a zero and all will be well. That will be my campaign slogan in 2020:

"When the going gets tough, just add a zero! Vote for me and I'll be your number ONE zero!"

Going back to the idea of a 2017 (+-) crash... Though I've seen many things over the years that scream to me, "this isn't sustainable," whenever the SHTF in the past, there always seems to be an element of surprise with respect to the critical event that starts the dominoes tumbling.

Obviously, if we could predict crashes years in advance, we'd probably opt to avoid them. With all the disruption in Europe and the sovereign debt crisis, many were convinced that the Euro was on it's last legs. Yet, rabbits were pulled out of hats to avert a meltdown of the system. Not only didn't it crash, but, for the most part, it held its exchange rate value.

It seems to me that you would have to have an unpredicted event in order to provide the spark. God knows we already have plenty of accelerant to react with the spark. So, kindly pull out your crystal ball.... Assuming you agree that there must be a critical event that no one anticipated to get things going, do you have any guesses on what that might be? Or do you believe that there doesn't have to be an unanticipated critical event, and even despite best efforts, there is nothing that can be done to avoid a meltdown in 2017 (+-)?

PS... I meant loanowner, and yes, you are correct to assume that I was referring to leveraged landowners. Loanowner is just less typing :)

marcus says

But prices aren't allowed to fall in a way that simply reflects the supply and demand relative to prospective homeowners.

Enter the investor, who is attracted to the yield relative to other investments

who's yield is tied either directly or indirectly to interest rates.

Yep. That puts a floor on house prices, not a cap. And the yield also depends strongly on rental prices which are strongly dependent on--guess what--incomes.

marcus says

I never said interest rates aren't even more highly correlated to inflation. I'm not going to apologize for this not being simple.

If you understand this--then how can you continue to say there is a correlation between house prices and interest rates?

tatupu70 says

marcus says

I never said interest rates aren't even more highly correlated to inflation. I'm not going to apologize for this not being simple.

If you understand this--then how can you continue to say there is a correlation between house prices and interest rates?

Because it's complex.

Real estate prices are affected by inflation. But it's also affected by the cost of debt, and income properties (for investment) are affected by the general expectations about return on investment.

This entire argument is silly. The monthly payment for owning a home is in a very real sense the price people pay for a home. And this is STRONGLY affected by interest rates.

The history you want to look at doesn't show this as well as it might because economics is always complex with many variables. In the period you're looking at, the baby boom becoming buyers, and women entering the workforce are probably bigger factors than interest rates or inflation.

marcus says

Real estate prices are affected by inflation. But it's also affected by the cost of debt, and income properties (for investment) are affected by the general expectations about return on investment.

The cost of debt IS inflation plus risk premium.

It does not change in a vacuum.

Expected future value of money/current value of money = opportunity cost of money = inflation rate.

Reality says

What's your point? That rich are good at leveraging themselves and doing it while hiding themselves behind corporate veil?

The point is this is not leverage. If SHTF the liabilities will not exceed assets and will not deplete other unrelated wealth.

marcus says

Because it's complex.

Sure--but whether or not there's a correlation isn't. It's a simple mathemetical calculation.

marcus says

Real estate prices are affected by inflation. But it's also affected by the cost of debt, and income properties (for investment) are affected by the general expectations about return on investment.

Yep--that's what I've been saying.

marcus says

This entire argument is silly. The monthly payment for owning a home is in a very real sense the price people pay for a home. And this is STRONGLY affected by interest rates.

Yep, but more weakly than incomes.

marcus says

The history you want to look at doesn't show this as well as it might because economics is always complex with many variables. In the period you're looking at, the baby boom becoming buyers, and women entering the workforce are probably bigger factors than interest rates or inflation.

I'm glad you understand my point.

The meaningful number is those out of the workforce, it's over 92 million today.

Any way you slice it, employment numbers are not very good.

If you are a koolaid liberal you will say "it could be much worse!" etc.

I went to an HRBlock professional a few times. The ones that are in an office year round. Not the ones that the decor looks like they have a burger value menu, that pop up at surprise locations a for a few months a year. That's when they when to shit.

The thing is with a real tax professional, I mean the ones that really are, and not the ones that learned everything they know from the job training, and it is the software that instructs their every move, and the software is the one that has the final say.

A real accountant, can do more than give you a pop screen that leaves you puzzled and bewildered as to how to comply even if you think you MIGHT not qualify for that deduction. They will instruct you on how to get receipts that you thought you didn't have for things you forgot you bought. Especially when you are like me, and use your debit card/credit card for 99.992124353566% of your purchases.

With the software you can't always communicate that you have deductions, TurboTax this year blitzed right through my taxes, never got to a lot of questions that I was waiting for. I have to refile my taxes, there was just so much that Turbo taxed glazed over. I'm now going to have to go to a professional. Those online things are great if you make less than (X) you don't have any thing to deduct or claim, and you're paid by W2. Ever damn year I use Turbo Tax I swear up and down I'll never do it again. But I always end up waiting to file until the last few days or just hours before the deadline. Then end up using it anyway, as I still don't have a new tax person I trust.

Still every time I use the damn thing after clicking next a thousand times to get your federal tax sent off, and you definitely want to wait until it's verified a 100%. One of the last options is "Great now lets do your Florida State income taxes" Which Florida doesn't have an income tax. I was stupid(aggravated) enough the first time to click, and they charged me another 49 for filing my Florida taxes. Because I kept clicking through, thinking the next page would be the final information for my Federal income tax verification.

They are Bastards with a capitol fuck them!

They are owned by Quicken and not HRBlock. But I shy away from HRBlock and got into using Turbo Tax in the first place, because I felt like those burger joint HRBlocks were worse than the final impression I have of Turbo Tax.

The lady I was seeing at the HRBlock professional office, charged like $300 bucks, but was worth every penny. She died back in about 2006, I was naive enough to think that those HRBurger joints were the same.

Call it Crazy says

Consider this: The jobless rate fell because 733,000 fewer people were considered unemployed. That’s the largest one-month decline since 1949, when unemployment fell by 920,000 when two large national strikes concluded.

Fortunately all the articles I saw today on the topic of 6.3 also included the minus 700,000. If this recession has taught us anything about unemployment it is that one must always consider both sides of that coin.

Call it Crazy says

The Bureau of Labor Statistics reported Friday that the U.S. unemployment rate fell to 6.3% in April, the lowest level since the collapse of Lehman Bros. in September 2008, and the largest one-month drop in the jobless rate in three years.

I told you we are in a recovery.

If we estimate 6 million who signed up will pay, the net result of the "reform" is the existing overpriced industry managed to corral another 2% of the population as additional involuntary customers, while raising prices even higher for everyone, except some people don't see the price because they imagine they're getting a subsidy, which they aren't even getting because they don't get to keep any part of it, 100% and more goes to the industry that wrote the legislation. The mechanism by which the industry increased its revenues, even above prior law, was to change the law so that corporate executives can require everyone to buy whatever the corporate executives are selling, at whatever price the executives decide ("no lifetime caps!"), especially things that they can't sell any other way because no rational person would buy them. (And, recall, those same executives can use the proceeds of those involuntary contracts to finance political campaigns to make everyone buy even more stuff that no rational person would buy if given a free choice in a free market. Whether you call it fascism or lemon socialism or corporatism, the dynamic works the same way.) Meanwhile, the number of uninsured has actually increased since the President took office promising reform, and they face a rigged "market" with even higher prices than ever before. "Thanks, Obamacare."

BTW, good luck when you have an expensive accident and the insurance company says they didn't get your premium check that month, so you're not covered.

"They" are now skeletons in secret death panels mass graves on which the temple of high yield bond funds are built....

tatupu70 says

marcus says

Because it's complex.

Sure--but whether or not there's a correlation isn't. It's a simple mathemetical calculation.

Yes. And say a perfect correlation of prices going up when interest rates going down would be a correlation of -1. A slightly less strong correlation would be a correlation of -.999 etc. Even a correlation of -.7 would be (in my book) a very strong correlation. A correlation of - 3, still very much a correlation.

So yes, it's a simple computation. But it's not a yes or no calculation.

In this case not only are you not saying what you mean by "there isn't a correlation," (although I know what that means). It's complicated. Sometimes there is a strong negative correlation, other times a strong positive correlation. Either one of us could probably come up with conditions for there being a positive correlation and conditions for when there is a strong negative correlation (what I have been saying exixts and you and Tatapu say does not).

We also both can come up with significant time intervals of historical data that back up these claims.

IT's not really that interesting an argument, but the underlying dynamics are interesting. It's a fascinating dynamic really. The fact that expectations of inflation can cause (are supposed to cause anyway) interest rates to go up. And high interest rates put a damper on prices. Conversely, a lack of inflation expectations can cause interest rates to go down, which in turn often cause capital assets to go up in price, because cheap borrowed money leverages higher prices.

tatupu70 says

I'm glad you understand my point.

I don't have hardly any emotion about the degree to which you do not understand my point.

There will be no "Reaganesque figure". Research indicates that immigrant communities which will grow as a total share of electorate reject small government conservatism aka fewer services/safety nets via smaller government. Latino and asian communites want the government to take an active role in realms of health care, entitlements and environment. They primarily vote on fiscal issues and cannot be picked off via wedge issues such as abortion, gun control, etc. In essence, small government conservatism predominantly appeal to white voters and due to demographic trends it will be extremely surprising if such a candidate is elected for president going forward. Also, it is very likely that texas will turn blue in 15 to 20 yrs which will likely to be a final nail in GOP coffin in terms of presidential aspiration if GOP sticks to small govt conservatism formula.

control point says

The cost of debt IS inflation plus risk premium

And when long term money can be borrowed for the same as expected inflation, or even less ? What does this do to prices of capital assets.

tatupu70 says

I'm telling you what history says

No you aren't.

If I show you a significant period when housing was going up when mortgage money was getting dramatically cheaper, you'll say it doesn't count because incomes were going up. Those significant periods of time exist, and it's more than extremely obvious I'm right.

Give it up man.

marcus says

YesYNot says

When was the last time interest rates increased for a sustained period? What did housing prices do?

When was the last time LT interest rates dropped for a sustained period?

What did housing prices do?

In the period you refer to interest rates were rising along with perceived high inflation in everything (not just asset values).

During the protracted period when interest rates were dropping it was not deflationary except during recession, and even then incomes weren't dropping except due to layoffs.

Can you put this all together?

The BLS shows 288,000 more jobs. There are 445,000 unaccounted for? Maybe fell off the employment charts because their unemployment ran out?

marcus says

And when long term money can be borrowed for the same as expected inflation, or even less ? What does this do to prices of capital assets.

Long term money cannot be borrowed for less than expected inflation. Inflation may turn out to be higher than expectations, but the long term bond market is telling you what the long term inflation expectation is right now.

The yield curve even tells you when the market expects inflation to pick up.

Call it Crazy says

At that rate, they'll have the UE rate down to 4% by the Nov. elections...

Like any other index (eg, CPI)...tell a story...get elected