patrick.net

Portal says

Maybe then we would have a V shaped recovery instead of this gradual trend towards feudalism. Then again people may have revolted in such away to put up some kind of dictatorship.

Strategist says

The result would be a massive downward spiral of the economy, leading to a severe depression and record high unemployment.

We'd have a real organic recovery after an initial recession, yes. Prices would be much lower and essentials affordable for main street. It will happen either way eventually.

mell says

Prices would be much lower and essentials affordable for main street.

It doesn't matter what the price is when you are unemployed with no savings. There is no such thing as affordable.

tatupu70 says

mell says

Prices would be much lower and essentials affordable for main street.

It doesn't matter what the price is when you are unemployed with no savings. There is no such thing as affordable.

That narrative is complete hogwash. We have 99 weeks UE where you can buy what you need. Teachers would have bought houses for half the price that they now either cannot afford or have to go into steep debt for, which will put more strain on the system when the next wave of defaults come, while the middle-men took their cut. Spain UE is at a 2 year low, from over 25%, weird how there is strong job growth now without QE. Handcuffs for the clear cut fraud committed was the only action needed in 2008.

mell says

That narrative is complete hogwash. We have 99 weeks UE where you can buy what you need. Teachers would have bought houses for half the price that they now either cannot afford or have to go into steep debt for, which will put more strain on the system when the next wave of defaults come, while the middle-men took their cut. Spain UE is at a 2 year low, from over 25%, weird how there is strong job growth now without QE. Handcuffs for the clear cut fraud committed was the only action needed in 2008.

I don't understand your thinking at all. Basically you are saying--prices will go down because people can't afford to buy anything (low demand). So, you're intimating that supply will also be falling, correct?

In that case, you are also shedding jobs. Creating even less demand. I agree UE helps soften the blow, but UE certainly isn't going to create MORE demand.

So, where is the new demand coming from?? How do you stop the downward spiral?

tatupu70 says

So, where is the new demand coming from?? How do you stop the downward spiral?

There will eventually be an equilibrium where prices are low enough so that the remaining capital can afford them, be it for their own consumption or as an investment. That's where they stabilize and may rise again. Tail risk is absolutely crucial for price discovery. Without tail risk things go horribly wrong. Nassim Taleb has some really good material on this.

The Professor says

Strategist says

Imagine if virtually all businesses in the US went out of business.

Some entrepreneurs would take over.

They need loans too.

Strategist says

The Professor says

Strategist says

Imagine if virtually all businesses in the US went out of business.

Some entrepreneurs would take over.

They need loans too.

Well, how cheap would everything get after the deflationary cycle? Maybe their need for loans would change?

turtledove says

Strategist says

The Professor says

Strategist says

Imagine if virtually all businesses in the US went out of business.

Some entrepreneurs would take over.

They need loans too.

Well, how cheap would everything get after the deflationary cycle? Maybe their need for loans would change?

That's good thinking, turtledove. Kinda like the cash buyers buying up all the bargain priced properties in the aftermath of the great crash.

mell says

Without tail risk things go horribly wrong.

Is this to dissuade complacency caused by the Bernanke put?

Strategist says

That's good thinking, turtledove. Kinda like the cash buyers buying up all the bargain priced properties in the aftermath of the great crash.

What is needed is honest money. I.E. no fractional reserve, interest on savings that reflected the demand for borrowing, no fucking bailouts for anyone, a true gold standard, and no fucking Fed, no fdic, but bank scrip would be allowed.

people who have cancer are often afraid of chemo because of the side effects. The thing is, the main side effect of cancer is death. So people choose the bad side effects of chemo over the worse side effect of death.

I think banking failure is quite a bit like chemo. It may suck, but it gets rid of the cancer.

indigenous says

Strategist says

That's good thinking, turtledove. Kinda like the cash buyers buying up all the bargain priced properties in the aftermath of the great crash.

What is needed is honesty money. I.E. no fractional reserve, interest on savings that reflected the demand for borrowing, no fucking bailouts for anyone, a true gold standard, and no fucking Fed, no fdic, but bank scrip would be allowed.

There goes the economy!

Zak says

people who have cancer are often afraid of chemo because of the side effects. The thing is, the main side effect of cancer is death. So people choose the bad side effects of chemo over the worse side effect of death.

I think banking failure is quite a bit like chemo. It may suck, but it gets rid of the cancer.

That's like taking poison to get rid of the cancer. Bailing out banks when the financial system is about to collapse is the chemo.

CaptainShuddup says

I've never had it so bad, while doing so good in my life.

Why?

Strategist says

CaptainShuddup says

I've never had it so bad, while doing so good in my life.

Why?

Well before had it so good while doing so bad.
I managed to make do, with what I had.
Now I'm making more than I ever have in my life, and make no mistake.
I'm still just making do.

There's no growth. Income goes from hand to mouth, it may be in the bank. But it's not earning any money. And most institution investment is really playing Nestegg Roulette.

Just a little over a decade ago or before the bubble started in the first place.
I could have lived in most any exclusive city in South Florida, if I had my income, and would have managed to save moeny, earning me even more money.

I would have to have a dual income, one of us would need a trust fund, and business investment earning money on the side just to think about even driving through those neighborhoods now.
You don't live in neighborhoods like that working a job somewhere. That's for sure.

The K's have it ass backwards. The economy is driven by production NOT consumption. This is a trope that has been repeated for 100 years and it is as wrong today as it was back then.

What comes first the production or the consumption? Kind of hard to consume something that hasn't been produced, right? Although it is true that in effect that is what the Fed is trying to do now, which begs the question, how is that working out for you?

And of course the answer is it ain't. What is required for a real economy is production what is required for production is investment and this is what creates jobs.

One of the birds in the flock of dead canaries is business investment, which has been AWOL for quite some time.

Think of it as Robinson Crusoe figuring out that he can catch fish on his island. Then he thinks maybe I could catch more fish if I fashioned a spear, so he invests time in making a spear which does enable him to get more fish. Then he thinks I could get more fish if made a net. So he invests more time into fashioning a net which enables him to get more fish. He then is able to trade with Friday for fresh water. The point is that this all gets started with investment and ensuing production.

"You've got to devalue dollars to the point where Bill Gates' 80 billions starts to look like a more reasonable $15 billions. I doubt the government will ever find the balls to institute a wealth tax, therefore inflation is the only path back. There is no other."

wow. just wow.
ignore the fact that in high inflation environments, interest rates go through the roof.

ignore the fact that those with first access to the source of inflated money (the printing press) get the greatest benefit.

Ignore that all the peons on fixed income get slaughtered.

Ignore that inflation has repeatedly been identified as a scourge when encountered in history.

The only "beneficial" things that could come out of hyper inflation are:
1) the abandoning of the monetary authority of the central bank in favor of an asset backed currency system. Basically, people just stopping accepting dollars in any amount as a form of payment.

2) The effective shit canning of us income tax code as all values currently assigned within the system become meaningless.

IMHO this will be the biggest challenge the courts will have to deal with, and also the biggest threat to civil liberty, as million dollar fines become able to be paid with an hour's labor picking oranges, and the police resort to jailing people without possibility for bail, and/or other gestapo tactics.

"That's like taking poison to get rid of the cancer. Bailing out banks when the financial system is about to collapse is the chemo."

bailing out banks when the financial system is about to collapse is like giving steroids and growth hormone to a tumor when your system is about to collapse due to cancer. The steroids make you feel better for a bit, then the cancer kills you anyway.

Btw, chemo IS poison. If you take too much too fast, it will kill you. It has to be carefully administered and controlled by a competent physician. Kind of the way bankruptcies need to be carefully controlled by a competent bankruptcy judge.

Zak says

Ignore that inflation has repeatedly been identified as a scourge when encountered in history.

scourge of the wealthy

the poor who owe more than they own have their debt burden lifted.

'course, so do the specuvestors who owe and own equally.

Funny thing about people when you don't allow them to play the game the game becomes to get you.

It happened to Russian royalty, it happened to French royalty.

With today's technology a mini gun can fire 10s of thousands of rounds which might translate to one kill for every 50,000 rounds fired, whereas a sniper averages 1 kill for every 1.5 rounds. This situation might be tough on those who hate fire arms?

One thing is for sure if the overlords start thinking of anyone as unnecessary they might be in for a rude awakening and want to reconsider their position, the Russian royalty and the French royalty did...

indigenous says

t happened to Russian royalty, it happened to French royalty

And damned close to the English royalty. The peasant revolt of 1381 could easily have been the end of them.

If anyone is unnecessary in today's world it's royalty. And the Kardashians

New Renter says

And damned close to the English royalty. The peasant revolt of 1381 could easily have been the end of them.

If anyone is unnecessary in today's world it's royalty. And the Kardashians

Yup I would suggest an inclusive policy... Which is exactly the opposite of what our economic policy has been.

Yellin will have to raise interest rates if inflation starts taking off at which point the market will clear and those with debt will not be able to pay their debt/bonds and deflation will occur if it gets going.

It seems to me that if it has been snowing for 6 years straight that just about anything can set off an avalanche? It will be hard to contain...

"the poor who owe more than they own have their debt burden lifted."

amazing. It's almost like you've never seen the pictures of people burning money to keep warm because they literally can't even afford to buy wood to burn, and that is how worthless the money is. Hyper inflation destroys the means of production. There is no reason to work one job over another. Building a life saving medical device gets you nowhere near the return you need to keep pace with its input costs. technological profitability ends, and people basically revert to subsistence living. The shelves become empty of both luxuries and basic necessities as business owners can no longer afford to buy the basic inputs to their products.

Your lies are a literal evil. Begone you poisoner of all that is good and sustainable in the world.

"War has a way of kickstarting economies. If you remember it was was production that finally kickstarted our own economy too."

Your bullshit is deeper than a stockyard feedlot. The US economy dominated post WWII because it had the only unbombed factories left. Why don't you show a graph of the german economy post WWII? How about england, france, poland, the USSR, italy, or ANY OTHER EUROPEAN COUNTRY?

And even in the US, it's not because the top 10% had less, it's because EVERYONE IN THE U.S. HAD MORE. You could fall out of the stupid tree and hit 5 good paying jobs on the way down in 1950 because a bunch of your fellow working americans were killed off, and the factories were going gangbusters to hire people because they were the only ones left to produce anything.

The U.S. hit the geographic and economic jackpot by being isolated from the warfronts by 2 oceans. You think some tax policy did it? As my grandpa would say: get the shit outta your ears boy!

Zak says

You could fall out of the stupid tree and hit 5 good paying jobs on the way down in 1950 because a bunch of your fellow working americans were killed off

Only ~1% of the US population born 1920-1930 died in the war. That wasn't it.

However, what did happen 1940-50 was a big healthy dose of inflation, $1 in 1940 was only worth 60c in 1950.

The US economy struggled to expand to meet demand after several years of essentially forced savings during wartime rationing and redirection to war production.

The military also had trained-up millions of soldiers; ~98% of the wartime inductees left with more job skills than they entered with.

I agree with the part about US physical plant vs. the world, but broke customers are bad customers . . . we also had to forward them the money for them to get back on their feet -- 5% of GDP via the Marshall Plan in the late 40s helped the postwar expansion.

Plus the 1950s and 60s featured a truly colossal DOD footprint:

one out of 3 payroll dollars was coming from Uncle Sam in the 1950s. Now that was expansionary!

"This actually happened in 2009. Foreclosure properties were selling for 30% of their peak value in 2006. Mortgage payments were available at HALF rents in the same area. Where were the buyers?"

You still don't get it do you. 30% of peak value in 2009 was still 25% overvalued. mtg payments at half rents ?? maybe in oklahoma... how about picking a population center with greater than 250k people in it? The bubble deflated it bit, but it never popped. Meanwhile I have been paying rent at 64% of PITI for the same house for about 5 years now. Meanwhile, this bubble has been dragging on for so long people are on their second round of foreclosures.

Where will the buyers come from? From all the sane people who refuse to leverage their income higher than 3-1 during crazy times. That's where. They are out there. You've talked to several on this blog.

As for government staying out of the way... show me how the middle class doesn't file or pay income tax again...? Show me how there isn't a mortgage tax deduction...? Show me how the hell the government is currently preventing rent extraction...... they are in the way as we speak..

"I own three houses with mortgages on one street in Concord, CA, a city of 125,000 people and two BART stations about 1/2 hour from downtown San Francisco."

So lets see : city of over 250k? fail :

30% price drop = under 200k simple math 200k / 70% = 285k peak bubble price. PITI on peak bubble price of 285k w/ 20% down would be 1273.7 / mo.. So you are saying at the peak of the bubble you could buy a house at 4.5% interest for 285k @ 1273.7 / mo PITI, or you could rent it for 1900.
That is a lie, just like your other lies.

Otherwise you are saying there was a price drop of much greater than 30% from peak bubble pricing in this one specific neighborhood, which justified your purchase. Don't lie to the rest of the country if you found one tiny place with an amazing deal.

Zak says

Where will the buyers come from? From all the sane people who refuse to leverage their income higher than 3-1 during crazy times. That's where. They are out there. You've talked to several on this blog.

Agreed.

lets see what other lies you have:

Bart service concord to downtown sf: 1hr 7 mins:
https://www.google.com/maps/dir/Concord,+CA/San+Francisco,+CA/@37.8764336,-122.2929216,12z/data=

by car, 30.8 miles, 46 mins with current traffic, 36 mins with NO traffic.
Probably 2 hrs with rush hour traffic. Guess what.. Palmdale also has cheap houses a 2 hr commute outside Los Angeles.. Guess that means there is no housing bubble in LA right!?!

Zak says

You still don't get it do you. 30% of peak value in 2009 was still 25% overvalued. mtg payments at half rents ?? maybe in oklahoma... how about picking a population center with greater than 250k people in it? The bubble deflated it bit, but it never popped.

So, mortgage payments have to get to 1/2 of rents before you consider the bubble "popped"? Why would investors ever let prices get that low?? They would be walking away from easy money...

And how do you figure 30% drop is still 25% overvalued? How do you determine value?

mell says

There will eventually be an equilibrium where prices are low enough so that the remaining capital can afford them, be it for their own consumption or as an investment.

Because you say so? The remaining capital has no reason to invest beause there are no customers. And if they do, it's even worse--congratulations, you've found a way to make wealth disparity evern worse than it is today. All productive assests would be in the hands of the few billionaires.

tatupu70 says

mell says

There will eventually be an equilibrium where prices are low enough so that the remaining capital can afford them, be it for their own consumption or as an investment.

Because you say so? The remaining capital has no reason to invest beause there are no customers. And if they do, it's even worse--congratulations, you've found a way to make wealth disparity evern worse than it is today. All productive assests would be in the hands of the few billionaires.

2008 directly contradicts your claim, wealth disparity declined sharply before the Fed's stick-save. But don't argue with me, argue with the facts.

mell says

2008 directly contradicts your claim, wealth disparity declined sharply before the Fed's stick-save. But don't argue with me, argue with the facts.

When you say this, you are obviously referring to the Gini that fell during 2008/09.

This explanation for this is simple. Gini fell because broke people remained broke - that is, the lower and middle classes were little affected becaue they really didn't have much to lose.

However, the rich were more greatly affected because they had something to lose.

More to the point - if a rich guys income fell from $50M to 25M, that is equivalent to 500 middle class guys who went from $50k to zero.

Who is more affected though, really?

control point says

This explanation for this is simple. Gini fell because broke people remained broke - that is, the lower and middle classes were little affected becaue they really didn't have much to lose.

However, the rich were more greatly affected because they had something to lose.

More to the point - if a rich guys income fell from $50M to 25M, that is equivalent to 500 middle class guys who went from $50k to zero.

Who is more affected though, really?

Yes, but aside from looking at the extreme cases overall the middle-class would have done better without QE. The money needs to go somewhere and it went to the 0.1% and inflation kicked in. If your goal is to help some cases not to lose their job while overall lowering the standard of living and mobility prospects for the middle-class while greatly enhancing the wealth of the uber-wealthy, then QE is your tool.

mell says

2008 directly contradicts your claim, wealth disparity declined sharply
before the Fed's stick-save. But don't argue with me, argue with the facts.

It does nothing of the sort. My point was that if you let the economy go down the toilet and productive assets go for fire sale prices, then it's the rich that are able to buy them. Luckily the government didn't let that happen.

So, how exactly does 2008 disprove that point?

mell says

The money needs to go somewhere and it went to the 0.1% and inflation kicked in

You are confusing two very different issues here. The money goes into the general economy. It is not pre-ordained to go to any class of people.

Unfortunately, right now we live in a period that promotes wealth disparity so any new money increases that effect. QE just increases the rate, it's not the cause.

And where do you get off continuing to claim we have high inflation??

mell says

Yes it is. You think buying MBS, keeping the ZIRP discount window for banks and
bailing them and Buffet and co. out is the "general economy"?

Are we talking about bailouts or QE? Those are two different things.

"I'm saying no such thing. I said there was a price drop of over 60% in this one specific neighborhood which resulted in rents being nearly twice the cost to purchase numerous houses yet the buyers did NOT show up in droves. In fact buyers were extremely scarce and almost everything went to investors."

30% drop with an extra 25% drop ~= 55% drop pretty close to the 60% off that got you to buy. In fact, I bet every one of those houses sold that were for sale. That's called buyers showing up. So again, stop saying there was a 30% drop and "nobody was buying". It is complete and utter bullshit.

"Actually, I think you need to scroll down a bit until you get to rail service which it shows at 43 minutes."
Nope.. Select the public transit option in the link I provided. By car it was 43 minutes with current traffic (36 mins NO traffic), by Bart it was 1hr 4 minutes.

The times seem to vary a bit with the amount of traffic, but I have no problem with being 100% transparent with all the data I am using, showing my sources, and highlighting the portions of the data that work AGAINST my argument.