patrick.net

Great post, Linda. Prop 13 for non-owner-occupied property was one of the stupider things California has done. The fallout effects from this are truly immense. RE is one scum-suck sector of the economy and Ho Chi Minh in the mid-50s had the right idea if wrong implementation.

Therefore, to expect home prices to come down to 3x income in the fortress areas is highly unlikely IMHO.

Oh, I agree. Prop 13 (and 58) has locked away tons of inventory that will cash flow in any foreseeable future economy (even one without Google and Apple pumping billions into the local economy).

The 3X rule might hold, but it won't be over area median income but the median income of the new people who can afford to bid themselves into the fortress's tight supply.

simchaland says

When I was living in Davenport, Iowa, many of my co-workers and friends were renting houses. I think it’s more common than you think.

Maybe-but I've lived in several different areas and never seen rental housing like I did when I was in CA. I think it is at least partially due to prop 13...

The fact is someone is paying for the uninsured to have medical care. Either in taxes or higher premiums.

I can't decide which 3/2 rental in Concord offers the best value; perhaps this one (1550 sq.ft.) at 1069 Kaski Lane which is going for $1800/month. Hmmmm... owner's tax basis is less than $100k. How low can you go....

The people paying for the uninsured to have medical, are the uninsured.

agreed

pkennedy,

You asked about info sources regarding economics. One of the best places to start is www.rtable.net. This site has links to many econ websites, and features daily articles selected from some of those websites. Lots to read, and endless links to follow. Very informative.

Calculatedriskblog.com provides a good general market discussion (though its author is not an economist). Interesting links as well.

For more general economic and market news I like Bloomberg.com, cnnmoney.com, wsj.com, businessweek.com, cnbc.com, economist.com, and so many more...

I have literally hundreds of links that I refer to for data or for various specific areas within economic theory or market focus. But the ones listed above cover the main issues pretty well.

Grecian formula? http://ur.lc/j2a

theoakman says

Has there ever been a time in history where countries didn’t cheat on their paper currencies with international trade?

Why restrict your thinking to paper currency? There hasn't been a time in history when countries didn't cheat on their currencies of any type.

The cat is out of the bag on Greece. The IMF will be picking up over 30% of the bill as junior debt. Why does this matter? Because the IMF is 40% funded by US taxpayers. So our tax dollars will be subordinate to the money owed to European banks. IMF has been almost always senior debt in the past. The US taxpayer will be on the hook subsidizing Greek style wages and benefits, including almost unbelievable retirement benefits for Greeks who can retire at age 53. Of course the possibility exists that the Greeks will put their fiscal house in order for the first time since Plato, repay all the debt, and everything will be fine.

What's going to happen if Spain and others have a similar issue? Or are they not in as much trouble?

Anyone notice how the rugged individualist anti government states like Alaska and Wyoming get a lot more money back from the federal government than they put in, yet they never complain about it? Why didn't Sara Palin just sent the money back?

No, it's because every state has two senators, and the senate has a disproportionately large influence compared to the house. This is a fairly well established issue. Idaho gets the same say in the senate as California.

California pays more money to the federal government than it receives.

That may have been true in the past, but not true over the past couple of years http://ur.lc/j56 , and probably will not be true for many years. From a study commissioned by Barbara Boxer:

Boxer's staff economist determined that California received approximately $1.02 back in federal spending for every $1 in tax revenue it sent to Washington in 2008. The economist further estimated California received $1.45 back in federal spending for every $1 in tax revenue the state sent in 2009.

With an economy in a downward spiral and state & local pensions and other spending out of control, I see no end in sight to CA becoming a massive leech off of taxpayers in other states in the foreseeable future.

I agree that spending reform needs to be broad based, and that welfare and illegal immigrants are a huge drain, but I disagree with your trying to minimize the pension problems. CA's largest 3 pension funds are facing a $500 billion shortfall. The problem is that public employees were bestowed lavish pension programs which enable them to retire at age 50 or 55. The number of govt employees retiring at a relatively young age with $100k/year pension packages has got to end. When you speak of "taking it from the working people", that's exactly what the govt pension programs are doing - if not slashed, they will end up forcing average workers to bust their @ss to age 67 or 70 in order to subsidize Carribean vacations for 52 yr old government retirees. Overly lavish govt. pensions are probably the largest financial timebomb that we face. Govt employees should pay for their own retirements by saving for themselves using IRA's and 401k's just like the rest of us.

What I’m saying is that people who worked under a contract that offered something and then gets changed - is one of those things that causes riots.

The alternative to these dreaded riots is to sock it to average workers to subsidize lavish pension and benefits programs for govt. employees. Government offered too-lavish pension programs that never should have been offered in the first place. We can't afford them. It's either make other non-govt workers pay to subsidize these extraordinary cushy benefits, or cut the pension benefits for the govt workers, which never ever should have been so generous to begin with.

Yes, govt. workers had a contract. But those govt. entitities which offered those contracts are, or will be, bankrupted as a result. Let the pensions fight it out in bankruptcy court like any other creditor who also has contracts. The alternative is to raise taxes and retirement ages on average workers to pay for government pensioners retiring at age 50. It's not "rubbing their faces" in anything to ask govt workers to save for their own retirements just like everyone else. I don't have any pension. I won't get paid for accumlutated sick days at retirement. Neither do most workers in private industry. Let the govt. employees save for their own retirements like everyone else and get their hands out of my pockets.

Out of control welfare, fraud under govt. programs and illegal immigration are also very costly problems. But the cost of the inflated number of govt. employees, who have inflated wages (federal workers now earn substantially more than their private industry counterparts, not including benefits which widen that gap further) and their lush pension system is a large, perhaps the largest financial time bomb that we face. It must be dealt with

Here is a classic example of the problem http://ur.lc/j59

A school superintendent in Rhode Island is trying to fix an abysmally bad school system.
Her plan calls for teachers at a local high school to work 25 minutes longer per day, each lunch with students once in a while, and help with tutoring. The teachers’ union has refused to accept these apparently onerous demands.

The teachers at the high school make $70,000-$78,000, as compared to a median income in the town of $22,000. This exemplifies a nationwide trend in which public sector workers make far more than their private-sector counterparts (with better benefits).

This is exactly what needs to happen with these public sector unions. Those govt. salaries and benefit packages never should have been inflated to that extreme to begin with. Bring them back down to earth to live like the rest of us. More firings and cutbacks like this need to happen across the country.

Well, converting a pension to a defined contribution plan means more drain on the tax payer dollar for the short-term, as the new hires would no longer be required to pay in and the tax payer has to fully foot the bill for the current and future retirees who already have a pension contract. We wouldn't see any savings, if there are any, for at least another 10 or 15 or perhaps more years. Defined contribution plans don't perform as well as pensions anyway, but that's a whole 'nother topic (have we forgotten already what happened to our 401ks in 2008?).

For every dollar that tax payers put in to a public pension plan, some multiple of that is paid out to retirees. Not funding it just means more poor retirees, and now we're back to tax payers footing the bill. There's really no way around it. Pay less now or pay more later. Those seem to be the choices.

Pensions are always underfunded. It's the nature of the instrument. That's not really a sky-is-falling issue though, because we will never have a day when all government employees in a pension decide to all retire on one particular day and start taking benefits.

I don't think we have to have a riot about it. Besides, U.S. citizens are panzies compared to the Greeks and the French. We don't scare our government nearly as well as they do.

Well, converting a pension to a defined contribution plan means more drain on the tax payer dollar for the short-term, as the new hires would no longer be required to pay in and the tax payer has to fully foot the bill for the current and future retirees who already have a pension contract.

Your suggestion is based on the premise that we must pay for the pension contracts. Let the states and local govts go bankrupt and have the Cadillac gold plated pension funds fight it out for the leftovers in court with other creditors who also have contracts. In other words, fight like hell not pay for those lavishly inflated pension benefits which never should have been offered in the first place.. there was not enough money to make good on those contractual offers and they never should have been made. Let the bankruptcies begin so that we can create a more realistic, and more stable foundation for future economic growth in this country.

It is not "written in stone" that we make good on those pensions.. because if we do, we're forcing average workers to work until 67 or 70 to subsidize govt. pensioners retiring at 50. Screw that.

Your suggestion is based on state and local governments (i.e. employees of the state and local government) filing for bankruptcy so as to avoid paying pensions to state and local government employees (i.e. themselves).

It seems unlikely.

There are just too many people with a vested interest in keeping their own contributions that they made into the system. Same holds for Social Security. As broken as it might be, we want ours, because we paid in too.

I don't know if the Fox News gold advertisements are enough to generate the bubble. I know about a dozen older couples who religiously watch Fox News yet they have ignored me for years about gold. They still insist on buying General Electric & Bank of America and have been despite the fact that their retirement accounts nearly got wiped out buying those stocks. Furthermore, the angry left seems to hate gold with a passion and most liberals I know refuse to acknowledge that gold can even act as a store of value let a lone go up in value. They insist it's worthless. Between the right's refusal to buy into gold and the left's hatred of gold, I really can't see it bubbling.

theoakman says

Furthermore, the angry left seems to hate gold with a passion and most liberals I know refuse to acknowledge that gold can even act as a store of value let a lone go up in value. They insist it’s worthless. Between the right’s refusal to buy into gold and the left’s hatred of gold, I really can’t see it bubbling.

I don't think I'm really part of the "angry left", but I don't see gold as a store of value. That doesn't mean I hate it though. I think it's very pretty, and also very shiny.

Value is determined by supply and demand. Gold supply is limited, no doubt, but what exactly is the demand? Besides jewelry and some niche electronic applications? It just seems to me that gold is valuable only because people think it is valuable...

tatupu70 says

theoakman says

Furthermore, the angry left seems to hate gold with a passion and most liberals I know refuse to acknowledge that gold can even act as a store of value let a lone go up in value. They insist it’s worthless. Between the right’s refusal to buy into gold and the left’s hatred of gold, I really can’t see it bubbling.

I don’t think I’m really part of the “angry left”, but I don’t see gold as a store of value. That doesn’t mean I hate it though. I think it’s very pretty, and also very shiny.
Value is determined by supply and demand. Gold supply is limited, no doubt, but what exactly is the demand? Besides jewelry and some niche electronic applications? It just seems to me that gold is valuable only because people think it is valuable…

Thank you for proving my point. You refuse to even understand why it's valuable. You can be told time and time again why but you still think it's only valuable because people "think it is valuable". Fact of the matter is, Gold's value is in the fact that it is the only form of honest money to ever function properly.

theoakman says

Fact of the matter is, Gold’s value is in the fact that it is the only form of honest money to ever function properly.

Does that create demand? Indians used to use beads as currency--does that make them valuable today?

tatupu70 says

theoakman says

Fact of the matter is, Gold’s value is in the fact that it is the only form of honest money to ever function properly.

Does that create demand? Indians used to use beads as currency–does that make them valuable today?

Indian consumption has nothing to do with true global demand for gold. It's 1% of the story. You cannot apply the typical consumption model of a commodity to gold. We have 5000 years worth of gold sitting above ground that was never consumed. It functions as HONEST money. That's it. As for your beads comment, how did that work out? I'll say it again. Nothing else outside of gold/silver ever successfully functioned as honest money for extended periods of time. You just keep proving my point.

goldbugs: honest men in a dishonest world

theoakman says

tatupu70 says

theoakman says

Fact of the matter is, Gold’s value is in the fact that it is the only form of honest money to ever function properly.

Does that create demand? Indians used to use beads as currency–does that make them valuable today?

Indian consumption has nothing to do with true global demand for gold. It’s 1% of the story. You cannot apply the typical consumption model of a commodity to gold. We have 5000 years worth of gold sitting above ground that was never consumed. It functions as HONEST money. That’s it. As for your beads comment, how did that work out? I’ll say it again. Nothing else outside of gold/silver ever successfully functioned as honest money for extended periods of time. You just keep proving my point.

Yeah I think they meant Native Americans. They used to use beads as currency.

I don't have a strong opinion about gold's inherent value either way - but arguments based on it being the only "honest" money serve to sway me away from your position.
Hmm....

pkowen says

theoakman says

tatupu70 says

theoakman says

Fact of the matter is, Gold’s value is in the fact that it is the only form of honest money to ever function properly.

Does that create demand? Indians used to use beads as currency–does that make them valuable today?

Indian consumption has nothing to do with true global demand for gold. It’s 1% of the story. You cannot apply the typical consumption model of a commodity to gold. We have 5000 years worth of gold sitting above ground that was never consumed. It functions as HONEST money. That’s it. As for your beads comment, how did that work out? I’ll say it again. Nothing else outside of gold/silver ever successfully functioned as honest money for extended periods of time. You just keep proving my point.

Yeah I think they meant Native Americans. They used to use beads as currency.
I don’t have a strong opinion about gold’s inherent value either way - but arguments based on it being the only “honest” money serve to sway me away from your position.
Hmm….

Sway away then...I heard the same thing when Gold was at $600. I'd like you to name another form of honest money that ever existed to disprove my point.

theoakman says

Sway away then…I heard the same thing when Gold was at $600. I’d like you to name another form of honest money that ever existed to disprove my point.

Not trying to disprove. "Honest money" sounds like an emotional point of view, not one of logic

logic did not give rocks (diamonds and gold) a value greater than food and clothes. The whole system is based on what women want. Women have the whoo-haw, so they make the rules. They like gold, poof, gold is worth more than food. No logical reason.

All I’m saying is _ Don’t focus entirely on pensions just because you don’t have one. It’s not the sole cause of the loss of money and won’t be what fixes the system if all the other parts aren’t fixed as well.

I've gone out of my way to point out the pensions are not the "only" problem. In fact, I've repeated that point. I can only assume that any future assertions from you on this point are willfully dishonest. I have SS income coming, hopefully, and I have my personal savings through IRA and 401k. My problem is with public employees who demand retirement pension far beyond anything that they've contributed.. because anything beyond what they've put in beyond reasonable interest (5% annual compounded interest) is coming out of the backs of hardworking Americans. Fck the public sector employees who demand one cent beyond that. Let them live like the rest of us. Because regular Americans will end up subsidizing their excessively lavish retirements.

theoakman says

Thank you for proving my point. You refuse to even understand why it’s valuable. You can be told time and time again why but you still think it’s only valuable because people “think it is valuable”. Fact of the matter is, Gold’s value is in the fact that it is the only form of honest money to ever function properly.

Buy gold today at market rate? unlikely since the seller will put up additional market up. Ever look at the Home Shopping shows on TV peddling gold and silver coins at 2-3x so called market rates... eeek.. not so honest after all. You certainly could not turn around and resell it at same prices on same day.

If a public sector employee retires now at around $90k/year income after 30 years in public service.. that means that they likely started out at around $18K/year back in 1980 which wasn't bad back then if benefits were good. Public sector employees don't have to pay SS like most regular folks. So if you take the 6% annual pension payment that we pay in the private sector for SS compounded and they pay that into their pension program without obligation to pay into SS, my problem is that these individuals, at age 51 or 52, are demanding that we pay retirement benefits to themselves of 80% or more of their peak salary years. Please. No one gets that who works in the real world. Yet that's what govt. employees receive. It's outrageous. Fck public employees who leech off average Americans. They are a huge part of the problem even if they're too dishonest to admit it.

ZippyDDoodah says

Public sector employees don’t have to pay SS like most regular folks.

Why are people continuing to repeat this lie in 2010?

Most public sector employees, including *ALL* federal government employees pay social security taxes. Some state programs (those that have private retirement plans) opt out, though most do not. The SSA estimates this to be less than 30% of state and local employees at present according to their website. Note that these people pay no SS tax *AND* receive no benefits, because they have a separate retirement plan.

Not all states are stupid like California and paying out 90% of peak salary to people for 30+ years after they retire.

Zlxr says

It’s only a select few that get 3% which times 30 years would equal 90% of their salary.

theoakman says

Indian consumption has nothing to do with true global demand for gold

Sorry, I wasn't very politically correct. I should have said Native Americans used to use beads as currency. Does that make them valuable today?

And I wasn't alive to know for sure, but I don't think the debased their currency back then...

After thousands of years, we all quit believing in God--in anything, really--but we *still* believe in Gold.

I think parts of Orange County, CA and the suburbs of NJ back their own currency with granite countertops and fake boobs for the wifey.

Most public sector employees, including *ALL* federal government employees pay social security taxes

I stand corrected. Federal employees started paying SS back in 1984. Previously federal employeed did not pay into SS. Many state and local govt. workers (and railroad employees) do not pay into SS. Although that's useful to know, it doesn't change my main point. There still remain some serious questions to be answered - Do these govt employees who pay SS, are they able to collect SS benefits + govt. pension, or only SS like the rest of us in the private sector? If they collect SS + govt. pension, what, if anything did they contribute into that pension system versus what are they collecting, and when can the begin to collect? Can they start collecting benefits at age 50? If they can collecting their govt. pensions at age 50 or 52, that's a huge problem, because that lavish benefit has to be paid for by others.

With SS, you can't start collecting until you're 65 unless you agree to take reduced benefits.

Another point - With the massive expansion of government, Federal workers are now paid FAR more than their counterparts in private industry http://ur.lc/j6i . On average, federal employees earned $71,206 per year, compared to $40,331 in the private sector. Are these federal employees also getting a lavish pension that they paid little or nothing into which is being subsidized entirely by the "average $40,331" folks? Leeches sucking the blood out of private sector workers

It’s only a select few that get 3% which times 30 years would equal 90% of their salary.

I don't believe it. Please cite. As I understand it, there's not a state/local/federal worker who worked at least 20 years, who will these days (now) retire at anything less than 50% of their highest years salary. But they can start collecting after just 20 years. Why, at such a young age, are they not required to work until 65 before receving their benefits like the rest of us? It's the early retirement age, like in Greece, which is sucking the money out from everyone else. And I use the term "sucking" because they are taking out far more in benefits then they ever put into the system.. the opposite of what happens to most of us with SS, in which our contributions keep increasing but the benefit rise does not correspond to the increased contributions

Those that worked for government for 30 years retiring now get 70% - 90% of their HIGHEST EARNING years in pension, and often they artificially inflate those "highest" earning years with overtime and sick days, or transfer to a temporary high-paying job. Google it.

Not all states are stupid like California and paying out 90% of peak salary to people for 30+ years after they retire.

I think you're mistaken in that 70% - 90% of peak salary in pension, even if they're only 50 years old, is paid out by city and state govt. pension plans across the country. I had my eyes opened to this recently with a 51 year old neighbor who "retired" from the City of Houston at 50% of her salary after only 20 years of working there. That, and other pension program articles I've read lead me to believe that it's not "just" California, but the modus operandi for many/most city and state pension retirement systems.

What's even more unfair is that the govt. pension programs are defined payouts. That is, while the rest of us watch our IRA/401k retirement nesteggs rise and falll with the stock market, government employees are insulated from any downside because taxpayers end up subsidizing them if there's a shortfall. They're "special" in that that they a) demand that taxpayers fund any shortcoming to their lavish pension system b) they can start collecting at age 50 and c) they typically collect FAR more in pension $$ and benefits than they put into the system, even considering compound interest

68 year old private sector workers having to work to subsidize the lavish retirement cruise ship vacations of 'retired' 50 year old government workers is not an exaggeration.