patrick.net

maxweber says

I just want to point out that the government IS behind most of the housing trade. Sure, its a generalization and there are exceptions. But 96.5% of all mortgages is a darn conclusive argument. Only one who lies to oneself would believe we have a free market.

Which wont last. Eventually the Gov will have to detangle itself from the market and allow prices to fall to natural levels. They are only delaying the inevitable.

Maxwebber, your comments are 100% right on, and those who are arguing are not really reading what you have written. Yes, it is disturbing to a liberal's sensibilities to read that we have become socialist, and that this is not a positive development (and I am a liberal). But, what you have written is absolutely true. It is not socialism in the utopian sense, where government enacts programs to benefit the masses. It is instead socialism for the elite, which was exactly the failure of the USSR, as you correctly pointed out. The important and most disturbing part of the equation is not the deregulation of the market (although it couldn't have happened without that), but rather the success of the elite in getting the government to cover their losses with taxpayer money; the systematic transfer of wealth that is occurring as we speak. Had the government not intervened, the major players would have gone bankrupt. The free market would have destroyed them. They could not have pulled off the coup without having complete control of the government. They do own the government. Every congressperson who was to vote on bailing out Wall Street received unprecedented input from their constituents, with phone calls running as high as 90% against the bailouts. But nearly all of them had no regard for the will of the constituency, because the government is in fact beholden to Wall Street. Anyone who cannot see this is very deeply in denial. And you are absolutely right about mortgages. Something like 90% (or more?) of mortgages being written now are owned by the government.

maxweber says

tatapu70, are you joking? You ought to read this:
http://www.calculatedriskblog.com/2010/05/965-of-mortgages-backed-by-government.html
I know using the words socialist, communist, and capitalist are not constructive to any discussion. Sorry I used them. I just want to point out that the government IS behind most of the housing trade. Sure, its a generalization and there are exceptions. But 96.5% of all mortgages is a darn conclusive argument. Only one who lies to oneself would believe we have a free market.
P.S> I’m also curious to know if you have tried to get a mortgage or refi lately. Its tough now.

First off--I misunderstood your statement. My apologies. I read that to read that the government owned that percentage of the bad mortgages of the past. Not a snapshot of new activity right now.

Now--as to your point about being a free market--I agree that there is government assistance in the mortgage industry right now. My argument is that it's because the private sector isnt' lending right now because they are still smarting from their disastrous decisions of 2003-2008. Government has stepped in to try to maintain an orderly market... It's still a free market. I did refi last year with Bank of America and it hasn't been sold yet (as least as far as I can tell). FHA loans are horribly expensive--they really aren't competitive for people with good credit.

http://www.huffingtonpost.com/2010/04/19/the-scariest-charts-of-th_n_540456.html

In my opinion, maxweber has much more of a handle on what's going in in this country than you do. What good is petty bickering over partisan politics going to do us right now? Do you see the wealth disparity trending down? I do not. It's worse than ever. If debt doesn't interest you, then you are completely missing what's happening to our economy.

Welp, inflation is more probable than default so those holding houses might come out OK. The world is still throwing money at the US government. Maybe not a case of being a good investment as much as being better than all the rest. God Bless America!

And please, google "lost decade" before you continue singing Japan's praises.

Japan's rise in the 80's had a lot to do with them adjusting their currency. There was a massive pent-up storage of cash that was let loose in hours. Its understandable that there was some breathing room afterward when expectations weren't kept.

yes, I was writing a post on Japan and deleted it.

Japan has some advantages in its mercantilism and general efficiency and lifestyle frugality.

Internally, consumers have been benefitting from the strengthening yen since the 1980s. This strengthening was largely captured by the byzantine retail sector, but over time much of this increased purchasing power has been shifted to the benefit of consumers (this is where some of Japan's "deflation" is coming from -- Japan has to import so much, and the 40% appreciation of the yen since 2003 has been quite significant).

But underemployment is a continuing issue. ~50% of college grads don't have a job lined up upon graduation. Women are especially frozen out of the job market.

Japan's Lost Decade was caused by speculation in ephemeral stock and real estate valuations. Many, many people and corporations simply got wiped out as the bubble unwound -- anybody who put money into the market in 1986-92 is STILL underwater today:

http://finance.yahoo.com/q/bc?s=%5EN225&t=my&l=off&z=l&q=l&c=%5Egspc

Japan got to where it was in the 1980s by a lot of unpaid overtime hustle and denied consumption in the postwar period. I am of two minds about its future prospect. It's going to have a trillion-dollar hoard of US debt soon enough, on a per-capita basis that's 5X China's position. It's got a twenty year headstart on China as a multinational player in the modern world. Theoretically I think its depopulation trend is good and will result in a country that can comfortably pay its way in the world.

So much of economic discussion is muddled by the avoidance of the fundamentals of wealth creation: food production, raw materials, energy, capacity utilization, workforce skills, etc. By these measures, I think Japan will do alright this century.

I'd love to see ourselves get on the depopulation trend, and not just import people like another fungible commodity whenever wages get too uppity.

Troy says

So much of economic discussion is muddled by the avoidance of the fundamentals of wealth creation: food production, raw materials, energy, capacity utilization, workforce skills, etc. By these measures, I think Japan will do alright this century.

Overall hypergrowth unseen by other economies; from backward feudalism to modern technology and financial behemoth in a lifetime. The lost decade as more a less a correction over the rapid rise to more stable economy. Your right about the depopulation trends.

sybrib says

That’s the natural resource that Japan was still making in the 1950’s but not enough any more by the mid-1990’s, similar to now, as you point out, Western Europe, which is also in decline.

Just pumping out babies doesn't result in the eventual appearance of worthwhile members of society.

Less people mean more opportunities. Population decline is not identical with cultural decline (though depopulation itself is -- certain areas of Japan are reverting to wilderness as the rural population just ages away).

sybrib says

Western Europe may rise again as a Pan-European “Islamic Republic of Europe”, but it’s probably a century or more out.

Well, I thought the chance of Apple passing Microsoft in market cap was impossible just a year ago, so I'll withhold comment on this.

I didn't write that pumping out babies is a natural resource. But one way to guarantee your society is in decline is to have its numbers in decline. Besides, immigration is another way to keep the population stable if the birthrate is in decline.

People are needed to create opportunities. Less people means more opportunities sounds an "awful" lot like an attitude attributed to Western Europe or even Japan, a couple of civilizations that continue to be in decline.

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated." (Los Angeles Times Aug 28th, 2005)

-- Comments by David Lereah

thomas.wong1986 says

He called it “very unsophisticated.”

My mom qualifies for Federal Poverty Level Medicaid since the divorce and all.

But she has zero debt. Our Mother's Day brunch this year was in a nice restaurant in Laguna Beach, and I joked that she may be poor but she probably is better off than half the well-coiffed OC types in the room.

Troy says

But she has zero debt.

My hats off to her. Smart lady!

gameisrigged says

started a policy of funneling what has ended up being trillions of dollars of taxpayer money to Wall Street.

"trillions"? This is kinda not true.

Regardless of the public support the banksters have been getting (eg. the carry trade racket in Treasuries) the fact of the matter is that [very nearly] the entire financial system chugged the kool-aid nonstop 2003-2006. We're talking Citibank, Bank of America, Wells Fargo.

And by 'chugging the kool-aid' I mean taking hundreds of billions if not trillions of bad loans on their books. Now, I may still change my thinking depending on future events, but going into this crisis my general appreciation of the banksters was that they operated the cardio-pulmonary system of the economy, and thus were collectively (and largely individually) indeed "too big to fail" unless we wanted to see a business turn-down that made 1932 look good.

The Federal Flow of Funds report shows that total household mortgage borrowing was $6.0T at the end of 2002, and this same borrowing level peaked at $10.5T in 2008, for a total of $4.5T of mortgage debt expansion over the bubble.

How much of this $4.5T bubble debt is going to be worthless? In 2008 I was saying 10% is certain, 20% likely, and 30% entirely possible.

THAT WAS (AT LEAST) A $500 BILLION HIT TO THE SYSTEM.

$500B is an immense amount of money (the total present market caps of the top 4 banks), and it was the best case! Now it's pretty clear that 30% is certain and who knows the end of this.

The PtB have to "turn the machines back on" or we'll continue this slide into financial ruin.

We're still over a year away from the second wave of resets:

Very good analysis Troy.

Troy says

gameisrigged says

started a policy of funneling what has ended up being trillions of dollars of taxpayer money to Wall Street.

“trillions”? This is kinda not true.

Uh, yes, it kinda IS true.

http://www.sourcewatch.org/index.php?title=Total_Wall_Street_Bailout_Cost

gameisrigged says

Uh, yes, it kinda IS true.

No, entries that say "Federal Reserve" are not taxpayer bailouts, that's Fed intervention via money creation. The Treasury portion of that list is well under $1T, and the "Outstanding" column of Treasury bailouts is under $500B it looks like.

Troy says

gameisrigged says

Uh, yes, it kinda IS true.

No, entries that say “Federal Reserve” are not taxpayer bailouts, that’s Fed intervention via money creation. The Treasury portion of that list is well under $1T, and the “Outstanding” column of Treasury bailouts is under $500B it looks like.

Do you not think the creation of money supply that is all given to Wall Street doesn't cost the taxpayers? I understand your point that technically, the money hasn't come out of the Federal Reserve, but certainly you cannot create money out of thin air, give it to one small segment of society, and say there is no cost, can you? Wall Street certainly enriched itself while the wages of workers in all other segments remained stagnant, and the Fed money is part, if not most, of the means Wall Street used to do so, isn't it? Wall Street has resumed paying lavish salaries and bonuses, while homebuyers have only gained the opportunity to place themselves in more debt.

http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1

Troy says

http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1

Doesn't that just prove that there are a lot of poor people? Kind of supports my premise that wealth is being taken away from the middle class and given to the elite, doesn't it?

The poor are along for the ride, yes.

The top 20% -- upper middle class and above -- pay two thirds of the income taxes. They need to pay more, of course, but so does everyone.

There are a lot of moving parts in this puzzle and nobody has all the answers.

"I don't have any solution but I certainly admire the problem."

Everything is f---ed. How to unf--- it would require a PhD thesis or two, not an internet comment.

We've had a progressive tax structure as long as I can remember. I'm not bothered a bit if the top 20% pay a higher percentage of income tax than I do. They can all bite me. Don't forget, though, that sales tax is regressive. But none of that is new. What they're doing is more subtle than just raising taxes. They are increasing the money supply, and giving the new money to Wall Street. Meanwhile, the working man's wages are stagnant, and his savings pays no interest, so he is losing money to inflation. An overly simplistic analysis would be, "I'm not paying any more taxes than I was before, so everything's o.k.". I think that misses what's really happening.

The core problem is that ~60% of this country are idiots at any given time.

Prop 13 including commercial and rental properties is a primary example. It got 65% of the vote back in 1978.

They are increasing the money supply, and giving the new money to Wall Street

It's a little more complicated than that. The money supply has already been done increased:

http://research.stlouisfed.org/fred2/series/MZM?cid=30

2004-2006 was when the system went open-loop. Note that our trade deficit maxed out then, too:

http://research.stlouisfed.org/fred2/series/BOPGSTB?rid=51&soid=19

Commercial lending went through the roof:

http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101

What is happening now is keeping the system together and not have it fly apart in cross-default event, which by all rights it should since precious little of investment last decade was into actual productive capacity worth a damn.

Meanwhile, the working man’s wages are stagnant, and his savings pays no interest, so he is losing money to inflation

Deflation doesn't really work that way. In the deflation cycle, eventually everybody who works for a living loses their job and ends up homeless as demand is destroyed in chain-reaction layoffs. That was what the 1930s was all about.

I'm no brilliant macro-economist, I barely know the difference between M1 and M2 (and TBH have no idea what M3 is and why the Fed stopped measuring it in 2006), but I do know the system went off the rails in 2002-2006, and I know who the culprits were and what they allowed to happen.

Getting back to the happy days of 1999-2000 is going to be tough, if not impossible. Ideologically, ~40% of this country are idiots, and another 40% are economically helpless, unable to compete with the 500M Chindians who are smarter, harder-working, and have gained access to our mfg and service sectors. Maybe 1 in 5 of us has some actual idea of what's going on, but nobody, especially not me, has any answers.

Troy says

It’s a little more complicated than that. The money supply has already been done increased:

No, that's not more complicated. You're just saying it's happened before, which I never denied. Doesn't mean it didn't happen in 2009 TOO. In fact, look at your own chart; the curve gets steeper around then.

Deflation doesn’t really work that way. In the deflation cycle, eventually everybody who works for a living loses their job and ends up homeless as demand is destroyed in chain-reaction layoffs. That was what the 1930s was all about.

Not sure of your point. Look back up at the chart I posted. The rich are getting richer, the poor are getting poorer, and the middle class is being destroyed. Yes, it DOES work that way. I'm not paying a higher tax rate, but I haven't had a salary increase in 2 years, I'm getting fewer hours of work, and my savings is making less interest than the rate of inflation. And my situation is typical of the middle class right now.

gameisrigged says

No, that’s not more complicated

yes, it is . . .

http://en.wikipedia.org/wiki/Triffin_dilemma

Chinese manufacturing coming online 2000-2002:

oil imports doubling from 1990-2005:

established a very large momentum in global trade, and the world's need for USD. Over half of the USD in the money supply circulates overseas. Here at home, we have been able to cruise on the kindness of our trading partners and their multi-trillion dollar USD hoards. They've got our money now, and they lend it back to us as they can.

And my situation is typical of the middle class right now.

The rich getting richer is a given. $10M throws off $500K/yr in interest @ 5%. The poor getting poorer, likewise.

The 2005-2007 economy was a Potemkin Village economy fully fueled by the temporary and unsustainable run-up in real estate values. OF COURSE everything is going to go to sh-- now. Homeowners were pulling out HUNDREDS OF BILLIONS of dollars a year out of their inflated valuations and either spending it or knocking down card debt:

$500B/yr may not sound like much in a $11T economy, but that injection funded TEN MILLION household incomes.

That hot money is GONE now. No more magic ATM. Without monetary intervention, we wouldn't even have an economy now. THAT was largely why BAC was trading at $3 last March and the S&P 500 was in the 600s.

Worrying about "inflation" now is perverse. While Japan may not be a good model, their history 1992-2010 has demonstrated that macroeconomics is a bizarre beast.

Troy says

gameisrigged says

No, that’s not more complicated

yes, it is . . .
http://en.wikipedia.org/wiki/Triffin_dilemma
Chinese manufacturing coming online 2000-2002:

oil imports doubling from 1990-2005:

established a very large momentum in global trade, and the world’s need for USD. Over half of the USD in the money supply circulates overseas. Here at home, we have been able to cruise on the kindness of our trading partners and their multi-trillion dollar USD hoards. They’ve got our money now, and they lend it back to us as they can.
And my situation is typical of the middle class right now.
The rich getting richer is a given. $10M throws off $500K/yr in interest @ 5%. The poor getting poorer, likewise.
The 2005-2007 economy was a Potemkin Village economy fully fueled by the temporary and unsustainable run-up in real estate values. OF COURSE everything is going to go to sh– now. Homeowners were pulling out HUNDREDS OF BILLIONS of dollars a year out of their inflated valuations and either spending it or knocking down card debt:

$500B/yr may not sound like much in a $11T economy, but that injection funded TEN MILLION household incomes.
That hot money is GONE now. No more magic ATM. Without monetary intervention, we wouldn’t even have an economy now. THAT was largely why BAC was trading at $3 last March and the S&P 500 was in the 600s.
Worrying about “inflation” now is perverse. While Japan may not be a good model, their history 1992-2010 has demonstrated that macroeconomics is a bizarre beast.

Wow, you've really got this muddled now. Are you saying the increasing income disparity is entirely due to the fact that the wealthy get interest on their investments? That's a major oversimplification.

I don't know where you got the idea I'm "worrying about inflation". I said the middle class' wealth is being depleted and transferred to the wealthy, and that the interest on savings is less than the rate of inflation. That's not saying much, as you can only get 1% or so even in a premium savings account. You seem to have twisted my words into something entirely different.

I'm not sure if the rest of your post is supposed to be a response to me or what. It seems as though you agree with most of what I said, although your tone suggests that you don't think that you do.

?

gameisrigged says

Wow, you’ve really got this muddled now. Are you saying the increasing income disparity is entirely due to the fact that the wealthy get interest on their investments? That’s a major oversimplification.

Well, people who have their money managed professionally, and only taxed at 15% if that, are going to get richer, especially given the power of compounding interest. Also, the really big money returns are always in real estate, and since real estate has a cost of production of roughly $0, any profit earned in real estate (excluding use of capital) is pure money transfer from weaker to stronger hands (ie rent collection).

I said the middle class’ wealth is being depleted and transferred to the wealthy

What wealth is being transferred, and how?

and that the interest on savings is less than the rate of inflation. That’s not saying much, as you can only get 1% or so even in a premium savings account. You seem to have twisted my words into something entirely different.

The disagreement here I think is what inflation vs. deflation will do to the middle class.

The average 401K balance is under $100K, yet total household debt is well over $10T still, also just under $100K on a per household basis. The poor has no money, the middle class has no equity anymore.

I don't understand how money is getting destroyed now (I thought only the Fed could do that), but at any rate the previous decade set up the middle class with the necessity of having to increase its real income, given all the debt the middle class was allowed if not encouraged to take on.

This is not going to happen; much of the economic growth of the middle class last decade was simply fueled by this debt expansion (which means the middle class is in a precarious position now). But the bills are beginning to come due anyway, and the PtB have to figure out how to handle a several trillion dollar imbalance -- the trillions of USD our trading partners have, the trillions of dollars the medicare system is going to need this century.

The national fisc is shot to hell. Taxes need to be raised -- that's deflationary. Government spending has to be redirected if not cut by hundreds of billions of dollars a year -- that's deflationary. We need to reduce our dependence on oil, but can't.

Everything we buy is made much cheaper in China than we can make it here.

The Fed -> bankster skim is the least of our problems.

My friends reset was at a lower rate than his original 5/1. Someone here once said rates are headed to 0% like in Japan. I argue the cost of production for fiat is almost nothing so rates could easily head to 0%. As gov/fed continue the fiat bubble then entitlements in real value will continue to drop. So, yep, not only will the middle class be wiped out but the lower class too. The lower class just doesn't see it coming. They've been on the free ride so long they don't realize the train is now going backwards.

A coworker told me rates are still falling. The mortgage company raised an eyebrow when I told them i wanted a 5/1 a few months ago. Unlike them, I'm pretty sure rates will head toward 0%. That's a given when the system is a credit bubble. But it puts mortgage companies/CMO whatevers in a real bind. if they buy these 4% mortgages they will lose money. Inflation is only headed up and the sky is the limit. $1T is the new $1B and $1B govbezzlements are not even worth writing about in the news.

To bring the discussion full circle, we have a quasi government guy stating there was no housing bubble in 2003 and then in 2009 arguing to prevent anyone from knowing what his quasi government group was doing. That was the housing bubble. Now we have a Credit Bubble (Debt Bubble). Assuredly we have some similar to him saying the national debt is sustainable and the derivatives paper trade is sustainable and more. In 2016 will these same men argue to prevent the public from knowing how they blew up the economy?

We are smart guys. We know the only way to ride the inflation is to be on the earning side of it. We've bought hard assets and positioned ourselves so we can sell these at stratospheric prices in a few years. The only issue is with housing this may never materialize. Inflation will wipe out the middle class and stomp the lower class; so, the market for houses might not recover for a much longer time. IMO.

Troy says

Well, people who have their money managed professionally, and only taxed at 15% if that, are going to get richer, especially given the power of compounding interest. Also, the really big money returns are always in real estate, and since real estate has a cost of production of roughly $0, any profit earned in real estate (excluding use of capital) is pure money transfer from weaker to stronger hands (ie rent collection).

That's a great deal different than saying the rich get richer only because they make interest on their investments. You also completely left out the whole real-estate Ponzi scheme - making bad loans based on fraudulent appraisals, driving up prices, selling it off as MBS with inflated ratings, but actually worthless. I feel like you were absent from the planet the last 10 years or something.

I said the middle class’ wealth is being depleted and transferred to the wealthy
What wealth is being transferred, and how?

I don't understand the question. What do you mean by "what wealth"? Do you not know what "wealth" is?

and that the interest on savings is less than the rate of inflation. That’s not saying much, as you can only get 1% or so even in a premium savings account. You seem to have twisted my words into something entirely different.
The disagreement here I think is what inflation vs. deflation will do to the middle class.
The average 401K balance is under $100K, yet total household debt is well over $10T still, also just under $100K on a per household basis. The poor has no money, the middle class has no equity anymore.

And how is this different from what I said?

at any rate the previous decade set up the middle class with the necessity of having to increase its real income, given all the debt the middle class was allowed if not encouraged to take on.
This is not going to happen; much of the economic growth of the middle class last decade was simply fueled by this debt expansion (which means the middle class is in a precarious position now).

Again, isn't that what I said?

But the bills are beginning to come due anyway, and the PtB have to figure out how to handle a several trillion dollar imbalance — the trillions of USD our trading partners have, the trillions of dollars the medicare system is going to need this century.
The national fisc is shot to hell. Taxes need to be raised — that’s deflationary. Government spending has to be redirected if not cut by hundreds of billions of dollars a year — that’s deflationary. We need to reduce our dependence on oil, but can’t.
Everything we buy is made much cheaper in China than we can make it here.
The Fed -> bankster skim is the least of our problems.

Not sure what any of that has to do with my point. I agree trade imbalance is a problem. Did I ever say otherwise?

maxweber says

Inflation will wipe out the middle class and stomp the lower class; so, the market for houses might not recover for a much longer time. IMO.

What Troy and others are saying, if you'll listen, is that the middle class has more debt than savings right now. So, inflation will actually help them. And the poor have no savings so inflation won't hurt them at all.

tatupu70 says

maxweber says

Inflation will wipe out the middle class and stomp the lower class; so, the market for houses might not recover for a much longer time. IMO.

What Troy and others are saying, if you’ll listen, is that the middle class has more debt than savings right now. So, inflation will actually help them. And the poor have no savings so inflation won’t hurt them at all.

If there were WAGE inflation, it would help them, but there is not. Price inflation by itself only makes things worse. Not to mention the humongous moral hazard this philosophy entails. If you reward the irresponsible and punish the responsible, you encourage irresponsibility.

gameisrigged says

If there were WAGE inflation, it would help them, but there is not. Price inflation by itself only makes things worse. Not to mention the humongous moral hazard this philosophy entails. If you reward the irresponsible and punish the responsible, you encourage irresponsibility.

Of course there will be--if you print money there will be wage inflation.

gameisrigged says

I said the middle class’ wealth is being depleted and transferred to the wealthy

What wealth is being transferred, and how?

I don’t understand the question. What do you mean by “what wealth”? Do you not know what “wealth” is?

My working definition of wealth is three-fold: a) "direct wealth" is that which provides utility (ie. satisfies human needs and wants) and b) "indirect wealth" which consists of capital goods and human skills that assist in the production of direct wealth, and c) "tertiary wealth" which is that which we exchange for the more primary forms of wealth.

So the biggest asset the middle class owns is their real estate, which is a leveraged investment for most people still (they own "direct wealth" (the land use rights + their house) but against this they owe a debt that someone else owns as part of their "tertiary wealth" portfolio).

"Inflation" would improve the middle class's wealth position in this asset class by increasing the dollar value of this real estate against the fixed & declining dollar value of the debt against it.

Actually, real estate is the second biggest asset the middle class owns. The biggest asset is their collective (if varied) ability to engage in productive labor. This was entirely inflation-proof in the closed economy of the postwar era (but not so much in our current globalized economy where many productive jobs can be outsourced to lower-cost "developing" economies).

The average 401K is under $100K, and the social security trust fund is under $20K/household. Not much wealth there to lose, really. Public pension funds are a significant locus of middle-class wealth, with per-enrollee wealth currently in the $100K+ range.

The only near-cash investment in this class (susceptible to inflation losses) is the $20K Social Security trust fund position. 401K and public pensions are highly invested in equities, which as an asset class are reasonably inflation-resistant.

The past investment in public-accessible infrastructure is another form of middle-class wealth, if under-appreciated until free access is lost to privatization. http://www.chicagobreakingnews.com/2010/01/privatize-illinois-tollways-voters-say-no.html

I am just not seeing much of an "inflation" threat overall WRT middle class wealth position. Collectively the nation owes $10.2T on its real estate and another $2.5T in consumer credit debt. We'd all love a big round of "inflation" to reduce these burdens (note that we owe more in consumer debt than is in the SSTF!).

Plus the middle-class' exposure to property taxes and income taxes to pay off past state/local debt issues. My mom bought a house in 1981 and the property tax bill is smaller than the gardener's, thanks to inflation and Prop 13. When I inherit the house, who knows, later this century I might be paying the property tax with change I find in the sofa, thanks to Prop 58.

IOW, the middle class isn't sitting on a big cash pile that is going to get inflated away if we get a round of 1970s-style inflation.

By way of reference, the laboring classes, AFAIK, did OK during the Weimar inflation. The people who got really slaughtered were owners of pre-inflated debt, which is not a middle-class thing, by definition.

tatupu70 says

Of course there will be–if you print money there will be wage inflation.

Explain Japan then. Even public sector employees, who have had the most bargaining power for wages, all across the country are facing the cancellation of pay raises, if not outright cuts. I wish we had inflation. A bit of inflation would be a great thing for the country. We're still firmly in a liquidity trap though. "printing money" doesn't do much when the average expected rate of return is negative after accounting for losses. A 0% federal reserve note is just fine. Just because the fed pays you $1000 in freshly printed cash for your mortgage note doesn't mean you're going to spend it or lend it again.

Troy says

My working definition of wealth is three-fold: a) “direct wealth” is that which provides utility (ie. satisfies human needs and wants) and b) “indirect wealth” which consists of capital goods and human skills that assist in the production of direct wealth, and c) “tertiary wealth” which is that which we exchange for the more primary forms of wealth.

That's a good definition.

MarkInSF says

Explain Japan then. Even public sector employees, who have had the most bargaining power for wages, all across the country are facing the cancellation of pay raises, if not outright cuts. I wish we had inflation. A bit of inflation would be a great thing for the country. We’re still firmly in a liquidity trap though. “printing money” doesn’t do much when the average expected rate of return is negative after accounting for losses. A 0% federal reserve note is just fine. Just because the fed pays you $1000 in freshly printed cash for your mortgage note doesn’t mean you’re going to spend it or lend it again.

You're right--I should have better explained my point. I mean to say that if you cause inflation by printing money, then you will also experience wage inflation. Clearly the US printing hasn't caused any hint of inflation to date...

You guys don't understand what inflation it. Inflation is when your paycheck dwindles relative to costs. We have that. Iron Law of Wages implies Steel Law of Pay: lower pay with rising debts is inflation. Rising costs of food, fuel, and more without pay raises is inflation. higher unemployment despite growing population is inflation. Now, if those people worked for lower pay and prices fell then it would be deflation. That's not what is happening. Why is complex but the bottom line is Economics as a science is a century behind reality. Instead of pontificating the economists need to do real work and see what is really happening.

Inflation is when your paycheck dwindles relative to costs

My highest living costs, by far, are taxes and rent. Everything else is noise, including health insurance.

Tell me how the LL determines my rent from his costs.

Hint: the sticker on the built-in microwave says 1989 on it.