patrick.net

david1 says

But what does it tell you?

Nothing. Who told you I was using M2 as money supply?

david1 says

If someone finds another $100 in gold coins, but never uses it, what happens to the price of bananas?

Goes to show the defect in defining M2 as money supply

david1 says

Unless you define inflation as something other than a general rise in prices,

"General rise in prices" is very different from what BLS pulls into an arbitrary basket and calls it "general rise in prices."

david1 says

If you define inflation in some other way, who the fuck cares about inflation? If all of the goods and services I would ever want to buy do not increase in prices, except gold or some other useless material, what do I care about the money supply?

Do you go out and buy every item exactly in the same weighting according to what BLS bureaucrats rig the basket? Of course you don't. Then according to your own logic you should not care "the fuck" about BLS basket price either.

Buy when interest rates are high. I'm not sure.
Never pay more than 50% of asking price. I'm not interested in helping the seller, commissioned sales people or flippers. Let other suckers pay more.

robertoaribas says

you are an idiot....

You're clever. How many classes at community college did you have to skip to think of that one?

david1 says

Inflation is rising prices. Without increased demand for goods, inflation goes nowhere. Increased demand for goods in general cannot exist without increased income.

That's why we are going through stagflation and not inflation.

Reality says

People need to differentiate between nominal rate vs. real rate.

True!
Real estate is more concerned with real interest rates (interest rates adjusted for inflation), not nominal rates.

OCmonitor says

interest rates might go up and could push prices back down

historically this has not always happened.

Mark D says

OCmonitor
says

interest rates might go up and could push prices back down

historically this has not always happened.

Historically, interest rates go up as a result of a booming/improving economy--part of that being higher prices, not lower prices.

Philistine says

Mark D says

OCmonitor

says

interest rates might go up and could push prices back down

historically this has not always happened.

Historically, interest rates go up as a result of a booming/improving economy--part of that being higher prices, not lower prices.

I agree that in a booming economy interest rates would go up.

During the housing boom a few years ago, I recall interest rates went low and prices skyrocketed. But would that not be part of the bubble since money was loose and there were many stated-loans (no verifications)? So lots of money being passed around which made someone who should not qualify for a large loan, suddenly qualify for a very large loan. Those same loans are not available today for the most part.

I think the basic philosophy could be that if as a regular Joe can afford 1K payment and interest rates go up then maybe I can now only afford an $800 payment. (if salaries don't go up and other things are more or less constant). Of course there are many other factors to consider. But I would think for the general population their buying power is less. So if the general public can't make the payments, the owners would need to drop prices to sell or offer concessions to get people in the door. That is unless investors are buying everything up to keep the market moving (especially with low inventory).

Now maybe that's all skewed with many in California having money in the bank and buying properties. Such as the all-cash investors running around buying up places right and left. Maybe that's skewing things? I know my friend put her house up for sale and she had 20 all cash buyers in 2 days.

OCmonitor says

During the housing boom a few years ago, I recall interest rates went low and
prices skyrocketed

Yep, the Roaring 2000's were quite a special time. Time will tell if that permanently screwed the pooch or if we will ever revert to "historical" economics.

OCmonitor says

all-cash investors running around buying up places right and left. Maybe that's
skewing things? I know my friend put her house up for sale and she had 20 all
cash buyers in 2 days.

Well, in markets like LA, I have observed that investors aren't touching a lot of areas because they either don't cash flow as rentals or there are no more rehabs with built-in margin . . . also, foreclosures are drying up.

If I were an owner/occupant home shopper who had all cash (aka, $700-900k in non-ghetto LA), the last thing I would do is buy a house with that cash given how cheap money is right now.

Philistine says

Well, in markets like LA, I have observed that investors aren't touching a lot of areas because they either don't cash flow as rentals or there are no more rehabs with built-in margin . . . also, foreclosures are drying up.

If I were an owner/occupant home shopper who had all cash (aka, $700-900k in non-ghetto LA), the last thing I would do is buy a house with that cash given how cheap money is right now.

Bingo! Why risk that kind of cash on a house, in fact why risk a 20% down payment in crazy markets like LA or the Bay Area. Unless you think that interest rates will stay at sub 4% rates for the next 10 years it doesn't make since. WHY ARE 20% DOWN BUYERS MISSING FROM THE MARKET????
Interest rates are at historic low they can go up or stay flat. We are in uncharted territory as far interest rates go.

donjumpsuit says

When interest prices increase, affordability (list price) decreases. So a $2000 a month mortgage payment only buys a $400k house, not a $550k house.

In other words, all the flippers are out on their nuts, because they are buying $400k houses to sell for $600k, because the average dope can afford a monthly payment on $600k at 3.5%, but not at 5%.

I often bitch, but in the end I guess I would rather pay a bank more money to borrow (a credit union mind you), than a flipper who inflates the sale price of a house. Also the taxes will be lower (even if by a little), and I assume insurance is lower on a less expensive house.

Also it is better to have lower principal than lower interest rate. You can always refinance in the future to a lower interest rate or pay more money to effectively pay lower interest rate. Principal, on the other hand, you are basically stuck with.

You all assume that the Feds have always total control of the interest rate and it is always going to stay the way they design it. The Feds don't have too much of the control over the bond market and if the bondholders decide to dump our bonds, the interest rate goes up as well.

GraooGra says

Also it is better to have lower principal

It's also better to eat unicorn for dinner every night and crap bars of gold.

Philistine says

GraooGra says

Also it is better to have lower principal

It's also better to eat unicorn for dinner every night and crap bars of gold.

Not sure about the taste of the unicorn, but crapping gold bars sounds painful though.

Reality says

Nothing. Who told you I was using M2 as money supply?

Reality says

Goes to show the defect in defining M2 as money supply

M2 is a broad measure of money supply as you know. Based on your comments above, perhaps you would prefer to use M0 or M1. I can assure you falling velocity occurred as money supply grew by thorse measures as well.

Measuring inflation as money supply growth (by whatever metric you use for money supply) has no basis in reality. Money supply itself (again chose a measure) has grown significantly since 2007, yet prices of nearly every good (save gold, a material with little to no industrial value) have not risen in a manner that would imply correlation with money supply.

Oil - flat. Houses - down. Cars - flat. Food - up slightly, but nowhere near the level of increase in money supply. The only services that have increased at a level equal to money supply would be educaton and health care.

In either of those examples, I would point to increased demand (and supply issues, as in health care) as the main drivers of cost inflation, not money supply.

Now, as far as CPI, it was never intended to be, nor should it be, a measure of constant utility. It makes little sense to continue to track the price of obsolete goods, like telegraphs or 35mm film. *In theory* these types of things need substitution as replacements are developed. I don't know if that warrants replacing filet with hamburger as the price of filet increases..but in general I don't question the methodology. My school of economic thought does not require that I believe in vast government conspiracies and data manipulation in order for the data to fit.

OCmonitor says

I know my friend put her house up for sale and she had 20 all cash buyers in 2 days.

She obviously didn't price it right. I price my properties so there is just 1 serious buyer. If 20 showed up at my door, I would fire the realtor on the spot. Idiot.

david1 says

M2 is a broad measure of money supply as you know. Based on your comments above, perhaps you would prefer to use M0 or M1. I can assure you falling velocity occurred as money supply grew by thorse measures as well.

IMHO, all the M-whatever numbers smack of the economometrician's desire to measure something that is easy to measure, instead of something that has any real meaning in the economy. Ask yourself, in terms of how rich you feel about yourself, does it make any difference if your latest rise in wealth is in cash, checking account, term deposit, bonds, stocks, house, a stash of gold or a cellar full of French wine? It doesn't. Whatever asset rises has the same effect on the asset owner. Money supply should be whatever can be and the owner potentially willing to pledge for credit money. Credit money, not just base money, is what causes the gyrations in the economy. Of course, it's hard to measure money supply that way (would entail a judgement on what is pledgeable asset, a subjective judgement just as subjective as economic value itself); that's why the econometricians hide in their caves and tally up what can be easily counted, and invent the entirely artificial concept of "Velocity of Money" that has no real life meaning or direct measurability but only guaranteed to pick up the slack between countable bank deposits and GDP.

david1 says

Measuring inflation as money supply growth (by whatever metric you use for money supply) has no basis in reality. Money supply itself (again chose a measure) has grown significantly since 2007, yet prices of nearly every good (save gold, a material with little to no industrial value) have not risen in a manner that would imply correlation with money supply.

That's another fallacy in Keynesian econometrics: supposition of concurrency between cause and effect. In real life, prices do not move magically, but only through bids and asks among market participants. There is an information propagation process involved, and that takes time. Some sectors react to the new money supply faster than others. There is a time-shifted correlation between M2 and stock market. Likewise, there is a time-shifted correlation between stock market performance and real estate and consumer product prices. Gold has historically always responded faster to M-whatever increase faster than any other tangible products. It's a leading indicator of inflation. Likewise, bond market leads the stock market, which in turns leads the RE market with a long delay, then the consumer products. The reason may have to do with participants in the "dumber" markets trying to resist overt price changes by adapting in ways that are not picked up by econometricians. For example, ground beef producers had for years kept mixing in Pink Slime to help hold the ground beef price down, and it's never picked up econometricians for quality adjustment, nor apparently any of the genetically engineered food in order to increase production ("of what?" i.e. is it still "corn"?). It's kinda hard to mix pink slime into 99.99% pure gold.

david1 says

Now, as far as CPI, it was never intended to be, nor should it be, a measure of constant utility. It makes little sense to continue to track the price of obsolete goods, like telegraphs or 35mm film. *In theory* these types of things need substitution as replacements are developed. I don't know if that warrants replacing filet with hamburger as the price of filet increases..but in general I don't question the methodology. My school of economic thought does not require that I believe in vast government conspiracies and data manipulation in order for the data to fit.

Yet your school of economic thought involves assuming saintly bureaucrats that are not motivated by basic human self interest. We live in a real world where welfare bureaucrats routinely use the government credit card on themselves instead of on their supposed clients, Pentagon have trillions missing due to essentially employee theft, academics falling over themselves writing up proposals linking every research to "global warming" just because that's the latest theocratic angle . . . No conspiracy is needed for my school of thought, but only the assumption of bureaucrats as real life human beings with self-interest, not saints. The BLS statisticians certainly know which side of their bread gets buttered.

Reality says

supposition of concurrency between cause and effect. In real life, prices do not
move magically, but only through bids and asks among market participants. There
is an information propagation process involved, and that takes time.

Well thats a fancy way to say - it hasn't happened yet with other prices. It is more beleivable for me to assume a gold bubble than a lack of bubble in everything else.

Reality says

t your school of economic thought involves assuming saintly bureaucrats that are
not motivated by basic human self interest.

Not at all - I find it doubtful that all bureaucrats would move in tandem and keep their mouth shut about it.

Reality says

No conspiracy is needed for my school of thought, but only the assumption of
bureaucrats as real life human beings with self-interest, not saints.

Shouldn't the market in your model have sorted out the self-serving bureaucrats by now?

Reality says

Money supply should be whatever can be and the owner willing to pledge for
credit money.

If you want to define money supply in this way, then for the US economy money supply should be "GDP." Which is exactly what I was getting at with M-whatever and M-whatever velocity.

If French wine increases in relative value, and that added value is converted to credit money, and that added credit money is used to generate economic activity, isn't that added GDP?

david1 says

Not at all - I find it doubtful that all bureaucrats would move in tandem and keep their mouth shut about it.

It goes beyond bureaucrats, but practically anyone that needs a government license to maintain or improve their own standards of living. i.e. knowing which side of their bread gets buttered. Check this video out:

http://www.youtube.com/embed/dAkxR9T01pw

Do you really think that is mere co-incidence?

david1 says

Shouldn't the market in your model have sorted out the self-serving bureaucrats by now?

Why? Market is not magic, just expressions of the wishes of the participants under given conditions. It's just like voting in democracy, but takes place every minute instead of every few years.

david1 says

If you want to define money supply in this way, then for the US economy money supply should be "GDP." Which is exactly what I was getting at with M-whatever and M-whatever velocity.

No, it is not. It's the asset valuation, not the transaction volume.

If French wine increases in relative value, and that added value is converted to credit money, and that added credit money is used to generate economic activity, isn't that added GDP?

Not if the owner counts his wine like people counted their stocks in the late 90's, and houses in 2005-07, and money sitting in a bank account. The "money" is not spent right away, although it does affect their spending pattern.

robertoaribas says

HEY YOU says

Never pay more than 50% of asking price. I'm not interested in helping the seller,

you are an idiot....

Your absolutely correct. I should not pay more than 40% of the asking price. Why should I pay extra commission? Thanks for bringing this to my attention.