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tatupu70
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2010 Apr 18, 12:10pm
Completely false. We had a healthy housing market for over a decade with houses selling at half the price of what they were in 2005. Price declines, in these cases, reflect the dire need for the economy to shift production into a different sector. Housing related employment was completely over bloated and the only way the market can correct this imbalance is with lower prices. Price declines aren’t the problem. They are the solution.
huh? Not sure what you mean about the housing market. You mean prices were less before 2005? Yes, of course they were. It's not a decline if prices rise over time...
Sometimes price declines are the solution. In one sector of the economy as you say. But, deflation in the whole economy is bad.
Most of the members of Opec want higher prices, and want to put the blame on others when it happens. The only Opec country that I know of that actually wants prices low is Saudi Arabia, and even if they quoted what Opec said, they would have their own views. What they say and do are two different things unfortunately, it takes some knowledge and skill to fully understand what they are saying most of the time. They are friendly to the west, but also hate the west. They are friendly to many other arab countries as well. They're the friend who tries to please everyone, by telling them everything they want to hear. So using any quotes from them, or Opec I'm always suspicious of.
I wouldn't say LCD's deflated in price, they came down due to technical advances, not due to deflationary pressures. Computers don't "deflate" in price either, I don't have an economic term for how computer pricing behaves, but saying deflationary sounds just wrong. I'm sure someone could point out the technical reason for it.
At this point in the economy, we've really removed most of the fat from most businesses. Other countries still don't have the same competition as the US has, but we're essentially down to the bare bones for most stores. Mistakes put companies out of business here. 10% might be a healthy profit margin, but that's also includes a business performing perfectly. Other countries might yield 10% as well, but those businesses are making huge mistakes that are costing them dearly. Mistakes might include advertising in the wrong places, buying the wrong products, hiring the wrong people, etc. One big advantage expats say they have in other countries when starting up businesses is that they can make mistakes and still survive, while their counter parts in the US go under. One bad mistake in the US and you're gone, while it can take multiple mistakes in other countries to really take a business out.
Because of this, I don't see deflation happening in the US, unless it comes at the expense of wages. Raw materials, and construction costs simply can't be reduced further here. Deflation would be pretty harsh if it happened here.
actually, raw materials and construction costs have deflated hugely! drywall, lumber, concrete all have dropped since 2005, and today, electricians and framers are begging for work. The cost to build a home for a builder in Phoenix is down 20 to 30%, before even considering that land prices have plummeted. We are seeing builders buy up approved leveled lots for less than the costs of the improvements, and place homes on them they can sell profitably at 130K. New 3/2 1400 sq ft with 2 car garage and a yard, they can compete with the foreclosures presently.
tatupu70
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2010 Apr 19, 12:25am
actually, raw materials and construction costs have deflated hugely! drywall, lumber, concrete all have dropped since 2005, and today, electricians and framers are begging for work. The cost to build a home for a builder in Phoenix is down 20 to 30%, before even considering that land prices have plummeted. We are seeing builders buy up approved leveled lots for less than the costs of the improvements, and place homes on them they can sell profitably at 130K. New 3/2 1400 sq ft with 2 car garage and a yard, they can compete with the foreclosures presently.
Of course they have. We are just towards the end of a bad recession. If you like the way the last two years played out, then you'll love deflation.
deflation over a long period is very bad. I'm just very unhappy with how the govt (both bush and obama) have handled this: try to bailout the status quo. We have wasted a ton of money on gimmicks that won't help at all, and bailing out the very people who caused the problems: the worst banks, the worst home buyers.
Instead, had we spent our deficit spending on say modern nuclear power, public transit, whatever, anything that will help this country economically in the future, and created jobs now, it would have made much more sense.
Bailing out failed banks, bailing out homeowners who will eventually default, giving credits to get people to buy a home are all gimmicks. Gimmicks that make it appear we have turned a corner, but fundamentally nothing has changed.
inflation is defacto devaluation for foreign lenders without the embarassment of formal dollar devaluation
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Okay, I always thought about various problems with current and rising government deficits, entitlement programs, current economic conditions, etc. and have always felt very strongly that inflation was a solution to most of the these structural problems. Given this background, I knew government will always choose low interest rates, stimulus bill, and bond buyback over inflation risk as I felt that government would be estatic about inflation, notwithstanding what the fed say about monitoring inflation risk. This is especially apparent as government's structural financial problems are harder and harder to overcome.
While I am in the camp that modesty high inflation is good for the government, it is hard to articulate. Here is an article that articulates my thoughts perfectly and I think is a good read.
http://articles.moneycentral.msn.com/Investing/MutualFunds/why-inflation-would-be-good-for-us.aspx
Select bullet points from the article:
- The idea is that a quick bout of higher-than-normal inflation would lower the nation's debt in real dollars, bailing the government out of the debt threat. That means we could avoid Draconian tax increases or big spending cuts, both of which would be politically unpopular and could scuttle the economic recovery.
- who would see the value of their homes and retirement accounts increase. U.S. exports would become more competitive as the dollar weakened. The unemployment rate would fall, partly because real wages would decline, a less pleasant result.
- the faster real wages fall, the faster the unemployment rate falls, Higher employment would fuel increased economic growth and bolster the government's tax revenue. The trade-off would be a decline in real wages, but inflation would mask those declines
-Inflation would also act as a stealthy fiscal reform. Though tax revenues are affected only slightly by inflation, two-thirds of government expenditures are affected more. That's why the real cost of government spending would wilt away in a high-inflation environment
- In fact, it may already be at work; if it isn't, don't expect an announcement if it begins. That's because politically and economically, everyone with a hand in its implementation must deny it. In theory, in order for inflation to work this magic, it must be unanticipated.
I think the real point here is clearly I think federal policy will bias toward inflation and we should be aware of what that means to us financially. I know everytime inflation comes up, Japan will come in mind.
#environment