patrick.net

Wherever there is a job suitable - most likely Boston, Philadelphia or NJ somewhere. We go where the job trail leads us.

HARM

I do think that "ZIRP" is the path of least resistance. But not true ZIRP, as in what the hardcore neoclassic crowd are advocating. More likely LIRP (low interest rate policy).

I am dubious of shock-therapy, even though it serves my own (and many of your) personal purpose vis-a-vis the housing market. Shock therapy has an absolutely terrible historical track record. It's kinda like the neocon nationbuilding strategy of economics: it looks great on paper, the plans are flawless, the logic irrefutable. But in practice all hell breaks loose, and unintended consequences rule the day. Russia's default was the direct result of US-IMF initiated macroeconomic shock therapy.

But if I'm given the choice of LIRP, ZIRP or HIRP, I'd take ZIRP. HIRP will cause a deep recession, perhaps even semi-depression. That will solve housing too, but it's more like using a .45 to solve a splitting headache. At least ZIRP is like using vodka to solve the headache -- it'll go away so long as you stay drunk.

At least ZIRP is like using vodka to solve the headache — it’ll go away so long as you stay drunk

:lol: Nice analogy! Only problem is, with ZIRP you may wake up one day in a ditch without your wallet, or in bed next to, uh... something you'd rather not wake up next to. And long-term ZIRP addiction can lead to all kinds of health and social consequences, like cirrhosis of the currency, or the breakup of your carry-trade "marriages".

@Randy H,

How about NIRP (No Interest Rate Policy)? Otherwise known as "let the market decide what an appropriate risk premium is"?

In Austin's particular case, I wonder if it isn't in line for an extended bubble, or even the formation of a newer, greater one.

It's a better climate and natural environment by far than one generally imagines to be typical of Texas. And as a university town and the state's capitol, it's culturally sophisticated in a way not usually attributed to the rest of the state.

For those who are now facing lowered expectations vis a vis their retirement plans - and who can live pretty much anywhere - Austin's 'inflated' prices for homes. lofts, highrises and villas are laughably cheap when compared to comparable digs in DC, Boston, SoCal and the like.

Austin may have struck the coastal areas as one of those 'flyover' areas in the past, but it is increasingly coming to be seen as attractive and unusually affordable even at today's prices, IMO.

@HARM

How about NIRP (No Interest Rate Policy)? Otherwise known as “let the market decide what an appropriate risk premium is”?

I'm all for that ... just as soon as the US controls the actions of all world central banks. Can you imagine what would happen to a large, open, free-floating currency economy like the US if everyone else were free to set our rates for us? I'll be applying for a job with the ECB or BOJ.

ZIRP = zero-interest rate policy (this is an actual term)
HIRP = high-interest rate policy (we made this up)
LIRP = low-interest rate policy (ditto)
NIRP = no-interest rate policy (not to be confused with ZIRP; NIRP means the Fed doesn't set rates at all)

And before I forget, related actual terms not be confused with our banter:

IRP = interest rate parity
CIRP = covered interest rate parity

These have to do with international currency exchange. IRP is the mathematical theory that differentials in interest rates determine equilibrium currency exchange rates.

@Randy,

Don't forget these :

MIRP = Mentally Inadequate Real estate Professional
PIRP = Person In Repossesion Process (ie, FB)
DIRP = Desperate Interest Rate Plunge (what Ben Bernanke will be doing when the recesssion hits full stride
GIRP = Greenspan Is a Real Pu$$y

tannenbaum,

Warren B. has always felt that by maintaining a higher stock price you tend to attract a better class of investor. People that stay with you long term and collectively carry clout in the market. We've all heard his comments regarding CEO pay, options expensing, dervitives etc.

Does anyone give a rip what Sergey and Brin think? I don't know. I know I don't. They're still basically an IPO. If this keeps them from falling prey to the daytraders perhaps so much the better. But I do agree stock "price" is primarily psychological.

Anonymous Fake Newbie:

You're entirely too focused on the carrying costs of real estates. Don't you get it? It doesn't matter! High real estate prices are good for everyone! Even if they don't know it or appreciate it now. The REIC based economy has replaced the old economy and even the new economy! It's the new new economy where we no longer need to commute, work or produce anything of value! Flipping houses to each other is lucrative enough to carry the entire economy going forward. You just need to decide where you want to fit in? At the top making BIG FAT STACKS living off the fat of the MEW or down at Home Despot trying to figure out how you can pilfer enough lumber out the back door to put together your chicken coop one board at a time! It's really up to you.

I don't think one earthquake will collapse the prices, esp. if much of BA infrastructure survives with little damage. But a series of quakes will get people thinking. Liquifaction and associated insurance costs should shake some reality into landfill construction.

The Katrina analogy is false - New Orleans pre-Katrina was about as poor and black. Basically, making New Orleans a brown field pumped with insurance and taxpayer money was worth much more than the Katrina New Orleans.

BA is already infamously expensive and overgentrified, so I don't see that happening. However, any quake that takes down a lot of the low rise sketchy housing would do wonders for city planning.

Someone pointed this out earlier, but it bears emphasizing:

Disasters produce positive economic benefit after the initial economic shock, so long as there is rebuilding. Disasters and wars are ironically the only way in which obsolete capital infrastructure is ever effectively replaced. Much of the better designed highway, bridge, aquifer, communications and emergency response systems in the Bay Area are the direct result of earthquakes.

"Disasters produce positive economic benefit..."

If this were true we could really magnify our wealth as a nation by destroying everything in the entire country so we can rebuild it.

While it is true that disasters PROMPT us to make restoration investments, the disaster actually comsumes wealth and capital. The rebuilding of the disaster area is done with resources that otherwise would be used to build something else. We lose that something else when we rebuild what was lost.

The fallacy of a disaster being good is known among economists as the fallacy of things unseen or as "The Parable of the Broken Window." We see the rebuilding but we do not see what was not done with the resources diverted to the rebuilding.

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