patrick.net

FAB:

I always thought the NSX was kinda fun...

Bruce: I'm sure Randy H could give a better explanation of deflation dangers. In my imperfect understanding, deflation encourages people to hoard their money instead of investing it. This in turn starves businesses, kills growth and leads to prolonged unemployment issues. Plus paying for your mortgage and fixed costs gets much more expensive, because the house/goods would require fewer deflated dollars to buy in the future.

Small inflation (from growth) is easier for the FED to control with interest rates. Adjusting the rate upwards draws capital out of the stock markets and businesses and into bank-style investments. But in a deflationary environment, the FED can charge 0% interest and still not spur economic growth. And if the economy isn't growing, new jobs aren't being created, and people feel the pain. The Bank of Japan ZIRP is such an example.

Bruce says: I see that, though it makes me question if a dose of deflation might be a useful corrective at times - if only it were possible to end it at will.

Actually, that used to be the way things went for our first 100-150 years. Inflation would typically happen during wars as the government took on debt to finance the war and printed more money, and thus devalued the dollar compared to the gold standard. Then the economy would undergo deflation as the government repaid its debts with tax money, until it reached approximately the pre-war equilibrium point.

The stock market crash of 1929 was accelerated by rampant speculation, followed by a lot of paper wealth getting vaporized. The stalled economy led to deflation, probably not the other way around.

If you consider the tech bubble pop, and the pending real estate bubble pop, it's possible that we are in for a period of deflation. Although it's more likely that the FED would move us towards stagflation, because you can eventually grow your way out of that. It's probably anybody's bet, since we're not on a gold standard that provides a stable reference point. It is additionally interesting that the U.S. dollar is fiat for much of the civilized world's currency, meaning that if our economy drags down the U.S. dollar's value, major Treasury holders like China and Japan will get dragged down as well. So strangely enough, much of the world is indeed relative compared to our reference point.

I think people forget that these things take decades to play out. We're looking at a blip over the past couple years. The real estate boom of the past 5-10 years seems long enough to provide a historical reference point, but that's only because we have fruit fly lives compared to the country and the economy. In another 30 years, people might look back on this era the way we look back on stagflation or the Great Depression.

@FAB

My 10 year old Gary Fisher Sugar 4+ is a little heavy, but perfectly fine. The added weight actually helps me not kill myself on Mt Tam downhills. The only thing I'm considering is retrofitting discs, only because I burn through calipers on the sucky stock brakes seemingly every week.

I used to pull my son in a CTS trailer with this bike too, so I have a bit of sentimental attachment to it.

For frick's sake... the latest banner ad at the bottom of the page:

125% Home Equity Loan
Cash Out in Days - Instant Approval
Poor Credit Welcome

For frick’s sake…

Not to worry Advertising is prepaid and non-refundable at times and
I take the ads we see has yet to term..

On the other hand, I do still see exotic financing on TV ????

Look up deflation in history of the US and you will find we had mega more years of deflation than inflation. Inflation is a rather new event in US Economic History...

LowlySmartRenter-
Lets review 1989-90 as it relates to South Bay....
We had a tech implosion, many companies went under.
We saw well paid workers jobs leave to cheaper Asian Tiger labor.
We saw large layoffs due to global competition in HW and SW
We saw CA Natives move to Utah! Oregan, and Washington and
never come back...
We saw real estate prices decline +35%...

Sounds so familiar! Dont it !

economies are like bears on unicycles

For those old enough to have taken #2 pencil & paper SAT(AT)'s:

Bears are to Economies as __________ are to Governments.

Why does this feel like a MENSA moment?

I'll go for 'Patty Hearst', Randy.

libertarian syndicalists

(I know that's an oxymoron, but who even knows what syndicalism is anymore?)

justme, RE: Greenspan purposely turning us into landless peons

Per Voltaire, "If God did not exist, it would be necessary to invent him." *

People will invent vast conspiracies because they need structure to feel safe. It is more comfortable for many to believe that Alan Greenspan heads a secret new world order than to believe the obvious uncomfortable truth----that he was a man with little more insight into the future than other brilliant people, which is to say that he had none, in control of vast sums of money with which he could exert only marginal control over a huge economy that is at best imperfectly understood.

I seriously doubt that Greenspan was trying to create a real estate bubble. That is backwards-looking attribution on our part. The guy was trying to stop the economy from stalling after the tech bust, and the best way to spur investment is to inject liquidity. And to his credit, the economy did not go into a major recession. This real estate bubble is a secondary unintended consequence of the cheap money. Maybe Greenspan could foresee this result, probably not, but I would inject the liquidity no matter what, because I would take a housing bubble over a serious recession any day.

Sorry folks, we regret to inform you that there is no one flying this plane... :)

btw, I say this having had long conversations with upper managers in charge of divisions making hundreds of millions in revenue per year. Their visibility into the future is only marginally better than your own, mostly because they have some additional information. The truth is that you can steer the objectives, and sometimes you're right, sometimes wrong, but you can rarely control the secondary effects. And unfortunately at that level of power, the secondary effects can cause huge disruptions to the lives of your employees. In Greenspan's case, his span of control was so vast that he accidentally minted legions of millionaires and bankrupted tens of thousands on a monthly basis.

* I am indeed a Christian, but Voltaire's statement about human psychology still holds truth.

Bears are to Economies as __________ are to Governments.

I'm pretty sure that the Bulls would answer "Terrorists". :o

Yes indeed, sounds familiar Space Ace. Like the topic a few threads back "September 12, 2037", it frickin' blows me away. So eerie to see rhetoric repeating itself. So eerie I was thinking that post was a belated April Fool's joke.

Assuming you were in or around the South Bay then (I was not), was the mania as prevalent then leading up to '89? I mean, were people hocking their first born to get into a house, taking 103% loans? Did NINJA loans or HELOC's even exist then?

I believe back then interest on all debts was tax deductible, not just today's last bastion of mortgage interest. And from what I've read, that decline took about 6 years. I'm just trying to get an idea of what is different this time around. And not so much the economics of it, which is no small factor, but more the psychology and culture surrounding RE. I think that's the underlying theme in HARM's post anyway.

Extra points to any respondents who use the word of the day: frickin'

I mean, were people hocking their first born to get into a house, taking 103% loans? Did NINJA loans or HELOC’s even exist then?

yes... actually as little as 3%...would get you in....so 97% was typical
and so was specultion... where people sold a mega losses...
as well as "everyone wants to live here"... which they finally moved out
and well paid jobs which disappeared for both renters and homeowners
and "great weather"...
and "prices will go up because places like SF and SV are land locked"

and all the other nonsense we hear today...

I just laught and tell them the history...

"I believe back then interest on all debts was tax deductible, not just today’s last bastion of mortgage interest."

Up to 1986 ... The Tax reform act of 1986 changed all that.

http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986

:)

This song fits the zaniness of the housing bubble:

http://www.youtube.com/watch?v=ZfqN0wupduI

Fake transisper light...la, la-la, la-la.

Fake transisper light...la, la-la, la-la...

Capital gains tax is a thing of the past. We should just abolish it to simplify the tax code.

Justme -
No! Actually tax reform act lowered the
rates from 50% down to 38%.

Had no impact on recession of 1991.

Justme -
No! Actually tax reform act lowered the
rates from 50% down to 38%.

Had no impact on recession of 1991.

http://en.wikipedia.org/wiki/Late_1980s_recession

Ok I see your point ... you may also consider the 33% crash in 1987 as a start for speculation out of the equity market and into housing market just like the 2000-01 Nas crash !!! :)

I prefer the 88/89 nightclub scene in LA/SF .. wow!!
them was the days...
You just see girls wearing mini-skirts
anymore like that ....

I think we agree on what the Fed’s goal is. Just a few threads ago, I stated that the objective of the Fed is and always has been to maximize asset inflation under the constraint that inflation of consumables must be kept in check.

Great minds think alike, I guess. :)

Though I actually agree more with Brand that this was an unintentional side effect of trying to keep us out of a recession. But the point I am trying to make is that our current economic conditions exacerbate that effect. I guess another way of thinking about it is that there is a surplus of cheap labor in the world right now, so of course the retuns on capital are higher. Maybe there is nothing that can be done about that, short of protectionism, which would be even worse in the long run.

Which thread was this brought up in farside?

Peter you said,

PAR, the rich will always get richer. It is NOT a new paradigm.

This means that no matter how you redistribute wealth, the same group will become rich in no time.

I know your ideology tends you to believe this, but you don't *really* believe this do you? Even under, say, feudalism?

Thanks Muggy, but I'm not sure how well a "techno-finance" thriller would sell, or be thrilling. One Neal Stephenson is probably enough. And he can write, whereas I have a bad tendency for starting sentences with conjunctions.

German designs are even more durable than German cars.

Jimbo says: But the point I am trying to make is that our current economic conditions exacerbate that effect. I guess another way of thinking about it is that there is a surplus of cheap labor in the world right now, so of course the retuns on capital are higher. Maybe there is nothing that can be done about that, short of protectionism, which would be even worse in the long run.

There is nothing that the FED or the government can do about globalism. If we want to remain a world power, we must do two things. At a government level, we need to borrow a lot less and spend a lot less. On a personal level, we need to kick our consumer addictions to cheap electronics, clothes and other material goods. That's really where this thread has been going.

Look at China. Their savings rate is phenomenal, somewhere in the 40-50% range. You don't see them taking HELOCs to buy a damn Lexus or a second plasma screen TV. We need to return the U.S. to its economic roots---owning permanent productive resources like farms, timber land, mines and water. We should invest in companies that produce goods wanted elsewhere in the world, even as we reduce our own consumer tendencies. The U.S. has such influence in the world that if we reversed the trade deficit for a couple years, the effect would be tremendous.

Very nice synthesis Brand. I don't tend to say much when I agree, not much point to a "me too" post but yes, we seem to have lost our economic moorings. Someone will end up paying for this but unfortunately it probably won't be the ones responsible.

Let's speculate that the people who pay for it will be Gen X and onwards. It's not too late to get our act together, both personally and in government. Everybody has a vote.

A depression is clearly very possible. Not a certainty but it won't take much more to set it off. I have just driven across NM and I can tell you that most large parcels are for sale, and we saw REAL modern ghost towns.

justme: Was Greenspan looking out for Wall Street specifically, or the firms that American stocks represent? I think it's pretty easy for most investment teams to have a stellar day with this much liquidity sloshing around.

Perhaps a question for Randy H---is the stock market going to reverse its gains when the cheap money dries up? Do liquidity booms tend to stabilize at certain levels, or eventually retract?

Malcom: That's New Mexico. Who would want to buy huge parcels out in the middle of the desert? If it were huge parcels near populated areas, then I would be more curious.

I've wondered, was Albuquerque a real estate boom town? I heard it was going even crazier than Phoenix. It was going to be the next Silly Con Valley, according to certain publications.

LowlySmartRenter,

If you stick around long enough you will see everything discussed multiple times. There is really only so much you can say about real estate and watching the "bubble" collapse is liking watching paint dry.

Add to the fact that some of us seem to have Early Onset Alzheimers and can't remember that we already talked about something a short while back. :-D

We could always fall back on our default discussion, which is food. Find any good new sushi places Peter?

I want to talk about NYT's wedding announcement sections.

How about posting wedding announcements here and then have people predict the kind of house the couple will buy/rent/inherit.

How about posting wedding announcements here and then have people predict the kind of house the couple will buy/rent/inherit.

That would be interesting.

We could always fall back on our default discussion, which is food. Find any good new sushi places Peter?

There are a few new places in the Mountain View / Sunnyvale area. :)

I know your ideology tends you to believe this, but you don’t *really* believe this do you? Even under, say, feudalism?

I really do think so.

However, we should care only about our own standard of living, right? I do not care if rich people start having private space shuttles. So long as we are all moving forward, it is fine if our speeds are different.

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