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It's Supposed to Work, Dammit! Further Adventures in Keynesian Theory
- Auto Sales
- BLS
- Bureau of Labor Statistics
- Christina Romer
- Commercial Real Estate
- Consumer Prices
- Core CPI
- CPI
- ETC
- Foreclosures
- Green Shoots
- Gross Domestic Product
- Japan
- M1
- Monetary Policy
- Money Supply
- Obama Administration
- Real estate
- Reality
- Recession
- recovery
- Regional Banks
- Same Store Sales
- Stagflation
- Unemployment
From The Daily Capitalist
The core Consumer Price Index fell for the first time since 1982--0.1%--in January. Economists are lauding this deflation as a good thing on the theory that it gives the Fed more flexibility: in keeping interest rates low, as they have been doing, they don't have to worry about inflation. I'm not sure what they mean by that since it has been the policy of the Fed to try to create inflation as a way to get out of our recession. It hasn't worked.
If I'm not mistaken, just a few months back economists were worried about a deflationary tailspin and a further decline in employment. It was felt that whenever the Fed needed to, it could, and should, gin up a little inflation and bail us out of a deflationary spiral. There has been no shortage of credit poured into the economy by the Fed, otherwise the Fed wouldn't need an exit strategy, yet the very thing stimulus and easy money was supposed to prevent, deflation and unemployment, stubbornly refuse to disappear. The Fed points to green shoots (GDP Q4 gain of 5.7%) such as the increase in manufacturing activity, auto sales, and health care expenditures. But ...
It is not a coincidence that WalMart experienced it first ever decline in its U.S. same store sales. WalMart, which accounts for about 10% of all retail sales in the U.S., noted that heavy discounting (deflation) in food and electronics lowered the overall value of its sales. The strong corporate profits we are seeing so far have resulted from efficiencies rather than increased sales for the most part, and this can't continue much longer--you can only fire so many people, shorten work week and cut slack to a point and then sales have to kick in. As well, inventory restocking will only boost the economy so far until the consumer goes shopping again.
According to classic Monetary and Keynesian theory, flooding the economy with money stimulates the economy, causes prices to rise, and consumer spending and general economic activity resume. Why hasn't the Fed's inflationary policy worked? Why is credit continuing to dramatically contract? Why are prices falling?
Why? Because the liquidation of unprofitable economic ventures created during the boom and massive related debt, is not over. Bank credit remains tight, money supply is declining (M1 MULT), since December 2008 real average weekly worker earnings have fallen by 1.5 %, residential real estate defaults remain high (3 million foreclosures expected this year), home prices are still falling, and commercial real estate values are collapsing, posing a huge threat to regional banks.
Consumer saving continues to rise, and consumers are paying off their debts. While consumer spending has been rising (2% in the last quarter), that will taper off now that personal saving has resumed its climb after a holiday hiatus.
It's also easy to overlook municipal and state government fiscal crack-ups, but they will have an impact on the economy as they struggle to raise taxes, slash spending, or go bankrupt. They will be seeking capital from the same tight markets that businesses look for capital and, since governments have borrowing advantages, there will be a crowding out impact.
The Fed points to green shoots (GDP Q4 gain of 5.7%) such as the increase in manufacturing activity, auto sales, and health care expenditures as evidence of an improving economy. They and the Obama Administration point to monetary policy and fiscal stimulus as the reason. Let me state a basic rule of economics here: there is no way empirically to know if they are right or wrong. Based on historical evidence of past employment of these economic remedies, these policies have failed wherever used. The best example is Japan which pursued these same remedies and have been mired in economic stagnation for 20 years (average GDP growth 0.06%).
Based on a careful examination of theory, fiscal and monetary policy such as the ones Christina Romer claims are responsible for an improving economy, can never work.
What we are seeing as "improvement" are two things: normal business cycle recovery, and the temporary impact of fiscal stimulus. Fiscal stimulus is a one-time shot and wears off quickly because no lasting economic activity is created. On the other hand, high unemployment, shorter work weeks, declining prices, higher consumer savings and lower consumer consumption, drive companies' efficiencies as they struggle to maintain their businesses as the economy tries to right itself.
The fact that the core CPI is declining and credit is still contracting is a direct answer to Keynesians who believe they can turn a spigot here and there and "control" the economy. It's not working. It never has. It never will.
At some point, as balance sheets are repaired and banks resolve their bad debt and capital problems, credit will ease. At that point the Fed will be face a huge dilemma. They know that there is a potential for very high inflation if the Base Money supply morphs into M1 money supply. If they pursue their exit strategy with gusto, a rise in interest rates would limit credit and money suppl. But I can already hear the politicians' cry for the Fed to ease credit to "save the recovery." What will they do? Remember that debtors (such as Your Government) loves inflation.
Get ready for stagflation.
A word on the CPI as a tool of analysis. The inflationistas always like to find fault in the CPI numbers as being highly inaccurate, but I don't think it is worth quibbling about. I'm not suggesting that we should accept fake numbers, but rather we have to look at something to analyze and right now the BLS numbers are the best we have to measure deflation/inflation on a consistent historical basis. (Yeah, yeah gold, oil, etc., etc.) These same critics readily accept the BLS numbers when they show inflation; they just don't like it when reality conflicts with their theory. One could argue that if the CPI accounted for falling home prices rather than the home rental equivalent, the decline would have been greater. Whatever.
One more word. The headline of the original WSJ report on the CPI numbers was"Core Consumer Prices Fall for First Time Since 1982". The same story, rewritten later that day was entitled:Flat Prices Bode Well for Economy. The first story disappeared. Go figure.
»
It's supposed to work, damnit! Further Adventures in Milton Friedmanian Theory
or
how I learned to love Goldman Sachs
Keynes was an egotist, in awe of Ayn Rand, and had an economic theory that was based purely on a theoretical basis from someone in a cosseted world with no experience of the real World or real life.
He took pleasure in having people regard him as a genius (Greenspan anyone?) without questioning himself (compare with Socrates).
DavidC
Thanks, Econophile. This was a fun read.
Great article and I couldn't agree more on your points. It seems to me that we will move more towards stagnation unless the commodities finally succumb to the deflationary forces. What I see right now is that the "basic necessities" food & energy are in fact inflationary. Energy is the component that worries me. Because, it is a cost in anything and everything we produce.
It's like we have opposing forces battling like two great rams locked together in a fight. The street says that the commodity and equity melt up is a result of the falling dollar. I think it's a mis-guided and speculative flight to false safety. But then again most other consumable items (such as furniture, cars, washer/dryers etc) are falling. So far it seems like a pretty even fight. Until now. Dubi, Greece, Spain, many of the US States are bringing to light the spark that will ignite the forest.
The world and especially the US will soon get a lesson in what happens when the government is allowed to grow to large. I don't know the exact statistic, but Government jobs (local and nationally) make up a HUGE percentage of the total work force. Washington may be able to print money and run a deficit, but States can't.
So, I'm staying in the deflation camp knowing that this avalanche on it's way. We all better start digging our bomb shelters if the US government begins monetizing our State and Local debt. It will be the beginning of the last chapter for our Nation.
What I would like to know is why the rating agencies have not been prosecuted .....
Just what in the hell is the reason ????
Angry? Feeling ripped off by greedy, corrupt bankers and politicians? What are you pussies going to do about it? Get real. Crawl back to your cubicles and unemployment lines or join the revolution. Starve the beast.
Prices will adjust....
So what....
However ....
The only reason there are problems today....
IS because CCC was marked AAA....
That is all folks....
Great stuff Econophile. ZH posters are proverbial cream that rises.
The deflationary washout - tailspin - in real estate is unavoidable. The chum is in the water. Nothing will change until the sharks are gone. Sharks are the 'buy really really really low' sort of beast.
Keynesian economic theory agrees completely with the "deflation" conclusion.
The price level is getting stuck at a lower place and with a downward trajectory. This is THE classic Keynes epiphany.
Japan did very little stimulus with constant "pull-backs" the first 10 years. This hampered efforts.
Fed will continue in its course... and American flexiblity and opportunism will re-ignite some forward price momentum (inflation of 1-2-3%).
RECOVERY is upon us!
Not true. As a result Japan has the highest debt per GDP of any First World economy. It is always the mantra of Keynesians (Paul Krugman being my favorite) that: We didn't spend enough; we didn't spend on the right things; we didn't spend soon enough. It didn't work in Japan. It's not working here.
When trying to gauge what the FED does, it helps to realize who is giving Ben his marching orders. The real movers and shakers behind the curtain, the "coincidences of interest" that align behind every move Ben is told to make.
Sometimes what I read in the financial press strikes me as extraordinarily naive, stupid even, to think that the owners of the FED somehow have anyone's interest in mind but their own small Tribe.
That any sophisticated financial writer still thinks that Ben is actually making his decisions based on this or that
strategy that he has personally developed is ridiculous.
I don't get it. It is easy to blame Keynsian economic theory on this economic mess. Really, what does Keynesian theory have to do with subprime mortgages and excessive private debt? The crisis was caused by a climax real estate bubble fed by the ozone of mortgage backed securities containing mortgage notes that never could be satisfied according to their terms. Of course this wet dream had to end. It was merely the final straw that broke the back of that hideous camel. Years and years and years of confiscatory taxation and decreasing capitalism were there all the time. Too bad that the monetarists had to try to right the listing vessel that was the U.S economy. The vessel kept listing during the Greenspan era...probably before, but I can't remember. The signs were there all the time. Never ending monetary adjustments can never compensate for the fiscal insanity that had been unleashed by Congress. It is amazing that the house of cards did not collapse earlier. Now, there is confirmation that Keynsian economic theory will not be able to save us. Too much debt that can never be paid...just like a subprime mortgage. But, was it the misapplication of Keynsian theory that was our undoing or the theory itself, that is what I am usure of.
I agree, Keynes would never have agreed to massive debt we accumulated during prosperous times! I dare anyone to show me were Keynes called for debt during times of great wealth! The numbskulls we have had in power for the last 30 years are responsible for this mess. In 2013 we will not be able to pay interest on our debt, without printing, any takers on that bet?
As Ludwig von Mises said in Human Action:
“A retailer or innkeeper can easily fall prey to the illusion that all that is needed to make him and his colleagues more prosperous is more spending on the part of the public. In his eyes the main thing is to impel people to spend more. But it is amazing that this belief could be presented to the world as a new social philosophy. Lord Keynes and his disciples make the lack of the propensity to consume responsible for what they deem unsatisfactory in economic conditions. What is needed, in their eyes, to make men more prosperous is not an increase in production, but an increase in spending. In order to make it possible for people to spend more, an “expansionist” policy is recommended.
“This doctrine is as old as it is bad.”
Keynes, who created the Keynesian, or the “New,” Economics in his book The General Theory of Employment, Interest, and Money, published in 1936, was summed up in a nutshell by Austrian School economist, Dr. Murray Rothbard:
[T]he attitude of Keynesians toward booms and busts is simplicity, even naivete, itself. If there is inflation, then the cause is supposed to be “excessive spending” on the part of the public; the alleged cure is for the government, the self-appointed stabilizer and regulator of the nation’s economy, to step in and force people to spend less; “sopping up their excess purchasing power” through increased taxation. If there is a recession, on the other hand, this has been caused by insufficient private spending; and the cure now is for the government to increase its own spending, preferably through deficits, thereby adding to the nation’s aggregate spending stream.”
Says Rothbard: These journals “take for granted that it is the sacred task of the federal government to steer the economic system on the narrow road between the abysses of depression on the one hand and inflation on the other, for the free market economy is supposed to be ever liable to succumb to one of these evils…
“It was not so long ago that this kind of attitude and policy was called ‘socialism’; but we live in a world of euphemism, and now (1969) we call it by far less harsher labels, such as ‘moderation’ or ‘enlightened free enterprise.’ We live and learn.” –Economic Depressions: Causes & Cures
Do we?
Beautiful, JR.
Walmart not Cisco is the story!
Since when did David Rosenberg become an apologist for liquidation? And yet he calls it a "mis-step." It is not a mis-step. It is a lock-step. It is lock-step liquidation. Only those who do not understand liquidation would 1937-38 a "premature exit strategy."
“For all we know, Bernanke is about to pull a 1937-38 premature exit strategy that ultimately leads to a market and economic relapse. That may not be a base-case scenario but the odds of a policy mis-step are still greater than zero.”
>right now the BLS numbers are the best we have to measure deflation/inflation on a consistent historical basis. (Yeah, yeah gold, oil, etc., etc.)
why? isn't the finding of real numbers what www.shadowstats.com is all about? Use them.
I agree, he's good. Perhaps I should have said, " the BLS numbers are the best I have ..."
Love the title.
The way I see it, it will boil down to a simple equation. Inflation of the things you need, deflation on all the superfulous crap you don't. Once all this market-manipulation-of-biblical-proportions finally blows up in our collective faces of course. For now I just remind myself up is down and red is black to get through the day.
+1
Using the CPI/PPI to determine whether we have inflation or deflation is like studying a millipede crawling across the ground. If you look closely, you will see parts of the critter going backwards as it crawls forward. Similarly, if you study the monthly CPI/PPI all you will see is noise. You have to stand back to get the overall trend.
How far back? It took 4.5 years for deflation to become evident in Japan. We are just two and a half years into this. There is evidence for deflation all around us, but of course there's not enough to convince the Keynesians and dreamers of anything but their own divinity.
See? Look how silly Rosenberg is. Is he trying out for the cheerleader squad. This is not a "mis-step." Ha ha! It is simply another liquidationist step.
"Rosenberg emphasizes that investors have now been reminded, in clear terms, that the Fed’s exit strategy, is about to kick off in earnest, albeit gradually, which is going to be a problem for this liquidity-driven market.
“[T]he reason the S&P 500 could muster a 70% rally off the lows of last March in advance of anything beyond ‘green shoots’ in the economy was in large part because of all this Fed-induced liquidity,” Rosenberg emphasizes.
He adds, “For all we know, Bernanke is about to pull a 1937-38 premature exit strategy that ultimately leads to a market and economic relapse. That may not be a base-case scenario but the odds of a policy mis-step are still greater than zero.”
What do you expect under Mellonesque liquidation? Of COURSE they're going to reduce incomes dramatically, of COURSE they're going to reduce demand.
And of COURSE they want inflation and are planning it--Austria 1919 inflation! Check it out. Not fun.
However, the problem with people like Econophile is that they don't study liquidation as a police state expression, although there are perfectly good examples--our own Depression era liquidation (shortcircuited by the War) is a very good example, but no one studies liquidation during the Great Depression. There is no book on it. And as far as I can tell, there is not a "manual of liquidation," or "How to Liquidate: Dictator's Edition," which would give us a step by step course on liquidation. Why doesn't Zerohedge write one, a sort of Wikipedia entry under liquidation (theirs is about corporate "liquidation"--but that's the mouse running around between the legs of the elephant).
In short, should we really call it "deflation?" Isn't that term really a mask, behind which we find the truly important police state techniques? Isn't "deflation" a term liquidation bestows on the sheeple, the more easily to distract and kill them? At most, deflation should be called another liquidationist technique.
So much more happens under deflation that just prices collapse and incomes collapse, as you probably know if you just sit back and think about the other things you know about the economy. ABOVE ALL, the supply chain deteriorates. This, I think, is what makes it most difficult to fight liquidation. If you want government out of the society (which is liquidation) then degrade the supply chain. Then there is nothing for government to do (except ratify the monopolies/cartelization which result, and call out the troops).
"Liquidate liquidate liquidate," is what Mellon told Hoover (according to Hoover). And Mellon had a different target in mind when he used each of those words.
I don't think you can possibily understand the "economy" (is that what you call what goes on when the Federal Government directly controls 40% of "economic" activity?), unless you get a better grip on its truly vast array of techniques. It shifts from one technique to another as it perceives the shift of power. So you tell me, precisely where is power right NOW?
Liquidation doesn't chase money: it chases POWER. If that's ultimately power over a dungheap, then so be it. It's all the power there is. I don't notice dictators particularly minding that they rule over a collapsed society--just so long as they rule. As Brecht said, They don't want to be right, they want to rule.
People who have intellectual pride don't like to study liquidation, partly because they share some of its means/ends. Ultimately they are ashamed to admit that they themselves have a police state agenda, don't support rights, and are happy to kill. But you can't predict where liquidation going next unless you understand its techniques, so study it like you would study your own disease--hypocrite lecteur, mon semblable mon frere!
Regarding the supply chain, liquidation pursued it first in transportation, then proceeded to agriculture, is now moving on to utilities. I have to go back and study where it went next during past liquidationist gambits.
Keeping in mind of course that it may have moved on, for a time, to another of its many techniques: race to the bottom currency gambits, monetization, cartelization, credit contraction. Which would you prefer from our smorgasboard of police state techniques? Don't mind that burning smell--that's people taking a shower.
People should simply think of liquidation as one mind, with many resources, and try to enter that mind and figure out where that mind is going next in its course to remove government from society (by which is NOT meant that government either becomes smaller or less intrusive).
So, deflation is a nice statistic to keep track of, but in the end it hides more than it reveals. You really need to study liquidation.
For example, a UK professor of supply management told me there is not ONE book on supply chain deterioration, and yet collapse of the supply chain is the only thing that actually made FDR move his rear end and do ANYTHING (and he didn't do much) to halt the course of liquidation.
Without the War, liquidation would have completely consumed America.
the bankers don't actually believe Keynesian nonsense - but they have to pretend to think there's a "plan" that can prevent the public from waking up to the fact that Wall Street is a giant scam.
As asset prices fall back to 1990 levels, the bankers will rejoice - as they will get busy buying assets as cents on the dollar from a ruined people.
As asset prices fall back to 1980 levels, the bankers will start to worry a bit more - and will induce currency collapse in an effort to reflate.
As asset prices fall through 1960, 1950, and maybe all the way back down to levels not seen since the 1930s - as the money supply totally vaporizes (at least in terms of real purchasing power) - a few brave souls will be forced to admit that Keynesian economics is really a politcal theory and rationalization espoused by those who lust for a global police state running a protection racket for bankers and multinational corporations.
"The headline of the original WSJ report on the CPI numbers was"Core Consumer Prices Fall for First Time Since 1982". The same story, rewritten later that day was entitled:Flat Prices Bode Well for Economy. The first story disappeared. Go figure."
...
No need to figure that taunt tentacle. lol... The big deal is the headlong insistance that things can improve without more units of exchange being put back (loaned) into circulation! Where's THAT discussion? Public projects such as bridges, roads, mag lev trains, take many years to trickle down into the economy -- so when lending slows -- based on the very fundamentals of the system -- abnormalities occur in otherwise predicable areas.
Its like we've been given the controls of an airplane that has a given stall speed -- by generations of keynesians -- and that aircraft (economic system) is trying to keep altitude and at the same time as loosing air speed (units of exchange brought into circulation). There comes a time when you crank up the nose and you stall. The thing is built with certain unalterable features, period.
When new units of exchange are not able to replace those which are taken out due to the exponential accumulation of debt the entire system itself goes thru hickups -- much as we experienced in fall of 08 with the USD clear cutting thru any conception of reasonable bollinger banding.
As simple as it can be stated: That currency with the most debt will rise in value the most because so much of it is being taken out of circulation. Raising interest rates at the later stages of exponential debt is like pulling the stick back as the aircraft reaches stall speed. Yeah, the nose goes up for a moment but then the stall warning indicator ingites and an entire new set of aerodynamic principles come into play. The given laws of aerodynamics change at that time just as will the given laws of economics -- expect unusual moves when one of the wings starts to unload...
As long as debts are denominated in USD the mad rush to accumulate more of the fewer and fewer untis of exchange within the system to pay these off as intrest rates rise, will see the USD strive to hit parity across the board on many currencies which haven't been that weak for a long time.
When the largest mass of debts are redeemable in Physical Gold then it will have its day -- however far more debts are ONLY redeemable in USD and one can be clear, many will sell gold high when the scramble is on to repay rising debt servicing costs. The market of gold is micro micro next to how much debt there is in USD. The contrarian in me is just skeptical as hell with seeing all the advertisements on taunt tv to buy physical gold right now. AND, when a powered aircraft becomes a glider in the best of scenarios, it will no longer waddle and quack like a powered vehicle.
"Nothing fails like success..." Just because something has worked again and again does not mean it will continue to do so. Many technical analysis and economic predicting models rely on the past repeating itself and they work until they do not -- and they seem to fail utterly when then dont. When they do not work, most people will be on the wrong side of the trade/asset position.
When stall speed is reached expect things to do abnormal actions according precident. Don't pawn off your parachute to the taunt.
difference is the hotel guy could have just cleaned up the freakin room, sent in the hooker and got a piece of her action too.:lol: don't look like the self chosen spawn of satan will give us that option. we're f'ed in all the wrong ways unless you aint a goy.
This may be simplistic, but why are people running out of money if prices are so low?
I can understand if you’re unemployed. But if you’re employed and your wages haven’t been reduced, or you have savings, shouldn’t you be out buying these bargains? If you can pick up some $100 refrigerators, this would be the time to be buy, put ‘em in your garage, and be ready for the time the unfortunates can afford ‘em. And eating out? With a deflationary spiral like this one, while restaurant prices swirl ever lower, while grocery stores cross out prices and mark them down every day, and a good steak lunch gets to $2.50, I’ll be there.
And it’s a good thing gasoline has dropped so low. Without that, we couldn’t make it.
The bottom line: as long as you can keep from being fired, then you’re on easy street!
The point is not what the Fed conjures the CPI to be: the point is what does a family pay? It pays for gasoline, healthcare, utilities, education, property taxes, car repair, food, lunches, inflated mortgages on dropping equities… These are not easing up; they’re shooting up. Really up! How can you say Walmart had a dip because it had to reduce some prices on food, such as bread and hot dogs and $5 cereal, as loss leaders to bring the shoppers in because the people are in a recession? Loss leaders are now food items? That’s deflation?
This government won’t give up until it gets everybody’s money. The Fed and its Keynesian economists want interest rates to be zero, period, including the neo-Keynesian Nouriel Roubini--that’s been the motive behind this “prescient” faux populist’s deflation mantra for two years. That’s the program.
If this is deflation, then give me inflation. I'll tell you what this is. It's a monetary crack-up.
Thnak you!
The numbers are a total fraud. I do my own shopping and notice prices going up not down. I notice prices at restaurants the same time as portions get smaller, most certainly that is not deflation. Prices could double every hour and they could come out and say that we are in a deflation, does that make it so? I pray for deflation! I'm secure in my job and line of work I want prices to fall! I'm just not seeing it.
What's more likely a deflationary impact, rising food prices or falling home and equity prices? I think that ends that argument!
When there is an inflationary boom it is natural that there is a deflationary bust. This is the natural order of things. The malinvestment must be purged from the system. However Zimbabwe Ben has his heart set on inflation and he will have it even if he has to give himself carpel tunnel pounding electronic money into being. Maybe some of us working stiffs would like a little break from inflation. Housing is still to high, it was insane before and still has room to go down. Now in real terms it will go down, in nominal terms who knows when you have a money printer at the helm. And rising food prices affect people a lot. I don't by a house or equities every week, but I seem to have this addition to food I just can't shake!
Marc is that you?
m0 can expand crazily, even in a deep deflation. At least, that's what I read. Ex. Japan
If America ends up looking like Japan I will be filled with out of my mind joy. Though I look at the savings rate of 90s Japan, the fact that Japan was a creditor and exporter nation, and I'm not seeing many similarities between Japan and the USA. Also it seems to me that the Japanese were not borrowing, now I don't about you but the Americans in my neck of the words LOVE to borrow money. The fact they cannot now is not because they don't have the desire more then the banks are looking at them as bad risks, even with free money from Zimbabwe Ben. I know if I was a bank I wouldn't lend, not when I can speculate in the market.
But hell what do I know? Lets hope that you are right and I am wrong and the value of the dollar grows in the face of epic dollar denominated debt and endless liquidity with no production behind it. Truly modern day alchemy, the philosphers stone. "Money for nothin' and your chicks for free".
+ 10.
Did someone yell, “Zimbabwe Ben ain’t got no clothes on”?
Was Artemus Ward right? Did my eyes deceive my earsight? Was it Japan all along wearing the royal economic purple?
Indeed! In the biggest housing bubble ever to hit planet Earth, blown out of real life proportions by artificially low interest rates, fraud, and ninja loans, you think letting out a little inflationary air means economic deflation? You, I fear, have fallen into the Fed’s propaganda trap. Most Americans still struggle to afford a Greenspan/Bernanke dream home, especially in high-priced areas.
The Center for Housing Policy in a 2010 study asks: "Who are among the ranks of America’s workers struggling to afford housing? In some high-priced communities, people who provide the bulk of vital services – teachers, firefighters, police officers, retail sales workers and restaurant workers – cannot afford to live in the communities they serve. Even in more moderately-priced communities, people who work a full-time job pay an excessive portion of their income for housing.”
Media Release:
DESPITE DECLINING HOME PRICES, MOST OF THE JOBS CREATED THROUGH THE STIMULUS DO NOT PAY ENOUGH TO AFFORD A HOME
http://www.nhc.org/chp/p2p/
And, in the state of Washington, a chart compiled on King County median home prices to annual rents for a typical two-bedroom apartment for the past ~20 years shows that "home prices have typically hovered in the range of 20 to 25 times rent. But since 2001 this ratio has steadily climbed to the point where it stood at 38 times rent at the end of 2006," and that's when the bubble was in pop mode.
http://seattlebubble.com/blog/2008/01/03/rents-to-rise-or-homes-to-fall/
Call this drifting, haphazard fall in home prices a “deflationary environment” if you want; I call it price discovery with a club—something which took the Fed's money printers and our Dream House for Everyman/Steak in Every Crock Pot Congress by total economic surprise. But at least it got their attention.
Reading this thread, it hit me...when the Austrians talk about "malinvestment", or "This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable"....what is the most area where most resources have gone from an expanding money supply and continual deficit spending? Government, itself, should be looked at as a malinvestment.
And the recovery when capital is reallocated to productive enterprises? Just writes itself, doesn't it?
Who trusts BLS numbers anymore?
leo the pension dude lol
As 'Denninger' noted, the CPI number reported was incorrect, and if you weight-sum the items in the table you get a +0.1% rather than -0.1%.
Check it out here: "CPI Number Reported INTENTIONALLY INCORRECT?"
Who trusts BLS numbers anymore?
the sad part is that all of those overpriced bad mortgages that were transferred to the taxpayer by fannie and freddie will continue to devalue. Yet, the big banksters will continue to transfer them to the taxpayer as they get reimbursed at the over-inflated costs (via re-fi's).
This is a coup de dat of the american people via the banks. Plain and simple. The biggest wealth and power grab in all of history. Mao would be proud of our fearless leaders.
Perhaps it is time for all men to furrow their brow in pain and discontent. Like my sons, often lesson is best learned via forceful reproof. Men cannot fear the pain, for like childbirth, pain often brings forth life. Our garden has become entangled with weeds, and the constitutions spirit has been bound by the demon of deceit. We need not our assets, nor our comforts, nor our things. Better to walk tall, naked in truth, than to be bound by the shackles of a prosperity that is borne of lies and injustice.
Men, like gold, can find purity in the fire. Comfort breeds soulless contempt for the infinity. We are borne into this world, yet we should not be part of it. If you allow the winds borne of lies to direct your boat towards the rocks, it shall. But, you have a "choice". That truth shall never change.
You can hoist sail and flee, slam head on into the rocks, or head directly into the storm with fierce and fearless determination. The choice belongs to all men. That, no banker nor government can take away.
333
just a side note reading posts bellow. Why all Austrians so angry, and all Keynesians so so sarcastic? Does it have to do with austrian vs british soul of founders?
And to deepen arguments from both side, i highly recommend to watch South Park Season 13 epsd 3 - Margaritaville http://www.southparkstudios.com/guide/1303/
orders
would you be angry ,, if your next door neighbor was always spiking the food with poison ,, or defending such action.
it is nor anger but just a total disgust of those who are so intellectually bereft of undersatanding /
look out most of the poverty and the wars and the unemplyment can be laid directly at the feet of those who wishy washy the difference ,
I posted this elsewhere:
I read this once:
A mom and pop hotel man in texas owed his bookie $100. He had till midnight to get it or else the bookie was gonna send Guido to beat it out of him. He was broke, and his flea bag filthy hotel went unoccupied since he had not money for repair. Luckily, a trucker walked in tired from a 2 day trip, wanting simply a bed to sleep on. Noticing the poor upkeep, the tired trucker gave the hotel man a $100 with the agreement that he would first look a the room. As the money traded hands, and the man walked away, in walked Guido. He was quickly given the $100 which he quickly gave to the bookie. The bookie, owing money on his cadillac payment, immediately ran that $100 to the dealer. The dealer, suffering from the bad economy, owed the bank, and he immediately ran the money off to the bank. The banker, owing $100 to his hooker, hurried to pay her for fear of being exposed of his sins. The hooker, took the money and ran fast to the hotel man, where she gave him $100 to pay for the use of a room for clients. The trucker returned from the room, and said it was filthy, demanding his $100 back. He walked away, and everyone was happy because they were paid up.
Welcome to the american economy!!!!!
I'm going to borrow this. Thanks!
the idea that we can continue to run a economic system based on fradulent principles .. look out the condition we are in is adoption of the keynesian system ,,
unemployment , fraud, war , poverty,,
some one who would put a little poison in the drink .. and yammer it makes no difference is a totally abused brain ,,
On a seasonally adjusted basis, the January Consumer Price Index for
All Urban Consumers (CPI-U) rose 0.2 percent, the U.S. Bureau of
Labor Statistics reported today. Over the last 12 months, the index
increased 2.6 percent before seasonal adjustment.
The seasonally adjusted increase in the all items index was due to a
rise in the energy index. An increase in the gasoline index was the
main factor, and the indexes for fuel oil and natural gas rose as
well, though the electricity index declined.
The index for all items less food and energy fell 0.1 percent in
January. This decline was largely the result of decreases in the
indexes for shelter, new vehicles, and airline fares. In contrast,
the medical care index posted its largest increase since January
2008, and the index for used cars and trucks increased significantly
for the sixth month in a row.
what this suggests is asset deflation (core deflation) relative to non core, food and energy. You could make that case that government intervention in the commodity markets has helped keep
any speculative premium build, the result of hot money chasing these things, from occuring. If you care to look at the chart of CPI at bullandbearwise.com you get a much bette picture,
including their green band, and while the latest month does not appear we are clearly in a normal range, especially when the consider the anomalies.
During the Housing bubble, asset inflation ran ahead of non core inflation, because the rent measuring tool is a big fat lie, with so many caveats written into the measure that anyone can make anything
they want of it, but read that for yourself if you don't beleive me. The index for Used cars and trucks increases significantly. Of course the government owns the auto
industry. And used cars and trucks are sold for cash, or inside the real economy, with credit union loans. Main street CPI is up, Wall Street CPI is down.
All you need to do is live life and you know cpi is up. the government fakes thses numbers. That allows them to keep their inflationary policies in place.
I was also going to point out well get rid of food and energy and you have a different story.
the reality is we are already in stagflation.
http://finance.yahoo.com/tech-ticker/stiglitz-washington-should-stop-wor...,^gspc,^dji&sec=topStories&pos=9&asset=&ccode=
Stiglitz: Washington Should Stop Worrying, U.S. Has "No Problem" Paying Off Its DebtsVideo at link. Stiglitz completely ignores the collapsed marginal utility of debt, then rails against the "hidden agenda" of those who really want to reduce the size of government.
Credit contraction, the cause of the enduring Great Depression, is still on full blast. No one is borrowing, either because they see no reason to take on more debt, or because the banks simply will not lend it out. The reserves are hidden behind the walls of the banks, so "flood of cash" can only be short-lived stimulus dollars.
Also, Denninger had an interesting observation that to the effect that if you addd and subtract the BLs numbers you come up with a 0.05 minus, rather than 0.01 minus.
Consumers are not "saving" - it's much better to think of it as "not borrowing," and are being forced to pay down the debt on their credit cards. So what economists like to call "savings," which conjures up happy images of once spendthrift, now thrifty consumers salting away a few extra dollars each week, is in actuality a statement of where we are - at the wall, with no ability to take on new debt, and the grind of payments on the old debt continues, and will do so except for those who cannot even do that and end up defaulting. Without cash flow, there are neither "savings" nor "debt repayment." Real, new cash can only come through wage increases. None are in sight.
Add to this other powerful forces still at work, and grinding slowly towards trouble: state governments grinding towards insolvency. There will be no happy answers there, as the remedy, that of budgets cuts, services cuts, expenditure cuts, and higher taxes, sucks even more cash out of the economy.
Who will buy agency MBSs when the Fed stops doing so? It is the sole buyer. Where will mortgages come from for new houses if Fannie and Freddie can no longer count on buyers to fund those mortgages? When housing stops cold, due to happen by this summer, the second leg down will appear, absent some other action that keeps the cash flowing.
Deflation is the threat here, not inflation.
indeedy doody, uncle ned. Only a minor quibble; it's both: commercial producers don't want to risk additional debt AND banks don't want to lend into that risk. Strictly maintenance at this point, for both parties.