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Guest Post: The Federal Reserve's Cargo Cult Magic: Housing Will Lift the Economy (Again)

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Submitted by Charles Hugh Smith from Of Two Minds

The Federal Reserve's Cargo Cult Magic: Housing Will Lift the Economy (Again)

The Federal Reserve is ultimately a Cargo Cult, founded on fantasy and a boundless faith that management perception will bring back the cargo ships of debt-based "growth."

I have often identified Keynesian economists and the Federal Reserve as cargo cults. After the U.S. won World War II in the Pacific Theater, its forces left huge stockpiles of goods behind on remote South Pacific islands because it wasn’t worth taking it all back to America. After the Americans left, some islanders, nostalgic for the seemingly endless fleet of ships loaded with technological goodies, started Cargo Cults that believed magical rituals and incantations would bring the ships of “free” wealth back. Some mimicked technology by painting radio dials on rocks and using the phantom radio to “call back” the “free wealth” ships.

The Keynesians are like deluded members of a Cargo Cult. They ignore the reality of debt, rising interest payments and the resulting debt-serfdom in their belief that money spent indiscriminately on friction, fraud, speculation and malinvestment will magically call back the fleet of rapid growth.

To the Keynesian, a Bridge to Nowhere is equally worthy of borrowed money as a high-tech factory. They are unable to distinguish between sterile sand and fertilizer, and unable to grasp the fact that ever-rising debt leaves America a nation of wealthy banks and increasingly impoverished debt-serfs.

The Keynsian Cargo Cult relies on an essentially magical belief that government give-aways will raise "aggregate demand," the "animal spirits" demand for more of everything, which will magically increase productivity, wealth, etc.

The Cargo Cult faithful do not understand diminishing returns: at some point, the interest on skyrocketing debt drains income and capital from potentially productive investments to pay for previous unproductive spending on fraud, friction and malinvestments. "Free money" creates moral hazard, which means that those who can borrow money for almost nothing and never have to pay it back act entirely differently from those paying market rates for money and backing their loan with real collateral that is at risk.

The Keynesian Cargo Cult is based on ever-expanding debt and fiscal moral hazard. The Federal Reserve Cargo Cult is based on ever-expanding debt and monetary moral hazard. The Fed loaned over $16 trillion to "too big to fail banks" at rates that are negative once inflation is accounted for, and it has essentially stolen hundreds of billions of dollars from savers and pension funds in order to subsidize the housing industry with artificially low-interest mortgages.

The Fed's plan to boost more consumer borrowing/spending via the "wealth effect" by elevating the stock market has failed. The "wealth effect" is classic Cargo Cult magic: if you make people feel richer by managing their perceptions, they will start acting richer, i.e. borrowing and spending more based on phantom assets.

Why is this perception-management a form of magic? Household incomes have declined. How can a debtor borrow and spend more if his income has declined? The "magic" only works if he can borrow money based on phantom collateral, and the rate of interest is so low that his impaired income enables him to leverage more debt--though any prudent banker would reject the debtor as a bad risk.

Borrowing money at near-zero rates with no collateral creates massive moral hazard. No skin in the game? Default is not just easy, it's rational: All praise to the new subprime – 1 out of 6 FHA insured loans is now delinquent (Dr. Housing Bubble).

The Fed has gone to considerable trouble and expense to goose the stock market to multi-year highs. Yet the economy is still stagnant. If you have any doubts about this, please study this article and these charts: The Lost Decade of the Middle Class (Pew Trust)

Real household income has declined:

Real household income by age bracket: only the 65+ group's income has increased.

Labor's share of the non-farm private-sector economy has fallen off a cliff:

Household debt has far outpaced wages: households are over-indebted and over-leveraged. Only the top 5% have reduced leverage. Remove their income and debt from the calculation and the "households are deleveraging" argument collapses.

The economy is 14 million jobs short of what's needed to support housing and spending:

The Fed's monetary policies of saving the "too big to fail banks" and stealing from savers to subsidize cheap mortgages and other debt has failed on multiple levels: The "wealth effect" it sought to create by manipulating the stock market ever higher has been limited to the top 5%, an easily predictable result (all you have to do is look at who owns most the nation's stocks and bonds--surprise, it's the top 5%).

The Fed's Cargo Cult faith held that this largesse to the banks and the wealthy would magically trickle down to the bottom 95%. It didn't, as anyone who actually lives in the real world could have predicted.

My neighbor buying a Porsche and a bunch of stuff made in China does not generate income for me unless I assemble Porsches or stuff in China or I own shares in Porsche and WalMart. Since Americans don't assemble things in Germany and China, and 95% don't own enough shares in any company to generate meaningful income, the Fed's policies failed miserably. The Fed's Cargo Cult "trickle down" magic was the equivalent of waving dead chickens and dancing the humba-humba around the campfire at midnight.

Having failed to create a useful "wealth effect" by goosing stocks, the Fed is trying once again to goose housing. Hey, it worked from 2002 to 2007: make money cheap and easy to borrow, accept phantom assets as collateral, lower down payments to near-zero, and housing prices soar, creating a bubblicious amount of equity that can be borrowed and blown.

In other words, the only mechanism the Fed has to spark a widespread "wealth effect" is to re-inflate housing. It has been trying to do so mightily for years, by stealing hundreds of billions from savers to subsidize low-interest mortgages and by buying $1 trillion of impaired mortgages off the banks, clearing their balance sheets and theoretically enabling them to originate more mortgages.

Lower rates were supposed to spark a re-financing boom that would free up billions of dollars as monthly mortgage payments dropped, but oops, very few homeowners are creditworthy now that having a pulse and the ability to lie are no longer sufficient to get a mortgage.

The Fed can funnel trillions to banks, but it can't force them to lend money to uncreditworthy borrowers putting up phantom collateral.

So the Fed is back to the game of goosing phantom assets higher with perception management. The Fed is hoping to generate a "virtuous cycle" in which higher home prices lead to millions of homeowners rising above water and having equity, which will make them feel wealthier (the wealth effect) and more energized ("animal spirits") to borrow and spend.

In a centrally managed economy and market, housing prices are manipulated higher by lowering rates, lowering credit standards, guaranteeing marginal borrowers can buy homes with 3% down payments and so on. The Federal government basically took over the mortgage market in 2009, and government-backed mortgages still account for over 95% of all mortgages. The mortgage market has been completely socialized as a means of subsidizing housing.

Note the Cargo Cult magic of the "wealth effect" has it backwards: income doesn't rise as a result of productive investments and higher productivity that's passed on to workers, it rises because phantom assets are inflated to justify workers taking on more debt to boost their spending.

How has the Fed's Master Plan been working so far? Hmm, not much bang for all those bucks.

The Fed Cargo Cult wants to paint dials on rocks and re-set the S-curve that guides all speculative bubbles and busts. This time we'll force people to buy houses for inflated prices and force lenders to make risky loans to credit-impaired buyers with our magic mind control!

The housing industry and its Fed backers were ecstatic with recent increases in the Case-Shiller index of housing prices. I've marked up the chart to reveal the underlying dynamics of this underwhelming reflation.

The entire Fed Cargo Cult depends on the "magic" of manipulating internal psychological states:

1. Boosting expectations of inflation so people will be encouraged to spend what money they have now.

2. Creating the perception that housing is recovering, as opposed to the truth that housing is only rising due to stupendous incentives created by subsidies paid by others and the banks' stealth campaign to lower supply by holding millions of defaulted homes off the market.

3. By stimulating demand and artifically reducing supply, the Fed and the banks hope to create phantom collateral (home equity) that can support another enormous wave of new borrowing and spending.

What nobody dares mention is the Cargo Cult is funneling trillions of dollars into unproductive malinvestments. Housing is a form of consumption; it is not a productive investment. It is subject to diminishing returns: all the trillions dumped into subsidizing housing have yielded a pathetically meager increase in phantom assets.

The Cargo Cult of the Federal Reserve has failed, and it should be abolished as the ultimate destroyer of wealth via its policies of manipulation, malinvestment and moral hazard.

 

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Tue, 09/11/2012 - 13:30 | 2782348 Cognitive Dissonance
Cognitive Dissonance's picture

"Some mimicked technology by painting radio dials on rocks and using the phantom radio to “call back” the “free wealth” ships."

Ground control to Major Tom. Watch for falling fiat and put your helmet on.

http://www.youtube.com/watch?v=D67kmFzSh_o

Tue, 09/11/2012 - 13:32 | 2782363 Michael
Michael's picture

All Your Base Are Belong To Us says The Base(Al-Qaeda), English please.

http://www.youtube.com/watch?v=qItugh-fFgg

 

Tue, 09/11/2012 - 13:41 | 2782398 Aziz
Aziz's picture

During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?

— Paul Krugman (May 2001)

Tue, 09/11/2012 - 13:46 | 2782408 akak
akak's picture

Thank you, Aziz, for rolling out the Keynesian Klown Kar once again.

 

Now, if those Keynesian Klowns would only stop pointing their machine guns at us ...

Tue, 09/11/2012 - 13:50 | 2782423 Divided States ...
Divided States of America's picture

The Federal Reserve needs to elevate housing? Well, then I think we should definitely get David Blaine as the next Fed Chairman because he specializes in levitation.

Tue, 09/11/2012 - 13:50 | 2782424 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

Has this guy ever written a single article without the term "cargo cult"?

Tue, 09/11/2012 - 13:55 | 2782443 spastic_colon
spastic_colon's picture

we all know exactly what is going to happen....no new buying, extention of ZIRP, and the boiler plate commentary.....thus allowing the markets to price in the next meetings QE announcement, and the next, and the next ad nauseum.

 

If things are so great, why are they still so dovish?  Clearly they should be getting more hawkish, right? 

Tue, 09/11/2012 - 15:52 | 2782897 economics9698
economics9698's picture

"The Federal Reserve's Cargo Cult Magic"

ROLMAO  That is fucking classic.

Tue, 09/11/2012 - 14:13 | 2782498 gaoptimize
gaoptimize's picture

Anyone who owns realestate in the Washington DC area is a cargo cultist.  Yes, I am a cargo cultist but I rationalize it by saying it is a nice island (many Money Magazine Best Places to Live) and I have a family to support on this island and everyone else is a cargo cultist.  But I don't know where I'ma gona go when the fiscal volcano blow.

Tue, 09/11/2012 - 20:15 | 2783685 TwoShortPlanks
TwoShortPlanks's picture

I was in the same shoes as you only 2 years ago. Different location tho. I made an informed and difficult decision which, now, I have come to realise was the best decision I have ever made. Now, more than ever, the medium to long term facts are staring you and everyone else in the face, only you have access to the opposite spin to the mass media spin. And since you're posting here on ZH you must surely grasp the fundumentals moreso than your neighbour who is most probably oblivious to anything beyond the mass media spin.

I think the question you should really be asking yourself is quite a simple one...why do you choose to stand at the Forward Edge Of the Battle Area (FEBA) while at the same time listening to the enemy's Artilery Guns in the distance 'Thump' hundreds of rounds into the air. It's a beautiful noise to hear, as the bombs tear the air aside high up into the sky, but that's the illusion...the calm before the storm.

Tue, 09/11/2012 - 14:18 | 2782522 ZeroAvatar
ZeroAvatar's picture

No, but he has written a couple without the word 'pernicious'.

Tue, 09/11/2012 - 14:03 | 2782460 vast-dom
vast-dom's picture

you do realize that Krugman has zero savings, right? all his money is in PM's so of course he wants NIRP coupled with alien invasion.

i mean why in the world shouldn't we get paid to borrow and therefore stimulate the housing market on both builder and buyer side?

Tue, 09/11/2012 - 13:41 | 2782399 GFKjunior
GFKjunior's picture

9-11 was a conspiracy. The towers never actually collapsed, I have proof. Don't trust the media.

 

Wake up sheeple. 

Tue, 09/11/2012 - 14:13 | 2782501 Michael
Michael's picture

Huffington Post is looking better then Zero Hedge these days. Check out the comments on this article;

Netanyahu Lashes Out At U.S. Over Iran Program

http://www.huffingtonpost.com/2012/09/11/netanyahu-us-iran_n_1873399.html#comments 

Tue, 09/11/2012 - 14:31 | 2782521 Cognitive Dissonance
Cognitive Dissonance's picture

Nah....

The Huff Poo censors are just off their game today working like mad deleting all the "9/11 was an inside job" references.

They'll do better tomorrow........promise.

Tue, 09/11/2012 - 14:36 | 2782609 Michael
Michael's picture

But it's absolutely surreal over there today.

A top article called 11 years later has only about 1,100 comments, where normally they would get over 10k comments from their 25k posters, so you know that article is being heavily moderated.

But the Netanyahu and What Al-Qaeda looks like today articles are a free for all. One answer was the CIA.

Those real people over there are really with us. They know the same shit we do.

Tue, 09/11/2012 - 14:58 | 2782694 Michael
Michael's picture

9/11: Explosive Evidence - Experts Speak Out, Full-length, Pre-Release-v1.3; Low-Res.

http://www.youtube.com/watch?v=4tTMMNTisBM&feature=youtu.be

Tue, 09/11/2012 - 13:42 | 2782397 akak
akak's picture

The islanders were not actually trying to call back the 'wealth ships', they were merely trying to get clarification from the ghost of John Maynard on how ripping up and destroying all their crops, only to replant and regrow them, would increase their island's GDP and make them all more prosperous.

Tue, 09/11/2012 - 13:51 | 2782425 r00t61
r00t61's picture

And Keynes' ghost replied,

"Your crops are barbarous relics.  Forget about them and start producing paper money instead; that is the only path to unlimited riches."

Tue, 09/11/2012 - 13:52 | 2782432 Cognitive Dissonance
Cognitive Dissonance's picture

It worked at Easter Island.......didn't it?

Tue, 09/11/2012 - 14:00 | 2782448 hannah
hannah's picture

actually easter island collapsed because the people kept buying larger and larger statues with subprime statue loans. then the banks securitized those statue loans into SMBS (statue mortgage backed securities) and then the government..well actually the chief had to bail out the TBTF wompam banks and it just went downhill from there....oh...then they elected a new chief that couldnt prove his citizenship and lied about going to columbia university.

Tue, 09/11/2012 - 14:02 | 2782461 Cognitive Dissonance
Cognitive Dissonance's picture

Now where have I heard that before? :)

Tue, 09/11/2012 - 14:04 | 2782467 hannah
hannah's picture

you better buy your statue now because they arent making anymore of them...no really...this time they aint making any more of them.

Tue, 09/11/2012 - 14:07 | 2782470 Cognitive Dissonance
Cognitive Dissonance's picture

Have I got a deal for you. Today only. Step right up before they're gone. Pre-owned statues going for a song and a (Ponzi) dance.

Ben at work

Men Ben at work!

http://www.youtube.com/watch?v=b6oAFlPLGA8

Tue, 09/11/2012 - 14:12 | 2782490 hannah
hannah's picture

i bought a fleet of chevy volts and buried them like at the cadillac ranch....they are my statues.

 

http://www.roadsideamerica.com/attract/images/tx/TXAMAcadillac_1188.jpg

Tue, 09/11/2012 - 14:14 | 2782502 Cognitive Dissonance
Cognitive Dissonance's picture

Cash for (Electric) Clunkers 2

Only this time we don't have to junk them because they come pre-junk(ed).

Tue, 09/11/2012 - 14:16 | 2782519 Dr. Engali
Dr. Engali's picture

Do you have anything in red?

Tue, 09/11/2012 - 14:22 | 2782548 Cognitive Dissonance
Cognitive Dissonance's picture

The penthouse suites are red. Will that do?

PMs only. I don't want no stinking fiat.

Penthouse

Tue, 09/11/2012 - 14:33 | 2782589 Dr. Engali
Dr. Engali's picture

LOL.... I'll take the second from the left and the broken one on end for  my wife.

Tue, 09/11/2012 - 15:21 | 2782780 insanelysane
insanelysane's picture

Can I finance it over 1,000 years?

Tue, 09/11/2012 - 17:29 | 2783234 hannah
hannah's picture

only if your german.....

Wed, 09/12/2012 - 19:56 | 2787846 pavman
pavman's picture

only if your german.....

Or an Irish beer brewer.

Tue, 09/11/2012 - 17:46 | 2783275 Colonel Klink
Colonel Klink's picture

Careful they'll rehypothicate your statues!!!!

CDS and MBS, collateralized debt statues and mortgage backed statues.  And of course if you're using them for commerical purposes, CMBS.

Buyer beware!!

So if you do buy, make sure you take physical possession!

Tue, 09/11/2012 - 14:04 | 2782466 akak
akak's picture

And we have a winner!

 

(PS: You forgot to mention the magical lightning-powered time-traveling flying rickshaw of Benjamin Franklin inventionism which allowed George Washington to introduce 'US Citizenism' into Easter Island society, thereby blobbing-up all their resources while offuscationalizing the real cause of their society's collapse.)

Tue, 09/11/2012 - 14:11 | 2782485 Cognitive Dissonance
Cognitive Dissonance's picture

This thread is exactly why I'm addicted to ZH. :)

<"But I can stop at any time" said Big Ben to the council of twelve.>

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

Tue, 09/11/2012 - 17:47 | 2783285 Colonel Klink
Colonel Klink's picture

Sorry they no longer call it Easter Island, the PC police now require you call it Reanimated Island.

Wed, 09/12/2012 - 08:25 | 2785013 TruthDetector
TruthDetector's picture

Excellent read: http://gov-truth.com/?m=201208

 

Tue, 09/11/2012 - 14:46 | 2782655 Praetorian Guard
Praetorian Guard's picture

Actually I see years of stagnation, no signifiacnt drop or increase, just stagnation, and drip, drip drip of bank released REO's....

Tue, 09/11/2012 - 17:29 | 2783235 asteroids
asteroids's picture

Goosing the housing market would be a stupid mistake by the FED. Simply study demographics and look at the Japanese example. Housing is severely over valued. We ain't seen nothing yet.

Tue, 09/11/2012 - 13:29 | 2782349 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You don't own your house.....

....your house owns you.

Tue, 09/11/2012 - 13:35 | 2782376 10mm
10mm's picture

+1000 Hendrix.

Tue, 09/11/2012 - 13:48 | 2782419 old naughty
old naughty's picture

"Your house owns you."

So, your house the cultor and you are the cultee?

Tue, 09/11/2012 - 13:52 | 2782429 Bastiat
Bastiat's picture

Proud renter since 2006.

Tue, 09/11/2012 - 20:24 | 2783715 lotsoffun
lotsoffun's picture

but...  my dad (and friends) built his house.  i swear he did.  it's still there.  i can see it and touch it.  i think obama helped also, but i was young.  i don't remember seeing him.  and i think my father paid people to help.  and pour concrete and stuff.  oh - and i forgot.  i helped my father add on to his second house.  was that big bad bama brought us a cold one the end of the day once?  i'm old.  my memory fails me.  geez.  that bama guy has us all covered.  infact - if bama hadn't built the roads, we would have had to carry all this stuff home from the lumber yard through forests and swamps.

i'm so glad bama made this all possible.  i hope he stays rich and successful forever, i really don't know how i can ever repay him.

 

Tue, 09/11/2012 - 13:31 | 2782357 gaoptimize
Tue, 09/11/2012 - 13:43 | 2782407 GFKjunior
GFKjunior's picture

Uhmm we have global riots now.

 

England, arab spring, bahrian, canada, hundreds every year in rural china.

Tue, 09/11/2012 - 14:43 | 2782647 gaoptimize
gaoptimize's picture

But the effects of the drought caused poor harvest in the US will be greatest spring 2013.

Tue, 09/11/2012 - 13:41 | 2782362 mikla
mikla's picture

This article is correct -- The Fed (and followers) are Cargo-Cult worshippers, that have no idea what they are doing.

However, that makes the HUGE ASSUMPTION that the Fed "wants" what the Fed publicly CLAIMS that it "wants".

That assumption is wrong.  Like all those "in-power", The Fed is there to control the people, reward friends and punish enemies, "skim" from the movements of the winds-and-the-tides (e.g., international money flows), and benefit from self-enrichment (more money and power) from its control of money and power.

Frankly, I find it comical that the, "lay-person" could believe anything else.

"You think the Fed LOVES you just as much as your Mom loves you?  It wants to help you?  Really??!!??"

Tue, 09/11/2012 - 13:32 | 2782365 Archduke
Archduke's picture

Seriously ZH fire this guy

Once again CHS opens his mouth and proves he's an eejit.
Has he even read Keynes? This so- called Keynesian label
usually is nothing close.

Tue, 09/11/2012 - 13:49 | 2782406 Cognitive Dissonance
Cognitive Dissonance's picture

Considering that Tyler is guest posting Charles Smith's articles several times a week (CHS is not a contributor that I know of, thus he is unable to post on ZH what he wants when he wants) in order to "fire" CHS Tyler would need to fire Tyler.

How many Tylers are there anyway and will the Ponzi collapse if Tyler fires Tyler?

Tue, 09/11/2012 - 13:59 | 2782456 akak
akak's picture

The Mobius-Strip-like, convoluted pretzel-logic of your argument presents a conundrum which I suspect only poster AnAnonymous can clarify and answer --- but rest assured that, regardless of any and all considerations, the fundamental fault will lie with 'US Citizenism'.

Tue, 09/11/2012 - 15:42 | 2782862 TheFourthStooge-ing
TheFourthStooge-ing's picture

Cargo cult magic event uproar obscures the attention of people more serious underlying crisis vigorously. The economy has begun to negative growth in the despitement all spoiled countries attempt to delay the inevitable results of it perish fate.

Serious inflation triggered from the beginning to put the operating profit too absurd. This will inevitably lead to a large number of unemployment soared.

When the panic crash, who also can not predict. But the fairy tale of the real estate prices sky-high price, the vacancy rate as people stunned and appalling rough housing.

Madness out the transfer of assets in addition to the corrupt officials, in recent years made their fortunes in the size of the rich and a large part of the property firmly Dangdang arrived to a foreign land.

Tue, 09/11/2012 - 14:12 | 2782469 Dr. Engali
Dr. Engali's picture

I suppose it depends on which Tyler Tyler fires. If he fires the verbose Tyler with 40 plus caustic word sentences then my suspicions are that the ponzi blows all to hell. But if Tyler fires the analytical to the point Tyler then the ponzi rolls on. Of course I could be wrong and Tyler could fire another Tyler entirely.

Tue, 09/11/2012 - 17:46 | 2783280 Troll Magnet
Troll Magnet's picture

How can Tyler fire Tyler?  I thought Tyler belonged to a union of Tylers and there's No Termination clause in their union contract?  

Tue, 09/11/2012 - 14:09 | 2782483 metastar
metastar's picture

“Empty your mind, be formless, shapeless - like fiat trash. Now you put fiat trash into a MBS, it becomes the MBS, you put fiat trash into a bond, it becomes the bond, you put it in a bank, it becomes the bank. Now fiat trash can flow or it can crash. Avoid fiat trash, my friend.” -Bruce Lee

Tue, 09/11/2012 - 16:52 | 2783122 Elzon1
Elzon1's picture

+1 For the Bruce Lee water quote remake, I lol'd.

 

You wouldn't happen to frequent ATS would you ;)

 

The first time I looked up cargo cults it was due to my interest in the ancient astronaut theory. I wonder if the OP went the same route, but gave it a new spin. Funny thing is some cargo cults think that white's aren't smart enough to construct the planes we fly and that we stole them from their ancestors. So, there they sit trying to call down the cargo planes of their ancestors whilst not advancing their society in any way shape or form.

Tue, 09/11/2012 - 13:57 | 2782451 Dr. Engali
Dr. Engali's picture

Exactly what information in the article do you disagree with? Do you think housing is taking booming? People are making more not less? Maybe you think we need more debt? Help us understand where he is wrong.

Tue, 09/11/2012 - 14:03 | 2782464 Archduke
Archduke's picture

I agree with everything save the gratuitous stab at Keynes and the hypocrisy of it all. CHS is a journo hack who cites buzzwords, mis-
quotes, and blatantly mis-appropriates serious work accordig to the
whims of the time and of the tide.

Tue, 09/11/2012 - 14:17 | 2782520 Brazillionaire
Brazillionaire's picture

No expert myself, but didn't Keynes advocate SAVING during the boom times for SPENDING in the bad times? Seems like the neo-Keynesians just got the second part right. It's like when you lose your income... do you have a castastrophy fund or do you just whip out the credit card to buy everything you need to survive? I think Keynes might be a bit pissed at what is being done in his name.

Tue, 09/11/2012 - 14:44 | 2782576 Cognitive Dissonance
Cognitive Dissonance's picture

Silly Brazillionaire,

The neo-Keynesians took what they needed from Keynes (in order to rape and pillage) and left the rest for dead. :)

Details....details. I don't need no stinkin' details.

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

Tue, 09/11/2012 - 13:32 | 2782370 Sandy15
Sandy15's picture

Moody's on the ferge of down grading USA....... Germany worried about US debt so the market is up 100 pts while THE BERNACK continues to digitize and print into infinity.......  Hyperinflation here we come.....

 

STOP paying your taxes, this is how they get us!!!!

 

Tue, 09/11/2012 - 13:34 | 2782374 oncebitten
oncebitten's picture

It's like the old joke about the two campers in the tent and the bear.  One guy quickly puts on his sneakers as the bear approaches and they scramble to get out and run.  The other says, "Even with the sneakers you can't outrun a bear."  The first guy responds, "I only have to outrun You!"

And so, as the tallest midget with stocks melting up, we're way ahead of the rest of the pack as the ravening jaws of the bear rip them to pieces one by one behind us.

Tue, 09/11/2012 - 13:51 | 2782426 Gringo Viejo
Gringo Viejo's picture

+1 for the somewhat, cute joke.

Tue, 09/11/2012 - 13:37 | 2782384 docj
docj's picture

OT: Anyone taking investing advice from this fool deserves to lose it all.

http://www.jammiewf.com/2012/jim-cramers-dad-has-a-really-lousy-son/

(Then again, ripping Jim Cramer is probably "on-topic" at ZH 24/7/365.)

Tue, 09/11/2012 - 13:40 | 2782385 Arnold Ziffel
Arnold Ziffel's picture

House prices are in a 15 year (or longer) correction cycle as they drop further toward the mean. The so-called "bottom" is far, far away. After all, we are still ina  zero-down, zero interest rate manipulated environment. This will need to regress to normal before housing even begins to stabilize.

People are beginning to realize that "home ownership" is no longer "the American Dream."

More like a 30-year, locked in Debt Nightmare.

Tue, 09/11/2012 - 14:22 | 2782547 dark pools of soros
dark pools of soros's picture

that's because people are outkicking their coverage. You grab a house that fits your budget and you will become way more free in this no interest loan era (no one is totally free here anymore) than renting forever.. stay away from the ARMs (they could raise YOUR rate no matter what rate the banks still get)

 

 

Tue, 09/11/2012 - 13:38 | 2782390 jjsilver
jjsilver's picture
Prepare For The Coming Housing Collapse: Part II Read more: http://www.businessinsider.com/prepare-for-the-coming-housing-collapse-2012-9#ixzz26BSlGl3u
Tue, 09/11/2012 - 18:14 | 2783366 JohnKozac
JohnKozac's picture

Your Keith Jurow Business Insider article link jives better with what I see "on the ground"...here is his first sentance:

 

"In my last BUSINESS INSIDER article posted in May, I explained why a housing collapse in major metros was coming and why you needed to prepare now.  Since then, Wall Street economists, analysts and other pundits have smugly noted that a consensus has been reached that housing is bottoming.  So it’s time for me to show you why this consensus view is pure rubbish."

Read more: http://www.businessinsider.com/prepare-for-the-coming-housing-collapse-2012-9#ixzz26CZivQLH
Tue, 09/11/2012 - 13:40 | 2782392 Xibalba
Xibalba's picture

SPX 1500---In 2000 we had the dot com boom, in 2006 we had the housing boom, in 2012 we have the 'hft boom'?  Why the hell is the SPX here this time?  I can't find a 'boom' anywhere....except perhaps in DEBT

Tue, 09/11/2012 - 13:40 | 2782396 Tyler Durden
Tyler Durden's picture

Centrally-planned reflation (or bust) boom

Tue, 09/11/2012 - 13:47 | 2782414 Cognitive Dissonance
Cognitive Dissonance's picture

We can have a reflation boom and bust Tyler....just not quite at the same time.

However, in a parallel universe........

<Beam me up Scotty. This planet's about to blow.>

Tue, 09/11/2012 - 14:16 | 2782514 dark pools of soros
dark pools of soros's picture

at some point they will have to play with all the war toys our debt has bought.. then throw all the debt burden on the loser populance.. wait have we been there before?  Oh many times?  Being reran in syndication on 8 channels during the day? yeah, no new material

Tue, 09/11/2012 - 14:30 | 2782580 Cognitive Dissonance
Cognitive Dissonance's picture

I <heart> reruns.

Tue, 09/11/2012 - 15:49 | 2782877 michael_engineer
michael_engineer's picture

Because of QE. The market salivates just thinking about QE. The QE bell gets rung or hyped and even if food isn't coming saliva is produced.

Tue, 09/11/2012 - 13:40 | 2782395 Cangoroo
Cangoroo's picture

Impressive collection of data, thx

Tue, 09/11/2012 - 13:43 | 2782405 Bastiat
Bastiat's picture

HOPE

NOPE

Tue, 09/11/2012 - 13:47 | 2782413 Bastiat
Bastiat's picture

 

 

Housing is a form of consumption; it is not a productive investment.

Very True.

 

 

Tue, 09/11/2012 - 13:57 | 2782450 r00t61
r00t61's picture

I suppose housing could be an investment if the house in question was something like an English country house that got rented out for parties and receptions and business park meetings and the like.

Tue, 09/11/2012 - 15:01 | 2782709 Urban Redneck
Urban Redneck's picture

Unless you are a whore living in your Whore House, one would have to already be rich enough to own two houses in order to rent one out continuously to generate a positive cash flow, as opposed to the strictly negative cash flow associated with buying and maintaining a primary residence.  Which begs the question, does the ambtituous landlord  chose to reside in the larger house or the smaller house himself? 

Tue, 09/11/2012 - 15:02 | 2782713 Bastiat
Bastiat's picture

Right.  But there's a distinction between "housing" and commercial real estate as primary use. You might own a vacation home that you rent out, for instance. Or you might own a triplex that you rent full time.  The first is housing with a secondary rental use, the second is not "housing" as intended above.

The point I was supporting was that that residential housing is not a productive asset.  Long before the HELOC and subprime turbocharged us into collapse, the mortgage interest tax exemption alone resulted in a vast malinvestment of capital into non-productive housing assets. The bubble then inflated and levered those assets to support consumption vs falling real income and falling real production. 

Cargo cult is a good analogy - a maladaptive, dysfunctional response to feedback telling you your assumptions are no longer viable, your actions no longer effective.  A cargo cult is the architypal millenial movement.  It is a form of fundamentalism, where rather than re-evaluate your assumptions and understandings, you pick a few key ones and reassert them vigorously.  It describes what what we are seeing from the Fed and mainstream "economists." 

Tue, 09/11/2012 - 13:52 | 2782433 Poetic injustice
Poetic injustice's picture

I tried to apply rational thought why it could happen and my brain just exploded.

Every year you get higher property taxes, state takes your house with various rulings, you get homeless people in next house or house raided by "wrong address", or city stops providing heat water and electricity to your condo. And after all that, price of your house is higher. Oh, and you finally get fired and have EBT for rest of life because indians do your job cheaper.

Tue, 09/11/2012 - 13:52 | 2782434 Archduke
Archduke's picture

On the role of government.

The key is redistribution to even out structural imbalances.
The value of riches (sum-total) is about relative population
density. Not hard work. Hard work determines how much
of a share you get. Our problem goes a lot deper than that.
It's not indolence that makes the young unable to afford houses
at post baby boom and bubble prices. It's that the wealth
is currently priced too high for the inevitable sump given that
there are fewer in the producing generations pending.

Looking at federal injections as unmerited pork sunbsidies is
the wrong vantage point. Rather they are attempts at asset
price correction. And only long-term, structural intervention
can really affect the restructure needed to rebalance pricing.
For example, only cheap public transport like the tram an rail
could offset the prohibitive sedan cars of early society barons.

Yes infrastructure projects are taxing and impose a burden on
younger generations. But that's the point. It's a burden that is
unavoidable. The generational clock is relentlessly ticking. With
public projects, one hopes to introduce economies of scale and
improved conditions, in a subtle indirect manner, but with a scope
and impact overshadowing anything that laissez-faire might claim
to muster.

Tue, 09/11/2012 - 13:53 | 2782435 buzzsaw99
buzzsaw99's picture

i disagree that the bernank is trying to help the bottom 90%. Big bank earnings rely on mortgage originations, bank balance sheets suffer from declining asset valuations, thus banker bonuses suffer. That is all the barnank's bosses at the new york fed care about.

Tue, 09/11/2012 - 13:54 | 2782440 yogibear
yogibear's picture

Come and get them!! 

NAR keeps advertising you should buy a home.

Municipalities want you to buy those houses so they can ramp-up property taxes to support generous public salaries and pensions. Property tax is a municipality's ATM.

Tue, 09/11/2012 - 13:56 | 2782445 Poetic injustice
Poetic injustice's picture

Exactly! And taxes are decided by state-hired appraiser of your property.

Tue, 09/11/2012 - 13:55 | 2782442 dolph9
dolph9's picture

Bankers and politicians to the rest of us:  "All our debts are belong to you."

Tue, 09/11/2012 - 14:23 | 2782550 Colonel Klink
Colonel Klink's picture

I see what you did there!

Tue, 09/11/2012 - 14:01 | 2782459 edifice
edifice's picture

mortgage = death pledge

Tue, 09/11/2012 - 14:09 | 2782482 Bartanist
Bartanist's picture

According to Hayek, it was conclusively proven in the early 19th century that Keynsian style economics (Keynsian style because it was pre-Keynes) was not effective. Let us assume that this statement and most likely fact would not have been missed by Keynes himself and those supposed disciples of Keynes who have followed.

I say supposed disciples because lets assume for a minute that the true purpose of the Federal Reserve and its Keynsian policies is NOT per its stated mandate, but it was actually created as a control mechanisn for the bankers which they could use to consolidate power and maintain that power for the foreseeable future.

If one takes the above to assumptions as the facts of the situation, then in the eyes of the Fed and its banker owners the only way that the Fed and Keynsian policy would fail is if it fails as a mechanism of control for the bankers. That is a whole lot different than assuming the Fed fails when it cannot keep employment up and interest rates down. The Fed would only fail when it is no longer in control of the media of exchange/money supply in the country. Who cares if unemployment is 4% or 40% as long as control is maintained.

Tue, 09/11/2012 - 14:15 | 2782510 Milton Waddams
Milton Waddams's picture

"income doesn't rise as a result of productive investments and higher productivity that's passed on to workers"

Correct.  Check out the stagnant / declining income for non-supervisory workers.  Virtually none of the profits from productivity gains 'trickled down' to rank and file employees.

Tue, 09/11/2012 - 14:27 | 2782566 perelmanfan
perelmanfan's picture

"Why in the world wouldn't you lower interest rates?" asks Krugman. "I mean, don't you hate it when old people stay alive because they can afford food? And it really frosts me to see people in their 20s have a chance to get a job because boomers are able to retire on invested earnings. In short, when you can unfairly render millions of honest people penniless and facilitate a massive wealth transfer to the banks... why the hell wouldn't you?"

 

Tue, 09/11/2012 - 14:36 | 2782606 q99x2
q99x2's picture

Hope the hunger riots don't Change anything until after the elections.

Tue, 09/11/2012 - 15:09 | 2782738 dark pools of soros
dark pools of soros's picture

aren't those sponsored and broadcast by Coke and Doritos?

Tue, 09/11/2012 - 15:00 | 2782702 Bunga Bunga
Bunga Bunga's picture

...painting radio dials on rocks and using the phantom radio to “call back” the “free wealth” ships...

Why does it remind me on the iPhone so much?

Tue, 09/11/2012 - 15:03 | 2782716 Bastiat
Bastiat's picture

Heh.  Good one.

Tue, 09/11/2012 - 15:25 | 2782785 SoNH80
SoNH80's picture

Why do I have an internal soundtrack of the Golddiggers of 1933's "Happy Days Are Here Again," with matching video of milling, nervous crowds in overcoats wandering around Times Square in the dark, but for some searchlights, whenever I read one of these articles?  The ship has sailed, Tonto, and unless you've got eight figures plus in the bank, I mean, under the mattress, it's going to be a bumpy ride.

Wah wah wah da-da da-daa, wahh wahh wahh Happy Days ahh here again...

http://www.youtube.com/watch?v=qyBzq-8--e8

Tue, 09/11/2012 - 16:09 | 2782972 MoneyShaman
MoneyShaman's picture

Keynesians, and off shoots of Keynesianism, that are derived from Keynesianism are not real economic science. They are pseudo-science. Economics is the study of efficiency, & solvency. Keynesians, various schools of them, monetarist theory, neo-classical, etc, they are all anti-economy. When a economy spends more than it earns, the mainstream solution is spend more than it earns. If the economy has built too many houses, and glut of houses on the market, mainstream theory is that we should build more houses. There is a reason why mankind has not build a stair way to the heavens. Maybe some did, and miserably tried, and failed. Because it's not economically efficient. There is no point in building a stair way to outer space. There is no positive gain that exceeds the losses, or the work expended to do such a thing.

 

Mainstream economics, which is really came from fruition from Keynes' theory himself, these people are not real economist. They are pseudo-economist. They don't even acknowledge a loss, or gain. They are really more like socialist disguised as economist. They reject real science, or real observation like the rejection of Say's Law, supply creates demand, and try to institute their own loony pseudo-science, and declare it gospel. Keynesians, all schools related to these occult, they are anti-economy. Economist? No way.

Tue, 09/11/2012 - 16:13 | 2782991 earleflorida
earleflorida's picture

again... great read CHS

:-))

Tue, 09/11/2012 - 18:45 | 2783417 Cult of Criminality
Cult of Criminality's picture

"Cargo cult " Just one branch off the Cult of Criminality tree.

Matter of fact,you can see the Cult of Criminality tree of no life to the left.

Do NOT follow this link or you will be banned from the site!