Is it me, or do Bernanke’s statements set the stage, or at least justify the government’s role in adding to inflation post 2002? Like foreshadowing the rising inflation that was to come, to the point that we are more than beyond now. I am not an economic expert by any stretch of the imagination, but it seems like he was raising false concerns over deflation (a rare occurrence in his own words) to justify future potential increases in inflation. And I don’t understand how we were experiencing “low” inflation in 2002. Although I have no data to support my argument, I would surmise that prices for most goods seemed to be relatively inflated and steadily increasing in 2002…at least here in SoCal.

Getting back to P.S.’s original post, I tend to agree with her more on gut feeling than anything else. As I’ve said numerous other times, take the current prices of homes, divide by 2, and start negotiating from there. I think that Rich’s graph of home prices vs. per capita income tells the tale. People’s need to live in a home in SoCal has not increased by 25-30%, so why pay 25-30% more of your takehome pay to live in a home here?

The kibitzer will say, “Well, demand is high relative to supply.” Although this may be partially true, as time wears on I am becoming increasingly skeptical that demand was falsely increased by speculation…aka “hype”. This can be attributed to a number of factors, such as the media, IMHO. One can’t help but point out that marketing has an effect on, well, markets, and people’s psyche in general. Of course supply couldn’t keep up with the demand created by hype…I don’t suppose it ever can when it concerns building something as large and complex as a home. Even Apple has trouble stocking enough of those little iPods to keep up with demand. [By the way, for an extra $50 or so you can get a sweet PDA and an SD card that will let you play all your music AND check emails, word process, edit spreadsheets, etc…but I digress).

Back to the main point – Powayseller has my vote on a 55% decrease.