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January 16, 2015 at 2:18 PM #782069January 16, 2015 at 2:18 PM #782066
CA renter
Participant[quote=harvey][quote=CA renter]Please explain what, specifically, you think is “self-contradictory” and why.[/quote]
My fingers would grow weary from typing all the examples … but the standout from this thread is how you proclaim that deflation would be good because it “helps workers” while complaining about low interest rates because it “hurts people on fixed incomes” (I presume you are being sympathetic to grandmas with savings bonds…)
Of course deflation and high interest rates are contradictory, but you jump back and forth demanding both from the “powers that be.”
You make up your own rules of economics to suit your argument, often reversing yourself from sentence to sentence. And, as Lerocky points out, there’s always an opinion piece somewhere on the internet to support your thesis of the moment.
And now, on cue, you will declare that your are intellectually superior to me and anyone who disagrees with you. Of course it is fact, by your edict.[/quote]
I should be ignoring you, troll, but I’ll humor you with a response. I’d still love to see examples of my “self-contradictory” posts.
Addressing the issue of deflation being good for workers, it is well known that wages tend to be stickier than the prices of most goods and assets. As prices go down, workers (and savers) can buy more goods with their money — their purchasing power is increased. That’s a good thing.
You’re mixing up cause and effect. In the current low-rate environment, we are experiencing these low rates NOT because of what investors would demand, but as a result of the Federal Reserve’s manipulations. Did you not notice what was happening to interest rates as the credit bubble started deflating and price deflation set in??? Interest rates were shooting UP, not down. Rates can go up during deflationary times (real rates are almost always positive), especially if that deflation is the result of a bursting credit bubble. Money is more dear during deflationary times, so the price of money goes UP relative to what’s going on in the rest of the economy. Interest rates are highly positive during most deflationary events.
What the Federal Reserve has caused is high cost/asset price inflation as a result of artificially suppressed rates. This gives investors/savers a NEGATIVE real return on low risk or “risk free” investments. Their purchasing power is diminished.
My statements are in no way self-contradictory.
And, yes, I’m intellectually superior to you, though I’ve never explicitly stated that before, so not sure where your “on cue” statement comes from. Perhaps it’s because I’ve kicked your tail in all of our debates? Our posts over the years are proof of this fact, as well.
January 16, 2015 at 2:27 PM #782071Participant[quote=AN][quote=CA renter][quote=Leorocky]overvalued /= bubble[/quote]
speculation + leverage = bubble[/quote]There were a lot of speculation in 2009-2011 in housing and no other market can you leverage like housing. Yet, it wasn’t a bubble then.[/quote]
But, compared to other times, there was less leverage being used during this time in the housing market. The only reason there wasn’t a bubble in housing at that time was because of the huge deleveraging that was occurring at the same time. The money being pulled out of the housing market at that time offset the money going in…but only briefly. We quickly shot back up to fairly crazy levels (and I respectfully note that some would disagree with me on this). We can’t look to price/rent ratios during this time because the rental market has been affected by this speculation as well — more rental demand because people can’t compete with the investors, and the investors controlling rents in many markets because they (recent/large/institutional investors and speculators) control a significant portion of the rental inventory in many areas.
January 16, 2015 at 2:35 PM #782072Participant[quote=FlyerInHi]Humans created money. So why should we not adjust money supply to market conditions?
You have to spend money into the economy before it’s there. There’s no organic naturally occurring state of money.[/quote]
Yes, money supply can be controlled, and I believe that it should be controlled to some extent (of course, there are others, like gold bugs, who would disagree with me). But the money supply should adjust to changes in population growth and productivity levels, generally speaking. It should not be adjusted just for the sake of increasing asset prices, as we’ve seen over the past few years.
And you can have productivity before money creation. For instance, a person can cut down some trees and build a boat without using money (see cultures that don’t have fiat money as an example). Money is only needed to easily facilitate a transaction between the boat builder and a boat buyer. Labor precedes capital (including money); it’s what gives capital its value.
January 16, 2015 at 2:42 PM #782070Participant[quote=FlyerInHi][quote=harvey] Of course deflation and high interest rates are contradictory, but you jump back and forth demanding both from the “powers that be.”[/quote]
CAr, Harvey is right on there.[/quote]
Read my post just above this, Brian. Then tell me that he is right.
What matters is the REAL interest rates. In deflationary times, real interest rates are almost always positive. In inflationary times, they can be negative, like they are now. And you have to look at the prices of everything, including asset prices. And you can’t start from an artificially elevated base (stopping the deflation of a credit bubble via central bank manipulations still leaves excess credit in the system, and prices will be artificially inflated as a result, even if prices are lower than they were just prior to the deflationary event).
January 16, 2015 at 3:24 PM #782073an
Participant[quote=CA renter][quote=AN][quote=CA renter][quote=Leorocky]overvalued /= bubble[/quote]
speculation + leverage = bubble[/quote]There were a lot of speculation in 2009-2011 in housing and no other market can you leverage like housing. Yet, it wasn’t a bubble then.[/quote]
But, compared to other times, there was less leverage being used during this time in the housing market. The only reason there wasn’t a bubble in housing at that time was because of the huge deleveraging that was occurring at the same time. The money being pulled out of the housing market at that time offset the money going in…but only briefly. We quickly shot back up to fairly crazy levels (and I respectfully note that some would disagree with me on this). We can’t look to price/rent ratios during this time because the rental market has been affected by this speculation as well — more rental demand because people can’t compete with the investors, and the investors controlling rents in many markets because they (recent/large/institutional investors and speculators) control a significant portion of the rental inventory in many areas.[/quote]
But your equation simply said: speculation + leverage = bubble. So, I’m just pointing out one instance where you have a lot of leverage and a lot of speculation (by the smart money), yet you didn’t have a bubble. So your equation isn’t correct.January 16, 2015 at 7:11 PM #782080Anonymous
Guest[quote=CA renter]You’re mixing up cause and effect. In the current low-rate environment, we are experiencing these low rates NOT because of what investors would demand, but as a result of the Federal Reserve’s manipulations. Did you not notice what was happening to interest rates as the credit bubble started deflating and price deflation set in??? Interest rates were shooting UP, not down. Rates can go up during deflationary times (real rates are almost always positive), especially if that deflation is the result of a bursting credit bubble. Money is more dear during deflationary times, so the price of money goes UP relative to what’s going on in the rest of the economy. Interest rates are highly positive during most deflationary events.
[/quote]Yes, clearly I’m the one who is mixed up. You’ve explained everything perfectly. The wisdom in that paragraph is irrefutable. Let’s call out a few gems, as they will likely be referenced by economists for centuries:
[quote] Rates can go up during deflationary times (real rates are almost always positive), especially if that deflation is the result of a bursting credit bubble.[/quote]
Absolutely true. No need to provide any historical examples as there are many. Your knowledge is deep.
[quote]Money is more dear during deflationary times, so the price of money goes UP relative to what’s going on in the rest of the economy. [/quote]
Brilliance. Pure brilliance!
[quote]Interest rates are highly positive during most deflationary events.[/quote]
Indisputable. Dismiss the naysayers outright. You are the only person on this forum – nay, on the entire internet – that truly understands macroeconomic phenomenon.
Your intellect is truly superior to all.
January 16, 2015 at 8:25 PM #782082exsdgal
Participant[quote=CA renter]
Some are foreign investors who think the dollar is safer than their own currency and/or want to move money out of their own country for various reasons. Others are investors/managers/funds who are managing pooled investments from a variety of people and/or institutions. There are a lot of mega-millionaires and billionaires out there on a global level. That money goes wherever it’s perceived to be the safest and where it’s likely to yield the best returns. Whether it’s true or not, many people seem to think that the United States — and the USD — will give them the best return for the lowest possible risk.
[/quote]I don’t see it this way. Among all assets real estate is the most non-liquid asset. In a crunch one can not get out of it fast enough. For a foreign investor to purchase real estate in the US, especially single family homes (think that is what we are talking about) they need to have specific needs. Needs like the investor spends a significant amount of time in the US, or has an immediate family member who will. If the situation were reversed, would you spend your money in a foreign country buying residential property just because it is considered a safe investment?
As a foreign investor if my objective was to take dollar as a safe harbor, then I would consider large apartment buildings and hotel chains as better investment opportunities. Definitely not single family residences.
The other option for foreign investors seeking safe currencies are Treasury bills, or US based stocks. Just like a US based investor can diversify using a multitude of stocks and bonds depending on global economy trends.
[quote=CA renter]
I’ve mentioned a deep-pocketed investor who was looking for large blocks of REOs, but who was not well-connected here. That was all Chinese money, and they had ~$2 billion at their disposal. I’ve heard that there are Russians doing the same thing, especially on the east coast. And there are a fair number of investors from Latin America, too. Of course, we have our own wealthy folks who are desperately looking for a place to earn a yield, too.[/quote]IMO there are better alternatives for these wealthy folks seeking yield to consider, than dealing with the hassles of managing residential properties.
January 16, 2015 at 8:34 PM #782083Participant[quote=CA renter]
But, compared to other times, there was less leverage being used during this time in the housing market. The only reason there wasn’t a bubble in housing at that time was because of the huge deleveraging that was occurring at the same time. The money being pulled out of the housing market at that time offset the money going in…but only briefly. We quickly shot back up to fairly crazy levels (and I respectfully note that some would disagree with me on this).
[/quote]
I don’t quite understand… who was pulling the money out of the housing market, when the investors money was going in?[quote=CA renter]
We can’t look to price/rent ratios during this time because the rental market has been affected by this speculation as well — more rental demand because people can’t compete with the investors, and the investors controlling rents in many markets because they (recent/large/institutional investors and speculators) control a significant portion of the rental inventory in many areas.[/quote]IMO the rental demand was high during this time due to foreclosures or folks walking away from their homes, and not necessarily because people could not compete with the investors. Majority of the renters were not looking to buy a home, and those who desired had bankruptcy/foreclosure in their credit to get a loan.
January 16, 2015 at 9:03 PM #782084Participant[quote=exsdgal][quote=CA renter]
But, compared to other times, there was less leverage being used during this time in the housing market. The only reason there wasn’t a bubble in housing at that time was because of the huge deleveraging that was occurring at the same time. The money being pulled out of the housing market at that time offset the money going in…but only briefly. We quickly shot back up to fairly crazy levels (and I respectfully note that some would disagree with me on this).
[/quote]
I don’t quite understand… who was pulling the money out of the housing market, when the investors money was going in?[quote=CA renter]
We can’t look to price/rent ratios during this time because the rental market has been affected by this speculation as well — more rental demand because people can’t compete with the investors, and the investors controlling rents in many markets because they (recent/large/institutional investors and speculators) control a significant portion of the rental inventory in many areas.[/quote]IMO the rental demand was high during this time due to foreclosures or folks walking away from their homes, and not necessarily because people could not compete with the investors. Majority of the renters were not looking to buy a home, and those who desired had bankruptcy/foreclosure in their credit to get a loan.[/quote]
The money going out of the housing market was the debt destruction as people were being foreclosed on. Creditors/mortgage lenders were pulling out of the mortgage/housing market.
Yes, the foreclosed homedebtors contributed significantly to the increased rental demand…which is one of the reasons why non-traditional housing investors were rushing into the rental market.
But a lot of potential buyers from this time period were complaining bitterly about having to compete with “all cash” investors from around the globe. That’s why there were so many cash sales.
January 16, 2015 at 9:31 PM #782086Participant[quote=exsdgal][quote=CA renter]
Some are foreign investors who think the dollar is safer than their own currency and/or want to move money out of their own country for various reasons. Others are investors/managers/funds who are managing pooled investments from a variety of people and/or institutions. There are a lot of mega-millionaires and billionaires out there on a global level. That money goes wherever it’s perceived to be the safest and where it’s likely to yield the best returns. Whether it’s true or not, many people seem to think that the United States — and the USD — will give them the best return for the lowest possible risk.
[/quote]I don’t see it this way. Among all assets real estate is the most non-liquid asset. In a crunch one can not get out of it fast enough. For a foreign investor to purchase real estate in the US, especially single family homes (think that is what we are talking about) they need to have specific needs. Needs like the investor spends a significant amount of time in the US, or has an immediate family member who will. If the situation were reversed, would you spend your money in a foreign country buying residential property just because it is considered a safe investment?
As a foreign investor if my objective was to take dollar as a safe harbor, then I would consider large apartment buildings and hotel chains as better investment opportunities. Definitely not single family residences.
The other option for foreign investors seeking safe currencies are Treasury bills, or US based stocks. Just like a US based investor can diversify using a multitude of stocks and bonds depending on global economy trends.
[quote=CA renter]
I’ve mentioned a deep-pocketed investor who was looking for large blocks of REOs, but who was not well-connected here. That was all Chinese money, and they had ~$2 billion at their disposal. I’ve heard that there are Russians doing the same thing, especially on the east coast. And there are a fair number of investors from Latin America, too. Of course, we have our own wealthy folks who are desperately looking for a place to earn a yield, too.[/quote]IMO there are better alternatives for these wealthy folks seeking yield to consider, than dealing with the hassles of managing residential properties.[/quote]
Not just residential properties, all types of real estate, including agricultural properties, commercial, industrial, multi-family housing, and SFHs.
Overall foreign purchases of US real estate:
“Global real estate investors are flocking to the U.S.
A new survey shows that while London was the number one city among foreign real estate investors, the rest of the top five cities were all in the U.S.: New York (#2), San Francisco (#3), Houston (#4), Los Angeles (#5).
The survey of members of the Association of Foreign Investors in Real Estate said the U.S. is the “stable and secure” country for real-estate investment “by a wide margin.” The U.S. is also the top market when it comes to capital appreciation and for future real-estate purchases.
Houston’s high ranking shows that investors are starting to look beyond New York and San Francisco for deals.
“Our members’ increasing interest in cities beyond the powerhouses of New York, Washington and San Francisco points to the recognition of additional investment opportunities for foreign investors,” said James E. Fetgatter, the association’s CEO.
(Read more: NYC running short on luxury condos)
While most of the association’s members are institutions, some are high-net worth families. The survey doesn’t track investments in single-family homes.
The number one category for investment in 2013 was industrial properties, followed by office, retail and multifamily homes. Last year, multifamily homes ranked first.
…The latest data from the National Association of Realtors, which was released last summer, showed that foreign buyers had scooped up $68.2 billion of single-family homes in the U.S. in the year ended March 2013. That’s about 7 percent of the total U.S. market. That was down slightly from the $82.5 billion invested during the same period of 2012, but up from 2011. The fastest growth in foreign buyers was from China and Canada.”
[And this is probably only accounting for the direct foreign transactions, as I don’t think this includes pooled funds that use a domestic partner. It’s understated, as noted in the other article. -CAR]
http://www.cnbc.com/id/101316245#.
Commercial:
Residential:
This year, for the first time, the Chinese surpassed Canadians as the top investors in American residential real estate. According to the National Association of Realtors, during the 12-month period that ended in March, investors from China (Mainland China, Taiwan and Hong Kong combined) invested $22 billion in the U.S. housing market. Canadians, the perennial leader in foreign investment, spent about $13.8 billion.”
“In fact, a wealthy buyer from China can look at even the most expensive California markets like San Marino and think, “I can get a lot of house there without spending a lot of money.”
Price is not the only attraction. In many countries – Russia, Brazil and, indeed, China – successful business people feel threatened by arbitrary government behavior and have an incentive to get their money out of the country. The U.S. housing market offers consistently enforced contracts and transparency. When you consider that many foreigners aspire to send their children to an American college, buying a house here becomes a no brainer. USC, UCLA and Stanford are filled with examples.”
Agricultural:
[From 2011]
“Today, only a small percentage of privately held agricultural land in the United States is held by foreign persons; however, statistical information released by the United States Department of Agriculture Farm Service Agency indicates that foreign ownership interests in U.S. agricultural land is on the rise. In the past, a weak U.S. dollar sparked foreign investors to make large land acquisitions in U.S. agricultural land. In fact, there is good reason to believe Chinese investment in the U.S. may shift in favor of agricultural holdings, especially as China’s sovereign wealth funds and state-controlled companies have begun focusing on acquisitions tied to natural resource companies in the mining, timber and energy sectors. Moreover, renewable energy companies – such as those in the wind sector – continue to be hot acquisition targets in light of tax incentives afforded by federal and state governments and United States regulatory and legislative policies favoring the growth of the U.S. renewable energy market.”
“Summary
Foreign investors held an interest in 26.1 million acres of U.S. agricultural land (forest land and farm land) as of December 31, 2012. This is an increase of 422,967 acres from the December 31, 2011 report (Report 1A), and represents 2.0 percent of all privately held agricultural land in the United States. These and other findings are based on information submitted to the U.S. Department of Agriculture in compliance with the Agricultural
Foreign Investment Disclosure Act of 1978. Forest land accounted for 52 percent of all foreign held agricultural acreage, cropland for 19 percent, and pasture and other agricultural land for 26 percent. Foreign holdings of U.S. agricultural land were relatively steady from 2000 through 2006; between 2006 and 2007, there was a significant 3.6 million acre increase. Since 2008, there have been moderate increases each year ranging from approximately
400,000 to 1.3 million acres.”http://www.fsa.usda.gov/Internet/FSA_File/afida2012report.pdf
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And Norway is in on it, too!
“Norway has vaulted to the top ranks of foreign U.S. commercial real estate buyers as its $870 billion sovereign-wealth fund, the world’s largest, acquires buildings from New York to San Francisco.”
http://www.bloomberg.com/news/2014-09-23/norway-jumps-to-no-2-foreign-buyer-of-u-s-real-estate.html
[Bold is mine.]
January 16, 2015 at 9:35 PM #782087spdrun
ParticipantNYC is running short of luxury condos because only a very small % of apartments are condos. The rest are co-ops, and co-ops generally won’t permit a sale to foreigners for purposes of investment or pied-a-terre. Which is a good thing, IMHO.
January 16, 2015 at 11:54 PM #782091Participant[quote=spdrun]NYC is running short of luxury condos because only a very small % of apartments are condos. The rest are co-ops, and co-ops generally won’t permit a sale to foreigners for purposes of investment or pied-a-terre. Which is a good thing, IMHO.[/quote]
Right. A definite benefit of having a high number of co-ops in the city.
January 17, 2015 at 1:57 AM #782088Participant[quote=harvey][quote=CA renter]You’re mixing up cause and effect. In the current low-rate environment, we are experiencing these low rates NOT because of what investors would demand, but as a result of the Federal Reserve’s manipulations. Did you not notice what was happening to interest rates as the credit bubble started deflating and price deflation set in??? Interest rates were shooting UP, not down. Rates can go up during deflationary times (real rates are almost always positive), especially if that deflation is the result of a bursting credit bubble. Money is more dear during deflationary times, so the price of money goes UP relative to what’s going on in the rest of the economy. Interest rates are highly positive during most deflationary events.
[/quote]Yes, clearly I’m the one who is mixed up. You’ve explained everything perfectly. The wisdom in that paragraph is irrefutable. Let’s call out a few gems, as they will likely be referenced by economists for centuries:
[quote] Rates can go up during deflationary times (real rates are almost always positive), especially if that deflation is the result of a bursting credit bubble.[/quote]
Absolutely true. No need to provide any historical examples as there are many. Your knowledge is deep.
[quote]Money is more dear during deflationary times, so the price of money goes UP relative to what’s going on in the rest of the economy. [/quote]
Brilliance. Pure brilliance!
[quote]Interest rates are highly positive during most deflationary events.[/quote]
Indisputable. Dismiss the naysayers outright. You are the only person on this forum – nay, on the entire internet – that truly understands macroeconomic phenomenon.
Your intellect is truly superior to all.[/quote]
Regarding the bolded portion of your quote, it appears that you’ve missed the sentence just before the one you’ve quoted. I’ve bolded it for your benefit, since you have always had issues with reading comprehension.
You can also look to Greece, Spain, Portugal, etc. when deflation started setting in there. What was happening to their bond markets/interest rates? And remember that those were nominal interest rates. Real rates were even higher.
You are only looking at the central banks’ *responses* to deflation. They are the ones who try to force interest rates down in order to force money into the economy (with varying results). They are trying to offset the (naturally) rising interest rates.
Low interest rates are not an indicator of what the “free market” demands for their money if central banks are pushing rates down. Deflation does not cause low interest rates; central banks do.
As always, you resort to personal attacks rather than bringing any facts or data to the discussion that would refute what I’m saying.
Can you bring any actual data, statistics, facts, or logical arguments to refute what I’m saying?
January 17, 2015 at 2:04 AM #782092ParticipantPri,
Here you go, Mr. Smartypants…
“The second adverse effect of deflation is to raise the real interest rate, that is, the difference between the nominal interest rate and the rate of “inflation.” When prices are rising, the real interest rate is less than the nominal rate since the borrower repays with dollars that are worth less. But when prices are falling, the real interest rate exceeds the nominal rate. This is exacerbated by the fact that borrowers can deduct only nominal interest payments when calculating their taxable income.”
http://www.nber.org/feldstein/projectsyndicate_deflation%20doldrumsapril2009.html
——————–
“By late 1919, the inflated structure of wartime prices began to sag. In early 1920, a worldwide depression got under way. In the United States, the governor of the Federal Reserve Bank of New York, Benjamin Strong, confided that “[w]e must deflate.” Up went interest rates and down plunged commodity prices. From May to December 1920, the Federal Reserve’s index of 12 commodity prices fell by 40%. Between July and December 1921, a price index of 10 crops plunged by 57%. Wages and consumer prices registered substantial, though less dramatic, declines. By mid-1921, America’s depression had bottomed and recovery begun. Prices stabilized, and deflation ended.”
http://www.grantspub.com/resources/deflation
——————–
Read pages 10-12 (pages 8-10 of pdf page count) to see what happened to real interest rates during the Great Depression (before the central bank manipulated them down again). Research suggests that real interest rates climbed to over 10% (bottom of page 11).
https://research.stlouisfed.org/publications/review/92/03/Depression_Mar_Apr1992.pdf
———————–
So, let’s try this one more time… Interest rates go UP in anticipation of deflation because default risks are rising (increasing the risk premiums), the value of the currency is rising (and so will the cost = interest rate), and creditors will demand a higher price for money because money will be in scarcer supply. Nominal rates can go up, and often go up drastically in anticipation of deflation (see the effects of the credit bubble popping for examples…this is deflationary); real rates rise even higher than nominal rates.
Exactly which part of this do you not get?
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