No Rise in Home Prices Until 2020

[The-Shoveler]

While I do agree the real issue is too much debt,
Yet lower home prices will not solve the above.
We are currently choosing the path that leads straight to the Japan Trap,
High debt, lower and stagnant wages leading to lower household formation and an aging declining population combined with ever higher defect spending (in 1988 Japan had a surplus big time).

And that very same aging population SCREAMING for a flat currency,
We need wage inflation and we need it fast or we join Japan,

[The-Shoveler]

I did say wage inflation I think.

Anyway, with out inflation at this point we are Doomed !!! (as in we are Japan).

[patientrenter]

[quote=Nor-LA-SD-GUY2]While I do agree the real issue is too much debt,
Yet lower home prices will not solve the above….[/quote]

We have already tried creating ‘wealth’ by inflating asset prices, turbocharged with leverage. This is what we specialized in until 2008. This creates nothing of any real value. It merely transfers real wealth from one group to another. Real wealth is created when we actually manufacture things, or provide services, that other people want enough to make trades for.

Inflation is just a way to subsidize those who bet on paper-shuffling as a way to make their living. Since it is a zero-sum game, others who are actually creating wealth are made to pay for these inflation subsidies.

What is the real solution to our macro-economic problems? Is it re-starting the game of becoming rich through leveraged asset speculation, as Bernanke has been attempting? That certainly suits Wall Street, and many others who want to live off financial gambling. Or is the solution to be found in reducing our trade deficit and increasing domestic demand?

It probably isn’t possible to increase domestic demand enough until we lower the trade deficit and re-distribute domestic income. Wealthy people save a high fraction of their incomes, so when we allow high concentrations of national income accrue to the wealthiest few %, there’s not enough spending to keep everyone employed. A trade deficit does the same thing, allowing too much domestic demand leak into employment for foreign workers, not Americans. Applying a 50% tax on capital gains, and to the highest income bracket, and reducing social security taxes by the total dollar amount of the resulting increase in taxes, would stimulate demand. So would applying a tax on imports from countries that hold their currency value well below its natural purchasing power, thereby encouraging US businesses to supplant the imports.

We keep reaching for false easy solutions, when the real solution is waiting. Yes, it doesn’t involve getting paid (through ultimate capital appreciation) to buy homes, or other obviously unsustainable dreams. But just dealing with reality isn’t that hard an alternative. We’ve just become hopelessly lazy as a nation.

[CA renter]

[quote=patientrenter][quote=Nor-LA-SD-GUY2]While I do agree the real issue is too much debt,
Yet lower home prices will not solve the above….[/quote]

We have already tried creating ‘wealth’ by inflating asset prices, turbocharged with leverage. This is what we specialized in until 2008. This creates nothing of any real value. It merely transfers real wealth from one group to another. Real wealth is created when we actually manufacture things, or provide services, that other people want enough to make trades for.

Inflation is just a way to subsidize those who bet on paper-shuffling as a way to make their living. Since it is a zero-sum game, others who are actually creating wealth are made to pay for these inflation subsidies.

What is the real solution to our macro-economic problems? Is it re-starting the game of becoming rich through leveraged asset speculation, as Bernanke has been attempting? That certainly suits Wall Street, and many others who want to live off financial gambling. Or is the solution to be found in reducing our trade deficit and increasing domestic demand?

It probably isn’t possible to increase domestic demand enough until we lower the trade deficit and re-distribute domestic income. Wealthy people save a high fraction of their incomes, so when we allow high concentrations of national income accrue to the wealthiest few %, there’s not enough spending to keep everyone employed. A trade deficit does the same thing, allowing too much domestic demand leak into employment for foreign workers, not Americans. Applying a 50% tax on capital gains, and to the highest income bracket, and reducing social security taxes by the total dollar amount of the resulting increase in taxes, would stimulate demand. So would applying a tax on imports from countries that hold their currency value well below its natural purchasing power, thereby encouraging US businesses to supplant the imports.

We keep reaching for false easy solutions, when the real solution is waiting. Yes, it doesn’t involve getting paid (through ultimate capital appreciation) to buy homes, or other obviously unsustainable dreams. But just dealing with reality isn’t that hard an alternative. We’ve just become hopelessly lazy as a nation.[/quote]

That was very well said, patientrenter!

[DomoArigato]

[quote=Nor-LA-SD-GUY2]I did say wage inflation I think.

Anyway, with out inflation at this point we are Doomed !!! (as in we are Japan).[/quote]

How is Japan doomed? How is the U.S. doomed?

Japan’s debt-to-GDP ratio is ~2:1 while the U.S is only ~1:1:

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

However, Japan’s unemployment rate is only 4.3%:

http://www.tradingeconomics.com/japan/unemployment-rate

The official U.S. unemployment rate is 9.1% but underemployment is probably between 25 and 30%.

Interest rates have been low in Japan since at least 1995.

So I ask again, how is Japan doomed? How is the U.S. doomed?

Many people seem to think that high levels of debt-to-GDP will lead to doom, but there is no evidence of that in Japan.

What does lead to doom? Either not having your own currency or not having control over your own currency appears to lead to doom.

We’ve all heard about the PIIGS (Portugal, Italy, Ireland, Greece, Spain) and their economic troubles. However, none of those countries have their own currency and so can’t be compared to either the U.S. or Japan.

Germany in 1914 may at first glance appear similar to the U.S. today. As you can see from the article linked below, it had just abandoned the gold standard and had a relatively strong currency (German Mark) which traded at around 5 German Marks to one dollar.

http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html

So it was Germany’s massive deficit spending which led to hyperinflation, right? It doesn’t look like it. Instead, it looks like Germany effectively lost control of their currency because they were forced to pay war reparations in gold.

No one is militarily strong enough to force the U.S. to repay our debts with some real, physical asset, so the U.S.’s creditors will have to take our paper money as repayment. Germany of course had many other issues that the U.S. doesn’t currently face due to the fact that it just lost World War I and also due to its geographical location.

I don’t see any evidence that a high debt-to-GDP ratio leads to doom. As long as a country has its own currency and can repay its debts with that currency, high debt-to-GDP ratios do not appear to lead to doom.

The U.S. and Japan might continue to do just fine with much higher debt-to-GDP ratios. 10:1 debt-to-GDP anyone?

[The-Shoveler]

Hmm well in 1988 Japan had a huge surplus, but when they had their real-estate bust in 1991 they had to revert to very large defect spending to keep the unemployment below 5% (building highways bridges etc…) (BECAUSE THEY (the Japanese population) ABSOLUTLY WOULD NOT TOLERATE INFLATION)

Well I am fine with the defect spending I just think they will need to get the unemployment down or they (we) are looking at revolt fairly soon.

I would need to get the data together but I would think, you could attribute most of the difference between the current 11~13% to the more normal 5-6% unemployment in ca directly to the real-estate industries.

[The-Shoveler]

In other words, it’s fine for the Gov to print money, but those dang citizens better pay off their debt in GOLD dang it !!!

[briansd1]

[quote=Nor-LA-SD-GUY2]Hmm well in 1988 Japan had a huge surplus, but when they had their real-estate bust in 1991 they had to revert to very large defect spending to keep the unemployment below 5% (building highways bridges etc…) (BECAUSE THEY (the Japanese population) ABSOLUTLY WOULD NOT TOLERATE INFLATION)
[/Quote]

Nor-LA, I don’t follow your logic here. Did you mean to say deflation?

While big deficit spending in Japan did not create rampant inflation it did hold back deflation.

[quote=Nor-LA-SD-GUY2]
Well I am fine with the defect spending I just think they will need to get the unemployment down or they (we) are looking at revolt fairly soon.

I would need to get the data together but I would think, you could attribute most of the difference between the current 11~13% to the more normal 5-6% unemployment in ca directly to the real-estate industries.[/quote]

I agree that real estate hugely affects wealth and consumer confidence.

[The-Shoveler]

The logic, is that without inflation, we have 30% of mortgage holders (and no most will not be walking away) with approx. 90K in debt over what they could sell for ,meaning they are stuck and they are not going to be in a spending mood for a very long time.

Also the Gov debt will need to be paid off in basically “GOLD” if there is no inflation.
We would need about 5 years of 7-8% inflation to get anywhere close to being out of this debt trap.
Until then welcome to Japan (without the culture of course).

[briansd1]

I agree that it’s fine for the Federal government to be spending money to stimulate the economy.

Economists have been talking of the lessons of Japan but unfortunately, our government is paralyzed by obstructionists.

Yes, welcome to Japan.

PS: did you mean to say that the Japanese traded deflation for more government debt? If the government had not gone on a building spree, deflation would have been much worse in Japan.

[The-Shoveler]

[quote=briansd1]I agree that it’s fine for the Federal government to be spending money to stimulate the economy.

Economists have been talking of the lessons of Japan but unfortunately, our government is paralyzed by obstructionists.

Yes, welcome to Japan.

PS: did you mean to say that the Japanese traded deflation for more government debt? If the government had not gone on a building spree, deflation would have been much worse in Japan.[/quote]

I agree with that, but it was the aged population (soon to be fixed income) that the politicians were playing to and that is the reason they had no inflation, which was the end of growth, as the young and current as well as future were left with only lower wages and expectations.
So they had to create Jobs as there was no other growth.

The Debt trap. The German example was actually a good one.

[patientrenter]

[quote=briansd1]…….If the government had not gone on a building spree, deflation would have been much worse in Japan.[/quote]

Deflation in Japan?

Let’s look at the actual numbers. Here is the consumer price index for Japan, from the official Japanese government website http://www.e-stat.go.jp/SG1/estat/ListE.do?bid=000001015975&cycode=0 :

1980 76.9
1981 80.6
1982 82.9
1983 84.4
1984 86.3
1985 88.1
1986 88.6
1987 88.7
1988 89.3
1989 91.3
1990 94.1
1991 97.3
1992 98.9
1993 100.2
1994 100.8
1995 100.7
1996 100.8
1997 102.7
1998 103.3
1999 103
2000 102.2
2001 101.5
2002 100.6
2003 100.3
2004 100.3
2005 100
2006 100.3
2007 100.3
2008 101.7
2009 100.3
2010 99.6

When I look at these values, I see price stability in Japan from 1993 on. The cumulative deflation from 1993 to 2010, a period of 17 years, adds up to a grand total of 0.6%. That’s 0.036% per year, which is barely discernible.

I love the (Rich-inspired) motto at piggington: Bring facts.

[briansd1]

patientrenter, your facts make my point. Despite all the money printing and government spending, inflation did not take off in Japan. That’s the Japan lesson.

[quote=Nor-LA-SD-GUY2]
I agree with that, but it was the aged population (soon to be fixed income) that the politicians were playing to and that is the reason they had no inflation, which was the end of growth, as the young and current as well as future were left with only lower wages and expectations.
So they had to create Jobs as there was no other growth.
[/quote]

I don’t believe the politicians were playing to the seniors.

I believe that the forces of globalization held prices down in Japan.

The same is true for America now. We are exporting inflation.

The people here who are against a large jobs stimulus are essentially heartless ideologues telling the unemployed to just eat cake.

[patientrenter]

[quote=briansd1]patientrenter, your facts make my point. Despite all the money printing and government spending, inflation did not take off in Japan. That’s the Japan lesson…… [/quote]

I am sorry, I missed your reference to an absence of inflation in Japan. I only saw your comment referring to Japanese “deflation”. I was pointing out that Japan is not experiencing deflation. It’s not experiencing inflation either. What Japan has experienced since 1993 is simply price stability.

[The-Shoveler]

OK Fine whatever they had no control what so ever over minimum wage hmmm,

But regardless we won’t get out of this debt trap without inflation (nor will they).

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