Robert Shiller – home prices could slide for 20 years?

[zk]

[quote=Rich Toscano]
The counterargument would be that Japan was in deflation and we too could go into a 20 year deflation, but for reasons I have discussed many times and in great depth, there is no chance that this will happen. No chance. And I think the 3% inflation figure used in the above calculation will almost certainly prove to be significantly low.

Shiller has done some excellent and important work on the topic of valuations and of market booms and busts, but he has his areas he focuses on and areas he doesn’t. Notably, he pays virtually no attention to the imbalances caused by our coming-apart-at-the-seams monetary system (except inasmuch as they have influenced the historical CPI, which to his credit he accounts for). Only by ignoring that topic could he predict a 20 year decline in the nominal price of housing. This blind spot is also imho why he is seeing bubbles where there are none (oil and gold) while ignoring the actual bubble (Treasuries — not really a greed-driven bubble in the traditional sense, but worlds closer to being an actual bubble than oil or gold).[/quote]

This brings up a question I have for you, Rich.

If I’m not mistaken (and I easily could be) a lot of your predictions are based on the idea that helicopter Ben et al will take extreme measures to prevent deflation, regardless of the risk to the dollar. To me, it seems as though – I won’t say the political winds are changing, but – there is at least a whiff of “the deficit/debt is our biggest problem, we must do everything we can to fix it” out there. I suppose it could just be talk from politicians pandering to their constituents. But it seems to be picking up momentum.

One theory says that, at some point inflation will take hold and spiral away before we can catch it. Another says that deflation could do the same thing. Do you think there’s a meaningful chance that this “fix the debt” idea will get enough support that our politicians will stop throwing printed money at the situation long enough for deflation to actually take hold? Or at least to prevent serious inflation?

[Rich Toscano]

Hi zk —

I think the debt/deficit rabble rousing is just political posturing and that very little will come of it. (We will someday have to clean up our act, but I’m convinced that politicians won’t be motivated to do this until AFTER a govt debt crisis has begun).

I admit that the above paragraph is speculation and could be wrong. However, I don’t think that matters. Even if I am wrong, and the politicians accidentally initiate a period of deflation, they will just repeat the playbook they used in 2009. To the extent that doesn’t work, they will add some new plays to the playbook until something does.

So there could be a bout of deflation but it’s been shown that a sufficiently aggressive Fed can turn that around. 2008-9 was a perfect storm for deflation: bursting of the biggest private sector debt bubble ever, a horrific synchronized global downturn, a market liquidity crisis, a commodity crash, and a flight into the dollar. And yet the CPI declined, mildly, for 6 months. I doubt very much that the same magnitude of deflationary pressures will ever hit all at once again — but even if they do, the Fed and the govt can just step up the intervention even more aggressively.

If you haven’t read it, the article to the upper right called “Fundamental Investors Should Fear Inflation, Not Deflation” discusses this in quite a bit more depth. But that’s the idea. Short term, things can go anywhere. If something does come of the anti-deficit posturing, that could potentially cause another dip into disinflation/deflation for a bit. But long term the trend will be toward inflation, at least until we are forced by our foreign creditors to clean up our act (but that will mean the inflation already happened).

[Rich Toscano]

Hi zk —

I think the debt/deficit rabble rousing is just political posturing and that very little will come of it. (We will someday have to clean up our act, but I’m convinced that politicians won’t be motivated to do this until AFTER a govt debt crisis has begun).

I admit that the above paragraph is speculation and could be wrong. However, I don’t think that matters. Even if I am wrong, and the politicians accidentally initiate a period of deflation, they will just repeat the playbook they used in 2009. To the extent that doesn’t work, they will add some new plays to the playbook until something does.

So there could be a bout of deflation but it’s been shown that a sufficiently aggressive Fed can turn that around. 2008-9 was a perfect storm for deflation: bursting of the biggest private sector debt bubble ever, a horrific synchronized global downturn, a market liquidity crisis, a commodity crash, and a flight into the dollar. And yet the CPI declined, mildly, for 6 months. I doubt very much that the same magnitude of deflationary pressures will ever hit all at once again — but even if they do, the Fed and the govt can just step up the intervention even more aggressively.

If you haven’t read it, the article to the upper right called “Fundamental Investors Should Fear Inflation, Not Deflation” discusses this in quite a bit more depth. But that’s the idea. Short term, things can go anywhere. If something does come of the anti-deficit posturing, that could potentially cause another dip into disinflation/deflation for a bit. But long term the trend will be toward inflation, at least until we are forced by our foreign creditors to clean up our act (but that will mean the inflation already happened).

[Rich Toscano]

Hi zk —

I think the debt/deficit rabble rousing is just political posturing and that very little will come of it. (We will someday have to clean up our act, but I’m convinced that politicians won’t be motivated to do this until AFTER a govt debt crisis has begun).

I admit that the above paragraph is speculation and could be wrong. However, I don’t think that matters. Even if I am wrong, and the politicians accidentally initiate a period of deflation, they will just repeat the playbook they used in 2009. To the extent that doesn’t work, they will add some new plays to the playbook until something does.

So there could be a bout of deflation but it’s been shown that a sufficiently aggressive Fed can turn that around. 2008-9 was a perfect storm for deflation: bursting of the biggest private sector debt bubble ever, a horrific synchronized global downturn, a market liquidity crisis, a commodity crash, and a flight into the dollar. And yet the CPI declined, mildly, for 6 months. I doubt very much that the same magnitude of deflationary pressures will ever hit all at once again — but even if they do, the Fed and the govt can just step up the intervention even more aggressively.

If you haven’t read it, the article to the upper right called “Fundamental Investors Should Fear Inflation, Not Deflation” discusses this in quite a bit more depth. But that’s the idea. Short term, things can go anywhere. If something does come of the anti-deficit posturing, that could potentially cause another dip into disinflation/deflation for a bit. But long term the trend will be toward inflation, at least until we are forced by our foreign creditors to clean up our act (but that will mean the inflation already happened).

[Rich Toscano]

Hi zk —

I think the debt/deficit rabble rousing is just political posturing and that very little will come of it. (We will someday have to clean up our act, but I’m convinced that politicians won’t be motivated to do this until AFTER a govt debt crisis has begun).

I admit that the above paragraph is speculation and could be wrong. However, I don’t think that matters. Even if I am wrong, and the politicians accidentally initiate a period of deflation, they will just repeat the playbook they used in 2009. To the extent that doesn’t work, they will add some new plays to the playbook until something does.

So there could be a bout of deflation but it’s been shown that a sufficiently aggressive Fed can turn that around. 2008-9 was a perfect storm for deflation: bursting of the biggest private sector debt bubble ever, a horrific synchronized global downturn, a market liquidity crisis, a commodity crash, and a flight into the dollar. And yet the CPI declined, mildly, for 6 months. I doubt very much that the same magnitude of deflationary pressures will ever hit all at once again — but even if they do, the Fed and the govt can just step up the intervention even more aggressively.

If you haven’t read it, the article to the upper right called “Fundamental Investors Should Fear Inflation, Not Deflation” discusses this in quite a bit more depth. But that’s the idea. Short term, things can go anywhere. If something does come of the anti-deficit posturing, that could potentially cause another dip into disinflation/deflation for a bit. But long term the trend will be toward inflation, at least until we are forced by our foreign creditors to clean up our act (but that will mean the inflation already happened).

[Rich Toscano]

Hi zk —

I think the debt/deficit rabble rousing is just political posturing and that very little will come of it. (We will someday have to clean up our act, but I’m convinced that politicians won’t be motivated to do this until AFTER a govt debt crisis has begun).

I admit that the above paragraph is speculation and could be wrong. However, I don’t think that matters. Even if I am wrong, and the politicians accidentally initiate a period of deflation, they will just repeat the playbook they used in 2009. To the extent that doesn’t work, they will add some new plays to the playbook until something does.

So there could be a bout of deflation but it’s been shown that a sufficiently aggressive Fed can turn that around. 2008-9 was a perfect storm for deflation: bursting of the biggest private sector debt bubble ever, a horrific synchronized global downturn, a market liquidity crisis, a commodity crash, and a flight into the dollar. And yet the CPI declined, mildly, for 6 months. I doubt very much that the same magnitude of deflationary pressures will ever hit all at once again — but even if they do, the Fed and the govt can just step up the intervention even more aggressively.

If you haven’t read it, the article to the upper right called “Fundamental Investors Should Fear Inflation, Not Deflation” discusses this in quite a bit more depth. But that’s the idea. Short term, things can go anywhere. If something does come of the anti-deficit posturing, that could potentially cause another dip into disinflation/deflation for a bit. But long term the trend will be toward inflation, at least until we are forced by our foreign creditors to clean up our act (but that will mean the inflation already happened).

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

[zk]

Thanks, Rich,

I enjoyed rereading your last few articles. Your writing, as always, is genius.

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