What are your thoughts? Housing going UP or DOWN?

[Rich Toscano]

Thanks Arraya. I agree with much of what you say. Some of it comes down to speculation; eg you think that there is a line the Fed won’t cross, whereas I speculate that the Fed WOULD cross that line if the alternative were a multi-year deflationary spiral. But I can respect that people will naturally have different opinions of how far the Fed and govt will push things… I just happen to be on the side of the spectrum that thinks that they will fight deflation at all costs by any means necessary.

One thing I will note though is that while wages are down, if you include government handouts in the picture, personal income has actually grown all along. Consider this chart from the excellent clearonmoney.com site:

Might the government handouts slow down? Sure, maybe (though I personally speculate that they will not do so as long as there is a perceived deflation threat). And are people less willing to spend that money? Yes, for as long as they consider cash a safe haven. So I’m not saying this is the only factor, by any means. However, it does demonstrate the reality that stimulative government policy can, and has succeeded in, growing personal incomes and putting money into people’s hands.

That said, I agree that there are deflationary forces at work right now and the timing of outcomes is as inscrutable as ever.

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.

[CA renter]

Just wanted to say that I really enjoyed reading these most recent posts. Everyone had a good argument, and I think there are pretty passionate beliefs on both sides because both inflation and deflation are perfectly viable outcomes.

Though I understand what you’re saying, Rich, it still seems that when someone’s wealth (assets, not cash holdings) goes from $100,000 to $10,000 that it will have a deflationary effect on prices, even if official “money supply” is up.

In your island example, though the $10 is true money and can be used to buy things, people can trade assets; so, theoretically, one of the lenders who has $10 in a “bond”/accounts receivable could trade that asset for a tree house, if the tree house maker realizes that he would make more money/wealth by taking these assets in exchange for his goods. The people with “wealth” (as opposed to cash) can still buy the same goods as the person with cash. As long as everyone on the island continued to believe that the debts would be paid, then the collective wealth with which everyone could trade/buy things would grow or remain stable. So, we could grow “wealth” that can be used to trade for other assets, while money supply remains the same. Even if we don’t change the money supply, if that “wealth” disappears, it would have a deflationary effect on prices, no?

And then there’s the leverage mentioned above that can come from the $10 bond if the bondholder can use that asset as collateral for a new loan (where money could be “printed up” from another bank/lender).

It’s certainly going to be interesting to see how things are handled going forward. They are finally beginning to acknowledge on CNBC that it’s the lack of demand for credit (insolvency), not the lack of credit, that is the problem.

[CA renter]

Just wanted to say that I really enjoyed reading these most recent posts. Everyone had a good argument, and I think there are pretty passionate beliefs on both sides because both inflation and deflation are perfectly viable outcomes.

Though I understand what you’re saying, Rich, it still seems that when someone’s wealth (assets, not cash holdings) goes from $100,000 to $10,000 that it will have a deflationary effect on prices, even if official “money supply” is up.

In your island example, though the $10 is true money and can be used to buy things, people can trade assets; so, theoretically, one of the lenders who has $10 in a “bond”/accounts receivable could trade that asset for a tree house, if the tree house maker realizes that he would make more money/wealth by taking these assets in exchange for his goods. The people with “wealth” (as opposed to cash) can still buy the same goods as the person with cash. As long as everyone on the island continued to believe that the debts would be paid, then the collective wealth with which everyone could trade/buy things would grow or remain stable. So, we could grow “wealth” that can be used to trade for other assets, while money supply remains the same. Even if we don’t change the money supply, if that “wealth” disappears, it would have a deflationary effect on prices, no?

And then there’s the leverage mentioned above that can come from the $10 bond if the bondholder can use that asset as collateral for a new loan (where money could be “printed up” from another bank/lender).

It’s certainly going to be interesting to see how things are handled going forward. They are finally beginning to acknowledge on CNBC that it’s the lack of demand for credit (insolvency), not the lack of credit, that is the problem.

[CA renter]

Just wanted to say that I really enjoyed reading these most recent posts. Everyone had a good argument, and I think there are pretty passionate beliefs on both sides because both inflation and deflation are perfectly viable outcomes.

Though I understand what you’re saying, Rich, it still seems that when someone’s wealth (assets, not cash holdings) goes from $100,000 to $10,000 that it will have a deflationary effect on prices, even if official “money supply” is up.

In your island example, though the $10 is true money and can be used to buy things, people can trade assets; so, theoretically, one of the lenders who has $10 in a “bond”/accounts receivable could trade that asset for a tree house, if the tree house maker realizes that he would make more money/wealth by taking these assets in exchange for his goods. The people with “wealth” (as opposed to cash) can still buy the same goods as the person with cash. As long as everyone on the island continued to believe that the debts would be paid, then the collective wealth with which everyone could trade/buy things would grow or remain stable. So, we could grow “wealth” that can be used to trade for other assets, while money supply remains the same. Even if we don’t change the money supply, if that “wealth” disappears, it would have a deflationary effect on prices, no?

And then there’s the leverage mentioned above that can come from the $10 bond if the bondholder can use that asset as collateral for a new loan (where money could be “printed up” from another bank/lender).

It’s certainly going to be interesting to see how things are handled going forward. They are finally beginning to acknowledge on CNBC that it’s the lack of demand for credit (insolvency), not the lack of credit, that is the problem.

[CA renter]

Just wanted to say that I really enjoyed reading these most recent posts. Everyone had a good argument, and I think there are pretty passionate beliefs on both sides because both inflation and deflation are perfectly viable outcomes.

Though I understand what you’re saying, Rich, it still seems that when someone’s wealth (assets, not cash holdings) goes from $100,000 to $10,000 that it will have a deflationary effect on prices, even if official “money supply” is up.

In your island example, though the $10 is true money and can be used to buy things, people can trade assets; so, theoretically, one of the lenders who has $10 in a “bond”/accounts receivable could trade that asset for a tree house, if the tree house maker realizes that he would make more money/wealth by taking these assets in exchange for his goods. The people with “wealth” (as opposed to cash) can still buy the same goods as the person with cash. As long as everyone on the island continued to believe that the debts would be paid, then the collective wealth with which everyone could trade/buy things would grow or remain stable. So, we could grow “wealth” that can be used to trade for other assets, while money supply remains the same. Even if we don’t change the money supply, if that “wealth” disappears, it would have a deflationary effect on prices, no?

And then there’s the leverage mentioned above that can come from the $10 bond if the bondholder can use that asset as collateral for a new loan (where money could be “printed up” from another bank/lender).

It’s certainly going to be interesting to see how things are handled going forward. They are finally beginning to acknowledge on CNBC that it’s the lack of demand for credit (insolvency), not the lack of credit, that is the problem.

[CA renter]

Just wanted to say that I really enjoyed reading these most recent posts. Everyone had a good argument, and I think there are pretty passionate beliefs on both sides because both inflation and deflation are perfectly viable outcomes.

Though I understand what you’re saying, Rich, it still seems that when someone’s wealth (assets, not cash holdings) goes from $100,000 to $10,000 that it will have a deflationary effect on prices, even if official “money supply” is up.

In your island example, though the $10 is true money and can be used to buy things, people can trade assets; so, theoretically, one of the lenders who has $10 in a “bond”/accounts receivable could trade that asset for a tree house, if the tree house maker realizes that he would make more money/wealth by taking these assets in exchange for his goods. The people with “wealth” (as opposed to cash) can still buy the same goods as the person with cash. As long as everyone on the island continued to believe that the debts would be paid, then the collective wealth with which everyone could trade/buy things would grow or remain stable. So, we could grow “wealth” that can be used to trade for other assets, while money supply remains the same. Even if we don’t change the money supply, if that “wealth” disappears, it would have a deflationary effect on prices, no?

And then there’s the leverage mentioned above that can come from the $10 bond if the bondholder can use that asset as collateral for a new loan (where money could be “printed up” from another bank/lender).

It’s certainly going to be interesting to see how things are handled going forward. They are finally beginning to acknowledge on CNBC that it’s the lack of demand for credit (insolvency), not the lack of credit, that is the problem.

[Arraya]

[quote=Rich Toscano]

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.[/quote]

I 100% agree. However, I think we will see a significant contraction before then over the next year or two and ultimately a bond market dislocation. In fact, I think we are approaching an inflection point now. Unfortunately, this could lead to more than economic stress.

[Arraya]

[quote=Rich Toscano]

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.[/quote]

I 100% agree. However, I think we will see a significant contraction before then over the next year or two and ultimately a bond market dislocation. In fact, I think we are approaching an inflection point now. Unfortunately, this could lead to more than economic stress.

[Arraya]

[quote=Rich Toscano]

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.[/quote]

I 100% agree. However, I think we will see a significant contraction before then over the next year or two and ultimately a bond market dislocation. In fact, I think we are approaching an inflection point now. Unfortunately, this could lead to more than economic stress.

[Arraya]

[quote=Rich Toscano]

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.[/quote]

I 100% agree. However, I think we will see a significant contraction before then over the next year or two and ultimately a bond market dislocation. In fact, I think we are approaching an inflection point now. Unfortunately, this could lead to more than economic stress.

[Arraya]

[quote=Rich Toscano]

I will state though that at this point, I think the most likely “inciting incident” for turning things overtly inflationary will be a US govt funding crisis in which our foreign debtors finally realize they’re not geting paid back in real terms. Of course, that is a speculation as well.[/quote]

I 100% agree. However, I think we will see a significant contraction before then over the next year or two and ultimately a bond market dislocation. In fact, I think we are approaching an inflection point now. Unfortunately, this could lead to more than economic stress.

[jpinpb]

I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.

[jpinpb]

I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.

[jpinpb]

I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.

[jpinpb]

I’m having trouble understanding the island example as it relates to what’s happening in our economy. We do have fractional reserve lending and we can print money at will, so it’s a much different scenario.

[Author]

Posts