What are your thoughts? Housing going UP or DOWN?

[nct]

Being a long time lurker of this site, I am tempted to reply to this “deflation/inflation” debt. My contribution:
All the discussion so far was more or less focusing on the total/aggregated money supply. In debt based money system as we are in US, for my reading, the problem comes in not because of total amount of debt or destruction of the debt, but how the debt was distributed across the entire society.

As Rich’s fine example of “helicoptering 1 million dollar to every one to inflating a way”, the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.

Certainly, there is big hard-to-predict factor: politics. The wind currently seems to sway towards to “less debt”. This certainly does not help to reflate. Political press is also on Fed reserve.

I have another more or less “incentive based” analysis. If the hypothesis that “the rich rules the US/world”. Fed gov and reserve must not inflate, unless the pain on the mass become too big to endure with higher and higher unemployment. Deflation favors those who have money and banks too: as we know banks have huge reserve (>1T). Those reserves are truly high power money which can be used to acquire assets when deflation and panic is in full force like Oct 2008 to Mar 2009.

[CA renter]

Good post, nct.

I agree very much with this:

“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
————-

I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.

It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.

[CA renter]

Good post, nct.

I agree very much with this:

“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
————-

I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.

It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.

[CA renter]

Good post, nct.

I agree very much with this:

“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
————-

I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.

It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.

[CA renter]

Good post, nct.

I agree very much with this:

“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
————-

I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.

It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.

[CA renter]

Good post, nct.

I agree very much with this:

“…the current problem most stems from large portion of population, say homedebters, is indebt to a small number of rich or banks. Debt defaulting frees up reduces the claim to debtor’s income and helps re-vitalize the debtors’ capability to spend. Economy is a circulation system. It runs well when it circulates well. In this circulation system, the end-demand from workers and consumers are the major drive.
By allowing banks, with the help of Treasury, to trickling REO/short sells and trying every measure to keep homedebtors in unsustainable debt by giving temporary relieve on mortage rate will drag us along japan path for many years.”
————-

I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains, so it’s possible that their wages/income goes up while asset prices decline, possibly giving them more purchasing power. If asset prices are propped up, much of it isn’t counted toward official inflation numbers, so people who earn wages or get SS benefits will lose purchasing power over time, while the rich gain purchasing power as long as their assets are the ones being propped up. This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.

It really depends on how the inflation is targeted: is it targeted toward asset price inflation (like what we’re seeing now with MBS and Treasury purchases which props up the price of debt and housing), or do we see monetary inflation where everyone is sent a check for $XXX, which can prop up asset prices, but can also be used to pay off debt or for savings? The latter has a less predictable outcome.

[Rich Toscano]

[quote=CA renter] This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
[/quote]

I would also add that it causes misallocations of capital (eg, the production of vast tracts of Riverside housing as a result of overpriced housing, to name one in a long line of examples). This is a huge negative for the productivity and long-term prosperity of the economy.

[Rich Toscano]

[quote=CA renter] This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
[/quote]

I would also add that it causes misallocations of capital (eg, the production of vast tracts of Riverside housing as a result of overpriced housing, to name one in a long line of examples). This is a huge negative for the productivity and long-term prosperity of the economy.

[Rich Toscano]

[quote=CA renter] This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
[/quote]

I would also add that it causes misallocations of capital (eg, the production of vast tracts of Riverside housing as a result of overpriced housing, to name one in a long line of examples). This is a huge negative for the productivity and long-term prosperity of the economy.

[Rich Toscano]

[quote=CA renter] This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
[/quote]

I would also add that it causes misallocations of capital (eg, the production of vast tracts of Riverside housing as a result of overpriced housing, to name one in a long line of examples). This is a huge negative for the productivity and long-term prosperity of the economy.

[Rich Toscano]

[quote=CA renter] This is why I hate asset price inflation. It doesn’t affect wages or payments based on CPI, it only makes the wealty even wealthier.
[/quote]

I would also add that it causes misallocations of capital (eg, the production of vast tracts of Riverside housing as a result of overpriced housing, to name one in a long line of examples). This is a huge negative for the productivity and long-term prosperity of the economy.

[jpinpb]

[quote=CA renter]I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains…[/quote]

CAR – I’d add that with the phenomena of zero down, NINA loans, the poor were able to buy houses (assets) and not just rely on wages b/c there was equity withdrawal, as well.

[jpinpb]

[quote=CA renter]I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains…[/quote]

CAR – I’d add that with the phenomena of zero down, NINA loans, the poor were able to buy houses (assets) and not just rely on wages b/c there was equity withdrawal, as well.

[jpinpb]

[quote=CA renter]I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains…[/quote]

CAR – I’d add that with the phenomena of zero down, NINA loans, the poor were able to buy houses (assets) and not just rely on wages b/c there was equity withdrawal, as well.

[jpinpb]

[quote=CA renter]I think that asset price deflation hits the rich more than the poor. While “the rich” do generally have more cash than poor people, more of their money is tied up in assets (stocks, bonds, housing, etc.) than poor people. Workers get their “wealth” from wages, not capital gains…[/quote]

CAR – I’d add that with the phenomena of zero down, NINA loans, the poor were able to buy houses (assets) and not just rely on wages b/c there was equity withdrawal, as well.

[Author]

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