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davelj
Participant[quote=walterwhite]You say tradition like it’s a bad thing.
Money itself only has value because we respect it, it is traditionally accepted.
The substance with the longest most widely accepted tradition of acceptance is gold.[/quote]
No, I’m not saying tradition like it’s a bad thing. I’m merely stating – factually – that it’s nothing more than tradition. That the tradition has held for very long period of time doesn’t change the fact that it’s still… tradition. If it makes you happy then I’ll add that “there are far worse traditions”. At its base, however, it’s still a religion of sorts… albeit a long-tenured one.
Participant[quote=pri_dk]
The confusion here is that I am talking about the measured value of output (GDP) while you and Dave are talking about the first & second derivatives (growth rate.) The “zero” in zero-sum refers to output. You can call that semantics, but it’s a pretty important distinction.
[/quote]Ah, yes, that’s the confusion. But… YOU decided that “zero-sum” refers to output, not me (or anyone else so far as I can tell). I thought it was completely and intuitively obvious that my n-sum refers to growth, thus I saw no need to clarify further. Now I know…
Participant[quote=pri_dk][quote=davelj]Let’s get the math straight first. The US economy – and all economies – are n-sum games, at the end of the day, with n = real GDP growth. I would argue that the US economy is not a zero sum game, but it’s certainly not much more than a 1.5%-sum game over the next couple of decades. (And, in fact, it was a negative sum game during the recession.)[/quote]
Dave, you are one of the more knowledgeable posters here, but I’m afraid you don’t understand the definition of “zero sum.” And there really is no accepted use of the term “n-sum” such as you are trying to use with “1.5%-sum.”
As best I can tell you are using “n” to mean growth, but that that’s not what the phrase “zero-sum” means.
Zero-sum does not mean zero growth – it means that zero wealth is created in a system (or “game” as the term comes from game-theory) It means that nothing of value is actually produced, that there is a comparable loser for every winner, that stuff is just moved around.
Casinos are zero sum. National economies are not.
[/quote]National economies can absolutely be zero sum games and, in fact, they are at times. Fortunately, it’s the exception rather than the rule. But allow me to explain the concept of n-sum games using the stock market as an example. (I’ve always used the term n-sum without ever bothering to see if anyone “accepted” such use – it’s common sense, really.) The stock market is what I’d refer to as a “market-sum” game. Simply, this means that whatever the market returns (“n”) in a given year is the aggregate combined performance of all its participants. If it’s up 5%, there may be some up 50% and others down 50% but it all aggregates out to 5%. That 5% is the total (or “sum”) that must be divided among all of the participants. (For more on this concept see: Bogle, John)
Now, back to the economy. If real GDP grows by 2% in a given year, then that 2% is split up among all participants. And (obviously) not equally. If real GDP is 0% in a given year, then FOR THAT YEAR the economy was a zero-sum game – the winners and losers aggregated out to zero gain. There was no growth (just like that casino in which the net winnings were zero but for the house’s vig).
So, I’ll repeat myself: the economy is an n-sum game in that all of the growth must aggregate to “n”. Fortunately, more often than not, n is greater than zero. But that’s not always the case.
[quote=pri_dk][quote=davelj]I never claimed this. There is actual value being created. But, arguably, the value created has been greatly exaggerated over the past 30 years (as a result of debt driving a lot of unsustainable consumption).[/quote]
I think we are talking past each other here. I never claimed you claimed it (I was referring to a conversation in another thread.)
But as far as your last sentence goes, you’ll have to back that up with some data.
I remember life from 1982, and a lot of things were different, not just the music. Call me on my cell phone if you need more examples – but I may not answer because I’ll be shopping on the internet. But I’ll answer if I’m in my hybrid car, because it has Bluetooth…[/quote]
Another straw man alert. I didn’t say GDP growth was “completely” exaggerated; I said it was “greatly exaggerated”. There are a lot of estimates out there suggesting that debt creation added between 50 and 100 basis points to annualized real GDP over the last several decades. Using a base of 300 basis points, that suggests that 17%-33% of GDP growth was fueled by debt – as opposed to fundamentals – over the last several decades. I’d say that qualifies as significant.
February 13, 2012 at 12:51 PM in reply to: OT: Buffett on investments in Gold vs. Enterprise #737880Participant[quote=walterwhite]It’s true right now, but sometimes it’s not. Gold endures, paper systems come and go, add a zero, change into euros, etc
why do central banks hold gold?
Answer:[/quote]
Tradition. The same reason lots of folks go to church on Sundays.
Participant[quote=pri_dk][quote=davelj]Contrary to your assertion, I don’t think there’s any confusion on the topic here.[/quote]
You missed the discussion.
I understand your claims about debt – and they are certainly valid – but that’s not the confusion I was referencing.
There was genuine confusion. Specifically, there were claims that the US economy had become “zero sum” in recent years.[/quote]
Let’s get the math straight first. The US economy – and all economies – are n-sum games, at the end of the day, with n = real GDP growth. I would argue that the US economy is not a zero sum game, but it’s certainly not much more than a 1.5%-sum game over the next couple of decades. (And, in fact, it was a negative sum game during the recession.)
[quote=pri_dk][quote=davelj][…] borrow against their houses and… wait for it… “spend”. […] “consumption” (aka, “consumer spending”) accounted for about 2/3 of GDP. This is neither controversial nor debatable.[/quote]
Now you are being a bit misleading. You seem to be suggesting that 2/3 of the GDP is driven by people borrowing and spending. There certainly was more borrowing during the bubble, but it didn’t account for 2/3 of economic activity (as measured by GDP.) Not even close.[/quote]
Actually, no, you’re trying to MAKE it look as though my statement was misleading by leaving out the words “led folks to” in place of “…” Here’s what I said (verbatim): “They’re merely (correctly) suggesting that booming house prices led folks to borrow against their houses and… wait for it… ‘spend’. Which they did. And it’s documented. And last time I checked, ‘consumption’ (aka, “consumer spending”) accounted for about 2/3 of GDP.”
I’m betting you’re the only person on this blog that read my statement and thought I was suggesting that every dollar of consumption during the boom was the result of home equity borrowing. The fact is that the wealth effect and it’s positive impact (at the time) on GDP during the boom are well-established. There’s a great deal of research on the topic out there, virtually none of it taking the opposite view.
[quote=pri_dk]
But the main point is that claims that our entire economy is some sort of capitalist shell game and that there is no actual value being created are simply nonsense.[/quote]I never claimed this. There is actual value being created. But, arguably, the value created has been greatly exaggerated over the past 30 years (as a result of debt driving a lot of unsustainable consumption).
ParticipantStraw man alert!! Krugman tries to convince us that these other economists are counting capital gains as GDP growth… when they’re not. They’re merely (correctly) suggesting that booming house prices led folks to borrow against their houses and… wait for it… “spend”. Which they did. And it’s documented. And last time I checked, “consumption” (aka, “consumer spending”) accounted for about 2/3 of GDP. This is neither controversial nor debatable.
I have no problem with Krugman in general… but it seems like he’s just twisting others’ views in order to nitpick in this article. (Must have been a slow economics news week.)
Contrary to your assertion, I don’t think there’s any confusion on the topic here. The arguments that “recent GDP growth is somehow artificial” has nothing at all to do with “asset price increases”. Rather, it has to do with debt creation driving demand (as opposed to “core,” non-debt driven demand). I’ll be so excited when the economics profession learns how to model debt into the workings of our economy. Until that time, we’ll remain lost in the financial wilderness.
Participant[quote=briansd1]French is the language of intellectuals and diplomats.
[/quote]Sure, in the 18th and 19th centuries. Today, English is the language of intellectuals and diplomats. If you line up all of the world’s intellectuals and diplomats I’m betting you’ll find fluency in English outnumbers fluency in French by many many multiples. Not that there’s anything wrong with the French language… but let’s keep things in perspective.
ParticipantI just got back from a small bank conference and just about every banker was saying the same thing (for the first time in several years): non-performing loans are dropping significantly; borrowers look much stronger this year as compared to last year; they’re more optimistic; they’re hiring and drawing down credit lines for the first time in several years, etc. So, for the first time in quite some time most of the bankers were cautiously optimistic.
I’d say there’s little doubt that the economy’s improving, albeit at a very modest clip. The question is whether or not it’s sustainable. The problem, of course, is all of that debt out there.
Everyone – except perhaps the corporate sector – has too much debt; that is, mainly consumers and Uncle Sam. But… debt SERVICE is actually about in the middle of historical range… because of historically low interest rates. Which is why the economy is growing (very modestly) despite the mountain of debt.
Note the debt service ratios (they’re a complete non-event… for now):
Consumers:
http://www.federalreserve.gov/releases/housedebt/The Federal Government:
http://www.intellectualtakeout.org/library/chart-graph/us-debt-interest-rate-payments?library_node=69078So, the logical person queries, “Well, what happens when and if interest rates increase?” The simple answer is that debt service will increase (despite the fact that a pretty large chunk of the total debt is at low fixed rates with long maturities), which will crimp spending, and the economy will slow and possibly go into recession… and rates will come down again (eventually). So, there is a see-saw effect between debt, the servicing thereof, and economic growth. Unfortunately, it doesn’t work as smoothly in reality as it does in theory. We could have stagflation for a few years or a number of other unpleasantries while the see-saw seeks a new equilibrium.
The point, however, is that over the LONG term… we’re likely to muddle along at half (or less) the growth rate of the recent past as the debt gets paid down, or is just stabilized while the economy (slowly) catches up to it. I’d bet on 1%-1.5% real GDP growth over the next 15-20 years (versus 3%+ over the last 60 years). That’s not the end of the world, but it’s going to be unpleasant for a lot of folks for an extended period of time. I suspect we’re going to see a continuation of some recent trends like a declining birth rate and people “simplifying” their lives (fewer mcmansions, smaller cars, less bauble-buying). The money, after all, just ain’t there. (It never was “really” there, of course, but now more people realize it.)
But I could be wrong…
ParticipantLooks like they added a crapload of value to me. Doesn’t even look like the same house. My question is how much they made on the flip given the costs of renovation and commissions on sale… they only had $140K to work with and that renovation looks pretty involved. But I’m not good at eyeballing the cost of major renovations like this one.
Participant[quote=CA renter][quote=davelj]On the subject of “giving in” and buying a home the Piggs may receive similar news from another long-standing Pigg bear very soon… but I don’t want to spoil the surprise, betray confidences, or jinx the transaction. Let the speculating begin!
P.S. Congrats evolusd and sdrealtor.[/quote]
Are there any bubble-sitters left at this point?
It seems like about 95% of the Piggs have bought already. Does that mean that the bubble is over and done with, or is it a sign of bear capitulation? ;)[/quote]
Yes, a lot of Piggs have bought and there aren’t a lot of bubble-sitters left. 95%? No idea.
The bubble is definitely over and done with… but that’s not your question. I think your question is whether there’s going to be an over-correction to the downside and I have no idea about that. If interest rates remain low, I doubt it. Right now the typical house is “reasonably priced” – whether things go meaningfully lower from here… who knows…
In the meantime, we muddle along…
ParticipantOn the subject of “giving in” and buying a home the Piggs may receive similar news from another long-standing Pigg bear very soon… but I don’t want to spoil the surprise, betray confidences, or jinx the transaction. Let the speculating begin!
P.S. Congrats evolusd and sdrealtor.
ParticipantThis is very similar to a suggestion I’ve bantered about with friends over the last year, except that I put in a lower limit (I was thinking $250K). Regardless of the details and mechanics, I think it’s a very good idea to make it easier to get wealthy foreigners US visas, and to tie this in some way to real estate purchases. We already have a program with two separate investment levels for foreigners who want to start a business in the US. This is really just an extension of the same idea.
ParticipantI’ve discussed this issue before. I’m going to try to move to Mexico next year, although it could be 2013 (it’s always more complicated in practice than on paper) before I can pull it off. I’ve got a (consultant) friend who did it years ago. I’m with the original poster, if you’re single, no wife, no kids, and have a lot of work flexibility (e.g., consultant, fund manager, etc.) I don’t see the point in maintaining CA residency and paying CA taxes.
Participant[quote=AN]
Nicely put. I totally agree. I might not be in that 1%, but I want to be them, not take money away from them. Of course, if they got their money through illegal means, then yes, they should be punished. But guys like Zuckerberg/Page/Brin/etc who recent got their wealth did not do it by stealing from the 99%.[/quote]Yes, but without the government structure (and enforcement) of laws, property rights, etc. – not to mention an educated workforce and population – how would these folks have been able to start a business in the first place to get into the top 1%? Without the government allowing a corporate entity to exist – with its limited liability for owners/shareholders – these folks would all have bupkus… because no one would take the large-scale risks necessary to do the things they’ve done if they faced personal liability for failure. The “corporate veil” is one of the single most valuable tools of the rich. Which I don’t have a problem with, by the way. But… those that benefit from it should pay DEARLY for its use… because without it most of them would not be in the position they’re in. They would never PERSONALLY undertake the risks that the corporate veil allows them to undertake. And without being able to take those risks… again… bupkus.
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