Forum Replies Created
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AuthorPosts
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Diego Mamani
Participant(Comments on the OP below)
Equalizer, if the ECB buys dollars, it’ll do so to support the dollar, not the euro. European exporters are certainly not happy with the $1.56 exchange rate, and there’s concern about the employment situation across the Atlantic.Interesting replies from many posters on this thread. The main critique to my OP argument is that as long as nominal incomes don’t rise, housing prices still have a lot to drop (in my example house, if it dropped from $810K at the peak to $710 now, it may drop another $100 or $150K before this is over), and therefore, the effect of oil/silver/gold/euro, etc. is limited.
I agree that prices of gold, oil, etc., are very volatile, that’s why I converted the house price to both of them plus the euro (which is not so volatile). That all three measures told the same story was very informative to me.
I still think that unless the dollar prices of gold, oil, and the Euro fall rapidly this year (which I think it’s unlikely), near-term future inflation in the US will accelerate. Once that happens, nominal incomes will move upwards. High inflation means that $1 has a fraction of its value in, say, 2001. If the family earning $65K in 2001 earns $112K by the end of 2008, mostly because of inflation, then that $700K house price won’t look as ridiculously inflated as it did in 2005 dollars.
In other words, that $700K price won’t have to drop as much to correct the housing imbalance because the Fed has successfully inflated its way out this problem. We were hoping on this blog that the housing price/rent and price/income ratios would be restored by drops in house prices only (the numerator). Unfortunately, a big chunk of the correction will come from inflation: increases in rent and income (the denominator).
Participant(Comments on the OP below)
Equalizer, if the ECB buys dollars, it’ll do so to support the dollar, not the euro. European exporters are certainly not happy with the $1.56 exchange rate, and there’s concern about the employment situation across the Atlantic.Interesting replies from many posters on this thread. The main critique to my OP argument is that as long as nominal incomes don’t rise, housing prices still have a lot to drop (in my example house, if it dropped from $810K at the peak to $710 now, it may drop another $100 or $150K before this is over), and therefore, the effect of oil/silver/gold/euro, etc. is limited.
I agree that prices of gold, oil, etc., are very volatile, that’s why I converted the house price to both of them plus the euro (which is not so volatile). That all three measures told the same story was very informative to me.
I still think that unless the dollar prices of gold, oil, and the Euro fall rapidly this year (which I think it’s unlikely), near-term future inflation in the US will accelerate. Once that happens, nominal incomes will move upwards. High inflation means that $1 has a fraction of its value in, say, 2001. If the family earning $65K in 2001 earns $112K by the end of 2008, mostly because of inflation, then that $700K house price won’t look as ridiculously inflated as it did in 2005 dollars.
In other words, that $700K price won’t have to drop as much to correct the housing imbalance because the Fed has successfully inflated its way out this problem. We were hoping on this blog that the housing price/rent and price/income ratios would be restored by drops in house prices only (the numerator). Unfortunately, a big chunk of the correction will come from inflation: increases in rent and income (the denominator).
Participant(Comments on the OP below)
Equalizer, if the ECB buys dollars, it’ll do so to support the dollar, not the euro. European exporters are certainly not happy with the $1.56 exchange rate, and there’s concern about the employment situation across the Atlantic.Interesting replies from many posters on this thread. The main critique to my OP argument is that as long as nominal incomes don’t rise, housing prices still have a lot to drop (in my example house, if it dropped from $810K at the peak to $710 now, it may drop another $100 or $150K before this is over), and therefore, the effect of oil/silver/gold/euro, etc. is limited.
I agree that prices of gold, oil, etc., are very volatile, that’s why I converted the house price to both of them plus the euro (which is not so volatile). That all three measures told the same story was very informative to me.
I still think that unless the dollar prices of gold, oil, and the Euro fall rapidly this year (which I think it’s unlikely), near-term future inflation in the US will accelerate. Once that happens, nominal incomes will move upwards. High inflation means that $1 has a fraction of its value in, say, 2001. If the family earning $65K in 2001 earns $112K by the end of 2008, mostly because of inflation, then that $700K house price won’t look as ridiculously inflated as it did in 2005 dollars.
In other words, that $700K price won’t have to drop as much to correct the housing imbalance because the Fed has successfully inflated its way out this problem. We were hoping on this blog that the housing price/rent and price/income ratios would be restored by drops in house prices only (the numerator). Unfortunately, a big chunk of the correction will come from inflation: increases in rent and income (the denominator).
Participant(Comments on the OP below)
Equalizer, if the ECB buys dollars, it’ll do so to support the dollar, not the euro. European exporters are certainly not happy with the $1.56 exchange rate, and there’s concern about the employment situation across the Atlantic.Interesting replies from many posters on this thread. The main critique to my OP argument is that as long as nominal incomes don’t rise, housing prices still have a lot to drop (in my example house, if it dropped from $810K at the peak to $710 now, it may drop another $100 or $150K before this is over), and therefore, the effect of oil/silver/gold/euro, etc. is limited.
I agree that prices of gold, oil, etc., are very volatile, that’s why I converted the house price to both of them plus the euro (which is not so volatile). That all three measures told the same story was very informative to me.
I still think that unless the dollar prices of gold, oil, and the Euro fall rapidly this year (which I think it’s unlikely), near-term future inflation in the US will accelerate. Once that happens, nominal incomes will move upwards. High inflation means that $1 has a fraction of its value in, say, 2001. If the family earning $65K in 2001 earns $112K by the end of 2008, mostly because of inflation, then that $700K house price won’t look as ridiculously inflated as it did in 2005 dollars.
In other words, that $700K price won’t have to drop as much to correct the housing imbalance because the Fed has successfully inflated its way out this problem. We were hoping on this blog that the housing price/rent and price/income ratios would be restored by drops in house prices only (the numerator). Unfortunately, a big chunk of the correction will come from inflation: increases in rent and income (the denominator).
ParticipantWhy pick euros instead of dollars when dollars IS the currency in the US of A?
People like you give the Fed a free ride. So, for you, no matter how much liquidity the Fed pumps into the system, a buck is a buck, $10 in 2001 are worth the same to you as $10 in 2008, even if oil has cuadrupled and gold tripled? Supply and demand, my friend: the more plentiful dollars are, the less value they have. What I found on this thread is that people can’t comprehend that dollars can be valued in a metric other than dollars, and that there can be too many dollars for them to keep their value.
You approach to money is what we call “monetary illusion.” $10 are not the same as another $10 unless both are at the same time and place. This is how we got into the stagflation mess of the 1970s, there was a widespread belief that a little more money, and little more inflation would grease the economy’s wheels and we would all be happy. It didn’t happen. We had inflation and low growth.
When people realized that $15 didn’t have the same purchasing power as $10 a few years back, then things started to unravel: producers started to increase prices routinely and consumers cut back. The current loose monteray policies are taking us back to that 70s scenario.
ParticipantWhy pick euros instead of dollars when dollars IS the currency in the US of A?
People like you give the Fed a free ride. So, for you, no matter how much liquidity the Fed pumps into the system, a buck is a buck, $10 in 2001 are worth the same to you as $10 in 2008, even if oil has cuadrupled and gold tripled? Supply and demand, my friend: the more plentiful dollars are, the less value they have. What I found on this thread is that people can’t comprehend that dollars can be valued in a metric other than dollars, and that there can be too many dollars for them to keep their value.
You approach to money is what we call “monetary illusion.” $10 are not the same as another $10 unless both are at the same time and place. This is how we got into the stagflation mess of the 1970s, there was a widespread belief that a little more money, and little more inflation would grease the economy’s wheels and we would all be happy. It didn’t happen. We had inflation and low growth.
When people realized that $15 didn’t have the same purchasing power as $10 a few years back, then things started to unravel: producers started to increase prices routinely and consumers cut back. The current loose monteray policies are taking us back to that 70s scenario.
ParticipantWhy pick euros instead of dollars when dollars IS the currency in the US of A?
People like you give the Fed a free ride. So, for you, no matter how much liquidity the Fed pumps into the system, a buck is a buck, $10 in 2001 are worth the same to you as $10 in 2008, even if oil has cuadrupled and gold tripled? Supply and demand, my friend: the more plentiful dollars are, the less value they have. What I found on this thread is that people can’t comprehend that dollars can be valued in a metric other than dollars, and that there can be too many dollars for them to keep their value.
You approach to money is what we call “monetary illusion.” $10 are not the same as another $10 unless both are at the same time and place. This is how we got into the stagflation mess of the 1970s, there was a widespread belief that a little more money, and little more inflation would grease the economy’s wheels and we would all be happy. It didn’t happen. We had inflation and low growth.
When people realized that $15 didn’t have the same purchasing power as $10 a few years back, then things started to unravel: producers started to increase prices routinely and consumers cut back. The current loose monteray policies are taking us back to that 70s scenario.
ParticipantWhy pick euros instead of dollars when dollars IS the currency in the US of A?
People like you give the Fed a free ride. So, for you, no matter how much liquidity the Fed pumps into the system, a buck is a buck, $10 in 2001 are worth the same to you as $10 in 2008, even if oil has cuadrupled and gold tripled? Supply and demand, my friend: the more plentiful dollars are, the less value they have. What I found on this thread is that people can’t comprehend that dollars can be valued in a metric other than dollars, and that there can be too many dollars for them to keep their value.
You approach to money is what we call “monetary illusion.” $10 are not the same as another $10 unless both are at the same time and place. This is how we got into the stagflation mess of the 1970s, there was a widespread belief that a little more money, and little more inflation would grease the economy’s wheels and we would all be happy. It didn’t happen. We had inflation and low growth.
When people realized that $15 didn’t have the same purchasing power as $10 a few years back, then things started to unravel: producers started to increase prices routinely and consumers cut back. The current loose monteray policies are taking us back to that 70s scenario.
ParticipantWhy pick euros instead of dollars when dollars IS the currency in the US of A?
People like you give the Fed a free ride. So, for you, no matter how much liquidity the Fed pumps into the system, a buck is a buck, $10 in 2001 are worth the same to you as $10 in 2008, even if oil has cuadrupled and gold tripled? Supply and demand, my friend: the more plentiful dollars are, the less value they have. What I found on this thread is that people can’t comprehend that dollars can be valued in a metric other than dollars, and that there can be too many dollars for them to keep their value.
You approach to money is what we call “monetary illusion.” $10 are not the same as another $10 unless both are at the same time and place. This is how we got into the stagflation mess of the 1970s, there was a widespread belief that a little more money, and little more inflation would grease the economy’s wheels and we would all be happy. It didn’t happen. We had inflation and low growth.
When people realized that $15 didn’t have the same purchasing power as $10 a few years back, then things started to unravel: producers started to increase prices routinely and consumers cut back. The current loose monteray policies are taking us back to that 70s scenario.
ParticipantI wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.
Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.
Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?
Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.
Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).
ParticipantI wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.
Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.
Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?
Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.
Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).
ParticipantI wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.
Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.
Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?
Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.
Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).
ParticipantI wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.
Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.
Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?
Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.
Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).
ParticipantI wish I had the reference, but I saw recently that the median income is actually *down* since 2000. And thats the fundamental re: housing prices.
Kewp: I’m glad you brought that up, as it illustrates the confusion between nominal incomes (measured in current dollars) and real incomes (adjusted for inflation). It is real incomes that probably shrunk since 2000, especially for less skilled workers.
Going back to the original post. Suppose the family who bough the $407 house in 2001 had a $65 income. Seven years later, the house could be $700K and the family’s income $112K. You’re going to say “no way! that’s too high a salary.” The point I’m trying to make, and that brsharma reiterated, is that with the current Fed policies, gasoline could be $4.50 or $6.00, a box of cereal sell for $10, and a gallon of milk sell for $9. Then the $112 income doesn’t sound too good, right?
Thi family is in fact worse off in 2008 than in 2001 b/c of inflation. In real terms their income is actually smaller. And because of the high inflation $700K doesn’t seem too high because the 2008 dollars are worth far less than in 2001.
Again, I don’t think we have reached the bottom in housing prices, but we’re very close to it. I wished housing would have corrected by only price drops. Prices have dropped, yes, but unfortunately, the Fed is achieving a huge chunk of the correction by debasing the dollar (by using inflation).
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