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livinincali
Participant[quote=Leorocky]Can anybody show me evidence of “massive asset price bubbles” and show me how the Fed (I’m assuming via QE) caused it.[/quote]
QE is a relatively new monetary policy it’s effects are yet to be seen. As for the Fed helping to create and encourage bubbles just look at internet bubble of 2000 or the housing bubble of 2004-2007.
In 1999-2000 the fed increased the money supply because of worries about y2K and bank runs. The banks took that money and invested it temporarily which helped fuel the tail end of the internet bubble. When the fed decided to pull that liquidity after the y2K scare was done we had the huge collapse.
In the housing bubble the fed keep interest rates low for way too long which helped fuel the housing bubble. They felt they could keep rates low because there wasn’t much inflation in the CPI but CPI didn’t measure the excessive speculation in housing prices. Just like CPI is low now but it doesn’t account for the excessive speculation in shale oil, junk bonds, and stocks. The fed can make money cheap to borrow but it can’t determine what that money is used for. If it’s used for financial engineering and speculation rather than productive investment when the rates go up all that speculation has to be unwound because it no longer is profitable.
If I borrow $100K at 2% and invest it in VZ stock to get a 3.5% dividend I’m making a small percentage but if my borrow rate goes up to 3 or 4% I’m immediately going to sell my stock because it’s no longer profitable to have that arbitrage play on.
Participant[quote=Leorocky]
The money the Fed has “printed” has mostly gone to shore up the balance sheets of large banks. Using your simple economy example if the new money supply was buried in my backyard or in some other inaccessible location (such as a banks deposit account at the Fed) it has no effect on the price of the goods.[/quote]Why does the fed need to shore up the balance sheets of banks, unless that money has already been spent as credit and entered the economy?
Total money supply includes both credit and money (bank notes, savings, etc.). They spend the same whether I borrow $100K and spend it or take $100K out of my saving account and spend it. I’ve created the same demand for some set of goods.
If your point is just that hyper inflation hasn’t happened, massive inflation hasn’t happened and likely won’t happen then I agree with you. It hasn’t happened because that money was already spent and now it’s just being used to shore up the asset side of the banks balance sheet.
Now to say that Fed money printing has had nothing but positive effects on the economy and that there isn’t any consequences to their actions is naive. They have created a massive asset price bubble in certain asset classes. There’s a significant portion of that printed money that has ended up in asset price speculation. We’ll see the result in a few years but for now I don’t expect to find many to agree with me now. Nobody seems to be able to hold onto the lessons taught from the previous bubbles.
Participant[quote=Leorocky]Inflation is the sustained increase in prices for consumer goods and services (to be brief). And not just one, or two, or three goods and services, it’s across the board.
http://www.federalreserve.gov/faqs/economy_14419.htm
You said “the effects of inflation (increased money supply)”. Inflation is not an increase in money supply. Inflation can certainly be a result of an increase in the money supply but is not defined by it.
Houses, stocks and bonds are capital assets; they are not consumer goods and services. Prices of these assets appreciate/depreciate typically due to factors other than and/or not related to inflation/deflation. It is incorrect to state than stocks, for example, have appreciated and to call it inflation.
By no measure that would pass muster with any credible economist has inflation been “massive” in the last several years.[/quote]
This is exactly what the problem is. People define inflation differently and then use their different definitions to argue a certain point.
At the most fundamental level inflation is an increase in the money supply relative to goods produced. Obviously in the most simple economy where there’s 100 of some type of good and 100 units of money the price of that good is 1 unit of money. If you double the supply of money and hold the number of goods at 100 then that good become 2 units of money.
CPI is the consumer price index, it’s how the fed measures inflation but it’s a flawed measured for a variety of reasons.
The fundamental issue is the fed has printed a bunch of money via bond buying programs, and that money has gone somewhere. It just has gone into asset prices that the fed doesn’t bother to look at when measuring inflation. The fed can print and spend money but it can’t determine where that money goes. That’s why we end up with asset price bubbles.
Participant[quote=The-Shoveler]”AND who were one of the last generations to do better than the generation ”
IMO this is going to be proven so wrong I don’t know where to start, except that was almost the exact same thing they were telling us in 1976-9 LOL.
First The millennials are going to inherent at least twice as much from the boomers as the boomers got from their parents LOL.
The USA is in a so much more better state than we were in 1980 it is laughable when I hear people talk about the demise of the U.S.A.
Anyway this is pointless so I give up arguing about this anymore.[/quote]
As long as you ignore the liability side of the balance sheet.
Participant[quote=AN]You can do that, but you’re increasing the risk of your renter moving. You have to decide for yourself whether paying for vacancy, cleaning, maintenance is less than the extra rent you get. Sometime it is, sometime, it isn’t. You might think 1-2% hike is far from unreasonable, but it doesn’t matter if it reasonable or not. It’s all about if that’s enough to make your tenant move or not.[/quote]
1 month of vacancy is 8.3% of the total annual rent. It takes 2.8 years before you break even on a 3% increase in rent if increasing the rent results in the tenant moving out. Obviously it all depends on how inconvenient it is for the tenant to move and if they might already have plans of moving. Some people will just pay the extra $25-50 month, some will look at at other options and still decide to stay. Some will just move because they don’t like the principal or were just looking for an excuse to move anyways.
Participant[quote=CA renter]
Absolutely! I want labor’s money out of politics, too; though fraud, waste, and abuse are more likely to happen between private contractors (among a host of other private interests) and public entities because the private stakeholders are less scrutinized and better protected than public employees. We can eliminate labor’s money just as soon as capital’s money is out (and every other special interest group’s money, too) — ALL OF IT. Until then, labor absolutely needs to have a seat at the table.[/quote]It’s too bad the the one paying the bills (the common taxpayer) doesn’t have a seat at the table. Whether the politician is beholden to special interests or public labor unions the result for the tax payer is the same. Take more from us to give to some special group. Whether your corporate special interest or public sector union, in my eyes you’re both greedy leeches.
Participant[quote=moneymaker]spdrun I’m with you on nuclear as a good form of energy production.[/quote]
Who said you need uranium 235 to produce nuclear power. There’s tons Thorium 232 to be exploited in the US. Of course it’s difficult to build nuclear weapons from a Thorium nuclear fuel cycle.
[quote=moneymaker]
probably not a good idea in places that are known for earthquakes though, i.e. Japan and California.
[/quote]As long as it’s NIMBY, right? I would agree that CA might be better off with Solar Thermal in the Mohave desert than Uranium PWRs on the coast. Of course we might screw up some some desert snake’s habitat if we do that.
Participant[quote=FlyerInHi]Underwater just means mortgages outstanding are more than the value of the houses.
[/quote]Theoretically a house (the structure) is a depreciating asset. It’s only the land/location that makes home prices go up.
Participant[quote=poorgradstudent]Are you talking about the traditional big producers like Exxon, or the small shale oil boom companies that represent a fractured, fragmented market?
A lot of those small companies will eventually go bust or get bought out, probably by Domestic Big Oil companies or ones like BP or Shell.
Of course, I’ve been saying that there are too many microbreweries in San Diego for years, yet the number keeps going up. Sometime the craft beer market has to consolidate… right?[/quote]
The 300-500 billion that was borrowed to build out the shale oil bubble will pop likely next year. But it will be contained just like subprime was contained I’m sure. Just look at the Junk Bond market where most of this stuff trades (JNK).
The craft beer market in SanDiego will pop too. The big guys won’t fail but the micros that got in over their head will. I’m sure you’ll be able to find 15-30 barrel production equipment on the cheap in a couple of years.
Participant[quote=CA renter]
Also, bankruptcy is NOT foreseeable in most cases. If it were, most lenders wouldn’t make these loans.If people thought that the credit market was “tight” during the financial crisis, I can assure you that it would be even worse if we were to follow Brian’s advice.[/quote]
I’m pretty sure most of the underwriters during the housing crisis could see bankruptcy and default when they were loaning people 700K when they made 50K annual income. It’s just that they could risk shift it to somebody else with Credit Default Swaps. Credit should be tight, there’s no good reason for loose credit standards except that it helps inflate the costs of things. How much would college cost if you could declare bankruptcy and get rid of student loans? It wouldn’t be nearly as expensive as it is because nobody would be loaning 100K to a liberal arts major anymore.
Participant[quote=The-Shoveler]If they had let it run it course it would have been much much worse, and could have cause a total collapse.
Assets is what holds up the banks (and the economy in general), it’s a catch 22, once you run them up, you cannot allow them to collapse else the whole thing goes,
It’s something I think many failed to see.[/quote]
You’re arguing that the math doesn’t matter. You might be able to postpone the realization that the other side of the balance sheet holds nothing for awhile but eventually it’s going to matter. Of course there’s another crash baked into the current bubble and people are falling for it again. That’s what;s surprising to me. This unwavering faith in the fed having your back. It’s worthless to argue about it now, most won’t see it until it becomes hindsight.
ParticipantIt’s easy to remember the ones that still exist. It’s hard to remember all the ones that failed in the past 50 or 100 years. Some of these excelled over the past 50-100 years. Some are still around but a shadow of their former self. Some are completely gone.
Here’s DOW 30 in 1959
Allied Chemical
Aluminum Company of America
American Can
American Telephone and Telegraph Company
American Tobacco B
Anaconda Copper
Bethlehem Steel
Chrysler
E. I. du Pont de Nemours and Company
Eastman Kodak Company
General Electric Company
General Foods
General Motors Corporation
Goodyear
International Harvester
International Nickel
International Paper Company
Johns-Manville
Owens-Illinois Glass
Procter & Gamble Company
Sears Roebuck & Company
Standard Oil of California
Standard Oil (NJ)
Swift & Company
Texaco Incorporated (formerly Texas Company)
Union Carbide
United Aircraft
U.S. Steel
Westinghouse Electric
WoolworthDOW 30 from 1928 when it first became and index of 30 names.
Allied Chemical
American Can
American Smelting
American Sugar
American Tobacco B
Atlantic Refining *
Bethlehem Steel *
Chrysler *
General Electric Company
General Motors Corporation
General Railway Signal *
Goodrich *
International Harvester
International Nickel *
Mack Truck
Nash Motors *
North American *
Paramount Publix (formerly Paramount Famous Lasky)
Postum Incorporated *
Radio Corporation *
Sears Roebuck & Company
Standard Oil (NJ) *
Texas Company
Texas Gulf Sulphur *
Union Carbide *
U.S. Steel
Victor Talking Machine *
Westinghouse Electric *
Woolworth
Wright Aeronautical *Participant[quote=CA renter]
This is a huge pet peeve of mine. Lost in the capitalist propaganda of “risk and rewards” is the fact that most rich people take very few personal risks. More privatization of the profits and socialization of the losses…and it will always be this way until people start to wake up (which is finally starting to happen, but it’s a very slow process).[/quote]It totally depends on how you got rich. The innovators of the world Jobs, Gates, etc probably deserve to have gotten rich. They all took significant risks. The problem is that eventually these people move on from their companies and you end up with Wharton grads running them. Most of these Grads don’t have the innovative skills of those they replaced so they start thinking in the short term and what’s good for the share price. Eventually most of them tend to run the company into the ground, but in the process they get rich. How many companies are still around from 50 years ago, 100 years ago? Not many.
Essentially you want to somehow prevent the well connected from going to Wharton and get the C-Level job because they don’t deserve to be rich in your mind. I don’t see how you can actually accomplish this though.
Participant[quote=FlyerInHi]
How is that relevant to increasing goods and services for everyone?More consumer spending does generate more goods and services.
[/quote]It really depends. If I give everyone in America a check for 1 million dollars and they immediate quite their job and go out and spend the money did I grow the economy or shrink the economy. I have more consumer spending initially but I also encouraged people to stop being productive at the same time.
[quote=FlyerInHi]
It’s not about morals or individual choices. It’s about total aggregate goods and services for everyone.
So how is the ivory tower getting it wrong?
[/quote]Well more people working to produce something of value increase total goods and services but how does handing out food stamps, welfare checks, medical subsides, etc. encourage people to do productive things in the economy. Freeing up more money to buy iPhones built in China and enrich a company that already has tons of money isn’t doing much to help the main street economy in the US. Yet that’s where the problem lies, we can encourage demand but we can’t necessarily direct that demand to something that will benefit the US economy on the whole.
There is no free lunch or painless solution to the problem of too much debt. The ivory tower keeps thinking they can grow their way out of this problem but they are wrong. Doesn’t stop them from trying and claiming that the reason it didn’t work is because it wasn’t a big enough stimulus package. Those plans fail because they don’t understand that people act in their own self interest and often irrationally.
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