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patientrenter
ParticipantFor you, selling now is like going to a poker game with acquaintances you think you might beat. You figure you have a 75% chance of walking away with more money than you bring. So you bring $300. Maybe you’ll bring back $600, maybe $100. You’re not too worried.
Now multiply the numbers by $1000. Do you feel just as unworried, and as ready to play the hands and make the bets and enjoy the game?
You have to think about your own tolerance for risk.
Patient renter in OC
ParticipantGary, your reasoning is spot-on. (Do you really not have a background in economics?) My own knowledge of economics is amateur, so if a professional can set us straight I’d appreciate it. Until then, here are my own rough-hewn thoughts on some more of what you’ve said.
1. “Just like the individual, doesn’t our nation eventually either have to walk away on its debt obligations or begin to make some very drastic and painful changes in spending?”
Precisely. If we do walk away from those obligations (by letting the dollar devalue), we’ll still have to reduce spending, because we won’t have access to new sources of money. But at least we won’t have to reduce spending enough to repay all the excess money we’ve spent in the prior decades. Another part of the solution could be exporting more. We’ll have to do better at making things or services foreigners want.
2. ” ‘For the simple reasons that population is growing and the productivity is also growing. Do the math, if GDP does not grow, the hours worked per person must drop.’
I’m not overly informed I guess, but this doesn’t make sense to me.”
I think the sustainable growth in $ money is the sum of growth in working population, growth in (real) productivity, and inflation. I know you’re saying real productivity may be overstated. Could be. But when it’s measured correctly, you get the conclusion I describe above. E.g. total sustainable money growth = 1.5% (pop) + 1.5% (real productivity) + 3% (inflation) = 6%. I’d guess 4-7% is a reasonable range.
3. “Erring continuously on the side of inflation must certainly have eventual consequence.”
Not inevitably. Savers may get tired of getting hit by inflation, but will that stop people like me who need high levels of financial security from saving? Not much. So the effect could be small. We all need to save some for retirement, regardless of how unattractive the return may get, or for how long.
4. “How long can we continue to put off eventual repayment of our collective debts?”
A long time. If we spend 5% more than we save, it would take 20 years for the extra debt (in real terms) to amount to one year’s income. That’s a lot, but not impossible.
Is today’s state fragile, though? Yes, I think so. Asset prices are maybe 15 times what they were back at the last trough in 1979-1981. After inflation, maybe 5-7 times. Corporate earnings are a bigger % of our GDP than ever before, maybe twice the average, so P/E ratios have a questionable long-term e. Clearly we’re more likely to be at a peak than an average. And importing more than we export to the tune of 5% of our GDP is historically high.
But people want more. People in other countries desperately want more, and know how to get it. The world’s economy will keep growing. So the end of all this fragility is unlikely to be a depression, just some cinching of US belts and a new focus on making more exportable goods and services.
Patient renter in OC
ParticipantGary, your reasoning is spot-on. (Do you really not have a background in economics?) My own knowledge of economics is amateur, so if a professional can set us straight I’d appreciate it. Until then, here are my own rough-hewn thoughts on some more of what you’ve said.
1. “Just like the individual, doesn’t our nation eventually either have to walk away on its debt obligations or begin to make some very drastic and painful changes in spending?”
Precisely. If we do walk away from those obligations (by letting the dollar devalue), we’ll still have to reduce spending, because we won’t have access to new sources of money. But at least we won’t have to reduce spending enough to repay all the excess money we’ve spent in the prior decades. Another part of the solution could be exporting more. We’ll have to do better at making things or services foreigners want.
2. ” ‘For the simple reasons that population is growing and the productivity is also growing. Do the math, if GDP does not grow, the hours worked per person must drop.’
I’m not overly informed I guess, but this doesn’t make sense to me.”
I think the sustainable growth in $ money is the sum of growth in working population, growth in (real) productivity, and inflation. I know you’re saying real productivity may be overstated. Could be. But when it’s measured correctly, you get the conclusion I describe above. E.g. total sustainable money growth = 1.5% (pop) + 1.5% (real productivity) + 3% (inflation) = 6%. I’d guess 4-7% is a reasonable range.
3. “Erring continuously on the side of inflation must certainly have eventual consequence.”
Not inevitably. Savers may get tired of getting hit by inflation, but will that stop people like me who need high levels of financial security from saving? Not much. So the effect could be small. We all need to save some for retirement, regardless of how unattractive the return may get, or for how long.
4. “How long can we continue to put off eventual repayment of our collective debts?”
A long time. If we spend 5% more than we save, it would take 20 years for the extra debt (in real terms) to amount to one year’s income. That’s a lot, but not impossible.
Is today’s state fragile, though? Yes, I think so. Asset prices are maybe 15 times what they were back at the last trough in 1979-1981. After inflation, maybe 5-7 times. Corporate earnings are a bigger % of our GDP than ever before, maybe twice the average, so P/E ratios have a questionable long-term e. Clearly we’re more likely to be at a peak than an average. And importing more than we export to the tune of 5% of our GDP is historically high.
But people want more. People in other countries desperately want more, and know how to get it. The world’s economy will keep growing. So the end of all this fragility is unlikely to be a depression, just some cinching of US belts and a new focus on making more exportable goods and services.
Patient renter in OC
ParticipantGary, your reasoning is spot-on. (Do you really not have a background in economics?) My own knowledge of economics is amateur, so if a professional can set us straight I’d appreciate it. Until then, here are my own rough-hewn thoughts on some more of what you’ve said.
1. “Just like the individual, doesn’t our nation eventually either have to walk away on its debt obligations or begin to make some very drastic and painful changes in spending?”
Precisely. If we do walk away from those obligations (by letting the dollar devalue), we’ll still have to reduce spending, because we won’t have access to new sources of money. But at least we won’t have to reduce spending enough to repay all the excess money we’ve spent in the prior decades. Another part of the solution could be exporting more. We’ll have to do better at making things or services foreigners want.
2. ” ‘For the simple reasons that population is growing and the productivity is also growing. Do the math, if GDP does not grow, the hours worked per person must drop.’
I’m not overly informed I guess, but this doesn’t make sense to me.”
I think the sustainable growth in $ money is the sum of growth in working population, growth in (real) productivity, and inflation. I know you’re saying real productivity may be overstated. Could be. But when it’s measured correctly, you get the conclusion I describe above. E.g. total sustainable money growth = 1.5% (pop) + 1.5% (real productivity) + 3% (inflation) = 6%. I’d guess 4-7% is a reasonable range.
3. “Erring continuously on the side of inflation must certainly have eventual consequence.”
Not inevitably. Savers may get tired of getting hit by inflation, but will that stop people like me who need high levels of financial security from saving? Not much. So the effect could be small. We all need to save some for retirement, regardless of how unattractive the return may get, or for how long.
4. “How long can we continue to put off eventual repayment of our collective debts?”
A long time. If we spend 5% more than we save, it would take 20 years for the extra debt (in real terms) to amount to one year’s income. That’s a lot, but not impossible.
Is today’s state fragile, though? Yes, I think so. Asset prices are maybe 15 times what they were back at the last trough in 1979-1981. After inflation, maybe 5-7 times. Corporate earnings are a bigger % of our GDP than ever before, maybe twice the average, so P/E ratios have a questionable long-term e. Clearly we’re more likely to be at a peak than an average. And importing more than we export to the tune of 5% of our GDP is historically high.
But people want more. People in other countries desperately want more, and know how to get it. The world’s economy will keep growing. So the end of all this fragility is unlikely to be a depression, just some cinching of US belts and a new focus on making more exportable goods and services.
Patient renter in OC
Participantbsrsharma is right about them being way overpriced still. I am watching all 2 bedroom condos in this area of South OC, and there are only 7 for less than $275K. None has a garage. Some have no a/c. All are downstairs units in apartment-like complexes. So far the cheapest is advertised for $260K, but the broker tells me a cash offer of $230K would be accepted. It needs lots of work.
I am going to wait a while, until March 2008, before even beginning to seriously consider buying a condo in this area.
Patient renter in OC
Participantbsrsharma is right about them being way overpriced still. I am watching all 2 bedroom condos in this area of South OC, and there are only 7 for less than $275K. None has a garage. Some have no a/c. All are downstairs units in apartment-like complexes. So far the cheapest is advertised for $260K, but the broker tells me a cash offer of $230K would be accepted. It needs lots of work.
I am going to wait a while, until March 2008, before even beginning to seriously consider buying a condo in this area.
Patient renter in OC
Participantbsrsharma is right about them being way overpriced still. I am watching all 2 bedroom condos in this area of South OC, and there are only 7 for less than $275K. None has a garage. Some have no a/c. All are downstairs units in apartment-like complexes. So far the cheapest is advertised for $260K, but the broker tells me a cash offer of $230K would be accepted. It needs lots of work.
I am going to wait a while, until March 2008, before even beginning to seriously consider buying a condo in this area.
Patient renter in OC
Participantwaiting hawk, I live next door to HB, and close to the HB area you describe. It’s been a while since I looked there, so I don’t have a clear crystal ball. But I think there are few of the wealthy cash buyers for the shacks in this area, so I would give a drop from high 6’s and low 7’s to just under 5 a 50/50 chance. It won’t happen based on what we know now, but a new downward impetus, like a California recession triggered by housing, could do it by end of ’08.
Patient renter in OC
Participantwaiting hawk, I live next door to HB, and close to the HB area you describe. It’s been a while since I looked there, so I don’t have a clear crystal ball. But I think there are few of the wealthy cash buyers for the shacks in this area, so I would give a drop from high 6’s and low 7’s to just under 5 a 50/50 chance. It won’t happen based on what we know now, but a new downward impetus, like a California recession triggered by housing, could do it by end of ’08.
Patient renter in OC
Participantwaiting hawk, I live next door to HB, and close to the HB area you describe. It’s been a while since I looked there, so I don’t have a clear crystal ball. But I think there are few of the wealthy cash buyers for the shacks in this area, so I would give a drop from high 6’s and low 7’s to just under 5 a 50/50 chance. It won’t happen based on what we know now, but a new downward impetus, like a California recession triggered by housing, could do it by end of ’08.
Patient renter in OC
ParticipantGary, you asked a lot of questions, and I am not qualified to answer them all. Given the sharpness of your “common sense” I suspect you already know what I do. But I will share two of my thoughts related to your questions:
1. People who want more money tend to look for it where it’s already piled up. In the split between borrowers and savers, that means there’s always political pressure from borrowers to reduce their debts to savers. Inflation is a very handy way to accomplish this transfer. It’s a silent borrowers’ tax on savers. Since there are many more voting borrowers than savers, net inflation is more common than deflation. Even when people do save, it tends to be in things like pension funds where they can’t see clearly how they lose from inflation. Their debts are very clear to them – home loans and credit card debt and car loans.
2. Deflation increases the value of cash. So you’d be inclined to hold onto it if deflation were significant. If a lot of people do that, spending could plummet lower than even extremely conservative people (like me) want. So sensible managers of our economy tend to err on the side of inflation just to avoid deflation.
I am not ready to say that a depression is coming. The world’s economy is still expanding briskly, and a recession in the US is likely to be pulled up eventually by growth in other countries. Even when the world wasn’t doing as well as it’s doing now, most past recessions did end before they became depressions.
Patient renter in OC
ParticipantGary, you asked a lot of questions, and I am not qualified to answer them all. Given the sharpness of your “common sense” I suspect you already know what I do. But I will share two of my thoughts related to your questions:
1. People who want more money tend to look for it where it’s already piled up. In the split between borrowers and savers, that means there’s always political pressure from borrowers to reduce their debts to savers. Inflation is a very handy way to accomplish this transfer. It’s a silent borrowers’ tax on savers. Since there are many more voting borrowers than savers, net inflation is more common than deflation. Even when people do save, it tends to be in things like pension funds where they can’t see clearly how they lose from inflation. Their debts are very clear to them – home loans and credit card debt and car loans.
2. Deflation increases the value of cash. So you’d be inclined to hold onto it if deflation were significant. If a lot of people do that, spending could plummet lower than even extremely conservative people (like me) want. So sensible managers of our economy tend to err on the side of inflation just to avoid deflation.
I am not ready to say that a depression is coming. The world’s economy is still expanding briskly, and a recession in the US is likely to be pulled up eventually by growth in other countries. Even when the world wasn’t doing as well as it’s doing now, most past recessions did end before they became depressions.
Patient renter in OC
ParticipantGary, you asked a lot of questions, and I am not qualified to answer them all. Given the sharpness of your “common sense” I suspect you already know what I do. But I will share two of my thoughts related to your questions:
1. People who want more money tend to look for it where it’s already piled up. In the split between borrowers and savers, that means there’s always political pressure from borrowers to reduce their debts to savers. Inflation is a very handy way to accomplish this transfer. It’s a silent borrowers’ tax on savers. Since there are many more voting borrowers than savers, net inflation is more common than deflation. Even when people do save, it tends to be in things like pension funds where they can’t see clearly how they lose from inflation. Their debts are very clear to them – home loans and credit card debt and car loans.
2. Deflation increases the value of cash. So you’d be inclined to hold onto it if deflation were significant. If a lot of people do that, spending could plummet lower than even extremely conservative people (like me) want. So sensible managers of our economy tend to err on the side of inflation just to avoid deflation.
I am not ready to say that a depression is coming. The world’s economy is still expanding briskly, and a recession in the US is likely to be pulled up eventually by growth in other countries. Even when the world wasn’t doing as well as it’s doing now, most past recessions did end before they became depressions.
Patient renter in OC
ParticipantPB, I don’t have much sympathy for buyers who lost their gamble to reap huge price gains. But neither do I, or some others here, support the closed-minded personalized attacks you’ve been subject to.
I hope that in the future you will be able to add your knowledge and experience to the blog without the abuse. And remember, the people who try hardest to shout you down, instead of objectively discussing your points, are the least likely to have cogent objective arguments, so why pay any attention to them anyway?
Patient renter in OC
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