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gblaze42
Joined: 30 Jul 2007
Posts: 227
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 Posted: Tue Feb 10, 2009 10:38 pm Post subject: |
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| MSimon wrote: | | JohnP wrote: | | If we can dispense with the cocky, shrill, right-wing infoporn and get down to some hard analysis, I would be more interested. |
The short form: we are screwed.
The only way to pump money into an economy without increasing inflation is to see that the money goes to producers. The money (most of it) is going to consumers. Expect a large spike in inflation in 12 to 18 months. i.e. just in time for the 2010 election. We are so screwed. |
Worse than you think;
Read this article;
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mccaughey&sid=aLzfDxfbwhzs |
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alexjrgreen
Joined: 13 Nov 2008
Posts: 760
Location: UK
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| Posted: Tue Feb 10, 2009 11:22 pm Post subject: |
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| MSimon wrote: | | The only way to pump money into an economy without increasing inflation is to see that the money goes to producers. |
Better to do it when the market is in free-fall and so has no way of reacting.
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Roger
Joined: 06 Jul 2007
Posts: 635
Location: Metro NY
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| Posted: Wed Feb 11, 2009 3:29 am Post subject: |
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| MSimon wrote: | [
The only way to pump money into an economy without increasing inflation |
If deflationary type pressures continue (Housing dropping 30%), we'll be begging for some inflation to counter it. Which will do wonders for the value of our old debt.
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I like the p-B11 resonance peak at 50 KV acceleration. In2 years we'll know. |
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MSimon
Joined: 16 Jul 2007
Posts: 8780
Location: Rockford, Illinois
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| Posted: Wed Feb 11, 2009 3:52 am Post subject: |
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| gblaze42 wrote: | | MSimon wrote: | | JohnP wrote: | | If we can dispense with the cocky, shrill, right-wing infoporn and get down to some hard analysis, I would be more interested. |
The short form: we are screwed.
The only way to pump money into an economy without increasing inflation is to see that the money goes to producers. The money (most of it) is going to consumers. Expect a large spike in inflation in 12 to 18 months. i.e. just in time for the 2010 election. We are so screwed. |
Worse than you think;
Read this article;
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mccaughey&sid=aLzfDxfbwhzs |
Blogged it at the usual places.
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Engineering is the art of making what you want from what you can get at a profit. |
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MSimon
Joined: 16 Jul 2007
Posts: 8780
Location: Rockford, Illinois
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| Posted: Wed Feb 11, 2009 3:56 am Post subject: |
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| Roger wrote: | | MSimon wrote: | [
The only way to pump money into an economy without increasing inflation |
If deflationary type pressures continue (Housing dropping 30%), we'll be begging for some inflation to counter it. Which will do wonders for the value of our old debt. |
Did housing really drop in value? Or are prices now in line with what people are willing to spend? And why aren't we worried about oil deflation? It is down 70%. That has got to be killing a lot of property values right there. Alaska is not worth nearly as much these days as it used to be.
Marcus Aurelius: "The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane."
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Engineering is the art of making what you want from what you can get at a profit. |
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JohnP
Joined: 09 Jul 2007
Posts: 257
Location: Chicago
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| Posted: Wed Feb 11, 2009 4:55 am Post subject: |
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| Quote: | | Did housing really drop in value? Or are prices now in line with what people are willing to spend? |
If you own a house on a block with one or two abandoned foreclosures, that's gonna really hurt your property value, too. Sure, there's price correction, but that varies by market (area).
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And why aren't we worried about oil deflation? It is down 70%. That has got to be killing a lot of property values right there. Alaska is not worth nearly as much these days as it used to be. |
I'll go out on a limb and say, oil consumers are saying 'hooray' and oil producers are feeling some heat. The other question, which few seem to be asking, is, why oil went so high and fell so low? Not on fundamentals. A few made big profits for a while at everyone else's expense, then, suprise! recession already underway is aggravated. Money that could've been spent on other things instead went to feed the oil gods. |
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KitemanSA
Joined: 28 Sep 2008
Posts: 2391
Location: Northern VA
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| Posted: Wed Feb 11, 2009 5:01 am Post subject: |
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| JohnP wrote: | | I'll go out on a limb and say, oil consumers are saying 'hooray' and oil producers are feeling some heat. |
I suspect the oil producers did it on purpose to kill the developing competition from acceptable bio-fuels. |
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MSimon
Joined: 16 Jul 2007
Posts: 8780
Location: Rockford, Illinois
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| Posted: Wed Feb 11, 2009 5:28 am Post subject: |
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| Quote: | | If you own a house on a block with one or two abandoned foreclosures, that's gonna really hurt your property value, too. Sure, there's price correction, but that varies by market (area). |
Yeah. It is tough. Now where are you going to round up competent buyers? Or do we need to go through this twice?
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Engineering is the art of making what you want from what you can get at a profit. |
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TallDave
Joined: 25 Jul 2007
Posts: 2524
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| Posted: Wed Feb 11, 2009 2:20 pm Post subject: |
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| Quote: | | If deflationary type pressures continue (Housing dropping 30%), we'll be begging for some inflation to counter it. |
Why? No one complains things are too cheap; computing gets cheaper every year. Are you against affordable housing?
| Quote: | | I suspect the oil producers did it on purpose to kill the developing competition from acceptable bio-fuels. |
That's just silly. Even assuming OPEC was capable of that level of collusion, you don't throw away 90% of your profit to crush a marginal competitor that will just spring up again as soon as prices go up.
| Quote: | | And why aren't we worried about oil deflation? It is down 70%. |
The answer, of course, is that most people own houses but consume oil. If most people owned oil and rented housing, the reaction would be opposite. Of course, there is a significant minority who don't own housing and they benefit from falling prices. |
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OrionCA
Joined: 06 Aug 2008
Posts: 8
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| Posted: Thu Feb 12, 2009 12:41 am Post subject: |
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| TallDave wrote: | | Quote: | | If deflationary type pressures continue (Housing dropping 30%), we'll be begging for some inflation to counter it. |
Why? No one complains things are too cheap; computing gets cheaper every year. Are you against affordable housing? |
The problem is when the people selling owe more than the market will allow. If I owe $400K on a house and can only sell it for $200K, either I don't sell or I hand the bank the keys and walk away. Then the bank gets stuck with a house it can't sell and no mortgate interest income. If that happens enough the bank goes under, its investors go under, and the effect ripples throughout the economy. A Depression can come EITHER from consumers not having enough money to buy goods OR from lenders not having capital to lend. What we have right now is a capital-crisis, with lenders having no cash to lend or being afraid to lend it. Deflation compounds that problem.
| Quote: | | Quote: | | I suspect the oil producers did it on purpose to kill the developing competition from acceptable bio-fuels. |
That's just silly. Even assuming OPEC was capable of that level of collusion, you don't throw away 90% of your profit to crush a marginal competitor that will just spring up again as soon as prices go up. |
That happens when someone thinks he can throttle a competitor, buy rights to his product in the bankrupcy proceeding, and then either bury the idea or incorporate it into his own and charge what he likes. Think, "Bill Gates/Internet Explorer". IE was (and still is, according to some) a joke compared to Netscape or Mosaic. Gates gave it away for free with Windows and within a few years the others were out of business, even though they had (at the time at least) superior products.
To do this with energy someone would have to have such control of the market to be able to drive prices up and down at will and no one really does. Most of the oil shock last year was actually speculation that it was going to be even more expensive in the future - and many of those speculators lost their shirts. This is another reason for the worldwide economic downturn, btw, although a smaller one.
| Quote: | | Quote: | | And why aren't we worried about oil deflation? It is down 70%. |
The answer, of course, is that most people own houses but consume oil. If most people owned oil and rented housing, the reaction would be opposite. Of course, there is a significant minority who don't own housing and they benefit from falling prices. |
Housing prices were driven artificially high because lenders adopted loose lending standards. This easy money encouraged speculation. Once the bubble burst the lenders were left holding the bag. These "toxic loans" are what's causing the liquidity crisis and until they're disposed of the housing market and by extension construction and all mortgage-dependent businesses are stuck on hold. |
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MSimon
Joined: 16 Jul 2007
Posts: 8780
Location: Rockford, Illinois
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| Posted: Thu Feb 12, 2009 12:56 am Post subject: |
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| OrionCA wrote: | | These "toxic loans" are what's causing the liquidity crisis and until they're disposed of the housing market and by extension construction and all mortgage-dependent businesses are stuck on hold. |
What are the loans worth if no one can be found to service the debt? Prices need to keep going lower until buyers want to enter the market. Any attempt to prop up prices only prolongs the misery.
Overstock in aisle 3. Prices reduced 75%.
That is how you move unsold merchandise.
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Engineering is the art of making what you want from what you can get at a profit. |
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choff
Joined: 08 Nov 2007
Posts: 337
Location: Vancouver, Canada
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MSimon
Joined: 16 Jul 2007
Posts: 8780
Location: Rockford, Illinois
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| Posted: Thu Feb 12, 2009 3:31 am Post subject: |
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An attack on Kabul is either a sign of growing strength or growing desperation. I have seen both of those ideas put forward recently.
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Engineering is the art of making what you want from what you can get at a profit. |
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TallDave
Joined: 25 Jul 2007
Posts: 2524
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| Posted: Thu Feb 12, 2009 7:12 pm Post subject: |
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| Quote: | | The problem is when the people selling owe more than the market will allow. If I owe $400K on a house and can only sell it for $200K, either I don't sell or I hand the bank the keys and walk away. |
Yep. Every market has winners and losers. The guy who was renting while you bought a $400K house is the winner.
| Quote: | | Housing prices were driven artificially high because lenders adopted loose lending standards. |
I don't know how important that really was; all markets have peaks and troughs. Was oil artificially high, or did demand outstrip supply? Is it artificially low now, or is supply outstripping demand?
In both housing and oil, a lot of people believed prices would continue rising forever, and they lost their shirts betting that way.
| Quote: | | These "toxic loans" are what's causing the liquidity crisis |
I don't believe there is any real liquidity crisis except at a few large banks that should have been allowed to fail. I know lots of people who are refinancing right now, and midsize banks are doing well. |
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OrionCA
Joined: 06 Aug 2008
Posts: 8
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| Posted: Thu Feb 12, 2009 10:58 pm Post subject: |
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| TallDave wrote: | | Quote: | | The problem is when the people selling owe more than the market will allow. If I owe $400K on a house and can only sell it for $200K, either I don't sell or I hand the bank the keys and walk away. |
Yep. Every market has winners and losers. The guy who was renting while you bought a $400K house is the winner. |
The point is that the bank's capital is tied up in that house regardless of who sells it ultimately. If I give the bank the house and they can't sell it or find anyone to assume the loan they have a liquidity problem. If they have too many houses default all at once they have a BIG liquidity problem and go belly up. The bigger they are when they fall, the more people get smashed when they fall. Freddie Mac and Fannie Mac were very, very, big.
| Quote: | | Quote: | | Housing prices were driven artificially high because lenders adopted loose lending standards. |
I don't know how important that really was; all markets have peaks and troughs. Was oil artificially high, or did demand outstrip supply? Is it artificially low now, or is supply outstripping demand? |
Neither. They were loaning money to people who couldn't pay it back unless the market kept soaring indefinitely. A LOT of people who couldn't pay it back unless the market kept soaring indefinitely. Worse, they were horse-trading these loans among themselves as if they were worth anything. As you said, all markets have peaks and troughs. As long as the real estate market kept rising these loans had some (short-term) value: when the balloon payment came due or the interest rate spiked the owner could refi based on the property's new, inflated value. But when prices came down all at once the lenders and loan brokers were left with paper that wasn't worth the ink printed on it. Freddie and Fannie collapsed, a chain of banks and investment firms collapsed, and the survivors tightened their lending practices.
| Quote: | In both housing and oil, a lot of people believed prices would continue rising forever, and they lost their shirts betting that way.
| Quote: | | These "toxic loans" are what's causing the liquidity crisis |
I don't believe there is any real liquidity crisis except at a few large banks that should have been allowed to fail. I know lots of people who are refinancing right now, and midsize banks are doing well. |
Oh, a credit crunch like this is usually not fatal and, like a bad case of stomach flu, all that remains afterwards is the memory of a very, very, bad night in the toilet. If all we did was let the losers go under and tighten lending standards by this time next year the recession would be said painful memory. That's why many economists and politicians on the right are up in arms about the "stimilus bill" just passed: a very generous reading says that about 12% of it is "stimulus" and the rest is a hodgepodge of goodies for favored Democrat constituencies. |
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