It seems that during inflationary periods, people feel rich short term as their assets soar in "price" denominated in their currency - houses, stocks, oil, gold, etc
Little do they understand that while their asset prices using their devaluing currency are soaring, their currency's buying power is obviously, simply and rapidly diminishing. To add insult to injury today in America, our wages in the devaluing currency are flat to declining. Ouch.
And so it goes... Too bad 99.99999% of the people of the world can't grasp this concept... And are so excited to see their house and stock "prices" climb...
Here's some Currency Devaluation - Inflation thoughts from the UK... please feel free to add your thoughts...
On January 16th 2006, with gold crossing 300 British pounds per ounce, the Bank of England chief Mervyn King acknowledged that a wide range of asset classes had risen, including stocks, real estate, commodities, gold and precious metals. "Monetary policy will, therefore, need to be alert to the information contained in a wide range of asset prices, to be forward-looking in its aim of maintaining low and stable inflation, and be ready to respond to changes in the signposts,” he warned.
“At some point the ratio of asset prices to the prices of goods and services will revert to more normal levels," King said, adding there are two ways that could come about. "Either the prices of goods and services rise to catch up with asset prices as the increased money supply leads to higher inflation, or asset prices fall back as markets reassess the appropriate levels of risk premium"
January 02, 2007
Anyone feeling rich? Might want to rethink that one...
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If you believe that we are on the cusp of hyperinflation then you had better get out there and buy some real estate to hedge against inflation. Even if you have to borrow a million dollars to get some nice property, the coming hyper inflation will soon make a million bucks chump change and you will be left with a valuable tangible asset.
Of course I am being sarcastic here, but don't you see how the belief in imminent hyperinflation runs against the belief that housing will soon be substantially devalued?
To put it another way, a collapse in real estate prices would contribute to deflation as would a slump in the nation's economy.
You can't just say that everything is going to hell and that we will have inflation, a massive devaluation in housing, and an economic downturn. You can't have it both ways. Inflation occurs when people have too much money and deflation occurs when people don't have enough of it.
thinker, my thinking on inflation vs deflation is unsettled and I continue to bring up this subject to get other people thinking and posting on this subject.
I think even the fed is a bit confused at this point on what to do next as well.
We see massive inflation in certain things like housing, commodities (go look at corn prices today - up 100% in just a few months. Gold at $640 today), health care, gasoline, etc
We see delflation (thank you China and Wal-Mart) in consumables
We see the US$ getting realllllly worthless.
Put it all together, mix it up real nice. And yes, we could have inflation in US$ home prices due to the weak currency, at the same time we have significant deflation in home prices due to the ponzi scheme ending. Net result could be flat home prices with high inflation.
Strange times. Thoughts?
Thinker if hyperinflation increases the cost of food, energy, etc. People will have less and less money to buy houses, or rent for that matter. Who will buy these RE assets?
Rents will not cover mortgages so they would be poor investment vehicles. So what would maintain $3000 a month mortgages if gas hit's $5 a gallon and a burger costs you $7.
Eventually the liquidity WILL be moped out of the system (to a degree anyway) and a return to some semblance of the mean is inevitable.
Not to sound to Libertarian but markets work, albeit stubbornly. As much as Central banks, Politicos, etc try to game the system they only make the corrections more substantial.
We were in a period of hyperinflation (what would you call houses soaring to 4 times their price in 5 years) ... just that it was limited. Hyper inflation is likely to spread to all other areas while that one sits up and corrects off.
Cool.
Cow_tipping.
And so it goes... Too bad 99.99999% of the people of the world can't grasp this concept... And are so excited to see their house and stock "prices" climb...
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unless u sell, it is worth nothing.
hmm, let me see
federal govt (biggest employer in the US?) is giving me a 2.5% raise this year (2% average for the country). thanks uncle sam! that $50/month might, just might, take care of the increase i am seeing on my grocery bill this year!. my new year's resolution...eat less.
go look at corn prices today - up 100% in just a few months. Gold at $640 today), health care, gasoline, etc
Keith you fucking knob, gas is the same price today as it was a year ago.
hyperinflation means higher salaries as well as higher prices. You can't have one without the other.
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Thinker if hyperinflation increases the cost of food, energy, etc. People will have less and less money to buy houses, or rent for that matter. Who will buy these RE assets?
"hyperinflation means higher salaries as well as higher prices"
Yep. The people who believe in deflation (see Mish) are able to articulate scenarios and describe exactly how the deflation could occur.
The Hyperinflationists seem to just accept that the govt can make it happen at will, but no one seems to be able to explain just how they will get the money into the hands of the common people.
For example, how do you get broad based wage inflation when the global wage arbitrage exists? We cant all just join unions and demand higher pay anymore.
Even if we could get a "nice" 10% inflation going wouldnt mortgage interest soon be at 15% for those ARM resets? What will that do to housing prices?
Reading the posts here you'd think there was nothing other than hyperinflation or a 1930s-style deflation. There is a whole range of inflationary expectations, and an inflation rate of 20%-50% a year is not "hyperinflation". It would be ugly and troubling, but in no way is it the same as hyperinflation.
The Fed talks tough about inflation, but they are keeping interest rates negative, so it's all just talk. They would have to force interest rates over 10% before their policies would have any effect on borrowing -- right now effective interest rates are negative because inflation is running at about 10%. And that is one of the main reasons we have no savings in this country. Who wants to put money in a CD earning 5% when inflation is 10%?
You doomsday, deflation/depression guys don't want to admit it, but five years of 20% annual inflation would fix most of the economic problems we face. The USD would lose 60% of its value in the process but IMO that is far preferable to a decade-long deflationary spiral and another world war.
Creating price inflation is not difficult. The Fed would pump the money supply at a 20% annual rate, and the government would run big deficits to spend the liquidity created. Infrastructure projects, wars, national health care are all good candidates for spending programs. Throw in some wage and price controls (like in WWII) and I can see them manipulating a 20% inflation rate, no sweat.
Inflation in house and gold prices has already hit. It may hit more later but what good does it do to "buy" an inflated POS house now if you can't hang onto it through the rough patches before wage inflation catches up? Buying a bubble house will only ensure that you wreck your credit and get foreclosed, nothing more.
Nope. Almost all ARMs have a max, usually 10%. And yearly caps of 2% hikes each ear. So if you start out with a 5% ARM in 2006, it will be 2009 before it hits 10%.
By then a 10% a year increase in salary will have more than made up for the extra mortgage cost.
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Even if we could get a "nice" 10% inflation going wouldnt mortgage interest soon be at 15% for those ARM resets? What will that do to housing prices?
10% inflation today...sure it is
thinker, my thinking on inflation vs deflation is unsettled and I continue to bring up this subject to get other people thinking and posting on this subject.
I think even the fed is a bit confused at this point on what to do next as well.
We see massive inflation in certain things like housing, commodities (go look at corn prices today - up 100% in just a few months. Gold at $640 today), health care, gasoline, etc
We see delflation (thank you China and Wal-Mart) in consumables
==================================
Keith,
Hyperinflation is simply a reflection of the bankruptcy of the post Bretton Woods monetary system. It isnt anything in and of itself. Instead it is a POLICY RESPONSE to the bankruptcy of the system by Central Bankers like Alan Greensperm who flooded the system with liquidity first in the disquise of the Y2K scam followed by these cash out equity scams and the corresponding trillion dollar real estate bubble.
The sane response would have been to put the system through an orderly bankruptcy re-organization writing off all the bad debt in the form of derivatives and other fraudulent paper assets.
The attempted 1998 impeachment of President William Jefferson Clinton was also a policy response to this bankruptcy.
As was 911 and is the Iraq war and the war policy of the neo cons.
Hell, even the Bush/Cheney administration is a response to the bankruptcy of the system.
Just not a sane response.
For example, how do you get broad based wage inflation when the global wage arbitrage exists? +++++++++++++++
You don't. That's why the middle class all over the world will end up going down the tubes. Welcome to the New Feudalism (same as the old Feudalism but with better marketing)....
when our dollar devalues and become much lower than the mexican peso, illegals will no longer come here and therefore that will solve the immigration problem. the problem however is that americans will start crossing the border and look for jobs in mexico. ha..ha..ha.. what goes around comes around.
The post above about wage and price controls, wars and nationalized health care being a "no sweat" solution really bring to mind the enormity of this whole thing.
Not saying that it cant possibly happen, and not questioning the poster's motivation but goddam, a lot of people are gonna have to get hurt by this.
All the cracks about "loser renters" these last few years were a warning that the people driving and benefitting from the bubble were always aiming to get rich by screwing someone.
Over on Ben's blog there was a commenter saying some of his California neighbours were expecting 50% appreciation for years to come and a full govt bailout if prices fell. This in addition to cracks about how renters were screwed either way.
What a sick little country...
"California neighbours "
Will you Canajuns stay the fuck out of our business please?
At least up here, we dont judge people on the colour of their skin Yankee!
"Nope. Almost all ARMs have a max, usually 10%. And yearly caps of 2% hikes each ear. So if you start out with a 5% ARM in 2006, it will be 2009 before it hits 10%.
By then a 10% a year increase in salary will have more than made up for the extra mortgage cost.
------------------------------
Notwithstanding that your math in the last part is hysterically off base, the first part would make option ARM holders the smartest people in the country.
Except for all the people resetting this year with payments that are doubling....
OK ARM paymnets are doubling, whatever you say
As usual HPers know best. Everyone is paying double when ARMs adjust and the interest rate will be 15% next year.
Sure thing wingnuts, sure thing. In reality ARMS adjust at most 3% a year with a lifetime cap of 10%.
lifetime caps, which limit the interest-rate increase over the life of the loan. By law, virtually all ARMs must have a lifetime cap.
periodic adjustment caps, which limit the amount the interest rate can adjust up or down from one adjustment period to the next after the first adjustment, and
http://www.federalreserve.gov/pubs/arms/
arms_english.htm
"OK ARM paymnets are doubling, whatever you say "
and
"As usual HPers know best. Everyone is paying double when ARMs adjust ..."
Shame on you for making me look this up monkeys!
http://www.businessweek.com/magazine/content/06_37/b4000001.htm
Now pretend the article's stories of payments nearly TRIPLING doesnt count somehow.
Go on....
where does it say payments are doubling in this article?
payments are not tripling or doubling..please quote where it says that
anyone? anyone at all on the double or triple payments anyone is making
didn't think so...you were saying about the 15% inflation now.....
sigh... foolish monkey....
" Their new loan's minimum payment of about $1,413 is manageable so far, but the fully amortized amount of about $3,329 is out of the question. In a little over a year, they've added some $8,500 to their loan balance and now face a big reset if they continue to pay only the minimum. "
$3,329/1413 is 2.3X last I checked.
Every single other example in the article implies similar or larger increases.
Whats more: You KNOW it.
You are a big part of whats wrong with the country.
the large payment is an option, they don't have to pay it...DUH it's called an OPTION ARM...what a fucking retard you are
I'm a big problem of what's wrong? HA HA HA HA!!! No really HA HA HA HA!!
You liberal nigger loving fuknuts are what's ruining this country. Letting niggers and mexicans in our schools. Letting jews and mud people mingle among the aryans.
Who do you think all the option arms went to, niggers and spics you moron. And when they default the govt will bail them out, just another form of nigger/spic welfare paid for my aryans.
So fuck you nigger lover. Go fuck a kike.
that sounds rather racist
re: anon:
---------------------------------
the large payment is an option, they don't have to pay it...DUH it's called an OPTION ARM...what a
---------------------------------
Now I've heard everything - silly me - why didn't I realize that an OPTION ARM meant the large payment was OPTIONAL, for ever and a day at that.
Hang on, perhaps there are some OPTION ARMs out there where any payment at all is optional..
In a perverse way I suppose its true. Its optional but foreclosure is compulsory. So rent is optional but eviction is compulsory. Work at your place of employment is optional but being fired is compulsory.
It all makes sense now.
-K
AmazingRuss 8:48 wrote: “People forget what you give up when you work all the time...it's really selling off chunks of your life for paper money.”
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Best quote of the new year! For a real eye-opener to let you know what is truly important in life, visit a retirement home and talk with some of the residents. Ask them what they regret about their lives. They will likely go on and on about things they never got around to doing, but now wish they did.
Because they were too busy working! How many people today are working their tails off, trying to pay off the debt they racked up by their rampant, mindless consumerism?
This greed contributed to the housing bubble, with FB’s buying McMansions costing way more than they could afford when a lower-priced, less pretentious house would do. Many are now paying the price with their precious hours, which they will never get back once they are spent.
As Jim Morrison sings in “Five to One:”
“Trading your hours for a handful of dimes,
gonna make it baby in your prime.”
-Mammoth
After years of waiting, believing and hoping for the promised fall in housing prices, some blogs are now quietly changing their tunes about the "coming crash", or at least appear to be. Could the consensus now be that this explosion in house prices will be corrected not with a crash, but through agonizing inflation in all sectors of the economy? Even Keith above seems somewhat confused about his position now although confusion at this point is understandable. A crash on the magnitude that some have hoped for (30-50%) in bubble areas just does not seem to be as realistic as I thought it could be. There is too much money out there and too many willing buyers to keep this thing going. I also predict some kind of legislative action that will be favorable to FB's.
All of this is symptomatic of the grotesquely gluttonous consumer culture that America has devolved into, not to mention the alarming wholesale loss of decorum and values in this country. How long can we sink? My guess, still a lot lower. Who has allowed this to happen? Anyone with $$$ to gain.
HA HA HA HA HA!!!
You dumb fucks of course there will be no 50 crash. This is the 3rd such post here I've read today.
How does the realization that you will be a renter for the rest of your natural life feel?
L-O-S-E-R-S
HA HA HA HA HA!!!
You dumb fucks of course there will be no 50 crash. This is the 3rd such post here I've read today.
How does the realization that you will be a renter for the rest of your natural life feel?
L-O-S-E-R-S
The new sales pitch being taught to real estate agents.
An associate of mine in Los Angeles bought a $4 million dollar house before she sold her two million dollar house. I went by to pick up a check today and she was not happy. When asked if she thought it would be a good year she said "real estate is dead and will be all year" Ouch, there goes a good customer. It’s too bad that the housing bubble was based on human perception of value and profit motive. I guess it could go on forever if human perception never changed. I’m just glad that as I loose some of my customers to the bubble I don’t need them to make ANY mortgage, tax, or upkeep payment. I flipped my last house for a while and am thinking about moving into a cheaper apartment and cutting all the expense I can while this thing plays out. It sure feels good to know that even as my dollars shrink to inflation, that I have no stress in the way of how I’ll make ends meet during this very uncertain period. Real estate offices are dead and only a fool would buy in right now.
The ARMS all reset to the LIBOR rate so there is no saving them anyway
I am in denial that hyperinflation and the apocalypse is coming....got me there
Anon said:"Nope. Almost all ARMs have a max, usually 10%. And yearly caps of 2% hikes each ear. So if you start out with a 5% ARM in 2006, it will be 2009 before it hits 10%".
That 2% hike a year is what will kill the howeowner. You make it sound like 2% is 20 bucks or something! Actually, its 2% of the total LOAN BALANCE - its more like $200-$400 dollars extra every month. And with folks buying 500-700K houses with very little down, that increase is huge.
From my experience, adjustable mortgages only work coming out of a recession, (when home prices are heading up) not going into one.
on a $250,000 mortgage a 2% adustment for 5% to 7% is $300 extra a month...after fed and state tax deductions that is $195 in California.
For the vast majority of people $195 a month is not going to mean foreclosure.
I enjoy reading the rantings of obviously insane people who have predicted such things as
- 90% housing crash in Phoenix and
Las Vegas bringing prices back to
1960s levels
- $3000 gold in '07
- 0.25 dollar in '07
- $8 gas by April
- a run on money at banks
- Global Depression in 2012
- 50% annual inflation
I come back because I need to know what you will predict next. It's like driving past a pile up on the highway. I know I shouldn't stare and just keep driving, but I can't. I have to see the if there is any blook on the road or any dead bodies. It's morbid but I can't help myself. Same here. I know I should just let you lunatic imbeciles shout in your echo chamber until you are hoarse and leave you to it, but I can't. I have to see what's next.
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"I blog here because it is important that I examine all the possibilities in my financial life so that the unexpected can be planned for. What is your execuse????"
I think deflation is next. The Fed won't be able to "open the flood gates" if inflation runs rampant.
on a $250,000 mortgage a 2% adustment for 5% to 7% is $300 extra a month...after fed and state tax deductions that is $195 in California.
For the vast majority of people $195 a month is not going to mean foreclosure.
I dont think that amount would even qualify for a house in the boonsdocks.
i think it depends on who you are. i don't think many realtors/flippers/home builders/recent home purchasers feel rich right now.
The fluctuation of individual commodites, corn, gold, gasoline homes, stocks is not inflationary, its usually speculatory, their prices are much more effected by investors jumping in and buying or selling. Inflation is brought about by full employment, forcing business to raise wages to keep employees happy, in order to buy select assets. i'm not saying one doesn't effect the other, it does. but they're two separate things
Anonymous said...
payments are not tripling or doubling..please quote where it says that
just look at any refinance ad on the internet...150k loan for $381/mo... I just saw from a google search of "mortgage". It's pretty easy to see what a 150k mortgage really "costs". There's no such thing as a free lunch.
the large payment is an option, they don't have to pay it...DUH it's called an OPTION ARM...what a
Why not just rent then and cut your housing cost to 1/3?? Bec you wouldn't get a commission then, Troll.
That 2% hike a year is what will kill the howeowner. You make it sound like 2% is 20 bucks or something! Actually, its 2% of the total LOAN BALANCE - its more like $200-$400 dollars extra every month. And with folks buying 500-700K houses with very little down, that increase is huge.
stop trying to make sense.
For the vast majority of people $195 a month is not going to mean foreclosure.
Wednesday, January 03, 2007 2:17:55 AM
no big deal to the rich HP Trolls! See? Everything is fine. Prices up an easy 11% this year.
Man you people are lame ass losers if you think $195 a month means disaster.
No wonder you rent.
"Sure thing wingnuts, sure thing. In reality ARMS adjust at most 3% a year with a lifetime cap of 10%."
Rightio, an average mortgage rate of 6%, and interest rates rise by 1%, your mortgage payment rises by over 16.5%.
$195 is a lot to someone renting a 1 bed /1 bath for $565 a month in the ghetto. For the white trash HP regulars that $195 would be catastrophic.
For a middle class family it means not going to a baseball game or little Johnnie doesn't get the new $200 Nikes and instead gets the $40 no-name. A pain the ass I guess, but nobody is going hungry because of it.
See the difference there renters?
Sure thing devestment.
Everyone in the world with an ARM is a realtwhore(tm) troll. Everyone with an ARM will be destitute. Everyone who thinks you people are insane is a realtwhore(tm) troll.
If that's what makes you feel better, sure why not.
RENTER LOSERS,
NEW YORK (Reuters) - The decline in the Manhattan apartment market seems to have been over in a New York minute in contrast to the sluggish U.S. housing market, according to an influential property report released on Wednesday.
In the fourth-quarter, the median price of a home in Manhattan rose 5.1 over the year-ago period, according to the report, the Prudential Douglas Elliman Manhattan Market Overview.
The number of sales during the fourth-quarter rose 15.5 percent to 2,441 from the prior quarter and 55 percent from the year ago quarter. The inventory of homes shrunk 22.2 percent from the third quarter to 5,934 and 0.5 percent from the year ago quarter.
The World's Reserve Currency
By: Ron Paul
January 1, 2007
The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more Euros in circulation worldwide than dollars.
This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65% of foreign central bank exchange reserves are still held in dollars, versus only about 25% in euros. And the European Central Bank faces the same inflationary pressures that our own Federal Reserve Bank Governors face, including a growing entitlement burden that threatens economic ruin as both societies age. European politicians want to spend money just as badly as American politicians, and undoubtedly will clamor to inflate-- and thus devalue-- the euro to fund their creaky social welfare systems.
Still, the rise of the Euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business.
More importantly, our greatest benefactors for the last twenty years-- Asian central banks-- have lost their appetite for holding U.S. dollars. China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever. Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency. When the rest of the world finally abandons the dollar as the global reserve currency, both Congress and American consumers will find borrowing money a more expensive proposition.
Remember, America can maintain a large trade deficit only if foreign banks continue to hold large numbers of dollars as their reserve currency. Our entire consumption economy is based on the willingness of foreigners to hold U.S. debt. We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending.
At some point Americans must realize that Congress, and the Federal Reserve system that permits the creation of new money by fiat, are the real culprits in the erosion of your personal savings and buying power. Congress relentlessly spends more than the Treasury collects in taxes each year, which means the U.S. government must either borrow or print money to operate-- both of which cause the value of the dollar to drop. When we borrow a billion dollars every day simply to run the government, and when the Federal Reserve increases the money supply by trillions of dollars in just 15 years, we hardly can expect our dollars to increase in value.
http://www.house.gov/paul/tst/tst2007/tst010107.htm
Europe has 460 million people. The US has 300. Wouldn't it stand to reason that there would be more Euros than Dollars circulating around?
Slovenia just started using it this year, 2 million new users right there. Next year Slovakia with 5 million joins in. Every year after that a couple more countries with 5, 10, 20 million citizens like Bularia, Romania, Poland. Of course the circulation will grow faster than the dollar, it's simple math.
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