May 30, 2007

An astute comment from an ignorant anonatroll

Sometimes we get comments so stupid, so ignorant, so completely clueless, that they deserve their own thread.

This is one of those cases.

This anonatroll (man, I wish the trolls would pick a user name so we could mock them later) said that you can't have inflation and decreasing asset prices.

Guess what. We do. And we will.

House prices (assets) and rents are falling, while consumable and service prices are increasing. We'll continue to see asset deflation (as they're overpriced and returning to the mean, and people sell their assets to get to cash - read manias, panics and crashes) while we see inflation on other goods and services.


Also HP'ers know the government inflation data is misleading, especially since rents are the #1 category, and rents are falling thank you housing oversupply.

Another anonatroll said don't worry about home prices - they'll increase as the dollar gets more and more worthless.

Uh, got bad news for you. House prices will fall or stay even in real terms for years to come, while the dollar tanks and true inflation roars. In other words, every day your home will fall more in true value, even if its price stays the same for 10 years.

Any other thoughts or gems of wisdom on the inflation / deflation conundrum, please post here. Here's the anonatroll - I think a pretty telling statement of the lack of financial education and knowledge in America today (that helped us get into this mess in the first place).

Anonymous said...

Can't have it both ways renters. Either there is inflation or there isn't. Can't have inflation and decreasing asset prices. So choose your loonie battle, hyperinflation or housing crash, can't have both.

37 comments:

Smeep said...

We will have deflation.

JWM in SD said...

"Can't have it both ways renters. Either there is inflation or there isn't. Can't have inflation and decreasing asset prices. So choose your loonie battle, hyperinflation or housing crash, can't have both."

What they don't get is that we've already had the inflation. M3 liquidity went parabolic in the last several years and what was the result?? Speculative in real estate that's what. Now we will have credit destruction and asset price deflation. Even if there is hyperinflation, it won't save FBs because the long term interest rates will go up to attract foreign Treasury buyers.

Rich said...

Stagflation

RJ said...

Of course you can have an economic crash amidst spiralling inflation. It's called stagflation, or inflationary recession or in extreme cases a hyperinflationary depression. High rates of inflation contribute to the crash which forces central banks into painful choices such as Volcker's drastic interest rate increases in the early '80s.
But I think we may be talking past each other here. If by "inflation" you mean price increases, then by definition you can't have price decreases of an asset while prices for that asset increase. But if by "inflation" you mean the expansion of the money supply with the consequent devaluation of the currency, then you can have inflation with falling prices. That is exactly what Japan experienced. The BoJ flooded the world with Yen while Japanese real estate markets stagnated and the Nikkei crashed. The U.S. money supply (M3)has been accelerating into the double digits the past year (M3 has been reconstructed in various sources). So inflation is very real, yet the housing market is starting to roll over.
You wouldn't see prices increasing while sales crash until you hit a hyperinflationary condition where the currency starts to devalue at exponential rates. That is the danger the U.S. faces in the long run if our creditors cut off our credit. I think the flashpoint could be our competition with China over oil, natural gas and other industrial resources. But that's another thread...

Peahippo said...

It's because the anonytrolls and other anti-renters have such an absurdly simplified view of socio-economics, that they fall prey to bubbles in asset speculation. "Urgg! House good, apartment BAD! Argg! Mortgage good, lease BAD! Orgg! Must put paw-print on legal papers!"

And people still wonder if it's true that public education (K-12 and now college years) is so lacking. Millions of investards are out there, knowing essentially nothing about economics and history. It wasn't just GREED that drove this latest and most staggering asset bubble ... no, it was also a lack of basic education. The fundamentals of sound intellect were lost.

econanon said...

it's mostly nit-picking. inflation generally means cpi/ppi.

increasing the money supply is increasing liquidity (decreasing rates)

if home prices, gas go up, it isn't nessesarry inflation. Are economists to care if the price of chocolate or coffee spike? The only inflation number that really matters to most of us is aggregate wages (how you compare to others). This one tends to contain the aggregate of the others

Anonymous said...

Last time we had stagflation was during the glorious Carter years of the late 70s. In 1976 median price of a home in the US was $44,000. In 1980 it was $64,000. For the mathematically challeneged that is a gain of 83% in 4 years.

Try again renters.

Stephen said...

RJ said...

"If by "inflation" you mean price increases, then by definition you can't have price decreases of an asset while prices for that asset increase. But if by "inflation" you mean the expansion of the money supply with the consequent devaluation of the currency, then you can have inflation with falling prices."

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Exactly, rj. Most people, (fb trolls, desparate homedebtors, congressmen, and others who are completely ignorant of monetary theory) think of inflation in terms of the former. That way, the numbers can be manipulated more easily, and no one will have to learn about difficult things, like M3.

If we choose M3 as our inflationary benchmark, then this will make it less likely that assets will fall in nominal terms, though inflation in this sense will not have any effect at all on the pricing of an asset in real dollars.

Also, even if you take price of assets as your inflation-o-meter, you can have inflation in one class of assets, and deflation in another. Happens all the time. That's why increased price of assets is not necessarily real inflation; it is usually just a symptom of the increase in M3.

Keith, I saw those two posts on the main thread, and I didn't respond to either of them because I didn't know where to begin. I'm glad you've devoted an entire thread to them so HPers can tear them apart. Those trolls are not just ignorant, which wouldn't be so bad in itself -- they don't even KNOW they're ignorant.

Anonymous said...

It's because the anonytrolls and other anti-renters have such an absurdly simplified view of socio-economics, that they fall prey to bubbles in asset speculation. "Urgg! House good, apartment BAD! Argg! Mortgage good, lease BAD! Orgg! Must put paw-print on legal papers!"

---------------------------------

Now you're being absurdly simple.

Statistically speaking renters are for lack of a better term, the scum of the earth. Simple thing like car insurance. If you own you pay less than if you rent all else being equal. On a credit card application, one of the questions is always do you own or rent. Owners will get better rares/higher credit limits all else being equal than renters. That is because statistically speaking a renter is more likely to not pay back a loan than an owner. FICO scores are increased by having a mortgage all else being equal. And the list goes on and on.

That's obviously not to say that every renter is a worse credit risk than an owner. However in the agregate that is true.

Like it or not most people that rent are poor. Again, not every single renter is poor, but on average a renter is much poorer than an owner. Look at census data and you will see huge disparities in income between those who rent and those who own. In my zip code median household income is $78K for those who own, but only $53K for those who rent.

And if you ever will buy a home, would you want to buy in an area where there were lots of apartment complexes nearby? Or would you want to buy in an area where there were no apartments nearby. How about buying a home where the nieghboring homes are rentals, how would that sit with you?

I think we all know the answer to that question.

And yes I too am a renter, although I don't like to admit it in public very often.

Anonymous said...

I love HP. Where else can I read about how inflation means falling house prices, falling rents, falling incomes and at the same time $10 gas, $20 milk and $5000 gold?

It boggles the mind that people are so uneducated in basic economics. It boggles the mind even more than they think they have a clue.

Anonymous said...

Keith, you're right.

OtownHomeOwner said...

"In 1976 median price of a home in the US was $44,000. In 1980 it was $64,000. For the mathematically challeneged that is a gain of 83% in 4 years."

Well you silly Anon, it appears you are the math challenged one. The gain is actually ~46% over 4 years, not 83%.

Anonymous said...

Other things being equal, if people are forced to spend more on consumables due to inflation, then they will have less to spend on assets like houses.

Will you really spend 500K for a 3br house in compton if gas is 6.50 a gallon?

Guy Daley said...

Look at the long term prospects for humanity. In general the ignorant breed indiscriminately because its a matter of "children are our future" so its societies responsibility to pick up the pieces. Contraception...INCONCEIVABLE...Every child is a gift from god (This is where sex education has failed)

On the other hand, gifted people for a variety of reasons aren't interested in being a slave to the raising of "cheaper by the dozen" families.

So whereas we attempt to educate one anonytroll, lemtard, investard, ten pop up in its place. Its like they've never left there teen years. They knew everything then and nothing changes for the rest of their lives. Like little ducklings that are imprinted with certain facts that can't be changed.

So what happens fellow HPers when America is controlled by the terminally ignorant?

We have a country with a very dim future. LETS WIN ONE FOR THE GIPPER!!! RAH, RAH, RAH!

Anonymous said...

Can't have it both ways renters. Either there is inflation or there isn't. Can't have inflation and decreasing asset prices. So choose your loonie battle, hyperinflation or housing crash, can't have both.

He is right. If there is massive inflation ahead like in your "Pigs Fly Alert: USAToday front page story exposes $59 Trillion US Debt ($516,000 per household)" then the BEST thing to own is HARD assets (housing, gold, etc.). Compare to any country in history with massive inflation (Zimbabwe today, post WWI Germany, etc.) - YOU WANT TO GET YOUR MONEY INTO ASSETS ASAP.

And if there is a housing crash - that means deflation. As your money will buy more "stuff" the longer you keep it in cash (ie - look at the great depression). YOU WANT TO GET YOUR MONEY INTO CASH ASAP.

Marky Mark

westwest888 said...

When are student loans going to get some attention? The solicitations are as bad as the ones I get from homebuilders. "Borrow $40k a year up to $130k right now for school!" I see a wave of student loan defaults in our future, too. Once students' homedebtor parents give up on their mortgages, the kids may follow suit and give up on their student loan payments. There is about a 6 year lag in student loans because you can defer them for so long. I think around 2010 we'll start seeing problems from education reaching $50k for private school circa 2004. The private equity firm that bought Sallie Mae is asking for it.

Anonymous said...

There is already massive inflation in housing prices. So... FBers, when we talk about the coming inflationary environment, the part relating to housing is already baked into the mix.

Anonymous said...

if this guy listened to Ron Paul, he'd know that inflation is rampant because the fed just keeps printing money making your dollars worth less and so people need to demand more of them and the poor, who's salary isn't adjusted, get squeezed.

Anonymous said...

OtownHomeOwner said...
"In 1976 median price of a home in the US was $44,000. In 1980 it was $64,000. For the mathematically challeneged that is a gain of 83% in 4 years."

Well you silly Anon, it appears you are the math challenged one. The gain is actually ~46% over 4 years, not 83%.

May 30, 2007 12:50 PM

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46% over 4 years ain't too shabby.

Anonymous said...

When are student loans going to get some attention? The solicitations are as bad as the ones I get from homebuilders. "Borrow $40k a year up to $130k right now for school!" I see a wave of student loan defaults in our future, too. Once students' homedebtor parents give up on their mortgages, the kids may follow suit and give up on their student loan payments. There is about a 6 year lag in student loans because you can defer them for so long. I think around 2010 we'll start seeing problems from education reaching $50k for private school circa 2004. The private equity firm that bought Sallie Mae is asking for it.



Well, if they are loans from the government - it will hound you until the day you die. You can not discharge these loans in bankruptcy and the government will go after any assets or tax refunds until the loans are paid. There is no "walking away" like with a house...

Marky Mark

westwest888 said...

Well, if they are loans from the government - it will hound you until the day you die. You can not discharge these loans in bankruptcy and the government will go after any assets or tax refunds until the loans are paid. There is no "walking away" like with a house...

Marky Mark


They're not government loans. The government loan programs were set up for city kids to go to community college, I'm convinced. To go to school these days, you need private loans. Citibank, Sallie Mae, etc. Gov loans are good for about $8k a year. You get the other $25k from Sallie Mae, with a 3% dispersement fee, a 3% repayment fee, and prime + 1-3% adjusting for the life of the loan.

Agent #777 said...

(man, I wish the trolls would pick a user name so we could mock them later)

Keith, c'mon, admit it: You like the Anonytrolls, or you would disable anon posting!!


Another ANON has this gem:
Like it or not most people that rent are poor. Again, not every single renter is poor, but on average a renter is much poorer than an owner. Look at census data and you will see huge disparities in income between those who rent and those who own. In my zip code median household income is $78K for those who own, but only $53K for those who rent.

Since when does lower income mean you are poor? We make just above the MHI (wife does not work outside the home), but I think our net worth is higher than a majority of homedebtors in our state. Noone would know it by our 1998 and 1993 vehicles though - which is just fine by me.

If you want a more extreme example, how about my uncle on SS, making 15-18k, yet a net worth of 600-800k? Or is 600k considered poor?

Anonymous said...

777:

because YOU have a high net worth that means every renter has one too. Read the original post again, there are exceptions to the rule, most of HPers being part of that excpetion. The vast majority of people who rent are poorER (not poor) than people who own. Get you head out of your ass on this one.

Anonymous said...

For thos of you who think renters are better off than owners, here are the numbers. I will say it once again so you slow ones get it.....renters are poorer than owners. This is true in all income levels.

The Federal Reserve’s Survey of Consumer Finances 2006:

Income: $80,000 and up
Owners' average net worth: $451,200
Renters' average net worth: $87,400

Income: $50,000 to $79,999
Owners' average net worth: $194,610
Renters' average net worth: $25,000

Income: $30,000 to $49,999
Owners' average net worth: $126,500
Renters' average net worth: $10,600

Income: $16,000 to $29,999
Owners' average net worth: $112,600
Renters' average net worth: $4,240

Income: Under $16,000
Owners' average net worth: $73,000
Renters' average net worth: $500

area 51 said...

Speaking of "people selling their assets to raise cash".....

I am shocked looking at the bulletin board at work. Amazingly within the past week, the boards are stuffed with all kinds of ads for people selling all their junk and toys, motorcycles galore, boats, jet skis, musical equipment, water sports gear, ATVs. It's like a massive rummage sale. And that doesn't include all the houses for sale with "price reduced". What's up with that? And at a time when you'd think people would want to use these things for their summer fun.....

sam said...

"Last time we had stagflation was during the glorious Carter years of the late 70s."

Just as a note, aside from a very brief two years in 92-94 which was dedicated mostly to a failed healthcare nationalization plan, that's also the last time the dems controlled all branches of gov't. Odds are, we have another 18 months until an even ardent band of leftists (in the 70's many dems were still moderate with a large southern wing) takes over.

Right now, they're already working hard at bringing back the gas lines (vague "price-gouging" legislation and other punishment for oil companies). It is only a matter of time before some really nasty protectionist is promoted. While energy rationing is just plain stupid, protectionism is a prime candidate for creating stagflation (increasing costs from reducing lower cost imports + recessionary impact of decreasing trade and wealth).

Don't discount the propensity for abject stupidity from politicians, especially "populist" politicians who now claim ascendancy.

If the housing bubble proves anything, it's that many/most people are morons incapable of governing themselves, let alone others.

Anonymous said...

"Well, if they are loans from the government - it will hound you until the day you die. You can not discharge these loans in bankruptcy and the government will go after any assets or tax refunds until the loans are paid. There is no "walking away" like with a house..."

I have often wondered whether I could pay off my student loans using a credit card and then file for bankruptcy protection.

Anonymous said...

how much of the average net worth numbers include the "value" of the house because along side the income numbers aND THE OWNER/RENTER numbers, the house "values" and prices seem beyond fantasy, or 80% to high

Anonymous said...

unless you intended to inflate the values and increase tax revenues and enslave in order to pay the debts, and profit, while having and making the dollar worthless in the process, and thus insure continuity of govt, and control of the peasants

Anonymous said...

and make more peasants to control thus increasing your power and control and thus wealth and personal wealth protection and go by the name "help"

Anonymous said...

Buy gold

Anonymous said...

Anonymous said...
Last time we had stagflation was during the glorious Carter years of the late 70s. In 1976 median price of a home in the US was $44,000. In 1980 it was $64,000. For the mathematically challeneged that is a gain of 83% in 4 years.

Try again renters.

-------------------------

Home prices in the 70s rose from a much lower base in terms of prices to rents, prices to wages, etc... FBs shouldn't count on stagflation to bail them out of their suicide loans. Oh, and there is the "stag" part of the stagflation. How affordable will those ARM payments be to the unemployed FB?

By the way, Carter was a pretty crappy President, but still looks great compared to GWB the Chimperor. Unfortunately, US leadership has been in a downward spiral since Ike.

Anonymous said...

Anonymous said...
For thos of you who think renters are better off than owners, here are the numbers. I will say it once again so you slow ones get it.....renters are poorer than owners. This is true in all income levels.

The Federal Reserve’s Survey of Consumer Finances 2006:

Income: $80,000 and up
Owners' average net worth: $451,200
Renters' average net worth: $87,400

...

--------------------

Wow, you don't say?? Owners have a higher net worth than renters, when you look at data from near the end/peak of an historic housing bubble? How many of these loanowners will have a *negative* net worth in a few years, eh? Though I suppose many of them will no longer be classified as "homeowners" then, unless a cardboard box can be considered a home.

garyk said...

Some of the comments here show an obvious misunderstanding of the term 'wealth'. Here is a hint: If your net worth is negative, you're a long way from achieving wealthiness, and you in fact are poor...even if you're renting money from the bank so you can live in a mcmansion or so you can drive a new SUV.

smeep said...

A credit expansion backed by nothing (ie savings) is not an increase in money supply (ie inflation - as in the 1970's). M3 may be increasing due to the increase in credit, but M1 is decreasing. Credit is not money and can disappear very quickly.

RJ said...

smeep said...
"...credit is not money and can disappear very quickly."

M1,M2,and M3 are all measures of "money supply" by definition. It is just a matter of breadth. I'm not trying to be pedantic. Our entire monetary system is a system of credit. Federal Reserve notes are obligations of the U.S. government as defined by the FED itself. Outside of actual gold or silver, there is no money in our system that isn't originated as a loan from central banks or private banks. If you can find a copy, I recommend "Modern Money Mechanics" from the Federal Reserve Bank of Chicago.
The problem with CPI/PPI is that they currently bare no semblemce to reality when computed by the BLS and so are relatively useless measures of inflation unless you remove all the hedonics, geometric weighting and substitution that have been added over the last 40 years. A better measure is the growth of M3. And so, inflation is accelerating while housing prices begin to fall.

la kwanzaa said...

There will be inflation in energy and other consumer staples. Housing prices will go down due to tightening lending. We already saw this with new home prices dropping 10% in April. At the same time, groceries and gas prices are going sky high.

That's how you get inflation and deflation at the same time. People need food, medicine and gasoline no matter what the price. People don't need a $500K McMansion or a vacation home. They can rent a nice house or apartment. They can rent a vacation home.