November 02, 2007

National median home prices down 33% in the past 12 months in gold terms as the dollar destructs

Looks like some of you are struggling with the concept of inflation, money supply and hyperinflation, figuring "it can't happen here". Especially some who think you can't have inflation unless wages are rising. 100% incorrect. The two are not linked. Whereas inflation and money supply are.

Meanwhile, for hints of our currency destruction and seeds of hyperinflation, gold is at $800 and oil is at $100, and a burger in a pub over here is $22. Gee, weren't those three things a bit cheaper just a bit ago?

So remember, housing prices in America have crashed, are crashing and will continue to crash for years to come. Real house prices that is. That fact is not disputed - it's how you keep score that's the challenge.

When lying realtors on commission, the deceptive monkeys at the NAR, the lazy MSM and the clueless Bush Administration trumpet that home prices are only down single digits, and when they fall again next year another 5% to 10%, don't forget you have to do your own math.

Unfortunately, you won't be able to use the "official" inflation reading, especially the "core" inflation number that doesn't factor in food or energy. Nope, you'll have to do your own hyperinflation tracking and math. And for the truest measure, adjust home prices against the price of gold, the only true currency (gold-weighted home prices are down 33% this year already - see yesterday's post).

The very fact that home prices are falling in an inflationary period show you how bad the crash truly is.

Here's more on hyperinflation. Start giving this some more thought HP'ers. You'll be glad you did.

In economics, hyperinflation is inflation that is "out of control,"
a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 20 or 30% or more. In informal usage the term is often applied to much lower rates.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle.

Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.


Anonymous said...

Great Ford cover

WIN anyone?

OutofCalifornia said...

Inflation is a supply side animal - too much money, pure and simple. Whereas, hyperinflation is a demand side problem.

When the helicopters arrived at the US Embassy in Saigon to evacuate Americans, the Vietnamese dollar plummeted - not because there was some functionary at the Ministry of Finance revving up the printing presses, but rather because the demand for that monetary unit evaporated.

The pictures of Germans in the Weimar era burning dollars to heat their homes was not because they were so rich the could burn money, but because there was little or no demand for the currency as a means of payment. Various and sundry assets became a means of exchange.

When the demand for dollars evaporate, the US will face hyperinflation - and not until then. Could that happen. Yes! If foreigners are no longer willing to hold our irredeemable currency, then several trillions of dollars will be repatriated, which having lost their purchasing power, will have little demand.

China will be the debutante this summer (its Olympics) and I don't think that China is willing to upset the international applecart before their coming out party. Russia has designs to make the ruble a convertible currency, and more nations are de-pegging from the dollar as well as pricing their oil in monetary numeraires other than dollars.
So after this summer, watch dollar demand.

Notice that Bloomberg recently reported that the Fed is expeted to RAISE rates this summer.....hmmmmm. Of course, mortgage reset problems should be hitting right about that time as well.

Like a forest fire that burns out the deadwood and allows the forest to regenerate itself, this country needs a recessionary purge to eliminate all the malinvestments that non-market interest rates have caused.

Anonymous said...


Sick and Dying USA

I am almost through attempting to explain what to me is common sense to people about the New Depression that is upon us.I believe the only way to make these educated idiots understand is with a baseball bat and a little tough love which is already on the way.

My new strategy will be to ignore the cries of affliction later on when the dead of winter and the dying and dead dollar are a thing-of-the-past.

I will walk right by you sitting on the frozen concrete weeping as you are put out of your home. I will drive right by you when you are standing in the street with a "Will Work For" sign to the auction where your former luxury automobile which has been reposessed will be purchased for 10 cents or less on the equity dollar.

Don't lose all hope, President Bush has thoughtfully built FEMA camps for people like you. You will be herded like cattle into pens to stand in line to receive your sustenance.

Ignore the signs. Do not take action. Do not prepare for the obvious. Continue to be smug. Laugh all ou want.

To quote Dr. Hunter S. Thompson:

Todays' PIG is Tomorrows BACON.

Oink Oink.

Death of the American Dream

Anonymous said...

House prices are related to income and credit. We can have hyper inflation and a housing crash in dollar terms. If average people like you and me don't get large income increases and credit is gone (for the foreseeable future) then house prices will go down in dollar terms. Other things (gold, corn, etc) might be good investments, but a house is only a good investment if you 1 rent it, 2 live in it, or 3 sell it for profit for someone who will do 1, 2, or 3. Since even a slight decline in house prices makes 3 impossible, for the near future that only leaves option 1 and 2. Therefore one of three things must happen: massive increase in wages, massive increase in credit, or massive decrease in house prices.

I think we're all tapped out on credit. Illegal immigrants and outsourcing will hold wages down. So the only logical conclusion is that house prices will crash in dollar terms.

keith said...

Here's Schiff

They Have Got to be Kidding

Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.

To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!

Just in case there is some confusion, the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation.

The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession.

Similar illusions are created in other numbers, such as retail sales, corporate earnings, and stock prices, which are all rising merely as a result of actual inflation being higher than the official reports. For example, higher retail sales reflect consumers paying higher prices for the products that they buy. They may in fact be buying less stuff, but are paying more for it. Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.

John said...

The top is in, just do the opposite of what Cramer The Clown says to do

“Investors should set aside negative economic news and concerns about overvalued stocks and just concentrate on buying stocks and making money, Jim Cramer told viewers of his “Mad Money” TV show Wednesday.
Right now there is one problem facing investors: “they are overthinking this stock market,” he said.
The market is not working the way the professionals think it should and thus the people who know more about investing are making less and the people who know less are making more, he said.
“There is a huge wall of money rolling at us courtesy of the Fed and it doesn’t pay to over think it,” Cramer said. “In fact it pays to not to over-think it.” When money comes in, it drives stocks higher and that’s all people should be looking at.

Anonymous said...

"Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals."
And we have all three!!!

Wars: Iraq, Afghanistan, Global War on Terror

Econ. Depression: Global Housing Sector

Political/Social upheaval: The Bush administration, the tens of millions of illegals and the millions of soon to be financially destroyed homedebtors.

Anonymous said...

"unchecked increase in money supply", "often the result of wars"

Wow that hits close to home

keith said...

When you have hyperinflation as we are starting to see, combined with wage stagnation (thank you china, india and illegals) you have a recipe for disaster

People's dollars will be worth much less, their buying power will be destroyed, and yet prices will go higher and higher

Not good.

Only good news - home prices and rents will continue to fall even as everything else gets more expensive

Bizarre, but it is what it is.

Anonymous said...

OK Keefer it is official you have gone off the deep end. Must be the mad cow thing in England. Either that or you have no clue what the word hyperinflation means.

borkafatty said...

Yikes...that is a shit load of homes...and we still have a years worth plus of resets coming in 08...Yup things are just fine...nothing to see here.

letter to us officials said...

Former US President GR Ford, who was a respected Republican, was AGAINST Bush's plan to invade Iraq.

In most countries, the elders and or wisemen, are respected for their judgements and experience.

Bush IGNORED Ford's pre-Iraq warnings and serious advise in 2002-03. But hey, Bush ignored the world's advice too, and his acts of un-checked dry-drunk war aggressions are causing a continuious train wreck for millions and million and millions of people.

And Bush's continuious clusterf*ck is about to hit America, HARD.


Dear corrupt US Congress and US House of Representatives:

Thanks for watching over your country. Nice job. You all deserve a fuc*ing cookie.



Please READ the US Constitution:

Just VOTE!!!!!

V _ O _ T _ E !!!!!

Send bush back to oil corrupt Texas!


brian said...

Will high inflation lead to wage inflation? Mayne, maybe not - it's too soon to know that.

Since we are increasingly losing our manufacturing, I tend to think it won't happen.

That said, if inflation begins to accelerate, there will be SOME wage inflation, but it may not keep up with dollar inflation.


Anonymous said...

In economics, hyperinflation is inflation that is "out of control,"

Sorry Keith, you are wrong. It IS onder control. The Fed is doing this on purpose. The Fed is covering the Big Banks spread. Once that They are ok again, the rates an the dollar will go back up.

Anonymous said...

Nixon and Ford were choir boys compared with the horde of criminals we have now. Egad.

Anonymous said...

It's more like:

Stagflation, a portmanteau of the words stagnation and inflation, is a term in general use within modern macroeconomics used to describe a period of out-of-control price inflation combined with slow-to-no output growth, rising unemployment, and eventually recession.

Anonymous said...

I think we're all tapped out on credit. Illegal immigrants and outsourcing will hold wages down. So the only logical conclusion is that house prices will crash in dollar terms.

November 02, 2007 8:54 AM

Well said!

The Thinker said...

Well a burger may cost $22 in jolly old England, but state-side, it is still on the dollar menu.

Anonymous said...

"V _ O _ T _ E !!!!!

Send bush back to oil corrupt Texas!"

Elections have been rigged. Bush was not lgally elected either time, lost handily the second time. America never wanted him in the first place. Luckily, he's gone no matter what. But we still need to fix the voting system.

sam said...

If you really believe in hyperinflation, you should buy much real estate as possible with a 30 year loan. It will be like getting the house for free.

Maybe the sheeple got 1 up on us? Bahh hah hah ha. I think not.

We have to give BB just a little bit of credit despite that he is a pansy for his employers, the WS sh*t merchants- he took rates up to 5.25% and held them there for a year. As he was raising, there was much shrieking in the market.

Ultimately, the fed knows it can't fix the housing market. And as long as we have significant need for external debt, the fed will have to accomodate foreign investors with adequate interest rates.

Mammoth said...

Well, my house finally sold the day before yesterday. Whew – I feel like I just scraped by under the wire. Kinda like reading the cockpit voice recorder transcript from an airliner that crashed…like bailing out just before impact.

Bought the house for $126,500 in 1997, and it sold for $284,000 - $6K down from the asking price. That comes out to 225% more than I paid for it! At 988 sq. ft, this = $287/sq. ft. = ridiculous! Just an ordinary house - 47 years old, 3 br 1 ba - in an ordinary working class neighborhood that is in decline. Zillows for $304k.

The house was a rental and I kept the rent affordable; didn’t raise it during the 6 years that the tenants lived in the house. They took decent care of the place, and I fixed every problem when it came up. I worked with these people when they struggled to pay the rent.

I considered selling the house last year when prices here were at their peak, but just could not allow myself to kick these people out of their home. So as a result, the house sold for $25k less (8%) than the neighbor’s house sold for last year, but you know what? I did the right thing, and can look at myself in the mirror with a clean conscience.

So who bought it? Who would purchase a home in today’s falling market? The buyer’s first names are Luis, Jorge, and Ana Maria, and they put 20% down. That’s who bought it. With 20% down, these people have a solid stake in the house and I hope they will do o.k.


Mammoth said...

Please don’t fvcking accuse me of being some Donald Trump wannabee – it was all pure luck.

Well…mostly. It took some guts to become a landlord rather than just take the easy road and sell, when I moved out of the house. I had an inkling back then that the house would appreciate in value, but not by the amount that it did.

These days, $284K is at the bottom end of the price range in the suburbs north of Seattle (Lynnwood). Still, I feel lucky that the house sold so quickly. I put it on the market on October 9th, and received an offer just 4 days later. Closed the deal on the 31st.

Selling price = ~8% below last year's..."Seattle is different"...bvllsh!t!

So, what does it take to sell a house in today’s market? IT’s THE PRICE, STUPID!!! Plus, I spent every single weekend, as well a few evenings during each week between August 1 and mid-October, fixing up the house and making it look nice. Note - no granite countertops or cheesy brass address numbers on the front of the house, just a clean-looking place with everything in working order.

I painted it inside & out, did some landscaping, replaced the carpets, bathroom floor and kitchen ceiling. I pulled up every single piece of baseboard & door molding, filled in all the nail-holes and restained them. Rebuilt & painted the picket fence in front. Removed the water heater from the back bedroom closet and installed a new one in the garage, which meant spending a few pleasant hours routing wiring through the 2-foot crawlspace underneath the house. Fun stuff!

Also did a lot of miscellaneous stuff, as you can imagine - all the little things you see when you examine your own residence with a critical eye.

Yeah, it was a LOT of work and cost ~$5,500, even though I did it myself, except for installing the carpet & routing the plumbing to/from the new water heater. Plus making 3 month’s payments on a vacant house @ $1,130/mo for a grand total of ~$8,900 out-of-pocket costs, even before the house sold.

Now here’s something that all HP’ers will get a real kick out of: When I was staying overnight at the house, I slept on a sleeping bag on the floor because there wasn’t a bed.

And because I didn’t want to mess up the kitchen, my dinners at the house consisted of…drum roll please…a can of sardines and Ramen in a Styrofoam cup! Kinda like living the FB lifestyle for a while, there.

Lobster & champagne will be on the menu this weekend, though, and then it’s back to being a frugal HP’er.


wc said...

I was with you from the beginning on the whole housing bubble and the credit bubble things. But I'm not really with you on hyperinflation - at least not yet. Confidence is low but it's not nearly dead. Yes there is clearly some real inflation - my darn dunkin donuts coffee went up a quarter and it costs more to fill up my gas tank. That $22 burger in the UK pub would still only be $11 USD if you had it in NYC - but you can make it yourself or buy one from McDonald's for less than $3. Your average low end worker in the UK is making 16 pounds/hour or ~$8 US dollars. Those are not the kind of people eating $22 hamburgers. It's all relative. So maybe we can't import sheppard's pie from the UK or sweaters from Ireland. Maybe China won't sell us cheap crap anymore and we'll have to go back to paying $80 for a toaster or God forbid we have to start manufacturing our own stuff and growing our own food again. It seems from past threads that everyone is all over the board on this one and since no one really seems to know - I choose to stand somewhere in the middle of optimism and destitution.

Anonymous said...

Is there going to be a crash in NYC real estate market?

How have prices there not been affected like everywhere else?

I know NYC is the center of the universe, but when it goes, it really going to go. (The USA)

Any New Yorkers here?

Anonymous said...

A burger more than 6 bucks keeps me away, no matter the location....and if

i was eating on the queens gold plates, i would pay tribute to the theater of nottinghams finest, and think about putting one under my shirt......anyway.....

Anonymous said...

"we have to start manufacturing our own stuff and growing our own food again."

Another HP'er gets it.
There is still hope!

keith said...

For those of you opposed to ever spending $22 for a burger and fries, don't travel to europe

That's a cheap night out if you leave the house. We're talking a grubby pub.

Now, if you want a nice night out, a steak at a restaurant will set you back $35 to $60. No sides.

However, if you want to be frugal, and just pick something up at the grocery to make, two burgers would be $7, the buns $3, catsup $4 and bag of chips $4, total $18

In other words, get used to being prisoners in America. Your money is no longer good here.

Because Ben Bernanke hates you.

Anonymous said...

mammoth found "bag holders" who might get proven so with their 80,000 dollar house....or maybe not....lets assume its "dopes" money

Anonymous said...

Hey, can those wood pellet stoves that I see at vendors booths at the county fair burn dollar bills too?

King of the Bitter Renters said...

On another blog, a dude from yugoslavia watched all these things happen to his (artificial) country back in the early nineties - debased currency, simmering hatreds, massive job losses....

This isn't the U.S. of Alt. A, like I said

It's a CIVIL WAR waiting to happen.

Well-armed Reps. killing Dems, illegals. That's our future!

Cow_tipping said...

See I dont believe destruction of the dollar is going to turn into hyperinflation.
Why ...
Try this for size, especially from the working sheeple point of view.
50%+ and more of the household money spent is house payment, and yes the ARM reset phenomenon aside, its going to stay the same. Renters are at 30% or less of household expense and its never projected to increase. Booya.
Then china and to a lesser extent other south asian countries are going to stay locked to the dollar (atleast are for right now) and they sell 75-90% of the goods bought by the household. Will stay right where it is.
So fuel and gold will go up (ironically gold is rising faster than fuel, cos OPEC is partially locked to the dollar too) so we wont have real inflation.

Anonymous said...

Hey keith,

You are forgetting something. USA has a big consumer market. If prices run up across the board there are two options:

1.) Demand goes down, for staples people start eating beans and rice / dog food - this would be a recession or demand destruction

2) Or the increased pricing means increased profits for companies and ultimately wages go up, thus completing the cycle of inflation.

Things in favour to support the US currency are having major commodities priced in dollars so many countries have to keep a reserve currency of dollars that help round out the demand for holding dollars. Also many economies (latin america, africa, cambodia, HK, china, other SE asia countries) are all dollarized. These are factors that will help the dollar from going into true hyperinflation.

As I started to say with such a large market there will be a lot of incentive to compete and keep prices down, why don't you think the price of autos in the US is cheapest in the world?

If the US undergoes true Weimar style hyperinflation then you can expect a global economic crash unless people start cutting major strings to the dollar. Then the damage will be constrained to the US.

-Big Cheese

keith said...

I think US housing just fell another 2% today (in gold terms)

BigTex said...

"Send bush back to oil corrupt Texas!"

Yo...Bush aint' Texan. He's a elite-fukhead-Yankee. So much about him goes against the Texan spirit...we don't claim him.

Texas, believe it or not, has much to show for itself. It's home of Ron Paul...we've been re-electing him for years.

We believe strongly in States Rights...that is what the civil war was fought over, not slavery(read history...not the gov. propaganda they teach in schools).

We believe in the constitution and personal rights.

If there ever is a critical mass of education Americans willing to stand up to our nazi-government...I bet it'll start in Texas.

And you'll never take our guns...EVER!


Anonymous said...


Wouldn't you agree that the UK is in worst shape than the US. Why are you living there?


Anonymous said...


Anonymous said...

soon 1 ounce of gold will buy a house

michael said...

"We believe strongly in States Rights...that is what the civil war was fought over, not slavery"

the state's right to do what?

Anonymous said...

Tex - Ron Paul was born and raised in Pittsburgh, PA. And it would be somewhat ironic to call such a strict Constitutionalist anything but a Yankee, given the Southern states' rejection of the Union some time ago...

Just kidding, of course. I wouldn't care at all about where Ron Paul is from. All I care about is what he stands for.


Anonymous said...

PPT to the rescue today (Friday). Hey Bernanke, nobody believes in this market anymore. Nice try!

Anonymous said...

Not sure what house prices in gold terms really means, HP. By that measure, wouldn't anything that's remained constant in dollar terms over the last year also be 25% cheaper in gold terms? So if housing is down 33% in gold terms, my rent is down 23% in gold terms (with increase factored in), my utility bills down 25%, cable service down 25%, my car lease payment down 25%, and so forth.

Not trying to nit pick because I like you, HP, but I think you're going a little far with that one-- it's not really a useful factoid.

Anonymous said...


Do you earn your money in pounds? You cite how much things in the UK cost in U.S. dollars, but why would it affect you unless your income is in U.S. dollars?

Wonky said...

Keith, you seem to be NOT understanding our comments about inflation vs hyperinflation. Yes, there will be/is inflation. But hyperinflation, as defined by 500% price increases over a year? Please explain how this can happen with no wage increases. If a week's pay only buys a loaf of bread, no one would even bother to work.

Anonymous said...

I just got a new job and they offered me $8000 per year more than I asked for and it is $28000 per year more than I was making at my old job. It all scares the shit out of me. So yes inflation is here and some people know it. Don’t tell anyone it is a secret.

Anonymous said...

"Former US President GR Ford, who was a respected Republican"

What are you smoking? Ford is the guy who pardoned Nixon and was the butt of many jokes.

Ford is to Carter as Carter is to Ford.

Burn Baby Burn

Anonymous said...

"King of the Bitter Renters said
Well-armed Reps. killing Dems, illegals. That's our future!
November 02, 2007 4:31 PM"

I just bought another case (1000 rounds) of 7.62X 39 ammo. Going to the range this weekend.

Burn Baby Burn

duuude said...

"But hyperinflation, as defined by 500% price increases over a year? Please explain how this can happen with no wage increases. If a week's pay only buys a loaf of bread, no one would even bother to work."

The way it works is the Fed and Treasury Dept. will devalue the dollar. They will reissue script that is 10X or 100X the value of the old paper money. In Weimar Germany they evetually used a rubber stamp to put extra zeros of the existing worthless bills. On the day of the devaluation, everyone's pay is adjusted upward by the same factor. Some form of price controls will also be implemented to try and stem the tide.

It won't work, but that is what politicians and bankers always do. People outside the USA will of course use our paper money in outhouses.

olives said...


We have reached the top of the business cycle, which includes the usual credit bubble, then leading to asset bubbles, etc., and the contraction (bust) is now beginning. This will lead to deflation.

Credit can keep being "created", but both lending and borrowing is beginning to dry up - both of which are required to keep the party going.

People in your neighborhood said...

"I just bought another case (1000 rounds) of 7.62X 39 ammo. Going to the range this weekend."

So...this blog is now populated with people boarded up their basement waiting for the apocalypse?

Anonymous said...

You may need a reservation for Range time on the weekend as there are plenty of people ahead of you.

No need to board up the basement. There are plenty of targets walking around ready to hand over their house keys...

FEMA camps for the weak.

charlatan said...

monthly inflation of 20 to 30% scarcely seems likely. that this blog has been so preoccupied by such an unlikely (albeit not impossible) scenario is not doing wonders for its credibility.

yes, money supply has been ott.

yes, there are inflationary pressures (oil, food, etc.).

yes, the fed has been dangerously lowering rates in order to avoid an overdue recession when maybe it should have been doing the opposite.

yes, the figures are probably fiddled to underestimate inflation to the government's perceived advantage.

so we can foresee an increase in inflation (in a bad scenario it could go late seventies on you), but when the consumer has already tapped himself out it seems hugely unlikely that we are going supernova.

the deflationary spectre (something similar to what happened in japan) seems far more likely to me. people haven't been fighting in the streets of japan, and all the other hyperbolic twaddle people speak of in relation to depressions here. there may more small scale unrest, crime, etc. but it doesn't seem the end of the world to me. there will still be food, drink, cars and cable.

charlatan said...

When you have hyperinflation as we are starting to see

20 to 30% a month? we're starting to see that?