May 22, 2008

HousingPANIC Stupid Question of the Day


Is the Inflation vs. Deflation argument now over?

(Bonus question - when will the US Fed be forced to raise rates?)

51 comments:

eric in vegas said...

When the national average for a gallon gas closes in on $5 they're going to have to do some serious raising. Or they might decide to drop a $10,000 check on every tax payer I don't know.

Anonymous said...

It's over because money has to go somewhere. When we had homes, so much money pumped into the system. TRILLIONS of dollars. Now that money is being pumped out of housing into the next bubble. Commodities. Then, once that blows up it will hit the next unthinkable thing, a water crisis.

Plain and simply, the FED is the CENTER of all these problems. I know how we'll solve a recession, keep interest rates at under 2% for just shy of 3 years (2001-2004). That will solve everything! Ooops, we created a bubble and it burst, better lower those rates so we don't go into recession. Ooops, we created an oil bubble! Quick, raise rates. Oh no, commodities are blowing up, farmers are going broke. Lower the rates!

Fucking sickening. Seriously, Americans are so stupid. Truckers striking? Who are they striking against? The wrong people. Why not have the truckers park all their rigs outside the federal reserve buildings. Truckers and people need to freeze Washington and the bankers and shutdown the Federal reserve from trying to recapitalize banks by having artificially low rates.

Just Guessing said...

little bit of both.

inflation in commodities.

deflation in consumer products that had high mark-ups. Mid to higher end (I'm not talking "ultra high end") luxury products. They will have to "mark to market" so to speak and in the last 5 years, a significant percentage of their market is now basically broke for some time to come.

Houses will come down if the owner actually want's to sell. You'll always have the people that will list their property with an agent so that they can go to redfin and admire their house while proclaiming it to be worth double what it would actually sell for. It's just human ego, so expect to see plenty of these high price listings from here to eternity. Especially in the so called "special areas" aka super-bubble states.

keith said...

Oh, just so you know my take..

The Fed raises within days after the election

And then you'll know the whole game is fixed

Afterthought said...

Your bonus question is a slam dunk:

The powers that be will allow Obama to win so that they can pin the blame on the donkey (so to speak).

They will not raise rates until Nov 15 then they may stop preventing the Second Great Depression.

They might throw in a terrorist attack or two, or a war and then blame Obama for the (intentional) failure of the officer corps to follow him.

(If I'm Obama, I don't want the job at this point... especially because he's in over his head, but less so than Bush. At least Bush was an insider...)

keith said...

If you look at the history of the fed you'll note that interest rate policy is almost ALWAYS more accomodative the year before a presidential election

It's not about Obama. It's about protecting incumbents.

Anonymous said...

Deflation has won, but it'll take another couple of months to confirm it to the mainstream. There is the illusion of inflation, due in part to misdefining it and partly due to psychological factors:

1. Inflation is increase in money supply. CPI / commodity price rises will necessarily be entirely balanced by decreases elsewhere (especially assets) unless more money is printed. Net increases in prices is the lagging effect of PREVIOUS inflation.

2. The things going up are things we buy everyday, so we notice it. The things going down we don't notice cos be buy them infrequently (e.g. houses, cars) or not at all (for some people, stocks)

The third thing is the huge dumping of money into commodity speculation by institutional asset managers.

Nick

Vanilla Ice said...

You'll notice earlier this week the Fed changed their outlook for the rest of the year from an improved economy to one that's becoming worse then now. They realized all the money being thrown at bankers and homedebtors is causing commodities to skyrocket. Now the Fed will likely raise interest rates during the next reserve meeting.

And this is our federal reserve, always chasing and trying to contain the next debacle, while in reality having a large role in creating them.

Vanilla Ice said...

"Why not have the truckers park all their rigs outside the federal reserve buildings."

This is exactly what the kind of thinking the country needs. If this were to happen I would join them.

BondsOfSteel said...

Nick is right.

Deflation... but most people don't see it yet since the fall of the true value of the dollar raises the price of real goods and looks like inflation.

The dollar has fell because the Fed has been dropping rates at a increadiable pace... One they cannot continue.

What hasn't changed is the demand for the goods... so the true value of things (ignoring their cost in dollars) is more stable.

My argument for deflation is that the monetary supply is decreasing as home values fall and banks tighten their lending standard and reduce leverage. The size of this decrease in money supply is much greater than the Fed will ever be able to pump into the market.

While the worst of the credit crisis may be behind us... the overall economic impact is still to come. The fed is done.

BondsOfSteel said...

BTW, I believe the Fed has been doing a great job.

I just came back from Argentina, where the memory of a confidence crisis in banking/currency is still fresh. What happened there to people in 2001 was bad. Real bad. It almost happened to us in March.

The high prices and lowering of our standard of living isn't because the Fed has been lowering rates and devaluing the dollar. It's 'cause like the Argentines, we've been funding our livestyle on borrowed money... and the bill has come due.

P.S. The truckers in Argentina are 'parking' their rigs in protest. I'm not sure its helping...

xxxooo said...

no, they always coexist since investment causes deflation and investment is paid off with inflation.

mairca izda debol said...

It's stagflation - call it a draw.

shtove said...

"Why not have the truckers park all their rigs outside the federal reserve buildings."

You're turning in to the French.

vanilla ice said...

"Deflation has won"

Come on. As we become more productive we should see the prices of most things get cheaper like you said. Instead prices of almost everything is increasing. This is caused by inflation created to large extent by the Federal Reserve.

If there wasn't inflation a that decreased in price $500 would have decreased in price $1000.

tangelo mozilo said...

anon 9:26, I wish you had a name because I would love to compliment your analysis.

You are spot on with regard to the root of our price increases, and you are also correct that the Amerikan sheeple are pointing the finger everywhere but where where it should be pointed -- at the Federal Reserve.

When people are confronted with a question of monetary policy, their eyes glaze over and they retreat to the comfort of blaming the greed of the oilmen or the wacky environmentalists rather than addresing the real problem, which would take some actual thought.

"All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit, and circulation." -- John Adams

gadfly said...

"interest rate policy is almost always more accommodative the year
before a Presidential election"

Keith, be very careful. You have just disclosed the very reason for the Fed's existence which has been a jealously guarded state secret for almost a century: an instrument of manipulation by the powers that be. Be very careful.

Carlos said...

Nick is the only one that seems to have it right. In the long run, inflation/deflation has nothing to do with the fact that food/gas prices have increased for now. Inflation/deflation is purely a function of the money supply which is printed money + credit on the books. Printed money is a small fraction of our economy and credit (i.e. wealth) is being destroyed at a rapid rate. So the biggest danger right now is deflation. You might not like Bernanke but he is doing exactly the right thing by keeping interest rates low.

Anonymous said...

Supply siders always inflate. You see inflation is really about 15% Y/O/Y.

A real leader would post interest rates at real inflation levels,and do whats best for the country, like what Jimmy Carter had Volker do.Bite the bullet and live for another day.

But supply siders think they can hoodwink the masses and keep rates artifically low. Gold see's what real inflation is. So does oil. So does food. So does your electric bill, and the list goes on and on.

Supply siders think they can monetize their way out of ths mess. Perhaps they can, but every middle to low class citizen will feel the rath of their folly.

What is needed is a rise in rates so the banks will happily engage in lending again, as what prudent lender would lend for a declining asset like a house with only a 5-6% annual return, when the risk is much higher?

not andrea gressinger said...

There is obviously inflation in commodities brought on by easier ways to invest in commodity futures (e.g. DJP).

But, commodity inflation cannot make into core inflation since wages are not climbing, and producers have no pricing power.

This global recession should pull the rug out from under commodities eventually. That being said, I did buy a couple of energy stocks yesterday. Yes it's frothy, but it's probably got a ways to go.

Booger Eater said...

"The money has to go somewhere."
I see this all the time, but I think it is wrong. The "money" can be destroyed. Thats what a write down is.

If I own a house that is "worth" two million $$$, and suddenly it becomes "worth 300k, the money didn't "go" anywhere.

And if that kind of thing can happen faster than new debt is created, then the money doesn't go anywhere, it just vanishes.

And that is monetary deflation. It's not a done deal, IMO.

Anonymous said...

Deflation makes more sense here than anything else. Producers are now caught with higher prices on some cases, but cannot pass it to the consumer, as the consumer is tapped out. No more money, no mula, no cash.

How can prices increase?? Everyone is broke dude.

Dny

Anonymous said...

Your poll is biased by the way.

I bet that if you had an option for: deflation beats inflation

This would be the winning choice right now.

Dny

Anonymous said...

Nope, it hasn't changed. Still Stagflation like I called long time ago.

Bankers are trading their cancer debt with freshly printed money from Bernanke, so they can speculate with energy and food futures. And Bernanke likes it because his puppet masters can't never lose.

Tom said...

"Why not have the truckers park all their rigs outside the federal reserve buildings."

This has the makings of Die Hard 5. They park the trucks and everyone thinks they are protesting but they are stealing worthless dollars instead... or could it be Gold?

Veronica Lodge said...

RE: Is the Inflation vs. Deflation argument now over?

No, this argument continues and will continue until the entire world monetary system comes crashing down. There are too many people who actually believe the government's lies.

These people are convinced that a lunatic with a cell phone and laptop computer orchestrated the 9/11 attacks from a cave in Afghanistan, that the Patriot Act is a good thing, that the war in Iraq is keeping the US safe from terrorism, that tax cuts for the rich benefit them and that open borders are good for the economy.

Such blind faith can only be compared to religious zeal. For example, most of the People's Temple members remained faithful even as Jim Jones herded them toward the poisoned Kool-Aid. (Yes, I know that it was actually Flavor Aid.)

The US government continues to fabricate low inflation numbers through the use of phony data. So far, the master plan is working because there are still enough people who actually believe that their government is essentially good and working in their best interests and that the American way of life will prevail against insurmountable odds.

V.L.

keyser soze said...

Poor George...the entire country of Zaire chanting for your death.
Brother George won in the long run!

Lady Di said...

The Fed can't raise rates anytime soon. The country has too much debt. Raising rates will be the nail in the U.S.'s coffin.

Instead, the Fed will continue to "loan" out billions to the insolvent banks and put out make believe inflation numbers to justify its actions. Eventually, the Fed will get desperate and begin the money drops. The government will continue to spend money it doesn't have.

I see continuous decline in homes and equities (where the average
J6P stores his wealth) and increasing costs in necessities and continuous destruction of the dollar.

In other words, we're screwed.

Time to buy more gold.

America = Turd World Ghetto said...

Analogy Time:

Beaten fighter on back on canvas:
(Loser)

America (USA)
Bushco-Cheneyburton (WORST EVER)
Hitlery/Grandpa Munster McCain
REIC (esp. 6% ers, you are done)
Joe & Jan 6 Pack (YOU, F*ck You)
US Dollar

Muhammad Ali (The Greatest, EVER)
(Winner)

Obama
Arab World
China
Mexico and Mexicans
Mozilo, et al (Wall Street)
Suzanne
Any other currency than US Dollars

Game Over. America is DEAD

America = Turd World Ghetto

$ 10/gal Gas on the way. Thank your incumbents, esp. Pelosi, Feinstein and Boxer. What a crew.

Anonymous said...

The bums will always lose. And the Fed will always choose inflation as the lesser of evils. There will be no raising until bank balance sheets are adequately reliquified, i.e., no time soon. If the Fed cared one bit about the dollar, it would not have lost 97% of its value since the Fed's inception in 1913.

-Skid

Mark said...

Lot of socialist nuts on this board.

Of course - they have never lived under socialism - but it sounds great on paper. Socialism has NEVER worked - but that is only because they never had the "right" people in charge.

Don't count out America. As long as economic opportunity and personal liberty exists, America will bounce back.

Go ahead and bet on the Chinese or Arabs.

devestment said...

Bingo Keith.

High rates, coming to a new administration near you.

DaveO said...

Deflation makes more sense here than anything else. Producers are now caught with higher prices on some cases, but cannot pass it to the consumer, as the consumer is tapped out. No more money, no mula, no cash.

How can prices increase?? Everyone is broke dude.

Dny


Because of the global economy and the fact that most goods are not produced in the US, it doesn't matter even if everyone in the US is broke. As long as others in the world have the money, prices can go up for such goods. This is a sad consequence of the global economy that we allowed to take part of in the US.

Anonymous said...

i'll keep it simple:

inflation = money supply
inflation <> commodity prices

Anonymous said...

Lot of socialist nuts on this board.

Of course - they have never lived under socialism - but it sounds great on paper. Socialism has NEVER worked - but that is only because they never had the "right" people in charge.



Whenever you run into one of these socialist nuts just send them this:

Everything You Love You Owe To Capitalism

They can't help it - they're educated to love the system and they have zero comprehension of the power of free markets and the competition between free individuals. They have zero comprehension of the legacy of the USA and what made it great.

Anonymous said...


These people are convinced that a lunatic with a cell phone and laptop computer orchestrated the 9/11 attacks from a cave in Afghanistan,


The $20 billion a year Mafia business is conducted in back alleys, smokey bars, and basements by a bunch of highschool dropouts who are filthy rich and powerful. You don't have to be in a boardroom with sophisticated electronics to commit a conspiracy. In fact, most conspirators hide where it is hard to find them. Would it make sense for Osama to be working out of the Trump Towers in NYC? The caves are where they have their advantage and where they defeated the Soviet Army which had the most advanced tanks, jets, and missiles in the world. Yes, a bunch of backwards Arabs living in caves destroyed a world superpower before and they can do it again. You arrogant liberal pussies in your ivory towers think that you are invincible because of your IKEA furniture, iPods, and Mac notebooks.

Anonymous said...

It's all about supply-demand

The supply of money is up while the demand for US$ is down

The supply of natural resources is down while the demand is surging due to growth in Asia and South America

The supply of cheap junk from China is up while the demand from broke American consumers is down

Anonymous said...

The caves are where they have their advantage and where they defeated the Soviet Army which had the most advanced tanks, jets, and missiles in the world. Yes, a bunch of backwards Arabs living in caves destroyed a world superpower before and they can do it again

Actually, the Soviet Union collapsed when their socialist economy collapsed. They couldn't afford to fight in Afghanistan any more. They learned that a war on "terror" or fighting guerilla warfare is impossible to win with a standing army. The Romans learned the same thing in Spain.

So there's a little bit more to it than "A-rabs in caves defeated the Soviets". Another thing you fail to mention is the support those A-rabs in caves received from the good old USA.

Anonymous said...

It ain't inflation til we have wage inflation

Anonymous said...

Anonymous said...

Lot of socialist nuts on this board.

Of course - they have never lived under socialism - but it sounds great on paper. Socialism has NEVER worked - but that is only because they never had the "right" people in charge.


Whenever you run into one of these socialist nuts just send them this:

Everything You Love You Owe To Capitalism

They can't help it - they're educated to love the system and they have zero comprehension of the power of free markets and the competition between free individuals. They have zero comprehension of the legacy of the USA and what made it great.

May 22, 2008 8:46 PM

So you have read this rah rah book and you are an expert on capitalism? Have you ever lived under Socialism? Do you have any kind of comparison to offer besides this book? I am more or less a Libertarian and I have to tell you that I believe that the jury is still out on Capitalism.

Check back with all of us in a year. I believe the situation is going to look a wee bit different once the Ponzi collapses. You may need free soup. (Capitalism didn't invent soup). Perhaps someone will write a book in the future about how to make soup from discarded IPods and cellphones.

JaneZ

Anonymous said...

Poster daveo hit the nail on the head.

The falacy in thinking with regards to the inflation/deflation argument is taking an American-centrist view of the situation. And this is a falacy that Bernanke is also guilty of.

The problem is that our economy is now part of a larger, global entity. Regardless of what one may think of India or China and their political mechanisms, the fact of the matter is that these economies are ramping up. As a more robust and increasingly wealthy middle class begins to form in those countries (along with others), there will be increased demand on various commodities such as oil. We also have to take into account the scarcity of a given commodity and as we all well know, we've pretty much discovered the majority of the oil that there is to find.

Now the Fed in their infinite wisdom has tried to pass off their "core" inflation numbers as being the more prescient for gauging overall inflation trends because they are less volatile. But in my opinion, that is extraordinarily short sighted. Ignoring a segment of the CPI due to its volatilty is nonsense. Especially when those segments constitute the most important items needed for human survival. i.e. food and fuel.

As another poster mentioned, when confronted between the spectre of deflation, the Fed will always choose inflation as the lesser of two evils.

So what is the end result? Stagflation. Pure and simple. Items such as houses, which are very illiquid and harder to move (and grossly over-valued) will come down in price. We all know that. By thinning their profit margins, companies will (as a result of competition) try to keep the prices of non-essentials lower to instill demand. But for anyone that thinks gas, energy or food prices are going down anytime soon is foolish.

So what will the Fed end up eventually doing? Exactly what they did in the early 80s. At some point, we will reach a pain point where the sheeple will start screaming at the heads of state to curb inflation. By then, we will already be in desperation mode in housing so most will consider that a lost cause anyway.

Once that pain point is reached, the Fed will raise rates and raise them rapidly. That will place the final nail into the housing coffin and normlalize it.

Yoski said...

Inflation has won. The money that is destroyed are paper losses that are no match for the printing press. Plus all that money from houses sold near the peak is very much in existance. The seller got paid, the realtor got paid 6%, the mortgage broker got paid, the lawyer got paid, the surveyor, appraiser, etc. They all got paid and are spending that money on stuff. But see for yourself:
http://research.stlouisfed.org/publications/usfd/page5.pdf
Inflation running at about 15%

Reality said...

Anon 9pm,

The mafia industry is a $20 billion business only because over $50 billion dollars are spent on the war on drugs. There is no botonological reason why opium or pot can not grow in any backyard, balcony or even living rooms under plant light. When that happens, or more likely when everyone can buy cheap legal fix from the nearest 24-hr store, the mafia business would be much much less profitable . . . just like mafia business collapsed when prohibiiton was lifted . . . and did not see revival until they were hired by the government to fight WWII and given the drug trade in return. The $50+ billion tax dollars and all the sophisticated equipment and manpower spent on breaking the legs of would-be mom-and-pop competitors is what make mafia a profitable industry.

Al Queda defeated the Soviets because of US help, especially the Stinger Missile. Today, every dollar spent in Iraq by the US government, a portion of it ends up in the hands of the "insurgents"; heck, whole platoons of the Iraqi national army and police are actually "insurgents" in disguise. That and Iranian money are where the "insurgents" get their money so they can keep fighting instead having to look for a real job to support themselves. If we leave, the Iranians may actually have to fight them to put them down at their own cost.

The whole idea of geopolitical control to ensure oil flow is lunacy. Even Ayatollah Komeini kept selling oil to Mark Rich's "Swiss" company, which resold the oil to the US; the shipping schedule wasn't even changed from prior to the "embargo," just some paper work to make the sale nominally to "Swiss." It was our Carter government that arrested Mark Rich and charged him with smuggling and trading with enenmy . . . all at the time when the US was supposed to be short on oil! Talk about lunacy! The man should be a national hero for providing oil to the US without having any American boys and girls dying for it. Yet, in the perverse logic of government, it's a crime to alleviate oil shortage in the US!

Anonymous said...

A House is not a Home
You Can't Go Home again

Housing Panic bloggers are Homophobic i.e. scared of buying homes

the other trader said...

Let's see; where do I see lower prices...(deflation is lower prices caused by a "shrinking money supply"; that is the only TRUE definition)


Electronics...
Boats...
Big Trucks and SUV's,
RV's and campers...
HOUSES!!!
Toys, such as ATV's snowmobiles, dirt bikes, and pool tables.
Collectibles, like cards, coins, and stamps.

In a nutshell, everything we DO NOT NEED, is going down, while everything we do need is not just rising in price, (Yes, you can accurately call this INFLATION; by definition, it is rising prices due to "Increase in the money supply")
but accelerating in it's rise.

Fortunes will be made and lost in this upcoming turbulence. Try to be on the right side.

Look at DCR.
It is a Macro shares OIL Down equity.
Selling for 1.11 at close Thursday with some heavy buying at last 1/2 of day.
Might have some nice upward action tomorrow (FRIDAY, 5/23).

Anonymous said...

Anon 9:49

It ain't inflation til we have wage inflation

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

Wrong. We can experience cost-pull inflation. Prices for goods are pulled up by higher input costs. Much different than wage-push inflation (what you are referencing), because consumers have no way to pay the higher prices. Therefore, as prices go up, consumers must cut back. This has the obvious effect of reducing demand. Producers cut back on production in the face of lower demand. Usual Result: prices fall.

However, now enters the global economy, specifically China and India with their growing demands

End result: prices stay high due to global demand while U.S. wages are stagnant = lower standard of living for many in the US.

BondsOfSteel said...

Prices realtive to gold haven't increased nearly as much as prices realtive to the US dollar.

What we're seeing is the prices of good rising due to the devaluation of the $... not demand.

While demand globally has increased, most developing nations economies/currencies are tied to the US. Consumption will decrease. Look at food prices world wide.

The dollar will not continue to fall because the fed cannot continue to ease, and the current easing will help the economy.

Deflation.

Anonymous said...

It's such a myth that China, India, or Brazil have decoupled from the American economy.

They're all going down with us, and that includes EU.

Ola Dunk said...

Logically:

Housing crash
= defaults and fewer new loans = less debt
= less money (as money is created by banks when they lend)
= less inflation
= deflation

I will only believe it when I see it though...

Seen it before said...

You know, I love reading all these "couch economists" preach about how the fed "caused this" with loose lending. Boloney - you guys need to read some real economists such as Friedman and Schwartz and look at some history. This "pushing on a string" , deflation of assets, bank runs, inflation of commodites etc. has all happened before. And at the time the fed took exactly the view of the bears and nuts on this blog "Speculative excesses of the 20's must be purged" and they refused to "bailout banks and speculators". Well, what happened next was one of the single largest monetary disasters in US History! If it was not for WWII, and the industrial jobs that brought on, it would have gotten much worse. What I find interesting about all of you people is that you spout off about how YOUR taxpayer money is funding these bailouts. Well let me tell you from someone whose parents lived through the great depression (Yes I am an old guy), if you bears on here were in charge, you would not have to worry about your tax dollars because you as well as "the gamblers and speculators" you all detest, would not have a job, money or any resources to worry about. I will admit that there was excess and fraud, however what is being preached on this blog amounts to crashing a 747 with 400 passengers on it to keep 4 criminals from entering the airport terminal when the jet lands. Frankly if a few speculators are "bailed out" for the future good of the overall economy, I have no problem whatsoever with that. Not to mention in a good economy, tax rolls build and real output increases so your "tax payer bailout" will be repaid faster. The "inflation" you are griping about is a DIRECT result of the Bush Administrations policy of war in Iraq and running up a huge debt, as well as inaction to decrease and mitigate and contain the Real Estate contraction. The money will find a place, like water seeking the lowest point. Take away stocks, you will get real estate speculation. Take away Real Estate speculation, you will get commodity speculation. Folks, you will go down LONG before the speculators, so quit fighting them, and just accept that they have existed since the Great Depression and will continue to exist after the housing depression - the question is, are you willing to take down the entire country just to "punish" the speculators. I personally am not, however I presume since everyone here has their millions in coffee cans, they don't care.

Ed H said...

I think deflation will win in the end actually. For the short to medium term inflation will take hold, which is what I said on my blog earlier this month:

http://www.creditwritedowns.com/2008/05/inflation-is-here-to-stay.html

But, truth be told, I think the debt deflation and deleveraging automatically spell deflation. If deleveraging gets gruesome, nothing can prevent deflation from taking hold.