Fed needs to tighten to stick a fork in commodity speculation. US will be importing inflation from China, Japan, and Europe as all either are experiencing wage increases or in Japan's case have absurdly inflationary monetary policy in an attempt to improve growth. I see the yen has drifted back down to around 108 per $. Carry trade redux?
I'd be interested to know how much of the MEW during the boom years was actually reinvested in upgrading the house. In the inner Philly suburbs during the 2004-2005 period in some older areas there seemed to be a huge construction dumpster sitting outside at leat one home on every street. If a high enough percentage of the MEW went for upgrades and expansions of existing housing stock in older more mature areas, then maybe there's justificaion for hoping that this market might hit bottom a little sooner or slingshot back up a little more strongly when everything passes over.
Id like to post a real life example of whats been going on with MEW.
I see a lot of charts and graphs but real life examples really illustrate the problem.
I have two family members who shall remain nameless that have done
their share of MEW spending.
Family member #1
House purchased in 2001 in NJ 115,000.
Mortgage amount financed is 80,000.
Current mortgage balance 2007 is 200,000.
Spent an extra 20,000 a year for the past 6 years.
Family member # 2
House purchased 2002 in NJ for 124,000.
Mortgage amount financed is 121,000.
Current mortgage balance 2007 is 245,000.
Spent an extra 24,487 a year for the last 5 years.
There have been 3 waives of refinancing credit card debt for both
of these families. Now in 2008 the credit cards are almost maxed
again but this time the housing ATM is empty.
Think of the shock they are in for. Not only are their credit cards
Maxed but they have an enormous mortgage payment on top of
the credit card payments to contend with.
I believe we are at a point in this country where consumer spending
is just going to fall off a cliff. Bankruptcies and foreclosures should
start to accelerate this year as more and more families find themselves
in this position.
Quaere: Or was that opinion based on GS holding-for-sale a lot of government paper and worried that there'd be a panic (there was -- worst week since 1982) before they could offload?
Obviously, with flat wages, there will be no inflationary spiral. We are out of recession territory, and into another economic situation entirely. Demiddleclassification.
I think the bulk of it went for bling, with paying for college coming in second.
sequoia512: If only the chart of college tuition started looking like Williams-Sonoma, Bed Bath and Beyond, Starbucks, and other trappings of yuppiedom.
GJV1 - thanks. Interesting - my quiet little neighborhood has more houses for sale than I've seen in seven years since moving in. Fallout from the MEW backlash is my neighbors guess. Too many new pools, yards, etc. etc.
Meanwhile back on the charts and graphs front real Retail Sales xgas is down significantly and continues a 7 month run.
But despite rumors of inflation etc. the real monetary base is shrinking because of the credit crisis morphing into a crunch while rates are going up because of exchange rates pressures.
Graphs, charts and a definition of seignorage here: http://tinyurl.com/5muwrx
Can't decide if I should be kicking myself for not taking out all the phantom EQ on my house and spending it (or moving it offshore) so I can be on the receiving end of the bailout too, instead of on the receiving end of the savings taxation to support the bailout.
How funny would it be if a legitimate talking head told people to do that now, as the best asset-preservation strategy in the face of the government's likely actions? The more I think about it, the more it seems like the right financial strategy; I'm sure many wealthy people have already done so...
Goldman: worries about inflation are "overdone". Hmmm. Easy to fill a gas tank (or a stomach) on a Goldman salary. Not so easy for, um, everyone else...
Goldman Sachs: "worries about inflation are overdone ..."
Ouch! Really? Just came back from Safeway. Red or yellow bell peppers. . . $6 for two! Fortunately green bell peppers were more reasonable. "Only" $3 for two! Crazy. I'll tell you what is overdone and that is food prices.
There are simply too many things going the wrong way for Joe/Jane consumer and all at the same time. What, praytell, is supposed to be on the horizon that's going to allow the silly spending of the last several years to continue? I see financial reckoning writ large.
.......
A friend let me know today that the 1.75 quart "half-gallon", which should be 2 quarts, ice cream container he usually buys is now 1.5 quarts, a 14.3% decrease.
If a high enough percentage of the MEW went for upgrades and expansions of existing housing stock in older more mature areas, then maybe there's justificaion for hoping that this market might hit bottom a little sooner or slingshot back up a little more strongly when everything passes over.
Been there | 06.13.08 - 8:22 pm | #
hhmmmm. Can that massive investment in upgrading housing stock manufacture things that others want so we can pay off our massive debt?
Nope. It was all just bling.
Maybe you could sell that upgraded housing stock to the administrators of sovereign wealth funds and the former "owners" could clean the toilets.
As mentioned above, and in lots of other posts here, FOOD is has been going WAY up over the last few months.
I think the "experts" who keep saying things like " worries about inflation are overdone ..." are at such high pay levels that the increases in food costs are unnoticeable to them. Good for them and all, however, lots of the rest of us are feeling it...
"Ouch! Really? Just came back from Safeway. Red or yellow bell peppers. . . $6 for two!"
I'm seeing those kind of prices at my local Safeway as well and it's quite shocking. You should try shopping at a grocery store that caters to low wage ethnics, you won't believe the difference. I do 95% of my food shopping at my local Food City store. It'a full size grocery catering to Mexican immigrants but it sells most everything, and cheap. Red or yellow peppers are $0.69 each. The catch? they aren't perfectly shaped so they don't get the "A" rating. Big deal. Cillantro is 3 bunches for $0.99, Giant weirdly shaped cucumbers are three for a buck, and the list goes on. They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Big deal. Cillantro is 3 bunches for $0.99, Giant weirdly shaped cucumbers are three for a buck, and the list goes on. They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Bob Mologna | 06.13.08 - 9:39 pm | #
Oh oh... here we go again! LOL.
I do the same thing Bob - both Asian & Mexican stores - great deals (I think?)...
Could They? Yes. Will They? We Don't Think So. Classic If they do Scott McClellan will have to come out with a sequel entitled WTF Happened. The narrative spins the facts so we can all sleep at night. Sheesh
Not much the fed can do about high water unless they can sand bag levees.
BTW - I used to live in Cedar Rapids - about a mile from the downtown now under water - the town isn't that 'low'... the river is really 'that high'. Blows my mind when I see the videos. I was supposed to be there last week but stayed away - glad I did, I'd just been another gawker in the way.
That inflation comment by Goldman is the kind of thing class warfare is made of. To someone who is suffering from the financial meltdown these geniuses helped usher in and is now seeing food and gas prices shoot through the roof, that sounds a lot like "let them eat cake".
Jason writes:
That inflation comment by Goldman is the kind of thing class warfare is made of. To someone who is suffering from the financial meltdown these geniuses helped usher in and is now seeing food and gas prices shoot through the roof, that sounds a lot like "let them eat cake".
Now where did I leave my guillotine...
-Jason
Jason | 06.13.08 - 10:41 pm | #
Marketplace Money also did a bit on that topic too... when should non-core be considered core?
BigR writes:
sequoia512: If only the chart of college tuition started looking like Williams-Sonoma, Bed Bath and Beyond, Starbucks, and other trappings of yuppiedom.
lol You forgot luxury vacations too.
Most seemed to go to road bling. Ghad, I just found out one of my coworkers has six cars all nicer than mine. Wow! Oh wait, I don't have his four mortgages (on two homes). lol Talk about servicing a house of cards...
hmmm....you're right that if the MEW had been used on decent upgrading to existing housing stock, that would've been a good thing.
Unfortunately, all the "upgrading" I've noticed around here has been ripping out perfectly good/beautiful kitchen cabinets made of solid old wood of fine craftsmanship only to be replaced with crappy cheap Home Depot junk. ...and it's not even installed correctly.
It's depressing. A lot of beautiful older homes have been wrecked around here by wanabee designer whackos.
From finance to aesthetics to workmanship, these flippers really didn't have a lick of sense.
I fear they've wrecked more homes than they've improved with their superficial, unecessary "upgrades".
Didn't Dow Chemical announce a 20% price increase? When (if ever) does that show up in the government inflation statistics? I'm sure there will be more adjustments to somehow take out those price increses.
Until recently, I didn't realize that some lenders actually issue HELOC cards that function like credit cards. You can take them to the store and spend your home equity on anything you please. Or at least you could, until recently.
During the dot-com bubble, I didn't think I could see anything as stupid as multi-billion dollar corporations like excite.com or pets.com; then the housing bubble came, with Alt-A, negative amortization loans, option-ARMS, CDOs, etc.
And now that that "equity" is spent, it's finally time for one of those "God's Flashlight" moments, where the Sun starts to rise and folks scratch their heads and wonder "how much did I spend last night?"
GJV1 writes: Id like to post a real life example of whats been going on with MEW. [...]
Family member #1 [...] Spent an extra 20,000 a year for the past 6 years.
Family member # 2 [...] Spent an extra 24,487 a year for the last 5 years.
Given the gap between "spending" and "income" due to taxes, that's like having extra income of $35,000-$45,000 a year. Perhaps better put, it's gonna feel like a pay cut of $35,000-$45,000/year. (Even leaving out the need to (ahem) "start paying their previous debts back"?)
Slightly OT. Apologies if someone has already posted in another thread. I was amazed when seeing the .06 CPI carried to 4 places. It is .0649! Now I try not to be a conspiracy nut, but I keep imagining an army of bureaucrats swarming around lookin for -.0002 in CPI so the gvmt can report .06 and not .07.
waitinginPNW,
I had a WAMU (who else) HELOC and was issued a credit card to use for the funds. I paid it off and closed it a couple years ago.
The only way there will be a rate hike is if the market leads it higher. The whore Fed may need to pay more for dollars to fund the deficit if their pimp, Asia (China and Japan) demand it.
This is what happens when a syncphant is given the highest elected office.
I live in a neighborhood where housing prices are stagnant and sales are slow. My neighbor went into bankruptcy , and just vacated the house. She had used equity for legal expenses involving her mentally ill daughter, but the bank pulled a good number of dodgy tricks when she refinanced. Her yard had a wonderfull garden. All her co-workers and friends have been digging up stuff. I helped her dig up a bunch of perennials, and took some for myself as well. Today I moved a sizable topiary into my garden. In the ghetto they'e ripping out the copper pipes-around here we're ripping out the perennials. Sad thing is- once the bank owns the house the garden will go to hell. Then they will pay a landscaper to weedwack everything into oblinion.
MEXICO CITY - Former Federal Reserve chairman Alan Greenspan told the Latin American Economic Forum here Friday that he sees a reduced possibility of a deep recession in the United States.
"I think the worst is over," Greenspan said of US economic woes, speaking via video-conference from Washington.
The Canadian federal government originally owned the natural resources in the West (like the USG still does) but gave them to the provinces around 1930, before the oil was discovered (oops).
The Canadian federal government is running surpluses but is not going to pay off its debt for a very long time.
"republicans are traitors writes:
worries about inflation are overdone ...
Couldn't disagree more. Inflation is the problem, that is why the fed stopped tracking M3."
What do you think M3 would tell us? All it would tell you is that people (including corporations) have been moving asset allocations into money market funds. In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades. This annoys people with 30-year monetarist tracts, but too bad. Plenty of people are reconstructing M3 based on other data if you must have the data.
As for Goldman's inflation comment, you have to keep in mind that people in the financial markets keep their eye on what is expected/forecast, not what the current reading of an indicator is. Monetary policy works with a lag; the Fed can do nothing about the current inflation rate. At best, they can push down the rate a year from now.
The big inflation problem now is due to energy (and energy cost pass-through into things like food). The Fed can do nothing about oil prices, unless they quietly stockpiled some under their offices when nobody was watching. All they can do is deflate other prices to counter-act the relative price rise of oil. And in the short term, that is unrealistic.
Although there's a chance the oil price rise is the result of speculation (and thus amendable to rate hike action), there's a strong fundamental basis. Heck, oil price rises may be on a permanently high plateau. The main oil producers are crippling their own production, and giving away increasing amounts to their own populations. At the same time, geologists are plainly incapable of finding new viable sources of oil. Since production could easily be throttled lower, we may need to see demand destruction of around 20% in the OECD to make a dent in oil prices.
Monetary policy could attempt to arrange the demand destruction through creating a co-ordinated global depression, but that may be somewhat uncomfortable for some people.
The world's richest nations warned on Saturday soaring commodity prices may slice into economic growth, but shrank from offering any plan to calm markets or quell protests over the cost of fuel and food.
Currencies were not discussed in a meeting of G8 finance ministers in Osaka, Japan, after a string of tantalizing comments about a weak dollar's role in inflation, and analysts said the currency would likely dip on Monday.
debt repayment (all the stuff above, but in the past)
but those are just the first order effects. The second order effects probably leaked into all sectors. I wonder if we will be able to tell, post recession, where the MEW was spent by differential recovery rates?
"In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades."
You might want to look at the Vietnam war and the Iraq war. All wars are inflationary. Take the worlds reserve fiat currency + pay for a war with borrowed money from the rest of the world + global fractional reserve banking systems. This ain't rocket science.
"Anonymous writes:
"In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades."
You might want to look at the Vietnam war and the Iraq war. All wars are inflationary. Take the worlds reserve fiat currency + pay for a war with borrowed money from the rest of the world + global fractional reserve banking systems. This ain't rocket science."
I've had people get uptight about my getting dates wrong, but the Vietnam war was not in the past "couple decades".
I chose my wording carefully; the banking system has changed beyond recognition since the 1970s. Any relationship using monetary and banking system data that would have been applicable during the Vietnam era will provide almost no guidance now. The monetarists may have been right - it may have been possible to target M3 in the pre-1970s financial system. But when it was tried in the early 1980s, the theory provided no useful guidance.
With regards to wars and inflation, would you argue that the invasion of Grenada was a major inflationary event? If not, then you need to modify the argument to "all big wars are inflationary". It's unclear to me whether Iraq spending is enough to represent a major boost to inflationary pressure, in comparison to the massive growth we see in China and India.
As for borrowing, most of the binge was undertaken by U.S. households, not governments. U.S. federal government finances look a lot better than those of a lot of European governments, and they (mainly) haven't been fighting a war.
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
What a racket.
The next big thing that's going to happen in the next decade or so is that there will be a social and economic rebellion against the economic slavery aided and abetted by Big Higher Ed.
I work in higher ed... and aside from the fact that most of today's college students are intellectually incurious and many are functionally illiterate... these kids are the most helpless, zombiefied conformists to come down the pike since the Eloi in Wells' TIME MACHINE.
This generation of college students won't "get it," but the next generation will.
I still do not believe the Fed has the nerve to raise interest rates in an election year. Ben would go down in history as ending the R era in Washington. No future wall street executive can live with that.
"I chose my wording carefully; the banking system has changed beyond recognition since the 1970s. Any relationship using monetary and banking system data that would have been applicable during the Vietnam era will provide almost no guidance now."
"You can fool some of the people all the time, and those are the ones you want to concentrate on."
George W. Bush:
This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition; and when we are obliged to issue a quantity excessive, it pays itself off by depreciation.
~ Ben Franklin, April 1779
Nothing has changed, Wars are inflationary and that inflation is going to show up somewhere it may show up in assert prices but it is inflation none the less.
I appreciate your frustration, but believe most students haven't had what they need at the secondary level.
So far as I can tell, the current crop are as bright, thoughtful and funny as my peers were at that age. But if you aren't thinking clearly, haven't developed an ability to retain what you've studied, and don't express yourself clearly, you've been cheated (at great expense) in your public school years.
The lower grades are a failure. But I can't make light of students who come out of them empty-handed.
GWB has a Masters from Harvard. What are we to make of that? All degrees from Harvard (and Yale, 'cause he started his "higher education" there) are now as suspect as AAA-rated securities.
A degree from an institution of higher learning signifies nothing - other than payment of an entry fee. If you disagree, please tell me how Bush earned his Masters.
In an attempt to help lenders speed the process of getting real estate-owned properties off their books, the Federal Housing Administration will temporarily lift a 90-day waiting period for property resales financed by FHA-guaranteed loans.
The 90-day waiting period -- instituted in 2003 to counter predatory lending and house flipping -- never applied to properties sold by Fannie Mae, Freddie Mac, or state- and federally chartered financial institutions.
But it can be hard to determine which lenders are exempt from the rule, and many who are exempt prefer to transfer title to REO properties over to property disposition firms that are not exempt, FHA officials say. Because a glut of foreclosed and abandoned homes harms neighborhoods and delays a community's recovery, FHA will lift the waiting period for one year.
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
you confuse cause and effect IMO.
The issue isn't that higher ed is forcing us to pay $100k so we can live a middle class lifestyle that only required 8th grade in the past.
the issue is that globalization has added a billion people who are competing for the lower skills jobs. thus one must be higher educated in order to "compete". in fact, one must be overeducated just to make the grade.
higher ed serves this function.
I also strenuously disagree with your characterization of "college students". Sure, there are dumb and lazy college students. but there are a LOT of very skilled very dedicated students as well.
I may be biased, because I've always gone to the "best" schools... but I've seen some remarkable kids coming out of both private and State universities. This is one of the reasons why foreigners come to the US to be educated... our universities are very very good. it's not just that they want to come here and then get a job, since many get educated here and then leave.
I spent a year at the University of Paris (oft called "La Sorbonne"), France's "best" college. It was nothing compared to the college I attended here. That said, I also agree with burnside: secondary education in America is not very good compared to the rest of the world, public OR private.
A degree from an institution of higher learning signifies nothing - other than payment of an entry fee. If you disagree, please tell me how Bush earned his Masters.
Petey Wheatstraw | 06.14.08 - 9:48 am | #
Well there are degrees and then there are degrees. Most Harvard and Yale degrees would indicate a high IQ and considerable learning. BUT if you have parents who are powerful and whose good will is eagerly sought by an institution, things can be altered to suit the situation. In short I would not throw out the baby with the bathwater. What I do find outrageous is Yale's conferring an honorary degree on the POS. THAT was completely unnecessary and ridiculous. And even if Yale made that mistake, it could rescind the degree and it should.
Head cheese will work too if you can't find the others. I found an eye lid (with eye lashes!) in mine once. That'll give you a good old power boot (aka projectile vomiting).
Yearning to learn is basically correct. In Bush's time (mid 60s) it was easier to get into Yale or Harvard if you just had pedigree and/or money. Since then the weeding out process takes place at the beginning and now most people admitted to elite colleges are very high IQ (per tests taken, etc.) to begin with, so the IQ question doesn't arise during their studies. And most of them like intellectual pursuits, so they apply themselves. There are party schools but they are seldom elite institutions. Read The Bell Curve. It details the whole complex of IQ, money, position, etc., very well.
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
My university is currently looking for a new president. The primary qualification? Fund-raising ability. My law school just hired a new head dean. His main responsibility was to oversee a building campaign.
Pray tell me the distinction between a university and a business, and a president and a lobbyist.
Pray tell me the distinction between a university and a business, and a president and a lobbyist.
Well Universities are businesses in that they have to have endowments and lots of income to operate. They lives off fees they charge students PLUS the income from investments. They dispense intellectual products however, not soap and Wheaties. The job of Presidents of big universities is mainly to raise money. The running of the institution is usually the job of the Provost. I don't see anything shocking or astonishing about this. It is simply reality in the USA.
Because it has been easier to borrow against the increased wealth in ones house than in ones stock portfolio, FAIL! You don't HAVE to borrow against the increased value of your stock portfolio: you can simply SELL some of it. Unless it's still easier to secure the gains on stock than a house. THIS is the problem. People have been treating HELOCs as if they're selling part of their house to the bank. It is simply a secured loan, not "your money." that you're accessing.
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
Lets see... when I started college in 1975...
Gas cost 44 cents a gallon
Average car cost about $4250
Average home cost $39000
I went to the U of Minnesota that fall and if I recall correctly, tuition room & board came in around $2500.
That equals about... 5682 gal of gas or almost 60% of the price of a new car back then.
My recollection is that a 'private school' education was a little over more than twice that amount ($6K sticks in my head - I wasn't 'private school' material so didn't really look that hard at that option). That comes out to 40% MORE than the cost of a typical new car or 13,636 gallons of gas.
Fast forward to today...
U of MN costs about $20K per year (tuition, room & board) and a private education about $36K per year (tuition, R&B)... Some more, some less.
At $4/gal and a typical new car costing $28K (WAG - average between SUV & econobox)... YMMV.
U of MN => 5,000 gal or 71% of a new car
Private college => 9,000 gal or 26% more than the cost of a new car.
Looking at these ratios... a private college doesn't cost as much today in terms of real measurables than it did in 1975.
Public uni's cost more in real stuff than in '75 - jives with what I've read about reduced sate subsidy to state universities... so seems consistent.
I don't think it is really that different then than now - I knew lotsa college educated plasterers, roofers & bus drivers in the 70s - at least as many as now. And lotsa complaints back then that an education didn't 'pay'...
I would like to amend yearning's comment "our universities are very very good" to "some of our universities are very very good". Most of our universities are really pretty bad, including the one that I work for (it is ranked in the top 100 on many measures). Foreign students at my institution are at first bewildered, then dismayed at its poor quality. They have a hard time reconciling the power of America in the world with its poor education system. Still, having a PhD from an American university does, strangely enough, open doors for them.
The running of the institution is usually the job of the Provost. I don't see anything shocking or astonishing about this. It is simply reality in the USA.
Chris, I agree with you wholeheartedly. I just wish that the schools and the majority of the public would admit this, and not have this sanctimonious attitude. Sure there are institutions that care about the students, but I think the days when universities were student-centric have long gone. One only need look at Harvard's $35M endowment, and the school's refusal to do anything useful with it.
Billy Shears writes:
Head cheese will work too if you can't find the others. I found an eye lid (with eye lashes!) in mine once. That'll give you a good old power boot (aka projectile vomiting).
Billy Shears | 06.14.08 - 10:50 am
Mmmmmmm...
...headcheese!
It ain't cheese, but it is head. Second only to blenderized, strained baloney.
Since the use of MEW to support lifestyle is curtailing, what will substitute for MEW? Will folks sell equities? Start depleting their 401Ks and IRAs? What next?
"My university is currently looking for a new president. The primary qualification? Fund-raising ability. My law school just hired a new head dean. His main responsibility was to oversee a building campaign."
We just inaugurated our new chancellor; he'd served as interim for a couple years since our last chancellor jumped off a building. I went to the ceremony -- his fundraising role was emphasized more than any other. He's a good guy, an old hand around the campus and knows how things work, unlike his predecessor. But it's all about fundraising.
I'm a staffer, and I work at the university alongside a couple of recent grads who stayed to take staff jobs. One of them can't write worth a damn, another has an expensive degree in "digital arts and new media" which got him a job managing our telephone outreach boiler room.
I took an advanced degree here, and found maybe one tenured prof who gave a damn about teaching. Most of them were doing the minimum and complaining about how hard they worked; the lecturers weren't worth much, either.
Yes, people do learn things at universities. But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
As for the others -- English, history, etc. -- if you want to pay $60-$100K for a degree that doesn't qualify you for much of anything, that's up to you.
Since there exists a one strand fiber optic cable link between Goldman Sach and the Fed, and one to the Treasury, i'm going to believe whatever Goldman says.
I'll change my opinion when i believe there talking there book, in which case I'll bet against what there saying.
I shall also have my account custodied at GS. That way no matter what happens , GS gets my money.
We're probably 12-15 months away from some of the predicted outcomes... I remember thinking in 2006 that prices would drop, but it took awhile before people understood what the data was saying, or before they dropped outcome bias. I think this blog is mostly ahead of the curve...
Also my wife recently had $4k of somewhat unexpected, uncovered dental work done. I ended up selling ~ 15% of my remaining equities to pay for it instead of putting it on credit card (well a check is in the mail apparently). I don't get why investment companies still think a check in the USPS is a reasonable way of sending money... in fact a $10k check from UBS never 'effin made it to me. I'd prefer to pick something up from my local UBS office but that didn't happen at all... at least they re-sent the check via UPS... but still.
I guess this is why I'm buying any new equities through an online broker instead of keep funding the traditional brokers... I think the sales commission was a lot more than $10-15 trade that online places charge.
Yes, people do learn things at universities. But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
We do - its called 'night school on the eight year plan'. I knew lotsa folks who went that way... worked as a grunt server slave while getting an IT degree or worked in a machine shop while studying mechanical engineering.
Similar thing can be done w/ liberal arts - work as an office admin for a company serving the latino section of town while studying spanish & latin american history.
The break down isn't that this kind of thing isn't possible or even available - its that no one tells the kids its even out there - they have to stumble onto it by accident. Many of my buddies did this kind of thing. I worked factories & labs HARD CORE while getting my chem eng degree - no accident that I hit the factory floor running after I graduated... typically an engineering grad would shadow an experienced engineer for a full year - I was running my own shift/process six weeks after graduating (I went to work immediately after graduation).
As things tighten - we'll find options out there we didn't even know existed.
--
It IS the Debt, Stupid! (That kept the economy going during the reign of Bush, XVIII; the next President would inherit far worse economy than Herbert Hoover, a man ten times superior in ability to McCain or Obama). Americans have been thoroughly screwed by Greenspan, Bush and Bernanke and the system that produced these three is capable of producing worse.
Jas
I guess I should add I don't own a house so equities are my "MEW"... although it helps that my grandfather has been investing since last 1970s... he's definitely a net winner in the stock market game... but I don't know if average people will be net-winner's like that ever again... getting in on the ground floor of the whole stock market....
It's incredible to listen to the continual bearish sentiment that's posted here. Without being too polyanish, it seems to me there are many ways that the economic situation will improve now and in the next few years. Examples:
House prices going down - good result, more people can afford houses (obvious).
Gas prices going up - good results, demand destruction of oil, fewer people on the road, less pollution, push for development of alternative energy sources.
Boomers retiring - good results, jobs opened up for younger people, increased employment, productivity improvements.
Reduction of jobs in construction industry - good results, "undocumented workers" return to country of origin, reduced demand for emergency room services and other state services.
Reduced consumer spending - good results, increased savings, increased spending for other areas like infrastructure repairs and improvements, development of alternative energy sources.
There are usually (at least) two sides to any economic story.
I doubt that we boomers will be retiring on schedule. Why should we?
We're healthy, retirement is often boring, and we don't have enough money to live like we'd like to.
The hub--born 3 years too soon to be a boomer--intends to work to 70.
I suspect some will retire, and then go back to work after a year or so.
Tom--that article sez half a tril loss; the real loss so far is more than 2 tril--4x that amount. And it is likely to double or more, say 5 tril. That's a 20% loss,not a 2%loss.
I personally know people who have done super stupid things with helocs.
Not everybody did, but a lot.
Liz,
The article cites the Fed for its $500+million loss of equity. You can follow the link to the Fed report. Can you give me a link to the information that you have that shows a higher loss of equity? If there is an error I would like to correct it on my blog.
Thanks.
Tom
Tom Lindmark said: "This will probably get me flamed but here's a different take on MEW-..."
Builds character.
Now that I've gotten the real-income- less-transfers data that NBER uses, it's clear that the whole wealth effect/MEW factor is not a pivotal one.
Real income (year-over-year) went negative beginning in the 2001 recession and consistently stayed that way until about Spring, 2003. Then it went persistently positive and stayed that way throughout the housing "boom", "bust" and whatever it is we're in now.
This pattern played-out the same way for the 1990-91 recession, too, with real income going negative in the recession and returning to positive growth in the subsequent recovery.
I don't know what all this university bashing is about. There are only two universities in the country that matter, Harvard and Yale. Those people at Harvard and Yale are the smartest people in the world. They are our leaders. I know, I know, those people don't actually produce anything but their parents were rich and that is all that matters. I mean we got George Bush, John Keary and Ben Bernanke.
But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
Hey, in Virginia, you can still "read for the law." No legal degree required. But you'll never practice in another state.
When we were cruising colleges a couple of years ago there was a lot of building going on. Classrooms? Nah
What the spoiled spawn of the HELOC class demanded were fancy dorm rooms and pretty gyms equipped with the latest in exercise machines. Kids didn't even want to walk to
the gyms, preferring well equipped exercise space in their dorms.. I wonder if they demanded symbians?
I assume that soon enough the money crunch will hit colleges.
Much of the ratings of colleges in the definative USNEWS ratings have to do with the number of students the school can turn down (raises SAT scores andlowers acceptance rate.) Thus also the President's prestigue and probably salary. So if kids want to have first class gyms rborrow and build it.
There are fundamental causes of inflation, but so much of the run up in food and fuel prices is due to speculative buying. The big houses like Goldman Sachs are doing their best to blow this bubble up higher and when it pops they will plead ignorance here, too.
Fed needs to tighten to stick a fork in commodity speculation. US will be importing inflation from China, Japan, and Europe as all either are experiencing wage increases or in Japan's case have absurdly inflationary monetary policy in an attempt to improve growth. I see the yen has drifted back down to around 108 per $. Carry trade redux?
I'd be interested to know how much of the MEW during the boom years was actually reinvested in upgrading the house. In the inner Philly suburbs during the 2004-2005 period in some older areas there seemed to be a huge construction dumpster sitting outside at leat one home on every street. If a high enough percentage of the MEW went for upgrades and expansions of existing housing stock in older more mature areas, then maybe there's justificaion for hoping that this market might hit bottom a little sooner or slingshot back up a little more strongly when everything passes over.
Id like to post a real life example of whats been going on with MEW.
I see a lot of charts and graphs but real life examples really illustrate the problem.
I have two family members who shall remain nameless that have done
their share of MEW spending.
Family member #1
House purchased in 2001 in NJ 115,000.
Mortgage amount financed is 80,000.
Current mortgage balance 2007 is 200,000.
Spent an extra 20,000 a year for the past 6 years.
Family member # 2
House purchased 2002 in NJ for 124,000.
Mortgage amount financed is 121,000.
Current mortgage balance 2007 is 245,000.
Spent an extra 24,487 a year for the last 5 years.
There have been 3 waives of refinancing credit card debt for both
of these families. Now in 2008 the credit cards are almost maxed
again but this time the housing ATM is empty.
Think of the shock they are in for. Not only are their credit cards
Maxed but they have an enormous mortgage payment on top of
the credit card payments to contend with.
I believe we are at a point in this country where consumer spending
is just going to fall off a cliff. Bankruptcies and foreclosures should
start to accelerate this year as more and more families find themselves
in this position.
Goldman Sachs has the same view . . . .
Quaere: Or was that opinion based on GS holding-for-sale a lot of government paper and worried that there'd be a panic (there was -- worst week since 1982) before they could offload?
u can haz 25 bpz hik?
MEW lol
Obviously, with flat wages, there will be no inflationary spiral. We are out of recession territory, and into another economic situation entirely. Demiddleclassification.
I think the bulk of it went for bling, with paying for college coming in second.
I think the bulk of it went for bling, with paying for college coming in second.
sequoia512: If only the chart of college tuition started looking like Williams-Sonoma, Bed Bath and Beyond, Starbucks, and other trappings of yuppiedom.
It's gotta happen soon.
GJV1 - thanks. Interesting - my quiet little neighborhood has more houses for sale than I've seen in seven years since moving in. Fallout from the MEW backlash is my neighbors guess. Too many new pools, yards, etc. etc.
Meanwhile back on the charts and graphs front real Retail Sales xgas is down significantly and continues a 7 month run.
But despite rumors of inflation etc. the real monetary base is shrinking because of the credit crisis morphing into a crunch while rates are going up because of exchange rates pressures.
Graphs, charts and a definition of seignorage here:
http://tinyurl.com/5muwrx
Can't decide if I should be kicking myself for not taking out all the phantom EQ on my house and spending it (or moving it offshore) so I can be on the receiving end of the bailout too, instead of on the receiving end of the savings taxation to support the bailout.
How funny would it be if a legitimate talking head told people to do that now, as the best asset-preservation strategy in the face of the government's likely actions? The more I think about it, the more it seems like the right financial strategy; I'm sure many wealthy people have already done so...
DEMIDDLECLASSIFICATION... precious!
rate hike? na gonna happa, ain gon doit
nfw
Goldman: worries about inflation are "overdone". Hmmm. Easy to fill a gas tank (or a stomach) on a Goldman salary. Not so easy for, um, everyone else...
Goldman Sachs: "worries about inflation are overdone ..."
Ouch! Really? Just came back from Safeway. Red or yellow bell peppers. . . $6 for two! Fortunately green bell peppers were more reasonable. "Only" $3 for two! Crazy. I'll tell you what is overdone and that is food prices.
DEMIDDLECLASSIFICATION... precious!
..............
Indeed!
There are simply too many things going the wrong way for Joe/Jane consumer and all at the same time. What, praytell, is supposed to be on the horizon that's going to allow the silly spending of the last several years to continue? I see financial reckoning writ large.
Red or yellow bell peppers. . . $6 for two!
.......
A friend let me know today that the 1.75 quart "half-gallon", which should be 2 quarts, ice cream container he usually buys is now 1.5 quarts, a 14.3% decrease.
Thanks for those real life examples GGV1. They are pretty interesting to consider.
If a high enough percentage of the MEW went for upgrades and expansions of existing housing stock in older more mature areas, then maybe there's justificaion for hoping that this market might hit bottom a little sooner or slingshot back up a little more strongly when everything passes over.
Been there | 06.13.08 - 8:22 pm | #
hhmmmm. Can that massive investment in upgrading housing stock manufacture things that others want so we can pay off our massive debt?
Nope. It was all just bling.
Maybe you could sell that upgraded housing stock to the administrators of sovereign wealth funds and the former "owners" could clean the toilets.
As mentioned above, and in lots of other posts here, FOOD is has been going WAY up over the last few months.
I think the "experts" who keep saying things like " worries about inflation are overdone ..." are at such high pay levels that the increases in food costs are unnoticeable to them. Good for them and all, however, lots of the rest of us are feeling it...
Hey maybe you guys can work for us once Canada gets it's sovereign wealth fund, from oil tax revenue, off the ground
More butter please..........
Go here and you can acually watch food prices go up. You have to have your pop up blocker off.
Bureau of Labor Statistics Data
"Ouch! Really? Just came back from Safeway. Red or yellow bell peppers. . . $6 for two!"
I'm seeing those kind of prices at my local Safeway as well and it's quite shocking. You should try shopping at a grocery store that caters to low wage ethnics, you won't believe the difference. I do 95% of my food shopping at my local Food City store. It'a full size grocery catering to Mexican immigrants but it sells most everything, and cheap. Red or yellow peppers are $0.69 each. The catch? they aren't perfectly shaped so they don't get the "A" rating. Big deal. Cillantro is 3 bunches for $0.99, Giant weirdly shaped cucumbers are three for a buck, and the list goes on. They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
As long as the food is not imported from China, you know, the stuff that is irrigated from the same pool that the pcb factory beside dumps their wast.
Nice to know that women's dresses (-6%) offset increases for food and energy.
Demiddleclassification.
LOL! Sounds like something Greenspan would invent...
Big deal. Cillantro is 3 bunches for $0.99, Giant weirdly shaped cucumbers are three for a buck, and the list goes on. They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Bob Mologna | 06.13.08 - 9:39 pm | #
Oh oh... here we go again! LOL.
I do the same thing Bob - both Asian & Mexican stores - great deals (I think?)...
They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Bob Mologna | 06.13.08 - 9:39 pm | #
Ain't nothin' like a good lamb neck sandwich, I've always said.
Could They? Yes. Will They? We Don't Think So. Classic If they do Scott McClellan will have to come out with a sequel entitled WTF Happened. The narrative spins the facts so we can all sleep at night. Sheesh
I think we may be at the point that its actually less expensive to eat OUT.
funny. but in reality....not so much.
boils water for ramen, rinse, egg, heat.
repeat.
signed,
urban chicken.
"Ain't nothin' like a good lamb neck sandwich, I've always said."
Here it beats the hell out of pony peters.
OT Marketplace Money on Iowa Floods and $7.50 corn... why high water in the Midwest affects you also..
Link... click on 'Listen'.
Not much the fed can do about high water unless they can sand bag levees.
BTW - I used to live in Cedar Rapids - about a mile from the downtown now under water - the town isn't that 'low'... the river is really 'that high'. Blows my mind when I see the videos. I was supposed to be there last week but stayed away - glad I did, I'd just been another gawker in the way.
That inflation comment by Goldman is the kind of thing class warfare is made of. To someone who is suffering from the financial meltdown these geniuses helped usher in and is now seeing food and gas prices shoot through the roof, that sounds a lot like "let them eat cake".
Now where did I leave my guillotine...
-Jason
Jason writes:
That inflation comment by Goldman is the kind of thing class warfare is made of. To someone who is suffering from the financial meltdown these geniuses helped usher in and is now seeing food and gas prices shoot through the roof, that sounds a lot like "let them eat cake".
Now where did I leave my guillotine...
-Jason
Jason | 06.13.08 - 10:41 pm | #
Marketplace Money also did a bit on that topic too... when should non-core be considered core?
Link...
Personally I think if food & energy are too volatile - use a moving average...
CPI = Core CPI + TMMA[food & energy]
Plus a TMMA takes away seasonality too - for the most part anyway.
BigR writes:
sequoia512: If only the chart of college tuition started looking like Williams-Sonoma, Bed Bath and Beyond, Starbucks, and other trappings of yuppiedom.
lol You forgot luxury vacations too.
Most seemed to go to road bling. Ghad, I just found out one of my coworkers has six cars all nicer than mine. Wow! Oh wait, I don't have his four mortgages (on two homes). lol Talk about servicing a house of cards...
Got Popcorn?
Neil
Petey Wheatstraw writes:
They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Beef neck trim, Yummy! Sweetbreads(lamb pituitary glands) even better.
Been there-
hmmm....you're right that if the MEW had been used on decent upgrading to existing housing stock, that would've been a good thing.
Unfortunately, all the "upgrading" I've noticed around here has been ripping out perfectly good/beautiful kitchen cabinets made of solid old wood of fine craftsmanship only to be replaced with crappy cheap Home Depot junk. ...and it's not even installed correctly.
It's depressing. A lot of beautiful older homes have been wrecked around here by wanabee designer whackos.
From finance to aesthetics to workmanship, these flippers really didn't have a lick of sense.
I fear they've wrecked more homes than they've improved with their superficial, unecessary "upgrades".
Didn't Dow Chemical announce a 20% price increase? When (if ever) does that show up in the government inflation statistics? I'm sure there will be more adjustments to somehow take out those price increses.
Until recently, I didn't realize that some lenders actually issue HELOC cards that function like credit cards. You can take them to the store and spend your home equity on anything you please. Or at least you could, until recently.
OK, I've got to ask, who is/was issuing HELOC Credit Cards?
probably the same idiots that issued the 401(k) debit cards.
Umm, we have some nice HELOC cards too. One has holographic picture of Elvis on it, (the real one).
During the dot-com bubble, I didn't think I could see anything as stupid as multi-billion dollar corporations like excite.com or pets.com; then the housing bubble came, with Alt-A, negative amortization loans, option-ARMS, CDOs, etc.
And now that that "equity" is spent, it's finally time for one of those "God's Flashlight" moments, where the Sun starts to rise and folks scratch their heads and wonder "how much did I spend last night?"
And tasty prairie oysters, too.
GJV1 writes: Id like to post a real life example of whats been going on with MEW. [...]
Family member #1 [...] Spent an extra 20,000 a year for the past 6 years.
Family member # 2 [...] Spent an extra 24,487 a year for the last 5 years.
Given the gap between "spending" and "income" due to taxes, that's like having extra income of $35,000-$45,000 a year. Perhaps better put, it's gonna feel like a pay cut of $35,000-$45,000/year. (Even leaving out the need to (ahem) "start paying their previous debts back"?)
DCRogers:
That's a pretty astute observation. Probably a significant factor in Bush's "jobless recovery."
DCRogers & Anonymous:
Remind me, what's the median family income here in the land of milk & HELOCs?
Median income (2007): 48,200
That median income is per family. Median individual income is about $38k.
yes, i mistakenly quoted the household. in any event, this is sobering...
Slightly OT. Apologies if someone has already posted in another thread. I was amazed when seeing the .06 CPI carried to 4 places. It is .0649! Now I try not to be a conspiracy nut, but I keep imagining an army of bureaucrats swarming around lookin for -.0002 in CPI so the gvmt can report .06 and not .07.
waitinginPNW,
I had a WAMU (who else) HELOC and was issued a credit card to use for the funds. I paid it off and closed it a couple years ago.
The only way there will be a rate hike is if the market leads it higher. The whore Fed may need to pay more for dollars to fund the deficit if their pimp, Asia (China and Japan) demand it.
This is what happens when a syncphant is given the highest elected office.
worries about inflation are overdone ...
Couldn't disagree more. Inflation is the problem, that is why the fed stopped tracking M3.
"Hey maybe you guys can work for us once Canada gets it's sovereign wealth fund, from oil tax revenue, off the ground :)"
The Cunucks seem to think they are in the drivers seat.
Worked with a few of them ... miserable experience.
Let us see what happens when we send Bernanke and Greenspan packing.
I live in a neighborhood where housing prices are stagnant and sales are slow. My neighbor went into bankruptcy , and just vacated the house. She had used equity for legal expenses involving her mentally ill daughter, but the bank pulled a good number of dodgy tricks when she refinanced. Her yard had a wonderfull garden. All her co-workers and friends have been digging up stuff. I helped her dig up a bunch of perennials, and took some for myself as well. Today I moved a sizable topiary into my garden. In the ghetto they'e ripping out the copper pipes-around here we're ripping out the perennials. Sad thing is- once the bank owns the house the garden will go to hell. Then they will pay a landscaper to weedwack everything into oblinion.
MEXICO CITY - Former Federal Reserve chairman Alan Greenspan told the Latin American Economic Forum here Friday that he sees a reduced possibility of a deep recession in the United States.
"I think the worst is over," Greenspan said of US economic woes, speaking via video-conference from Washington.
Famous last words?
Floyd Norris at NYT makes a recession call, with disclaimers:
OFF THE CHARTS; The Recession in the Rearview Mirror - NY Times
They also sell odd cuts of meat like lamb neck and beef cheeks, both very tasty if you know how to cook.
Bob Mologna | 06.13.08 - 9:39 pm | #
US standard of living already dropping as predicted.
Hey maybe you guys can work for us once Canada gets it's sovereign wealth fund, from oil tax revenue, off the ground
The Canadian province of Alberta, where most of the oil is, has one of the world's oldest SWF's.
Alberta Finance and Enterprise - Alberta Heritage Savings Trust Fund
The Canadian federal government originally owned the natural resources in the West (like the USG still does) but gave them to the provinces around 1930, before the oil was discovered (oops).
The Canadian federal government is running surpluses but is not going to pay off its debt for a very long time.
"republicans are traitors writes:
worries about inflation are overdone ...
Couldn't disagree more. Inflation is the problem, that is why the fed stopped tracking M3."
What do you think M3 would tell us? All it would tell you is that people (including corporations) have been moving asset allocations into money market funds. In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades. This annoys people with 30-year monetarist tracts, but too bad. Plenty of people are reconstructing M3 based on other data if you must have the data.
As for Goldman's inflation comment, you have to keep in mind that people in the financial markets keep their eye on what is expected/forecast, not what the current reading of an indicator is. Monetary policy works with a lag; the Fed can do nothing about the current inflation rate. At best, they can push down the rate a year from now.
The big inflation problem now is due to energy (and energy cost pass-through into things like food). The Fed can do nothing about oil prices, unless they quietly stockpiled some under their offices when nobody was watching. All they can do is deflate other prices to counter-act the relative price rise of oil. And in the short term, that is unrealistic.
Although there's a chance the oil price rise is the result of speculation (and thus amendable to rate hike action), there's a strong fundamental basis. Heck, oil price rises may be on a permanently high plateau. The main oil producers are crippling their own production, and giving away increasing amounts to their own populations. At the same time, geologists are plainly incapable of finding new viable sources of oil. Since production could easily be throttled lower, we may need to see demand destruction of around 20% in the OECD to make a dent in oil prices.
Monetary policy could attempt to arrange the demand destruction through creating a co-ordinated global depression, but that may be somewhat uncomfortable for some people.
G8 frets over commodity shock
The world's richest nations warned on Saturday soaring commodity prices may slice into economic growth, but shrank from offering any plan to calm markets or quell protests over the cost of fuel and food.
Currencies were not discussed in a meeting of G8 finance ministers in Osaka, Japan, after a string of tantalizing comments about a weak dollar's role in inflation, and analysts said the currency would likely dip on Monday.
Business & Financial News, Breaking US & International News | Reuters.com
The boondoggle has ended, Bucky is going to get an ass spanking come Monday and oil is headed to 150.
We don't know where the MEW went:
personal consumption
home improvements
college tuition
RE speculation
stock speculation
debt repayment (all the stuff above, but in the past)
but those are just the first order effects. The second order effects probably leaked into all sectors. I wonder if we will be able to tell, post recession, where the MEW was spent by differential recovery rates?
"In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades."
You might want to look at the Vietnam war and the Iraq war. All wars are inflationary. Take the worlds reserve fiat currency + pay for a war with borrowed money from the rest of the world + global fractional reserve banking systems. This ain't rocket science.
"Anonymous writes:
"In any event, nobody has actually been able to find any decent relationship between M3 and inflation (or anything, actually) that has held for the last couple decades."
You might want to look at the Vietnam war and the Iraq war. All wars are inflationary. Take the worlds reserve fiat currency + pay for a war with borrowed money from the rest of the world + global fractional reserve banking systems. This ain't rocket science."
I've had people get uptight about my getting dates wrong, but the Vietnam war was not in the past "couple decades".
I chose my wording carefully; the banking system has changed beyond recognition since the 1970s. Any relationship using monetary and banking system data that would have been applicable during the Vietnam era will provide almost no guidance now. The monetarists may have been right - it may have been possible to target M3 in the pre-1970s financial system. But when it was tried in the early 1980s, the theory provided no useful guidance.
With regards to wars and inflation, would you argue that the invasion of Grenada was a major inflationary event? If not, then you need to modify the argument to "all big wars are inflationary". It's unclear to me whether Iraq spending is enough to represent a major boost to inflationary pressure, in comparison to the massive growth we see in China and India.
As for borrowing, most of the binge was undertaken by U.S. households, not governments. U.S. federal government finances look a lot better than those of a lot of European governments, and they (mainly) haven't been fighting a war.
bond guy
Since trading at $17.45 a barrel in November 2001, crude has risen 697% , and reached 28 record highs this year.
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
What a racket.
The next big thing that's going to happen in the next decade or so is that there will be a social and economic rebellion against the economic slavery aided and abetted by Big Higher Ed.
I work in higher ed... and aside from the fact that most of today's college students are intellectually incurious and many are functionally illiterate... these kids are the most helpless, zombiefied conformists to come down the pike since the Eloi in Wells' TIME MACHINE.
This generation of college students won't "get it," but the next generation will.
"This generation of college students won't "get it," but the next generation will"
Oh they will get it alright: Good and hard just like they deserve.
I still do not believe the Fed has the nerve to raise interest rates in an election year. Ben would go down in history as ending the R era in Washington. No future wall street executive can live with that.
bond guy
"I chose my wording carefully; the banking system has changed beyond recognition since the 1970s. Any relationship using monetary and banking system data that would have been applicable during the Vietnam era will provide almost no guidance now."
"You can fool some of the people all the time, and those are the ones you want to concentrate on."
George W. Bush:
This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition; and when we are obliged to issue a quantity excessive, it pays itself off by depreciation.
~ Ben Franklin, April 1779
Nothing has changed, Wars are inflationary and that inflation is going to show up somewhere it may show up in assert prices but it is inflation none the less.
mal,
I appreciate your frustration, but believe most students haven't had what they need at the secondary level.
So far as I can tell, the current crop are as bright, thoughtful and funny as my peers were at that age. But if you aren't thinking clearly, haven't developed an ability to retain what you've studied, and don't express yourself clearly, you've been cheated (at great expense) in your public school years.
The lower grades are a failure. But I can't make light of students who come out of them empty-handed.
GWB has a Masters from Harvard. What are we to make of that? All degrees from Harvard (and Yale, 'cause he started his "higher education" there) are now as suspect as AAA-rated securities.
A degree from an institution of higher learning signifies nothing - other than payment of an entry fee. If you disagree, please tell me how Bush earned his Masters.
FHA waives anti-flipping rule:
In an attempt to help lenders speed the process of getting real estate-owned properties off their books, the Federal Housing Administration will temporarily lift a 90-day waiting period for property resales financed by FHA-guaranteed loans.
The 90-day waiting period -- instituted in 2003 to counter predatory lending and house flipping -- never applied to properties sold by Fannie Mae, Freddie Mac, or state- and federally chartered financial institutions.
But it can be hard to determine which lenders are exempt from the rule, and many who are exempt prefer to transfer title to REO properties over to property disposition firms that are not exempt, FHA officials say. Because a glut of foreclosed and abandoned homes harms neighborhoods and delays a community's recovery, FHA will lift the waiting period for one year.
FHA waives 90-day waiting period for resales | Real Estate and Technology News for Agents, Brokers and Investors | Inman News
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
you confuse cause and effect IMO.
The issue isn't that higher ed is forcing us to pay $100k so we can live a middle class lifestyle that only required 8th grade in the past.
the issue is that globalization has added a billion people who are competing for the lower skills jobs. thus one must be higher educated in order to "compete". in fact, one must be overeducated just to make the grade.
higher ed serves this function.
I also strenuously disagree with your characterization of "college students". Sure, there are dumb and lazy college students. but there are a LOT of very skilled very dedicated students as well.
I may be biased, because I've always gone to the "best" schools... but I've seen some remarkable kids coming out of both private and State universities. This is one of the reasons why foreigners come to the US to be educated... our universities are very very good. it's not just that they want to come here and then get a job, since many get educated here and then leave.
I spent a year at the University of Paris (oft called "La Sorbonne"), France's "best" college. It was nothing compared to the college I attended here. That said, I also agree with burnside: secondary education in America is not very good compared to the rest of the world, public OR private.
We'll know food prices have topped when the shelves are stocked with Spamalope neck and Treet cheeks instead.
Yeah, here's some real fiscal responsibility-
http://www.gao.gov/new.items/d08853r.pdf
Page 5 has a great graph with some zesty notes at the bottom.
A degree from an institution of higher learning signifies nothing - other than payment of an entry fee. If you disagree, please tell me how Bush earned his Masters.
Petey Wheatstraw | 06.14.08 - 9:48 am | #
Well there are degrees and then there are degrees. Most Harvard and Yale degrees would indicate a high IQ and considerable learning. BUT if you have parents who are powerful and whose good will is eagerly sought by an institution, things can be altered to suit the situation. In short I would not throw out the baby with the bathwater. What I do find outrageous is Yale's conferring an honorary degree on the POS. THAT was completely unnecessary and ridiculous. And even if Yale made that mistake, it could rescind the degree and it should.
Head cheese will work too if you can't find the others. I found an eye lid (with eye lashes!) in mine once. That'll give you a good old power boot (aka projectile vomiting).
Yearning to learn is basically correct. In Bush's time (mid 60s) it was easier to get into Yale or Harvard if you just had pedigree and/or money. Since then the weeding out process takes place at the beginning and now most people admitted to elite colleges are very high IQ (per tests taken, etc.) to begin with, so the IQ question doesn't arise during their studies. And most of them like intellectual pursuits, so they apply themselves. There are party schools but they are seldom elite institutions. Read The Bell Curve. It details the whole complex of IQ, money, position, etc., very well.
When is somebody going to state the obvious -- that college "educations" today are mainly overpriced extortion?
My university is currently looking for a new president. The primary qualification? Fund-raising ability. My law school just hired a new head dean. His main responsibility was to oversee a building campaign.
Pray tell me the distinction between a university and a business, and a president and a lobbyist.
Yeah, here's some real fiscal responsibility-
More tabloid here.
Stephen Lendman: Exposing Pentagon and CIA Corruption
Pray tell me the distinction between a university and a business, and a president and a lobbyist.
Well Universities are businesses in that they have to have endowments and lots of income to operate. They lives off fees they charge students PLUS the income from investments. They dispense intellectual products however, not soap and Wheaties. The job of Presidents of big universities is mainly to raise money. The running of the institution is usually the job of the Provost. I don't see anything shocking or astonishing about this. It is simply reality in the USA.
Because it has been easier to borrow against the increased wealth in ones house than in ones stock portfolio, FAIL! You don't HAVE to borrow against the increased value of your stock portfolio: you can simply SELL some of it. Unless it's still easier to secure the gains on stock than a house. THIS is the problem. People have been treating HELOCs as if they're selling part of their house to the bank. It is simply a secured loan, not "your money." that you're accessing.
I don't get it. You are expected to pay $100,000 per kid in order to "guarantee" (HAHAHAHAHA) their entry into the middle-class lifestyle and a so-called "living wage"... when 30 years ago, a public education would have sufficed.
Lets see... when I started college in 1975...
Gas cost 44 cents a gallon
Average car cost about $4250
Average home cost $39000
According to this site...
Can't speak for accuracy but seems right...
I went to the U of Minnesota that fall and if I recall correctly, tuition room & board came in around $2500.
That equals about... 5682 gal of gas or almost 60% of the price of a new car back then.
My recollection is that a 'private school' education was a little over more than twice that amount ($6K sticks in my head - I wasn't 'private school' material so didn't really look that hard at that option). That comes out to 40% MORE than the cost of a typical new car or 13,636 gallons of gas.
Fast forward to today...
U of MN costs about $20K per year (tuition, room & board) and a private education about $36K per year (tuition, R&B)... Some more, some less.
At $4/gal and a typical new car costing $28K (WAG - average between SUV & econobox)... YMMV.
U of MN => 5,000 gal or 71% of a new car
Private college => 9,000 gal or 26% more than the cost of a new car.
Looking at these ratios... a private college doesn't cost as much today in terms of real measurables than it did in 1975.
Public uni's cost more in real stuff than in '75 - jives with what I've read about reduced sate subsidy to state universities... so seems consistent.
I don't think it is really that different then than now - I knew lotsa college educated plasterers, roofers & bus drivers in the 70s - at least as many as now. And lotsa complaints back then that an education didn't 'pay'...
Plus ça change, plus c'est la même chose.
I would like to amend yearning's comment "our universities are very very good" to "some of our universities are very very good". Most of our universities are really pretty bad, including the one that I work for (it is ranked in the top 100 on many measures). Foreign students at my institution are at first bewildered, then dismayed at its poor quality. They have a hard time reconciling the power of America in the world with its poor education system. Still, having a PhD from an American university does, strangely enough, open doors for them.
The running of the institution is usually the job of the Provost. I don't see anything shocking or astonishing about this. It is simply reality in the USA.
Chris, I agree with you wholeheartedly. I just wish that the schools and the majority of the public would admit this, and not have this sanctimonious attitude. Sure there are institutions that care about the students, but I think the days when universities were student-centric have long gone. One only need look at Harvard's $35M endowment, and the school's refusal to do anything useful with it.
Billy Shears writes:
Head cheese will work too if you can't find the others. I found an eye lid (with eye lashes!) in mine once. That'll give you a good old power boot (aka projectile vomiting).
Billy Shears | 06.14.08 - 10:50 am
Mmmmmmm...
...headcheese!
It ain't cheese, but it is head. Second only to blenderized, strained baloney.
Since the use of MEW to support lifestyle is curtailing, what will substitute for MEW? Will folks sell equities? Start depleting their 401Ks and IRAs? What next?
Since the use of MEW to support lifestyle is curtailing, what will substitute for MEW?
Stimulus crack. Unemployment. Great Recession.
"My university is currently looking for a new president. The primary qualification? Fund-raising ability. My law school just hired a new head dean. His main responsibility was to oversee a building campaign."
We just inaugurated our new chancellor; he'd served as interim for a couple years since our last chancellor jumped off a building. I went to the ceremony -- his fundraising role was emphasized more than any other. He's a good guy, an old hand around the campus and knows how things work, unlike his predecessor. But it's all about fundraising.
I'm a staffer, and I work at the university alongside a couple of recent grads who stayed to take staff jobs. One of them can't write worth a damn, another has an expensive degree in "digital arts and new media" which got him a job managing our telephone outreach boiler room.
I took an advanced degree here, and found maybe one tenured prof who gave a damn about teaching. Most of them were doing the minimum and complaining about how hard they worked; the lecturers weren't worth much, either.
Yes, people do learn things at universities. But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
As for the others -- English, history, etc. -- if you want to pay $60-$100K for a degree that doesn't qualify you for much of anything, that's up to you.
Since there exists a one strand fiber optic cable link between Goldman Sach and the Fed, and one to the Treasury, i'm going to believe whatever Goldman says.
I'll change my opinion when i believe there talking there book, in which case I'll bet against what there saying.
I shall also have my account custodied at GS. That way no matter what happens , GS gets my money.
It ain't cheese, but it is head. Second only to blenderized, strained baloney.
Petey Wheatstraw | 06.14.08 - 11:31 am | #
Almost as good as bass... from a bass-o-matic that is!
We're probably 12-15 months away from some of the predicted outcomes... I remember thinking in 2006 that prices would drop, but it took awhile before people understood what the data was saying, or before they dropped outcome bias. I think this blog is mostly ahead of the curve...
Also my wife recently had $4k of somewhat unexpected, uncovered dental work done. I ended up selling ~ 15% of my remaining equities to pay for it instead of putting it on credit card (well a check is in the mail apparently). I don't get why investment companies still think a check in the USPS is a reasonable way of sending money... in fact a $10k check from UBS never 'effin made it to me. I'd prefer to pick something up from my local UBS office but that didn't happen at all... at least they re-sent the check via UPS... but still.
I guess this is why I'm buying any new equities through an online broker instead of keep funding the traditional brokers... I think the sales commission was a lot more than $10-15 trade that online places charge.
Yes, people do learn things at universities. But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
We do - its called 'night school on the eight year plan'. I knew lotsa folks who went that way... worked as a grunt server slave while getting an IT degree or worked in a machine shop while studying mechanical engineering.
Similar thing can be done w/ liberal arts - work as an office admin for a company serving the latino section of town while studying spanish & latin american history.
The break down isn't that this kind of thing isn't possible or even available - its that no one tells the kids its even out there - they have to stumble onto it by accident. Many of my buddies did this kind of thing. I worked factories & labs HARD CORE while getting my chem eng degree - no accident that I hit the factory floor running after I graduated... typically an engineering grad would shadow an experienced engineer for a full year - I was running my own shift/process six weeks after graduating (I went to work immediately after graduation).
As things tighten - we'll find options out there we didn't even know existed.
--
It IS the Debt, Stupid! (That kept the economy going during the reign of Bush, XVIII; the next President would inherit far worse economy than Herbert Hoover, a man ten times superior in ability to McCain or Obama). Americans have been thoroughly screwed by Greenspan, Bush and Bernanke and the system that produced these three is capable of producing worse.
Jas
I guess I should add I don't own a house so equities are my "MEW"... although it helps that my grandfather has been investing since last 1970s... he's definitely a net winner in the stock market game... but I don't know if average people will be net-winner's like that ever again... getting in on the ground floor of the whole stock market....
YLSP,
Wherever you are is the ground floor to someone who comes along later.
These are the good old days.
It's incredible to listen to the continual bearish sentiment that's posted here. Without being too polyanish, it seems to me there are many ways that the economic situation will improve now and in the next few years. Examples:
House prices going down - good result, more people can afford houses (obvious).
Gas prices going up - good results, demand destruction of oil, fewer people on the road, less pollution, push for development of alternative energy sources.
Boomers retiring - good results, jobs opened up for younger people, increased employment, productivity improvements.
Reduction of jobs in construction industry - good results, "undocumented workers" return to country of origin, reduced demand for emergency room services and other state services.
Reduced consumer spending - good results, increased savings, increased spending for other areas like infrastructure repairs and improvements, development of alternative energy sources.
There are usually (at least) two sides to any economic story.
This will probably get me flamed but here's a different take on MEW- METROPOLITAN | Property Management & Real Estate Investments
I doubt that we boomers will be retiring on schedule. Why should we?
We're healthy, retirement is often boring, and we don't have enough money to live like we'd like to.
The hub--born 3 years too soon to be a boomer--intends to work to 70.
I suspect some will retire, and then go back to work after a year or so.
"Yearning to learn is basically correct. In Bush's time (mid 60s) it was easier to get into Yale or Harvard if you just had pedigree and/or money."
There are still plenty of those underwhelming pedigreed/moneyed types at Harvard.
Tom--that article sez half a tril loss; the real loss so far is more than 2 tril--4x that amount. And it is likely to double or more, say 5 tril. That's a 20% loss,not a 2%loss.
I personally know people who have done super stupid things with helocs.
Not everybody did, but a lot.
Liz,
The article cites the Fed for its $500+million loss of equity. You can follow the link to the Fed report. Can you give me a link to the information that you have that shows a higher loss of equity? If there is an error I would like to correct it on my blog.
Thanks.
Tom
Tom Lindmark said: "This will probably get me flamed but here's a different take on MEW-..."
Builds character.
Now that I've gotten the real-income- less-transfers data that NBER uses, it's clear that the whole wealth effect/MEW factor is not a pivotal one.
Real income (year-over-year) went negative beginning in the 2001 recession and consistently stayed that way until about Spring, 2003. Then it went persistently positive and stayed that way throughout the housing "boom", "bust" and whatever it is we're in now.
This pattern played-out the same way for the 1990-91 recession, too, with real income going negative in the recession and returning to positive growth in the subsequent recovery.
Sebastian
I don't know what all this university bashing is about. There are only two universities in the country that matter, Harvard and Yale. Those people at Harvard and Yale are the smartest people in the world. They are our leaders. I know, I know, those people don't actually produce anything but their parents were rich and that is all that matters. I mean we got George Bush, John Keary and Ben Bernanke.
But in retrospect, in anything even vaguely occupation-related -- engineering, teaching, bio, media, nursing -- you'd be better off with a good apprenticeship augmented by classes, if we had a system like that.
Hey, in Virginia, you can still "read for the law." No legal degree required. But you'll never practice in another state.
When we were cruising colleges a couple of years ago there was a lot of building going on. Classrooms? Nah
What the spoiled spawn of the HELOC class demanded were fancy dorm rooms and pretty gyms equipped with the latest in exercise machines. Kids didn't even want to walk to
the gyms, preferring well equipped exercise space in their dorms.. I wonder if they demanded symbians?
I assume that soon enough the money crunch will hit colleges.
Much of the ratings of colleges in the definative USNEWS ratings have to do with the number of students the school can turn down (raises SAT scores andlowers acceptance rate.) Thus also the President's prestigue and probably salary. So if kids want to have first class gyms rborrow and build it.
There are fundamental causes of inflation, but so much of the run up in food and fuel prices is due to speculative buying. The big houses like Goldman Sachs are doing their best to blow this bubble up higher and when it pops they will plead ignorance here, too.