The inventory data agree in direction with the data from January on completions, which were up 1.1% on the month, vs 2.5% for inventories. There was also a 1.2% rise in homes under construction in January, and a 14.5% rise in starts, so unless sales pick up nicely in February, that rise in inventories will continue. This is part of the progression that our host has laid out for a downturn in the housing sector, I believe.
Lookit them inventories. I was kidding before when I said that the Chinese should start buying the McMansions themselves, but given that there are so many unsold ones now, I'm not so sure. Perhaps they should start marketing all these McMansions as vacation homes for the Chinese. After all, they've got Uncle Sam by the balls.
Do the average and median new home prices include cash incentives and/or allowances?
Considering that about 65% of builders now are offering them, up from about 20% six months ago, and range of incentives is 5-25% of the pre-incentive price, this is a big deal if it doesn't.
That's the nifty thing about "allowances" and "credits" and "free garages, fireplaces, whatever", it allows the builders to reduce prices without reducing prices! Helps keep previous buyers from freaking out too.
I don't know if folks here read Kate Welling's reports from Weeden & Co. She used to write for Barrons. She had a recent interview with John Williams who has scrubbed government published economic data for the past 70 years which was an eye opener since it confirmed what I intuitively believed. His analysis and hopefully my summary is accurate.
"America is strapped financially with liabilities several times current reported GDP. Over the last 50 years through both Republican and Democratic administrations there has been a steady obfuscation of economic data to increase reported GDP and understate CPI. If the same method for calculating CPI as used 60-70 years ago tracking the prices of a fixed basket of goods and services were used, inflation will be 5-6% higher than what is reported today. Using the same method as then for calculating real GDP we will be in a recession now with the economy currently contracting 2.5%. Unemployment would be 12% today as they did not have removing discouraged workers, etc in computing the unemployment rate at that time. Social security checks would be 70% higher today if the CPI were calculated consistently - that is measuring a fixed basket rather than constantly substituting items in the basket. If our governments finances where accounted for using GAAP the fiscal 2004 deficit would have been $616 billion rather than the reported $412 billion. And if social security and medicare obligations were added it would have been $3.4 trillion. To put this in context, even if taxes were raised to 100% of everyone's wages it would still not cover the deficit. The deficit and total obligations of the federal government are increasing by roughly the amount of reported GDP every 3 years. As of the end of fiscal 2005 the total obligations of the federal government is $51 trillion which is over 4 times current reported GDP."
This leads me to the belief that we have been able to bring forward our standard of living through excess consumption primarily because our currency, the dollar, is the reserve currency of the world and we have been able to substantially increase our debt denominated in dollars.
So as the current world order is surely changing and countries like Russia and China are strenthening relative to the US, we find ourselves requiring financial support from these countries to support our military adventures and our current standard of living.
Somethings going to give at some point. And the way our current politics of spin operate, it seems certain that one outcome is a reduced standard of living for the vast majority of American wage earners and retirees. Another possibility down the road is an alliance of Russia and China that will challenge us militarily. As this year progresses I am becoming more convinced that we are entering a new era of stagflation in America and it will not look like the late 70s.
I'm suspicious of this guys accounting process - especially the CPI basket. I mean why include buggy whips in today's basket? They have to 'update' the mix or it is even more meaningless than selectively manipulating the mix.
On the future liability estimates... it is the same problem I've been trying to hammer through to people on about every econ blog I can find... Forget about the 'chits' - how we value the future liability.
Instead ask can future workers produce enough of the goods & services the chits represent to support the workers & families, retirees, etc... then have enough stuff left over to sell to somebody to pay the debt holders & run a gov't?
The way we are hollowing out our productive capability I am increasingly having my doubts regardless of how the actuarial analysis is calculated.
But I'll be honest - I feel like a crazy dirt face long hair yelling in the wilderness. Almost no one I talk to even considers what money represents - chits to buy stuff - not the actual stuff itself. I agree if everything were run correctly there would be continuity over time & chits would make for a good medium to link transactions over long periods of time.
But what happens when there isn't anything tangible backing the chits anymore? And the 'intangibles' that once were perceived as valuable no longer excites them anymore. Then what? I think we'll learn the 'what then' the hard way. We'll wish we could still make stuff but it'll be too late then.
Good point, dryfly. It's not the accrual of the future liability which is just an accounting entry but the reality is can we produce the goods and services that provides for this liability.
Its not just the "hollowing" out of our economy but also the education of our kids. Our high school kids rank among the lowest in the industrialized world in math & science. And that's not even including the Asians & Russians.
We don't seem to be able to make the hard decisions to correct this current path. So I am getting more convinced that we will try to inflate away these liabilities with no real productive capacity further impoverishing the average wage earner and retiree.
I feel like a crazy dirt face long hair yelling in the wilderness.
Dryfly, I think we at CR and AB all hear you loud and clear -- but I'm not sure that gets you out of the wilderness.
I don't like the idea that "it doesn't matter if we don't produce anything," either, and I think you articulate my concerns much better than I can. Keep yelling!
Bravo and thank you for taking the time to compile and present that data in graph form.
The inventory data agree in direction with the data from January on completions, which were up 1.1% on the month, vs 2.5% for inventories. There was also a 1.2% rise in homes under construction in January, and a 14.5% rise in starts, so unless sales pick up nicely in February, that rise in inventories will continue. This is part of the progression that our host has laid out for a downturn in the housing sector, I believe.
Lookit them inventories. I was kidding before when I said that the Chinese should start buying the McMansions themselves, but given that there are so many unsold ones now, I'm not so sure. Perhaps they should start marketing all these McMansions as vacation homes for the Chinese. After all, they've got Uncle Sam by the balls.
Do the average and median new home prices include cash incentives and/or allowances?
Considering that about 65% of builders now are offering them, up from about 20% six months ago, and range of incentives is 5-25% of the pre-incentive price, this is a big deal if it doesn't.
That's the nifty thing about "allowances" and "credits" and "free garages, fireplaces, whatever", it allows the builders to reduce prices without reducing prices! Helps keep previous buyers from freaking out too.
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I don't know if folks here read Kate Welling's reports from Weeden & Co. She used to write for Barrons. She had a recent interview with John Williams who has scrubbed government published economic data for the past 70 years which was an eye opener since it confirmed what I intuitively believed. His analysis and hopefully my summary is accurate.
"America is strapped financially with liabilities several times current reported GDP. Over the last 50 years through both Republican and Democratic administrations there has been a steady obfuscation of economic data to increase reported GDP and understate CPI. If the same method for calculating CPI as used 60-70 years ago tracking the prices of a fixed basket of goods and services were used, inflation will be 5-6% higher than what is reported today. Using the same method as then for calculating real GDP we will be in a recession now with the economy currently contracting 2.5%. Unemployment would be 12% today as they did not have removing discouraged workers, etc in computing the unemployment rate at that time. Social security checks would be 70% higher today if the CPI were calculated consistently - that is measuring a fixed basket rather than constantly substituting items in the basket. If our governments finances where accounted for using GAAP the fiscal 2004 deficit would have been $616 billion rather than the reported $412 billion. And if social security and medicare obligations were added it would have been $3.4 trillion. To put this in context, even if taxes were raised to 100% of everyone's wages it would still not cover the deficit. The deficit and total obligations of the federal government are increasing by roughly the amount of reported GDP every 3 years. As of the end of fiscal 2005 the total obligations of the federal government is $51 trillion which is over 4 times current reported GDP."
This leads me to the belief that we have been able to bring forward our standard of living through excess consumption primarily because our currency, the dollar, is the reserve currency of the world and we have been able to substantially increase our debt denominated in dollars.
So as the current world order is surely changing and countries like Russia and China are strenthening relative to the US, we find ourselves requiring financial support from these countries to support our military adventures and our current standard of living.
Somethings going to give at some point. And the way our current politics of spin operate, it seems certain that one outcome is a reduced standard of living for the vast majority of American wage earners and retirees. Another possibility down the road is an alliance of Russia and China that will challenge us militarily. As this year progresses I am becoming more convinced that we are entering a new era of stagflation in America and it will not look like the late 70s.
Curious what others here think?
I agree, we have never been here before. China and Russia plus India are resurgant, we are a debtor superpower and so on. New situation.
However as a republic, if the citizens suffer, then the leadership will change.
Curious what others here think
I'm suspicious of this guys accounting process - especially the CPI basket. I mean why include buggy whips in today's basket? They have to 'update' the mix or it is even more meaningless than selectively manipulating the mix.
On the future liability estimates... it is the same problem I've been trying to hammer through to people on about every econ blog I can find... Forget about the 'chits' - how we value the future liability.
Instead ask can future workers produce enough of the goods & services the chits represent to support the workers & families, retirees, etc... then have enough stuff left over to sell to somebody to pay the debt holders & run a gov't?
The way we are hollowing out our productive capability I am increasingly having my doubts regardless of how the actuarial analysis is calculated.
But I'll be honest - I feel like a crazy dirt face long hair yelling in the wilderness. Almost no one I talk to even considers what money represents - chits to buy stuff - not the actual stuff itself. I agree if everything were run correctly there would be continuity over time & chits would make for a good medium to link transactions over long periods of time.
But what happens when there isn't anything tangible backing the chits anymore? And the 'intangibles' that once were perceived as valuable no longer excites them anymore. Then what? I think we'll learn the 'what then' the hard way. We'll wish we could still make stuff but it'll be too late then.
That's what I think.
Good point, dryfly. It's not the accrual of the future liability which is just an accounting entry but the reality is can we produce the goods and services that provides for this liability.
Its not just the "hollowing" out of our economy but also the education of our kids. Our high school kids rank among the lowest in the industrialized world in math & science. And that's not even including the Asians & Russians.
We don't seem to be able to make the hard decisions to correct this current path. So I am getting more convinced that we will try to inflate away these liabilities with no real productive capacity further impoverishing the average wage earner and retiree.
I feel like a crazy dirt face long hair yelling in the wilderness.
Dryfly, I think we at CR and AB all hear you loud and clear -- but I'm not sure that gets you out of the wilderness.
I don't like the idea that "it doesn't matter if we don't produce anything," either, and I think you articulate my concerns much better than I can. Keep yelling!
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