It's all about managing perceptions. Reality and consequences be damned. And there's the rub. When perception based policies are no longer trusted it ruins reality based policies as well. A confidence game never fails elegantly.

The Dawg's too quick.

so, the pain will continue for at least another year? i think we already knew that. thanks, bullTard.

RockyR - I am not a big supporter of C4C-like programs, which only provide a one-time push and usually at the expense of the future demand. I prefer more sustainable government works programs, which will generate predictable income for a number of people, especially now as the private jobs continue to evaporate. I also support emergency UI extensions, but would like to see them contingent on some socially useful work, like street or park clean-up.

Liz,

You'd think so but I was there in 96 and 97. I do miss the old HK airport flight approach. The press of humanity is unbelievable.

One of my researchers was doing some work on outcomes of gender birthrate imbalances and of course, China was the poster child. I don't have numbers but I suspect that they could reduce their pop growth by 8% (gratuitous over generalization) and still be over capacity.

The big impression I took away from those trips was how irreverently they treated life. Just too many people crammed into too small a space. Someday we will have to do a meet up and I'll explain. It's too broad of a topic to cover on a blog and whenever I try to do it in brief, it comes out all wrong.

Year? My guess is that we can't raise rates until the dollar starts freefall.

About $3000 per ounce of gold should panic the fed sufficiently!!

Until then, we do the extend and pretend, because if they raise rates, RRE, CRE, and most of the banks are toast.

Actually, almost all of the financial sector.

Hence my thinking to put my capital into other markets.

When it breaks down here, it is going to be ugly.

But not yet, not by a long shot. I think we will have a drop in the fall to keep the dollar up and commodities lower.

We just had the pop, now the drop. Long oil will once again be painful.

Someday this war's gonna end...

MRM, I was likewise :

i understand where you're coming from and, on the surface, I agree with you. at least, compulsively. the problem that i see is that it doesn't work. raising total debt to keep people employed is only sustainable so long as OTHER governments are willing to pay YOUR people to do things that benefit YOUR government. when that game runs out, !
in the meantime, while you're keeping people busy with other people's money, you are increasing YOUR people's debt burden - and doing so forcibly (at gun point). there is a moral problem there, as well as a mechanical one.

i think this gets to the idea that the marginal utility of debt can approach zero, then go negative.

ugly scene, my man. ugly scene.

We WILL blow another bubble; we WILL crash the world again. This is apparently now the clear intended FED policy.

My lunch is late.

Banksters ate your lunch and are coming for your supper.

The growth rate of Alt-A loan delinquencies remains uncomfortably high, but defaults are beginning to moderate, a new industry survey shows.

The Alternative-A RMBS Performance Update report from Standard & Poor’s says that as of the July 2009 distribution date, total delinquencies were 27.49% for the 2005 vintage, 39.25% for the 2006 vintage, and 35.85% for the 2007 vintage.

“Although delinquencies continue to increase, there are signs that the pace of growth is starting to slow,” said the credit research study.

S&P: Alt-A Loan Defaults Remain Uncomfortably High

The Fed is administering blood thinners to a hemophiliac.

What is not digested is this: if we have a re-bubble policy in a world where financial corporations have not been reformed, bad debt has not been cleared and there are open government guarantees that the 19 biggest banks cannot fail... then we are in a new, completely unknown and untried financial system.

Sorry, wally and Rocky R - the line still needs to be corrected further

"We will continue blowing bubbles; we will continue crashing the world again and again*. This has been the Fed's policy since 1998."

*Until the world is sick and tired of us.

lawyerliz (profile) wrote on Sat, 8/22/2009 - 10:50 am
reply ignore user
Oh, golly, I missed a scare. Chinese leaden toothpaste toobes?
Since when?

I always use lead tooth paste to brush away that melamine after taste in my Kung pao chicken.

Mmmmm

the bankers that ate our lunch

and are coming for our dinner

are going to be disappointed

alpo...its not just for breakfast anymore

Mock Turtle,

Nuke is probably not going to happen.

Utility trims nuclear plant plans - The Denver Post

Nope, thanks to agency and treasury purchase, the Fed now controls the entire yield curve.

The Fed cannot control the entire yield curve and the dollar exchange rate.

2010? I would have thought much longer. House prices won't have changed for the better by then.... and any increase in rates would tank the housing market in 2010. I think we will see low rates for longer than 2010.

i want a decision from the line judge
does that "point" count
IN

Otherwise the whole "Nemo" and First" thing is pointless.

Well, mostly true.
At this point, they can do most of it, and coerce enough of the other players to do it for them.

After all, if you are a primary dealer, and want to keep that status, a few words leads to mega moves in the markets.

Just saying. Otherwise, why has gold not taken off to the moon with the news of higher deficits?

Oil has moved back up to $74- but natural gas is in the toilet.

Someday this war's gonna end...

Pavel,
This is for you if you are out there today...more methane news...off of California if confirmed, thought you might find interesting.

Sonar survey spies mysterious, 1.4-kilometer-tall feature in the depths off California

2 other interesting comments:

3:00 Unemployment will settle down and start to improve over the next 2Q.
4:15 Anything to improve consumer spending? Long slow climb out of this, we're gonna have to live with it.

"The Fed's strategy is aimed at promoting a future rise in inflation...... Bullard said."

In case anyone out there hadn't yet figured it out. This is straight from a true insider, although obviously one who missed the "but we can't actually say that publicly" memo.

I'm just pointing it out so no one comes back in 2 or 5 years and asks "hoocoodanode?"

What if they gave an inflation, and nobody came?

A small amount of inflation is the best possibility, but I doubt
that will happen. As far as I can see, lots more debt is vanishing
everyday.

The stronger small business people are left. But they are hanging
on by their fingernails.

I need an mp-translator. Is he at a resort or something?

Otherwise; I say to him. The fox has left the henhouse, and the farmer has closed the henhouse door. But it's a little cold outside for the fox.

Speaking of the possibilities for our future energy.

"On Thursday, the State Department issued a Presidential Permit to Enbridge Energy, Ltd. for the Alberta Clipper - a 1,000-mile/1,607-kilometer crude oil pipeline that will run between Hardisty, Alberta, and Superior, Wisconsin."
U.S. State Department OKs Pipeline From Canada's Oil Sands

"A state board voted unanimously Thursday to approve an air quality permit for a $10 billion oil refinery that Hyperion Resources wants to build in southeastern South Dakota.

The Board of Minerals and Environment found that Dallas-based Hyperion has met the requirements set in state laws and rules. It endorsed the state Environment Department's recommendation to issue the permit for the first new U.S. oil refinery built since 1976."

http://www.google.com/hostednews/ap/article/ALeqM5jd1r_D0A4D2RCw44xLAQONJVpUDAD9A6TNNO0

Mixed feelings on this development. The credence given to oil depletion and Hubbert's Peak is obvious. Spending the billions to continue dependence on oil and especially from such an environmentally damaging source seems counterproductive. Ensuring a domestic source for national security seems a goo hedge from increasing instability abroad.
The real problem is, as always, the continued dominance of entrenched corporate interests in our country. Big oil being the grand daddy of them all. I would rather have the money spent on nuclear plants but regardless the oil sands would be developed. Guess we'll get both. Lucky us.

It has been known for a while, starting from Kurgman in the 1990s, that the best and maybe only way to change inflationary expectations in the deflationary environment is for the Fed to be viewed as credibly committed to being irresponsible - see for example GB Eggertsson's work

The dot is a place holder.

You are supposed to replace it with a comment.

So the oil report we got this week was what spiked oil? Or was it traders and speculators?

I read the exchange. That was mean, dawg.

Funny, but mean.

I am not a fan of the Austrian preference for cleansing pain...

Then I've misunderstood the Austrians. I thought they were not saying what should be done, just describing what happens at the end of a credit cycle - and the accumulation of consequences brought on with delaying tactics?

August 22, 1930

T. Thatcher, Solicitor General and selected by Pres. Hoover to investigate bankruptcy reform, says thousands of wage earners taking advantage of lax Bankruptcy Act to live above means, cheat creditors, and “pay their debts with postcards.”

Leading stocks were fairly firm early, though some weak spots developed in rails (bad July earnings and further traffic decline in Aug.)

H. Thayer of West & Co.: “Personally, I believe we have seen the worst, both in the stock market and in business circles, and I look for substantial progress to be made in share prices and in earnings.”

Repeated low-volume days below 2M shares shows lack of large public buying; this, however, is typical of “a bear swing bumping along the bottom.” Public usually doesn't enter market on a large scale until there's clear evidence of business upturn.

Reports from many sections of the country of buyers' strike; “Merchants complain that their shelves are not being emptied by the ultimate consumer.” However, economists believe conditions are such that any better retail demand would be felt immediately by manufacturers.
News from 1930: Friday, August 22, 1930: Dow 231.27 -1.71 (0.7%)

Citizen AllenM (profile) wrote (in reply to...) on Sat, 8/22/2009 - 2:24 pm

After all, if you are a primary dealer, and want to keep that status, a few words leads to mega moves in the markets.

Granted, there is presumably a benefit to being a primary dealer, but that'll only carry you so far. If this is going to last longer than most expect, and the dealers are being "coerced" to go along, one has to ask, "How do they plan to make money doing this"? They're certainly not in this for the charitable contribution deduction, so what is their angle? There is probably some "carrot" associated with this "coercion". Understanding their business plan (or alt least what might be a viable business plan) under these circumstances, might yield important insights to where this is all going, or at least where they think its going.
Anyone care to speculate?

I don't think the USD or commodities will behave in a way the Fed expect in an environment where they keeps rates lower than THE MARKET DICTATES.

More hubris.

Umm, no. I assume the reference is to the actor.

Okay,
But doesn't that still mean the price is set on the "margins", ie. actual producers and consumers physically exchanging to each other? I guess the producers have every reason to collude with the trader/speculator middlemen to keep prices high, by pretending to sell to the trader-middlemen? But can't the consumers just cut it off by not taking delivery? Or setting up some long-term hedges? Perhaps the oil spike a year ago discouraged any long-term hedging? But you'd think the physical consumers would have a game-plan for dealing with volatility...

I don't think it has to do anything with the actor (although I'm a youngin'... some phrases have surprised me with their origins). To me it's just a fancy way of callng Rob a c-blocker... or if you will an f-p-blocker...

lobbyist ben dover

you ask a good question about using leases as place-holders

not necessarily intending to develop or build

i dont know the answer to your question... im not that knowledgeable about the nuclear industry

Fraud under the radar.

In the last decade or so there was a huge increase in so called investment partnerships. In the theory those partnerships are supposed to increase the diversification and reduce risks. An investor could read in a prospectus on how such an investment enables one to invest the way a sexy endowment fund does. In practice, quite often those investment were much more sinister.

It looked very hot and promised you a 10% + uncorrelated with stock market return:

Sunwest Management, Inc. - Our Locations

Investment into the nation wide firm developing senior living RE investment trusts with the potential tax benefits must have looked really good on paper. The first white flags should have always be limited liquidity and exemption from regulators. Other than those, I doubt there were any. It turned out the investment was hotter than that:

Sunwest Management, Inc., Canyon Creek Development, Inc., Canyon Creek Financial, LLC, and Jon M. Harder: Lit. Rel. No. 20920 / March 2, 2009

Pretty much the firm was moving money from each of the partnerships it was running into "the mother ship" account...; it has done so for years breaking numerous clauses in partnership agreements, etc. In addition they lowered the entry level for sophisticated investor requirement to 50K.

But wait, it gets better:

By the way, the rumor was Sunwest Management Inc., has applied for gov bailout funds, the bid was supported by local senator etc and thankfully rejected.

And it get's better some more:

"
Sunwest Management Inc.

A lawsuit has been filed and is seeking class action status against the national retirement care operator for allegedly charging for services it has no intention of providing. The lawsuit was filed in Multnomah County Circuit Court and names all 50 Sunwest facilities in the state of Oregon as defendants. The lawsuit claims Sunwest's standard admission agreement misled residents about the number of staff available to provide daily care. It alleges Sunwest understaffed assisted living homes and made a considered decision to promote profit at the expense of their contractual and legal obligations to residents."

I have "no idea" why the story has not reached mainstream media yet, well SELLING green shootz might be much more... lucrative? However I was able to find a good summary:

E-commerce journal:

"The SEC’s complaint states that Sunwest concealed from its investors the fact that the company was run as a single enterprise with its fortunes tied to the success of hundreds of properties and dependant on future financing ability. According to the lawsuit by June 2008 the project was operated as a Ponzi scheme with the money paid to the older investors from the cash invested by the new customers. The SEC reports that by January 2009, more than 100 Sunwest retirement homes were placed in foreclosure, receivership or bankruptcy."

Well, it would be my wild guess, but i am willing to bet that there are hundreds of similar RE,Energy and fraudulent partnerships still standing. And the only way to protect yourself might be to higher a private investigator. Avoiding too good to be true returns, avoiding the liquidity traps - investments that cannot be re-sold and making sure there are no lawsuits or trouble with the law pending might be a good first step. Still any similar investment will always bear some hidden risks and surprises.

Green shoots everyone! (Have a wonderful weekend.)

JimPortlandOR (profile) wrote on Sat, 8/22/2009 - 2:27 pm

We don't have a Paul Volker to reign in 15% inflation again, and if we did, the financial system prolly can't take that degree of shock.

I thought the Admiral said "You @$$! You've killed us" (from memory). In any event, given a choice between deflation and inflation , I think the Fed would gladly choose inflation. It may suck, but as I've said before, Volker showed us how to deal with it. Now I presume you mean an inflation "rate" of 15%. We probably need a net amount of inflation of perhaps 50-100% to allow prices across the board to equilibrate, not that there's much chance of that with the govt. dicking with the market as it is. At that point, presuming that these folks didn't continue to do stupid things (small chance there as well for the same reason), the financial system should be in BETTER shape to deal with high interest rates, unless all of their long, fixed loans are floated with short term cash.............
Well, I guess they have killed us

YLSP

i think you are correct...the price is set at the margins

look at how the business news reports prices for "brent" and "texas intermediate" as "benchmarks" when their share of the volume of production is minor

its a rigged game

[ They aren't worried by USD devaluation, they are seeking it]

Oil @ $200/bbl and a Fed that's run by the Administration/Treasury suggests anything they say means zilch. Bernanke will snap like a twig when the Admin takes heat for huge leaps in energy prices. Ask Volcker how to contol commodity prices.

Turning Japanese - Is the US Creating Its Own Lost Decade?

Click my cloud>

I'll be darned. Anyway I was just trying to get liz to look up c-blocker... innocent my bottom...

"As I said a bit of inflation is the best outcome. Better to lose 20%
of savings than to lose everything."

"Best outcome" for whom? It's not the best outcome for savers. It is the best outcome for people who have borrowed at fixed interest rates. Or those who hold a lot of assets with prices driven sky-high by lots of cheap debt flooding the system since they originally bought 10-30 years ago.

All the rest of the "save our economy" talk justifying inflation is just a smokescreen for the transfer of wealth from savers.

雲が下がりナイフのように見ることができます"

patientrenter +1

And the goal is to create ever more credit anyway. Nothing will be "saved" by the Fed's program. The next bubble will just be bigger than the last.

Lowering taxes is fine , but how do we pay for our debt, obligations(SS, M'care..) , Military, Airofrce One etc....? More borrowing?

The fact that America has borrowed so much money should mean that we demand our country inflate... no? Just stating the obvious. It seems life and death to me; unless we are willing to use our military and repudiate the debt, or give up land and/or power.

mock,
Okay, so the producers are in concern with the middlemen, but eventually the middlemen become the bag-holders when the price collapses. It seems that any company that needs oil needs to have a hedge strategy in order to ensure they don't get destroyed by the middleman+producer collaboration.

Take me to your leader.

Not sure how our masters in the PRoC might react to a dollar crash.

Yeah, awfully strange that a Fed official would make such a statement while the US govt is trying to sell 10-year bonds at 3.6% or so.

"What we will go through will be entirely different, it's called a severe reduction in the standard of living."

In other words live within our means?

On my lunch break!

Well, gee, Cinco, do you think getting some of the gravy from the $1.2 (err) trillion in agency paper that the Fed is eating isn't enough of an incentive? Actually, I don't think I can list all of the incentives off the top of my head anymore!!

Besides, the trading volume is so much greater than what is necessary for trade, that for all intensive purposes, the biggest traders are the market. This means you, GS.

Someday this war's gonna end...

Good comments.

But in Weimar Germany, it was debts that were wiped out.

Bullard seems to be saying the market reflects expectations that fed fund rates are to rise sooner than they will. Perhaps he's talking about the bond market, rather than equities, but I see no evidence that either shows anticipation of future hikes.

If the fed's mandate were to support equity pricing - especially the valuation of financial stocks - then Bullard begins to make an unpleasant kind of sense. My recollection, however, is that their mandate has other specific targets, controlled inflation and full employment. Implying an advantage to a sharp rise in inflation or expressing regret for lackluster employment prospects strays about as far from the fed charter as I can imagine.

Comrade Alexei, Willem Buiter says there are various ways of producing a negative funds rate. So I suppose it could be worse.

lawyerliz (profile) wrote (in reply to...) on Sat, 8/22/2009 - 3:31 pm

But in Weimar Germany, it was debts that were wiped out.

I thought Hitler just "blew off" reparations?

Broward thinks we've already had at least 80% of a lost decade, and we're staring at at least another decade of more severe (widespread) pain.

Long wavers would suggest we are in the deflationary depression part of the wave.

Spring is just around the corner (in another 12 years).

I just started a long wave book by Brian Berry, but other than the outline of the idea, it is new territory for me.

Godwin alarm! Godwin alarm!!

lawyerliz (profile) wrote (in reply to...) on Sat, 8/22/2009 - 3:52 pm

Godwin alarm! Godwin alarm!!

Relax Liz, it's just me...your old pal Cinco-X. Who is this Godwin you speak of?

By the way, if a particular gentleman caught my eye, and I wanted
to have my way with him, I wouldn't be blocked by some idiot.

Signing off. Thunder crashing.

"Inflation acts to transfer existing money from savers to borrowers. It's also a hidden tax on those affected by bracket creep. TPTB HAVE money, and make money by loaning it to the rest of us. Inflation hurts them, but helps us (presumably); which way do you think our bought and paid for politicians are going to go with that?"

Inflation, of course. In a world of zero inflation (not 1-3%, zero), the evident wastage in most money management would be obvious to even the densest investor. Our vast financial community would be exposed as substantially overpriced and overstaffed. Taxes would drop as the inflationary portion of investment income is removed. Politicians would hate that. Corporations that borrow would hate it, as repaying $100, borrowed now, ten years from now would involve having to return the original value of what they borrowed.

Most of these "middleman' folks -pols, bankers, etc, make money from moving money. They take a %. The more that people move, the more money they make. The greater the inflation rate, the more they can take off the top while appearing not to take money from you.

A huge number of voters see themselves as borrowers - mostly through home loans. Inflation is great for them, and they will happily vote for whichever politician will increase inflation. People who own assets want their prices to go up, not down. They like inflation more than deflation also.

@CAM:

It just puts another bullet or two in their clip. What you describe is different from the present rate posture? Except by degree. And wouldn't they love to do more?

Not that I agree.

Off to market before the storms move onshore . . .

"A huge number of voters see themselves as borrowers - mostly through home loans. Inflation is great for them, and they will happily vote for whichever politician will increase inflation. People who own assets want their prices to go up, not down. They like inflation more than deflation also. "

exactly, politically is a much more easy tax to implement than higher wage taxes. those that pay are savers and those in fixed incomes which in a way is nice as it doesn't shift all the burden towards the young (which tend to be debtors more than creditors).

Dr. Faber predicts that gov. intention is to make CASH useless. Encouraging people to speculate.

"Not necessarily. We love Pavel's writing, and barfly's verse. And I'd bet dryfly and LL and a few others are well-read."

Thank you, patientrenter.

New reading here:

And Yet They Moved

pavel.libsyn.com

" there is that constant tattoo of 'only folks who make something useful are nice'. I make music. "

I think people here sometimes rail against the way in which we've ceded the manufacture of many of the material things we need to foreigners. And we often rail against the way in which we've allowed people here who simply move money or houses to grow in number and relative wealth.

I think we all recognize that we don't want to go back to an agricultural society, like the Khmer Rouge, or the Great Leap Forward. Sometimes we get carried away when discussing the loss of domestic manufacturing capacity and the excessive growth in low real value added in financial and RE trading activity. But if someone told us that we would have 1% of our people farming, and 25% manufacturing, and the remaining 74% providing services for each other, like music, then none of us here would be unhappy. That services portion will always be the biggest in any advanced modern society, and most of us like it that way.

(I work in financial services, so I am castigated anonymously all the time here!)

Ben spoke to his flock in the mountains yesterday and said:

We have saved the world,
I'm more famous than the Beatles,
I am more popular than any man who has walked the earth,
We are using the same magic of the loaves and fishes to create money that bears no interest,
This money extinguishes debt, pain, and all suffering for those who believe in me,
From this day forward, you shall call me Hey Zeus,
And let it be known that this miracle shall be called ACID INFLATION,
Somebody To Love/White Rabbit Jefferson Airplane

I'm not yet convinced buying a house is the best way to protect against inflation. It's a leveraged asset. In order for house prices to rise, people need to be either a)making a lot more money (i.e. wages increase) b) lax lending standards c) supply is destroyed d) increase in population e) foreigners buying RE. I don't see a,b,c,d happening. Maybe e.

Spot on analysis regarding TPTB, yjacket. Quite a tangled web they've woven. As for housing, I think options c, d and e will take place (or are taking place). The population is still going up, some houses are being bulldozed now (or were destroyed when the owners foreclosed), and foreigners may continue to purchase RE here.

Edit: just did some checking and it looks like only 13 states out of 50 have significant population growth. The rest are barely growing, or are stagnant. Google made a nice little chart app for the population here:

Google - public data

patientrenter: you are correct as far as it goes, but

the so called PTB can always legislate away the tax advantage as well as the non recourse aspect as well, leaving the peons with fixed (hopefully) rent and maintenance and upkeep costs to boot making the one way bet advantage to the lenders

We can only hope that Conjure was as patient and as pleased with lunch as you were.

By the way, I loved your earlier story of your courageous little Bichpoo, I had no idea he could dance the Charleston. He really was the best dog in the world.

Best wishes to you and yours, mp.

The Fed cannot control the entire yield curve and the dollar exchange rate.
Currency controls

If you want to be technical, then "The Fed cannot control the entire yield curve and the dollar exchange rate for any extended period of time, while the country is running current account deficit".

"the so called PTB can always legislate away the tax advantage as well as the non recourse aspect as well, leaving the peons with fixed (hopefully) rent and maintenance and upkeep costs to boot making the one way bet advantage to the lenders"

As someone else said, if the PTB really wanted to avoid inflation, then how come we've had huge cumulative inflation over the last 100 years, and especially the last 40?

"The Fed cannot control the entire yield curve and the dollar exchange rate"

Dollar exchange rate is Timmy's end via the ESF.

"I know when I "bought" my house 22 years ago, my mortgage payment alone was much higher than rent, not to mention the added expenses of utilities, taxes, insurance, and upkeep.
I'm still happy to be where I am because 22 years later, you cannot rent a one bedroom apartment for what my house payment was, let alone rent a home in my neighborhood for that price."

And this is why TPTB and the majority of voters want inflation. Everyone buys more houses, borrows more, and they can take a few % of all the money flowing around. Savers pay for almost all of the "juice" in the system. Borrowers and middlemen win.

For the xth time, yeah, furriners do buy in Miami.

But not anywhere near enough to fill up those towers anytime
soon.

crazyv (profile) wrote (in reply to...) on Sat, 8/22/2009 - 5:41 pm replyIgnore userI think that is exactly correct. Why are extended unemployment benefits (3rd, 4th extension) any different from welfare? In both cases I believe the check should be paid predicated on doing something useful. I am sure that there are lots of hospitals, old age homes etc that could use extra hands to take care of people., Lots of graffiti to be removed and garbage to be picked up. If we are going to make the payments might as well have a clean city to live in.

Only when I see Wall St emptying bed pans first

liz: as my CPA tells me, paying off the mortgage is the 'big one' in terms of successful retirement. We just have to set aside an amount every month in anticipation of the inevitable maintenance and repair.

Completely OT but something good out of FL:

http://lee.ifas.ufl.edu/FYN/FYNPubs/TheDangersofPlasticBags.pdf

It's a short pictorial narrative of the damage done by plastic bags, &, at the end, lists all the nations & towns that have banned them or at least banned "free" plastic bags (China). The US is behind the curve on some basic environmental protection issues. Various corps., et al, in TX poured over a million dollars to fight against a favorable vote (banning plastic bags) in Seattle. Surfriders, one of the members of a coalition that sponsored the petition/measure, tracked the $$ to TX.

My children think I am cheap.

I am cheap. But my grandmother, compared to her
I am a wastrel.

Just looking at loan amoritization (sp?) tables. Even at low rates a 30 year fixed has an enormous interest cost on the life of a loan. Thus, housing needs to inflate, or people won't realize how much they "pay" over the lifetime of the loan. 10-15 years sounds like a reasonable "long term" lease. 30 years seem ridiculous to me, but without it as standard house values would get killed.

Most people are cheap....

...and I was surprised to find out that there used to be 10 year mortgages! (yes, I'm young) :^)

Well one of them is on her own, and has been for 20 years. We made
her put away half her summer earnings to help pay for college. She
thinks she paid for the whole thing. We also made it clear she would be
in the chains of debt if she went to a non-state school. She went to
the Univ of Florida, graduated with no debt, and then a year later, to MIT. Where she did acquire
some debt, which is now paid off.

The son went into the military first, wasn't really ready for college. (Then) He graduated
with 2k in school loans, and is now going into debt for grad professional school.
Not a good time to look for a job now anyway.

"Leveraged asset:= owners benefit from inflation. People may be dense, but they are not completely stupid. When inflation starts to rise, they will realize that a leveraged home purchase, with little or no money down and a non-recourse loan, is a good one-way bet. That will create demand, raising prices..... That's how inflation feeds itself."

Look at incomes, it's incomes! We had a blow-out in home prices at higher incomes w/ worse lending standards than today. Housing prices are extremely closely tied to incomes. Sure it can get out of whack for a few years, but unless incomes rise home prices will cater back to earth. Food, gas, clothing, transportation is extremely cheap in the country compared to incomes. You can buy food for 3 people on 300-400 a month in the expensive parts of the country.

After several years of high inflation incomes might rise, and therefore home prices might rise. When the avg. household is spending >30-40% of their take home on a house it doesn't leave home prices much room to rise. You've got to eat, put clothes on your back, and have transportation. Relative to other points in history, food is really cheap. Food prices could go sky high. Ever been to a 3rd world country, gas prices are extremely high compared to incomes. Ever try to get a loan in a 3rd world country, it's not exactly easy.

And with a leveraged asset you've got to have a job to pay the interest. We are in for something nasty b/c very few people can really comprehend that you can have extremely high inflation with extremely high unemployment with leverage (loans) being extremely difficult to get for joe shmoe. Everyone and their brother seem to think inflation will mean rising incomes, when it doesn't.

My ultimate proxnosis is that we will have biflation leveraged assets (houses, cars and incomes) will go nowhere, anything imported (all the rest of the crap we use) will go skyhigh, food will get expensive and jobs will be hard to find. I've lived through this before, right before Argentina collapsed in '01 when they went from cusp 1st world to 3rd world in a matter of months. Welcome to the 3rd world.

My advice, buy whatever will hold it's value across countries, gold, silver, maybe oil (problem w/ oil is that it's hard to hold it).
I subscribe more to itulips theory vs. Mish. Mish is right w/ debt, but the thing he doesn't seem to factor in is that new money is being created and new money may or may not flow to the holes created by the old money.

Correct... with the prevailing rates on a 30-year mortgage, and with 20% down, you spend about the same on interest as you do on principal over the life of the loan. In other words, if you double the loan amount, that is how much you will pay in total.

patientrenter: you and I, like yogi and I, agree on much and have narrow areas of disagreement

patientrenter: genau, except that incomes have not risen for almost 20 years

"incomes have not risen for almost 20 years"

We're talking nominal, and next 20 years.

patientrenter (profile) wrote on Sat, 8/22/2009 - 3:02 pm
reply ignore user
"After several years of high inflation incomes might rise, and therefore home prices might rise. "
I think we're agreeing.

Globalization and glbal wage arbitrage is a fly in the ointment.

Unless we go protectionst again which is a distinct possibility.

Americans are too cheap to go protectionist.
"Why do I have to pay $40 for an American made one when I get it made in China for $10?!"

After 20 years of this there isn't even the option of buying the American one (can you get any American made electronics?).

Re; economic justifications for inflation

There's an article at the prudentbear (a few week ago) about how inflation below a certain percent is unnoticed by human brains, so this must be exploited by the smarter people (nobility).

There us the Reg Z form with the boxes. Nobody understands what
an APR is, no matter how hard you explain. But I call it the heart attack
form; it shows how much you will pay if you pay the whole 30 years.

Course, you could multiply the number of payments by the number of
months, but nobody does that.

"So, you gonna buy, patient?"

I should, to maximize my own financial returns, but there's something about putting your own head into a trough that you've railed against for a while that is just too hard for me. I'll get over it some day, maybe.

Well, I think you should sign for 25 years, and then pay faster. We just
threw in money when we had a windfall or bonus or whatever. We are not
particularly disciplined. Money paid in when you first get a loan shortens the
term a whole lot.

we owned 2 places for a while. Being a landlord was a nightmare.

@AnonyMiss,
All very good points. I don't plan on renting forever that's for sure. I have minimized my rent as much as possible, extremely cheap like 10% of my gross. I save ~50% of my income, not all in dollars of course. I've run the numbers w/o wage inflation a 30 year mortgage is just plain stupid. The numbers don't work. Be a renter of a house or a renter of money, pick your poison. So far my plan has worked extremely well. I've saved enough in 4 years to buy outright in the vast majority of the geographic US. Unfortunately, I live in one of the expensive parts of the US. I really need another 3 years and I'll be golden. I don't think I'll get 3 years, maybe 1-2. I'm hedged, so I'm not too terrible concerned, but I am definitely getting more concerned every day. I'm thinking about buying, and the only thing I have in cash is 20% + 6 months living. If I can continue the way I'm going, in 8 years after starting full-time work I'll be able to own outright. 8 vs. 30 . . . I think I'll take that.

@patientrenter,
yeah I think we agree or are talking along the same vein.

ll,
Get Rich Slowly posted a Amortization Spreadsheet a couple years ago. Not sure if you need this but maybe someone here might find it useful...

Wow, you are far richer than I.

How do you find good tenants?

Some are sold and I carry the mortgages and the rest are managed by professionals. That is the key, a good management people. Lots of Realtors will do it but many just collect rent and don't do a good job.

Volker,

I hear you, I just paid $1200 to replace a water valve on my sprinkler system that turned out to be tied into the water main instead of my house main. It's still cheaper to do that once every 20+ years than to pay that or more every month in rent to a landlord forever.

Hoocoodanode? I certainly cried a bit when I found out the cost, but I consider it the way some folks (like me) prefer to pay maintenance on an older car that's been paid off.

I guess my thinking is, if you're planning on renting forever it will take a lot more money to retire if you haven't settled and paid off a piece of land before you do it. I could very well be wrong, but I hope not.

Best wishes to you and yours.

The thing is most people have absolutely no discipline. For them 25 years will
get them amortized down a bit faster, and it is forced savings. And the payment
is only a tiny bit more.

The Home Equity "line of credit" was invented by the devil.

Regulators should have forced them to call it a mtg. Some don't even
realize they have a mtg.

Years ago, I did a closing and the person said why are you paying this off.

Me: It's a mortgage, and my lenders mortgage needs to be a first.

Them: It's a loan on a boat!

Me: No it's not.

Them: yes it is.

At that point I show them a copy of the mortgage for the boat,
with the legal description of the property and all.

The boat loan got paid off.

L. Ben, I have been through the carrying a mortgage. I have had to act as the family spokesperson in US District Bk court.

What a fricking pita. We were a first, and it still took two years, with eternal timewasting by the deadbeat. We drove it through until the deadbeat did a last minute sale to a new sucker. The new sucker was trying to sell a parcel out of the trust this summer, and we said no.

We will most likely be seeing Judge Redfield T. Baum again in the next year.

Somebody will pay us on the courthouse steps.

Someday this war's gonna end...

Oh, no, it would be much much higher that the total
improved value of Manhattan today.

Compound interest is not a good map of the debt that
is possible to be paid over anything but a relatively short
period of time. I tried to start a discussion on this some months ago, and got no response.

In 25 years or 30 years or certainly 40 years some horribly
crappy thing will happen to getting in the way of owning
property. The longer the time the more likely the bad thing will happen.

The new St. Louis Bank Pres comes across (to me, anyway) as a lightweight. The St. Louis Fed used to be the scourge of the Fed's Board of Governors, even sometimes daring to criticize the great men, and provoking their outrage. Now it seems they have placed a tame cat in the position who is ready to regurgitate Ben's favorite phrases.

I got one. yuntwun?

patientrenter wrote: I should, to maximize my own financial returns, but there's something about putting your own head into a trough that you've railed against for a while that is just too hard for me. I'll get over it some day, maybe.

I just decided to buy because my landlord is raising rents 9%. It suddenly became a no-brainer to buy, and I found a place that will be cheaper than what I'm paying now to rent. Here is the rent-vs-buy calculator I made (in Excel format... works on PC or the '04 version of Excel on Mac. On '08 Mac it doesn't work for some reason):

http://monogon.org/Rent_vs_Buy_Calculator.xls

Are you sure patient? The figures I saw or did were much higher.

Confiscation Anatomy - A Different View

FOFOA: Confiscation Anatomy - A Different View

Yes, occasionally a bad thing happens like someone with a gun tells you your title is his now.

You burn his cities but you eventually have to live with whatever he'll fork over via the Jay Treaty, which almost starts another revolution...

Mostly the bad thing that happens is divorce, sickness, job loss or some civil
convulsion. It mostly hasn't happened here that you are forced off your land
by a gun toting maniac.

But, I admit, it could.

what about running those numbers on Detroit or Manchu Pichu or Jamestown. Seems to me the fallacy in your argument is that you have taken a place that was in the wilderness and has since become the center of the world. - so it is not a question about average interest rates but what would have been the appropriate discount for taking a bet on the wilderness.

2 best days in a boat owners life:

the day you get it and the day you sell it

"Are you sure patient? The figures I saw or did were much higher."

I make a living (partly) off finding the errors in numbers like this, Liz.

How many years at 1% does it take to make up for a couple at 18%?

Tens of thousands of buildings in upper Manhattan were abandoned to the City in tax foreclosure not long ago. That would be going to zero, except some got arson insurance welfare, some got corporate BK welfare, some got tax-loss arbitrage welfare.

in the late 80's I thought about selling my house figuring prices had run up too much. There was a bigger place that I could have rented for less than what the money invested in municipal bonds would have earned. Decided in the end not to do it- figured that Muni bonds could default but as long as I owned by house I was sure that I would have a roof over my head.

Pity more people didn't think like that rather than treat their home like an ATM.

For all this talk... to me owning a home is all secondary to family. Otherwise I wouldn't have done the really stupid (financially) thing of getting married @ 24 and promptly having 2 kids before thirty. So hey, we're probably going to be renting for a bit. It seems like one is able to rent a place for ~ 1/3rd the cost of owning it.

I think that has been true in the past because inflation was also tied into wage growth. However, if we get inflation without nominal wage growth I suspect prices will not respond as they have in the past.

Inland Empire: "The gold mine was construction"

Liz I was referring to that nut George Washington.

"Here is the rent-vs-buy calculator I made"

Thanks, Jon. Looks like solid work.

It was the late 80's the end of the boomer wave, there wasn't enough housing so rents would have risen even without inflation.

Would I have bought without the tax credit? That's a very good question. As a single person undertaking a huge amount of debt (for me), I can't say that I would have.

I know many people here love to bash FHA loans and anything under a 20% downpayment,. I confess, I am one of "those people" who used an FHA 3% down loan. There, I've said it, I've confessed my shame.

For everyone who thinks those loans are new and the cause of all of these defaults? STFU. They've been around forever. I used one and I paid my mortgage off, along with paying a premium for MPI which you can't (or couldn't) get around back then (not that I tried).

I was very young and while I had been saving, I was only in my 20's when I bought, I had ~8% down with a very secure well paying job but I also was carrying a lot (to me) of credit card debt. Ha, it's expensive to be young, pretty, and ambitious in corporate America.

I was offered the FHA fixed, as well as several varieties of the newly concocted ARM's. Interest rates ranged from ~9%+ for ARM's, to 10-19% for fixed rate. I wanted fixed rate and I was "lucky" enough to qualify for a 10% fixed rate.

I used the other 5% for furniture and backup emergency money. I refinanced once to get out of that interest rate, other than that, the fees never made sense to me to keep chasing and extending my mortgage for another 30 years.

In hindsight, I might have been better off saving more money for three years and waiting for the last Ca. crash, but who can fortell the future? I had no idea Reagan was going to close all of those military bases and I would have still been paying rent instead of mortgage payments and collecting the tax refund. I'm happy now that it's done with. coulda shoulda woulda, it's hard to figure out when you're young.

AnonyMiss

You are no different then I , didn't figure much out until my wife bought a $2 amortization program for our Apple IIE and then lots of reality jumped out at me. We where on our third home by then. That house bought two more free and clear.

That's very kind of you, LBD. I've only bought and paid off one house, but that form box Liz described at the title office? Yeah, I saw that shocker and said NFW,

It's just a lot easier to pay cash for everything than to deal with all the APR nonsense. Of course I run it through my AmEx in hopes of maintaing my credit rating. God only knows why that concerns me.

I guess I think I might need to use it someday to get a discount somewhere.