It seems to me that the root cause of all this is the housing market, yet no one wants to acknowledge this... like the possiblity is too frightening to contemplate. For example, Bernake's statement is "front page" news on msnbc.msn.com, but the article makes no mention of housing.
Am I wrong in thinking the deterioration in employment may be related to housing sector layoffs?
Certainly energy prices may be a catalyst or exacerbating factor, but it seems like the essential problem is credit/housing, yet it's still getting relatively little focus.
What's wrong with my thinking wrong here... that energy prices are lighting the fuse, but the real powder-keg is the housing/credit market?
ac, Obviously I think housing is the key. I believe Bernanke thinks so too - from his remarks:
"As had been expected, recent readings also indicate that the housing market is cooling, partly in response to increases in mortgage rates. To be sure, the data on home sales and construction have been somewhat erratic from month to month, reflecting weather conditions, statistical noise, and other factors. However, overall, housing activity has softened relative to the high levels of last summer, and the rate of house-price appreciation appears to have lessened. A slowing of the real estate market will likely have the effect of restraining other forms of household spending as well, as homeowners no longer experience increases in the equity value of their homes at the rapid pace seen in recent years."
I think you are exactly right ac.
I have seen mentioned by Krugmann and others that a large portion of the growth in GDP in the last few years is due to housing. The housing market has stalled in the last two quarters and it looks like the bubble will collapse.
Certainly the employment picture has been hit hard by housing.
There is the fear that talking about a housing collapse might be a self fullfilling prophesy.
I think there is very little that will stop the crash.
housing as an asset class is simple overpriced by 40% to 60%.
Who says the CPI is accurate? Maybe the CPI is 25% under-reported so a small fall in prices brings us back to 'trend line'?
Assuming trend line is where it belongs... maybe housing should be above trend or below trend...
No one knows - that's the point.
I find it difficult to compare the current situation with the 1920s... first off a lot of the 'boom' in the 20s was regional too (Florida) and not national as he claimed. Secondly there was far less 'management' of the economy then as opposed to now... Not that 'management' of the economy is always a good thing it's just that in todays world it is easier for the FED via monetary and congress via fiscal to 'reinflate'... in the post-29 depression they didn't have a clue what to do.
I agree there is a bubble but doubt Schilling has any special real estate insight - he has too many previous missed calls.
On this issue I feel we are all blind heading off into the dark.
As far as Management. This bubble was "managed" (ie. created) and perpetuated by Greenspan and the Feds.
I don't think the can do much to avoid a crash.
If housing price had a particular relationship to CPI, even if CPI was distorted, we can still anticipate that housing prices might revert to the old relationship. Only if we drastically changed CPI would we have to wonder if the relationship was lost because of CPI. Demographic changes, structural changes in the real estate market, land scarcity - any of these might do the trick, but housing price could resume their prior relation to a distorted CPI just about as easily as to an undistored CPI.
The campaign slogan should be: "It's the DEBT bubble, stupid!"
When the supply of credit/money increases faster than the supply of goods, the price of goods appears to increase, but in reality the purchasing power of the credit/money is declining. Rising prices of assets has been assumend by many to be a good thing, while rising prices of goods seems bad. Both tell the same story: the dollar is going down.
Keep in mind the dollar is a "NOTE", a credit instrument backed by faith alone. As the faith of dollar holders is shaken, expect its fall to become more precipitous.
Look out below!!!
The prospect of catastrophic deflation grows with each passing day. The best offence is a solid defense.
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Lost of nasty economic news/sentiment today.
It seems to me that the root cause of all this is the housing market, yet no one wants to acknowledge this... like the possiblity is too frightening to contemplate. For example, Bernake's statement is "front page" news on msnbc.msn.com, but the article makes no mention of housing.
Am I wrong in thinking the deterioration in employment may be related to housing sector layoffs?
Certainly energy prices may be a catalyst or exacerbating factor, but it seems like the essential problem is credit/housing, yet it's still getting relatively little focus.
What's wrong with my thinking wrong here... that energy prices are lighting the fuse, but the real powder-keg is the housing/credit market?
All signs point to BAD. Best to hunker down and plan for the worst.
ac, Obviously I think housing is the key. I believe Bernanke thinks so too - from his remarks:
"As had been expected, recent readings also indicate that the housing market is cooling, partly in response to increases in mortgage rates. To be sure, the data on home sales and construction have been somewhat erratic from month to month, reflecting weather conditions, statistical noise, and other factors. However, overall, housing activity has softened relative to the high levels of last summer, and the rate of house-price appreciation appears to have lessened. A slowing of the real estate market will likely have the effect of restraining other forms of household spending as well, as homeowners no longer experience increases in the equity value of their homes at the rapid pace seen in recent years."
Best Wishes.
Those are really bad news. If the trend persists during this summer it will be awful.
I think you are exactly right ac.
I have seen mentioned by Krugmann and others that a large portion of the growth in GDP in the last few years is due to housing. The housing market has stalled in the last two quarters and it looks like the bubble will collapse.
Certainly the employment picture has been hit hard by housing.
There is the fear that talking about a housing collapse might be a self fullfilling prophesy.
I think there is very little that will stop the crash.
housing as an asset class is simple overpriced by 40% to 60%.
I didn't see CR's response before I posted. Well, it seems unlike Greenspan, Berneke is not a bubblehead.
A. Gary Shilling in Forbes:
"Implosion"
Implosion - Forbes.com
From the Forbes article:
"It will take a 35% fall to return [house] prices to their long-run link to the Consumer Price Index; "
Sounds like a powerful chart for CR to show us!
Is it 'true'?
Is it 'true'?
Who says the CPI is accurate? Maybe the CPI is 25% under-reported so a small fall in prices brings us back to 'trend line'?
Assuming trend line is where it belongs... maybe housing should be above trend or below trend...
No one knows - that's the point.
I find it difficult to compare the current situation with the 1920s... first off a lot of the 'boom' in the 20s was regional too (Florida) and not national as he claimed. Secondly there was far less 'management' of the economy then as opposed to now... Not that 'management' of the economy is always a good thing it's just that in todays world it is easier for the FED via monetary and congress via fiscal to 'reinflate'... in the post-29 depression they didn't have a clue what to do.
I agree there is a bubble but doubt Schilling has any special real estate insight - he has too many previous missed calls.
On this issue I feel we are all blind heading off into the dark.
JMHO.
As far as Management. This bubble was "managed" (ie. created) and perpetuated by Greenspan and the Feds.
I don't think the can do much to avoid a crash.
dryfly,
If housing price had a particular relationship to CPI, even if CPI was distorted, we can still anticipate that housing prices might revert to the old relationship. Only if we drastically changed CPI would we have to wonder if the relationship was lost because of CPI. Demographic changes, structural changes in the real estate market, land scarcity - any of these might do the trick, but housing price could resume their prior relation to a distorted CPI just about as easily as to an undistored CPI.
The campaign slogan should be: "It's the DEBT bubble, stupid!"
When the supply of credit/money increases faster than the supply of goods, the price of goods appears to increase, but in reality the purchasing power of the credit/money is declining. Rising prices of assets has been assumend by many to be a good thing, while rising prices of goods seems bad. Both tell the same story: the dollar is going down.
Keep in mind the dollar is a "NOTE", a credit instrument backed by faith alone. As the faith of dollar holders is shaken, expect its fall to become more precipitous.
Look out below!!!
The prospect of catastrophic deflation grows with each passing day. The best offence is a solid defense.
Dryfly,
I've had the same exact thoughts.
Less questionable is the historic relationship between housing prices vs. incomes and rents.
You and I both know those stats aren't "under-reported."
So I guess we go with what we know, as opposed to what we don't know.
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