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Saving, Asset-Price Inflation, and Debt-Induced Deflation

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  • #16
    Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

    Both look well beyond what I can imagine to be honest. But if I'm already in debt up to my eyeballs and am not particularly interested in taking on more, option A looks pretty good.

    How do you get housing prices to double in five years when the average annual payments on a 30-year mortgage will represent 110% of the median income? 100 year mortgages?

    Comment


    • #17
      This is awesome. Another article I'll be reading a hundred times in the next few yea

      few years.

      On Dr. Hudson's site I found a PDF, "Road to Serfdom", that had this little gem.

      >> people who thought they would be living the easy life of a
      >> landlord

      Having watched my Dad try to be a landlord for some time, I found this quite amusing.

      Comment


      • #18
        Off topic - parental warnings

        Who didn't have fun with fireworks as a kid?

        Come on, raise your hook hand.

        Originally posted by Jim Nickerson
        You create the sense in me that we grew up in the same neighborhood, or are people today still telling their kids the same things that they did 55 years ago?

        Comment


        • #19
          Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

          Originally posted by EJ

          CPI: 20% (3% today)
          you don't mean the OFFICIAL cpi, do you?

          Comment


          • #20
            Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

            Another paper by Michael Hudson would be of interest (!) here. "The Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview" Part I and Part II

            The whole concept of the Time Value of Money is very troubling. While useful over a short period of time, it becomes extremely problematic over longer periods. Discount rates are extremely problematic for long term planning -- the net result of this lack of long term planning and hence well executed long term plans - leads to cyclic economic and ecological catastrophes. As my mentor and Professor would say "every day, we are eating our children, grand children, and their progeny" A rather gruesome vision, but a somewhat appropriate metaphor for the human race -- one that cannibalizes its future generations.

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            • #21
              Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

              Another book people will find edifying, is Margrit Kennedy's book Interest and Inflation Free Money

              Quote:
              Four Basic Misconceptions About Money

              First Misconception

              THERE IS ONLY ONE TYPE OF GROWTH

              The first misconception relates to growth. We tend to believe that there is only one type of growth

              Second Misconception

              WE PAY INTEREST ONLY IF WE BORROW MONEY

              A further reason why it is difficult for us to understand the full impact of the interest mechanism on our monetary system is that it works in a concealed way.

              Third Misconception

              IN THE PRESENT MONETARY SYSTEM WE ARE ALL EQUALLY AFFECTED BY INTEREST

              A third misconception concerning our monetary system may be formulated as follows: Since everybody has to pay interest when borrowing money or buying goods and services, we are all equally well (or badly) off within our present monetary system.


              Fourth Misconception

              INFLATION IS AN INTEGRAL PART OF FREE MARKET ECONOMIES

              A fourth misconception relates to the role of inflation in our economic system. Most people see inflation as an integral part of any money system, almost "natural," since there is no capitalist country in the world with a free market economy without inflation.

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              • #22
                Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                I did read that whole thing and my head was hurting (had to take breaks to get my head around it). Dr. Hudson is certainly a great analyst, but like many academians, his writing style is filled with words that are meant to purposefully confuse the reader. I did feel like I got the message though (and i thank grape jelly for the translation and the follow up chart EJ - it helped clarify a lot).

                The only thing I'm wondering as was posted is what Dr. Hudson thinks will happen and when... as in are either of these scenarios possible and if so which will be the one to happen:

                Originally posted by EJ
                Median Home Price: $450,000 ($225,000 today)
                Median Household Income: $80,000 ($40,000 today)
                30-Year FR Mortgage: 19.5% (6.14%)
                Discount Rate: 18% (5.5%)
                CPI: 20% (3% today)
                Oil: $200/bl
                Imported Car: $80,000 (One year's median income)
                Domestic Car: $40,000 (One half year's median income)
                Cup of Starbucks Coffee: $6 ($3.00 today)

                or

                Median Home Price: $100,000 ($225,000 today)
                Median Household Income: $30,000 ($40,000 today)
                30-Year FR Mortgage: 0.5% (6.14%)
                Discount Rate: 0% (5.5%)
                CPI: -4% (3% today)
                Oil: $100/bl
                Imported Chinese Car: $80,000 - due to 50% tarriff (One year's median income)
                Domestic Car: $40,000 (One year's median income)
                Cup of Starbucks Coffee: N/A - out of business ($3.00 today)
                I have to go with the first is most likely, if for no other reason than Starbucks HAVE to be around. But I can't see home prices being that much, if for no other reason than there are currently 2.1 million vacant homes with an estimated 1.2-1.6 at or nearing completion.

                Both oil numbers look very achievable though. I would put the inflated oil at probably closer to 300/bl, especially if you are assuming that gold will be 2500-3000/oz.

                What I'm wondering is what will trigger the Ka movement when it comes? A couple of my coworkers (who also timed the tech boom pretty well) have told me they have put their 401k's into the stable income fund and out of stocks already. The more I read I can't tell if I'm getting more paranoid, getting more bearish, or too squeamish, or if the Ka is coming very soon.

                Comment


                • #23
                  Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                  Originally posted by EJ
                  You take a five year Rip Van Winkle nap. You wake up in 2012 to find that the debt pyramid has indeed collapsed. Just to get you imagining possible future worlds, which do you think is the least bizzarre?

                  Median Home Price: $450,000 ($225,000 today)
                  Median Household Income: $80,000 ($40,000 today)
                  30-Year FR Mortgage: 19.5% (6.14%)
                  Discount Rate: 18% (5.5%)
                  CPI: 20% (3% today)
                  Oil: $200/bl
                  Imported Car: $80,000 (One year's median income)
                  Domestic Car: $40,000 (One half year's median income)
                  Cup of Starbucks Coffee: $6 ($3.00 today)

                  or

                  Median Home Price: $100,000 ($225,000 today)
                  Median Household Income: $30,000 ($40,000 today)
                  30-Year FR Mortgage: 0.5% (6.14%)
                  Discount Rate: 0% (5.5%)
                  CPI: -4% (3% today)
                  Oil: $100/bl
                  Imported Chinese Car: $80,000 - due to 50% tarriff (One year's median income)
                  Domestic Car: $40,000 (One year's median income)
                  Cup of Starbucks Coffee: N/A - out of business ($3.00 today)
                  EJ asked which is the least "bizarre."? I don't get bizarre. I would have liked the questions: Which is more likely? or Which would you prefer to have to live through?

                  The first "future world" is to me the worst, though it ain't exactly Zimbabwe. It seems, and remember I know diddle about economics, to me the first would have to continue to be associated with lots of liquidity, which seems to be the problem with where we are now-- which I perceive as a mess. Isn't it going to have to end somewhere? I think, yes. Wouldn't sooner be better? I think the sooner, the better.

                  The second "future world" would come closer to achieving what I think this country needs, if effect, a very hard slap of the face--for those who can go along with corporal punishment. The second seems to me to be more like Japan since 1990, and I don't see where the Japanese populace has devolved into penury or anarchy, though I haven't lived through it as a Jap. I was there for a few days in 1997, and it was a very civil place.

                  I think I had rather 2012 resemble the second scenario.

                  Originally posted by DemonicD
                  I have to go with the first is most likely, if for no other reason than Starbucks HAVE to be around.
                  Starbucks! Bah, humbug.
                  Jim 69 y/o

                  "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                  Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                  Good judgement comes from experience; experience comes from bad judgement. Unknown.

                  Comment


                  • #24
                    Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                    Just skimmed it, but what a great overview! In particular, the charts of how exponential credit growth short-circuits the natural business cycle, creating severe booms and busts, are extremely apropos -- I've been thinking of something like this and am glad to see someone has drawn it up.

                    Thanks, Michael!

                    Comment


                    • #25
                      Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                      Originally posted by EJ
                      Median Home Price: $450,000 ($225,000 today)
                      good so far

                      Median Household Income: $80,000 ($40,000 today)
                      This is the biggie, the thing that Greenspan and Bernanke apparently agree on - wages CANNOT be allowed to rise.
                      So keep all the other numbers the same, but cut this by at least 30%.


                      EDIT - Eric, why do feel this increased income is necessary? The current asset inflation has happened without large income gains.
                      Last edited by Spartacus; 02-06-07, 03:03 AM.

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                      • #26
                        Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                        I agree with you on this. The second scenario would be a bitter pill to swallow, but society could be rebuilt from there. I don't see that happening in the first scenario. The first scenario is a train wreck, with the train still going at a 200 mph (the inflation/liquidity trap!)

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                        • #27
                          Re: Saving, Asset-Price Inflation, and Debt-Induced Deflation

                          scenario 1 bails out the debtors while scenario 2 favors creditors. I think the US government will do everything in their power to prevent scenario 2 because of what it would do to government debt.

                          OTOH scenario 2 would save the US$.

                          Are we too far along scenario 1 to even entertain scenario 2? The "Greenspan put" policy continues and it would have to stop. Is there a political will for the extremely unpleasant results?

                          Moreover, the US is in a perpetual state of "war" which inevitably means more inflation, not less. Congress would have to raise taxes to untenable levels or slash spending in the extreme, to replace the financing that is provided by inflation.

                          This guessing is what keeps the game exciting, is all I can say

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                          • #28
                            Re: This is awesome. Another article I'll be reading a hundred times in the next few

                            You may also find this interview with Danny Schechter interesting. Danny Schechter Dissects America's Credit Card Culture.

                            Comment


                            • #29
                              Re: This is awesome. Another article I'll be reading a hundred times in the next few

                              Originally posted by Spartacus
                              few years.

                              On Dr. Hudson's site I found a PDF, "Road to Serfdom", that had this little gem.

                              >> people who thought they would be living the easy life of a
                              >> landlord

                              Having watched my Dad try to be a landlord for some time, I found this quite amusing.
                              Hudson says there's no money in being a landlord (in rents) anymore. It's all about breaking even on cash flow (rents versus operating expenses) and counting on capital gains from depreciation and sales to make "rental" property worth owning. This explains the mystery of commercial buildings that you see all over the U.S. that sit empty for years on end with "For Lease" signs on them. Owners get to depreciate them over and over, and property owners get to flip them back and forth among each other, banking the capital gains profits at low tax rates.
                              Ed.

                              Comment


                              • #30
                                Re: This is awesome. Another article I'll be reading a hundred times in the next few

                                Originally posted by Rajiv
                                You may also find this interview with Danny Schechter interesting. Danny Schechter Dissects America's Credit Card Culture.
                                I thought this reference just replays what is currently known: the public is stupid, the banks are leaches, the politicians are useless.
                                Jim 69 y/o

                                "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                                Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                                Good judgement comes from experience; experience comes from bad judgement. Unknown.

                                Comment

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