patrick.net

Full Article: http://www.nakedcapitalism.com/2017/04/ilargi-economies-run-housing-bubbles.html

This is just a Communist propaganda site that prays 24/7 for the end of Capitalism. Someone remind them them Communism failed a long time ago.

Bubble collapse naturally because they become toxic and the natural order of fiscal policy is to allow it to completely deflate on its own.
That is not what happened last time. As a result my house I bought for 160K in 2010 now worth 300K. Should have been 98K to 120K when I bought it, and still not worth much more than that.
As a result now most residential SF homes that come on the market is being bought Investors who have an interest in the neighborhoods in Rents. They can't an affordable RE market fucking with their $2500 rents.

Rich are built by greed, it is good for them. But a few rich people isn't the only way to fuel an economy. Small Businesses, manufacturing, and a strong middle class workforce in specialized 3 figure niches.

anonymous says

We are witnessing the demise of the world’s two largest economic power blocks, the US and EU.

So we abandoned the work ethic and scientific advancements which made Europe and America having the most liberty, having decent and usually good laws, assembled and maintained excellent colleges and universities which for a long time taught solid scientific and useful knowledge, had workplace allowing some degree of upward mobility for those who applied themselves.

I view the spiral of the second to last trait causing much of our downfall.

Where is the new Einstein, Bose, Heisenburg, Shockley of curiosity? Where is the new Wright, Edison, Carnegie, Douglas, Hughes of innovation? Where is the Ford, Percy, Packard, Jobs of manufacturing?

Whats sad is we have the resources to do this, but we dont have the will. Those individuals with the will to do great things are blocked by most the democratic political machine, who only invests public dollars to their social causes, and maybe patch a few roads after all the machinations of government workers get paid twice.

I am only 70% Republican, because the democrats must own their malivestment society that does not remember the trickle down effect that caused properity. In fact nowadays, many dems are trickle down deniers.

There was a bubble in South Florida RE in the mid to late 80's.
But houses that were worth $120K were sold for $160K.
Then they cried when the value went back to $120K.
I watched it happen in Coral Springs.
It only got bad after moratoriums went out blocking development in certain areas.
But then usually building resumed. When they started building somewhere else. This is the longest we've gone without a fiscal policy of the Government to build and start new Single Family construction, for Middle class income earners.

anonymous says

But we’re doing the exact opposite: austerity measures are geared towards lowering public debt, while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the -grossly overpriced- roof.

Please let us know what productive jobs public workers do? What do they build?

If any of the great inventors, had worked in government jobs, please inform. (A recent post showed all innovations from private employed individuals).

Entitlemented says

Where is the new Einstein, Bose, Heisenburg, Shockley of curiosity? Where is the new Wright, Edison, Carnegie, Douglas, Hughes of innovation? Where is the Ford, Percy, Packard, Jobs of manufacturing?

Steve Jobs, Elon Musk. Then there is Amazon, Google and hundreds of tech companies. They are changing the world at a more rapid pace.

Entitlemented says

are trickle down deniers.

If trickle down worked, why are we in an economic mallaise while we have such a wealth gap and income disparity?

YesYNot says

If trickle down worked, why are we in an economic mallaise while we have such a wealth gap and income disparity?

If trickle down did not work, our garbage collectors would not be having a standard of living better than 80% of the world's population.

Strategist says

If trickle down did not work, our garbage collectors would not be having a standard of living better than 80% of the world's population.

Actually garbage collectors' standard of living has gone down significantly since trickle down economics began in the US. Their relatively good standard of living is because the US DIDN'T use trickle down after WWII

Which other period do you think is indicative of a bubble?

YesYNot says

If trickle down worked, why are we in an economic mallaise while we have such a wealth gap and income disparity?

Answer: Malivestment of Resources:

https://www.progress.org/articles/trickle-down-economics

Strategist says

If trickle down did not work, our garbage collectors would not be having a standard of living better than 80%

Thank you Strato - yes, a small business owner from Mexico was singing the praises of how much more fair trickle down economics is, so that garbage collectors in the US live better than retailers in Mexico.

And my Mexican friend owns an electronics assembly plant in Ventura............

God bless liberty and the freedom to find work based on Merit, rather than effort. Dems have tried to kill Meritocracy, - and they have nearly succeeded. Until people realized that Dems were ruining our Republic and voted in politically incorrect rascal - and may God bless CEO president and the US citizens.

Entitlemented says

God bless liberty and the freedom to find work based on Merit

How do liberty and freedom have anything to do with trickle down economics? Trickle down is giving tax cuts to the rich--wtf does that have to with liberty or freedom??

Trickle down is a fancy term used to fool idiots into thinking that politicians screwing the average Joe so they can reward the people that bought their elections for them is actually a good thing.

joeyjojojunior says

Strategist says

If trickle down did not work, our garbage collectors would not be having a standard of living better than 80% of the world's population.

Actually garbage collectors' standard of living has gone down significantly since trickle down economics began in the US. Their relatively good standard of living is because the US DIDN'T use trickle down after WWII

Really? Garbage collecting is a bottom feeding job. It does not create wealth. Wealth to pay the garbage collector must come from the top. The top jobs are the high paid professional jobs, technology, and corporations.

Kinda vague article and the comments on that site are rather crap but of course the "Progress And Poverty" thesis is useful.

Housing is a primary human need, right up there with food and health care.

In fact, it's easier to go without food for a day than legal tenancy in housing.

Food is also not in short supply vs. demand, and has a lot of substitution available.

So Real Estate and Housing are where the high-rent sectors are, we collectively bid them up to the point of unaffordability as supply cannot match demand.

(Most everyone would like their own English Mansion on 400 acres of private parkland if they could obtain their housing situation for free)

https://fred.stlouisfed.org/graph/?g=ddvl

is an important chart to understand.

Blue is housing / wages, rising from 20% to nearly 30% since 1960. This is the primary parasitical wealth-tap ratchet in the economy, sucking money out of the middle quintile renters to the top 5% owners. This is a 50% increase in housing costs since 1960.

Red is health care / wages, rising from 5% to over 25%.

Teal is durable goods / wages, constant at 15 to 20% -- but we're getting much more actual value for our expenditures compared to the 1960s.
(e.g. a 23" B&W TV cost around $200 in 1960, or $1600 in today's money -- you can get a cinema-quality video setup for $1600 now!)

Green is food / wages, falling from 25% to 10%

Purple is clothing, falling from 10% to 5%.

Falling interest rates and offshoring manufacturing to cheap labor countries have enabled us to bid up the cost of health and housing a lot!

joeyjojojunior says

Trickle down is giving tax cuts to the rich--wtf does that have to with liberty or freedom??

to be fair, taxes are in fact expropriation of labor.

at the extreme, a 95% taxation rate would reduce us to slaves to the state.

but this typical right winger argument falls apart when talking about money making money, like say Trump's or Romney's portfolio.

There's little to no actual wealth-accreting labor going on, just numbers making more numbers, actually reducing the total wealth picture overall since the top 1%'s economic activities are parasitical in nature.

Right wingers talk talk talk about freedom, but in this economy penury is a big jail for about 40% of the population.

Ironically, Bannon is on the same page here:

"Perhaps, the most critical disparity between the two men’s worldviews is the way they conceptualize the relationship between working people and America’s economic elites. While Paul Ryan champions our nation’s corporate titans as “job creators” — whose prosperity is inextricably linked with that of the middle class — Bannon paints them as rootless, godless elites whose wealth is harvested from the exploitation of ordinary people."

http://nymag.com/daily/intelligencer/2016/11/why-steve-bannon-hates-paul-ryan.html

Strategist says

Really? Garbage collecting is a bottom feeding job. It does not create wealth.

Of course it does. Most garbage collection is private these days. Having garbage removed from ones residence or business is absolutely a function that people value and will pay for.

Wealth at its most elemental is simply the state of being well.

And being well is having no unmet needs and wants.

The service of getting rid of solid waste satisfies a pretty big human need, in this case mitigation of the economic bad that is garbage.

Granted, this service does not create exportable wealth, and even with automation is rather labor and capital intensive so it is not a very productive enterprise, even if it is so very necessary.

Garbage collection is like the guys that go around filling potholes. This winter was the first that I've seen what damage rain can do to local streets -- I was dodging potholes for weeks this rainy season.

Preserving & restoring wealth is in fact net wealth accretion. It's health providers' racket, too. Outside of plastic surgeons, they just eliminate disease and disability, not create actual new health per se.

YesYNot says

Entitlemented says

are trickle down deniers.

If trickle down worked, why are we in an economic mallaise while we have such a wealth gap and income disparity?

Trickle down works to a point, and then it's just money to the elite after that with little benefit to the rest of us. This is why I'm a firm believer in extreme taxation of the super rich.

naked capitalism:
"What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over."

As Democratic & Republican voters intend.
And they will pay for this BS.

Again with the bubble talk, no bubble currently.

How can we not be in a bubble when debt is at stratospheric levels and money is the cheapest it has ever been?

HEY YOU says

naked capitalism:

"What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over."

Fucking stupid. Low interest rates are bad? If rates go high the same people will be whining about unaffordable mortgages. .......Oh look, the greedy banks are charging us more just so they can make more money.

just any guy says

How can we not be in a bubble when debt is at stratospheric levels and money is the cheapest it has ever been

Because high debt and cheap money don't equal a bubble.

A bubble implies irrational behavior. Taking on more debt when interest rates are low is entirely rational behavior.

Strategist says

Fucking stupid.

What's mostest Fucking stupid is the failure of those that can't pay cash.
FAILURES: Can TBTF loan me some money?
They are doing well at ZIRP, that's why all Americans are ecstatic.
That ZIRP has eliminated personal debt,college debt,national debt.
Zero interest for the banks,whatever they can charge the debtor.

America is Great Again.

Brilliant economic strategy,pay interest on fiat currency.

HEY YOU says

Brilliant economic strategy,pay interest on fiat currency.

It is brilliant. The amount owed gets devalued by inflation.

HEY YOU says

America is Great Again.

America was always great. And it keeps getting greater. :)

joeyjojojunior says

A bubble implies irrational behavior. Taking on more debt when interest rates are low is entirely rational behavior.

I disagree. Everyone understood why the masses went ape-shit on housing when there was so much easy lending and low standards. Are you calling that rational behavior just because it's obvious as to why it happened? If that's your definition of "rational", then so be it. But that doesn't mean a bubble won't happen. Given your definition, then people are rationally inflating this housing market based on historically unprecedented levels of money sloshing around for people to use. With that, however, comes irrational exuberance because everyone doesn't want to miss out on the inflating asset prices...emotion takes over. Once that emotion shifts and the banks start sopping up the liquidity, the market will both rationally and irrationally deflate.

just any guy says

Everyone understood why the masses went ape-shit on housing when there was so much easy lending and low standards

Not sure what you mean here. Are you referring to the mid 2000s when housing was in a bubble? Or a different time period?

just any guy says

If that's your definition of "rational", then so be it.

Again--if you're talking about the mid 2000s bubble period, then that was irrational behavior.

Ironman says

joeyjojojunior says

Again--if you're talking about the mid 2000s bubble period, then that was irrational behavior.

joeyjojojunior says

Because high debt and cheap money don't equal a bubble.

A bubble implies irrational behavior. Taking on more debt when interest rates are low is entirely rational behavior.

Folks, you can't make this shit up.... The comedy writes itself!!!

Bingo.

joeyjojojunior says

Again--if you're talking about the mid 2000s bubble period, then that was irrational behavior.

Yes, let's use mid-2000s as the example. Easy money drives irrational behavior, period. The average idiot citizen can't control themselves when prices are rising and all their friends are going in on it. Easy money sparked asset inflation and created that "fear of missing out". It's no different now as we have house flipping happening, etc.

consumer debt / total wages

similar graph but consumer debt multiplied by the 30 year mortgage interest rate / wages

this is the interest burden on all consumer debt if it were continually refinanced at the 30 year mortgage rate.

(home mortgage debt is 90% of consumer debt, and most mortgage debt is refinanced aggressively, so this is not too far off the mark)

just any guy says

The average idiot citizen can't control themselves when prices are rising and all their friends are going in on it

REAL annual home price inflation % on Case Shiller's 10 Market price index.

shows housing was suppressed until the late 90s boom got rolling, then the hot markets saw 8 YEARS of 10-15% gains.

Any idiot could make money in that environment, until the music stopped in 2006 and all the suicide loans -- trillions of dollars of phantom asset value -- were going to go BOOM.

Ironman says

joeyjojojunior says

Again--if you're talking about the mid 2000s bubble period, then that was irrational behavior.

joeyjojojunior says

Because high debt and cheap money don't equal a bubble.

A bubble implies irrational behavior. Taking on more debt when interest rates are low is entirely rational behavior.

Folks, you can't make this shit up.... The comedy writes itself!!!

I'm sorry you don't understand, but those two quotes of mine are not at all incongruent. The mid-2000s bubble wasn't due to low interest rates, it was caused by the abandonment of underwriting standards.

just any guy says

Yes, let's use mid-2000s as the example. Easy money drives irrational behavior, period. The average idiot citizen can't control themselves when prices are rising and all their friends are going in on it. Easy money sparked asset inflation and created that "fear of missing out". It's no different now as we have house flipping happening, etc

No, abandonment of underwriting standards caused the bubble. Low interest rates cause slightly more demand but you typically only have low rates when the economy is struggling so demand is not strong. The complete disregard for underwriting creates a LOT of demand, and a bubble.

It's much different than now. We're not in a bubble and you can easily see it by looking at price/rent ratios. It's still cheaper to own than rent in many areas.

Ironman says

and you would be WRONG.... again..... so sad....

Uh, how do either of those quotes make me wrong? Banks with access to capital to make loans doesn't create a bubble.

Ironman says

BusinessWeek magazine called the option ARM (which might permit a minimum monthly payment less than an interest-only payment) "the riskiest and most complicated home loan product ever created" and warned that over one million borrowers took out $466 billion in option ARMs in 2004 through the second quarter of 2006" citing concerns that these financial products could hurt individual borrowers the most and "worsen the [housing] bust."

Thanks for proving me correct here. You just showed exhibit A for the abandonment of underwriting standards. This DID create the bubble.

Ironman says

so sad...

Here's a hint, every loan is tied to an interest rate.

I've already addressed the point that you are trying to make here:

joeyjojojunior says

Low interest rates cause slightly more demand but you typically only have low rates when the economy is struggling so demand is not strong. The complete disregard for underwriting creates a LOT of demand, and a bubble.

Well there are certainly bubbles, housing is nowhere near the biggest. Nor is it the driver. See central banking, Rothbard's boom/bust cycle. We have had steady inflation collapse under every central bank in America's history.