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Definition 1) house prices going up at a sustainable rate. 2) reaching the peak prices from 2007.One way to get a recovery of the house prices is to inflate wage to support the price of houses back then. That would make the peak sustainable.
It is not desirable for housing prices to reach the insane peak of 2007 except for those who bought housing at those peak prices. Inflating wages to support those prices would only make the competitive status of the United States in the global economy worse and would increase incentives for even more off-shoring. If we had everything we need here, that would be one thing, but we do not. The old isolationist mindset which was so prevalent right before World War II is no longer tenable. Like it or not, we are part of the world, not separate from it. Of course we should make every effort to grow and support our local economy in every possible way, but when we have done that we will discover that we are still part of the rest of the world. Strengthening our local economy will make our relative postition much better, but will not solve all problems.
Considering all of the negatives that come along with inflating wages I would rather see housing settle at a point where they are proportional to today's income levels.
Economies based on fractional reserve banking systems are unstable. They go through a long cycle of boom bust. Also we live on an exponential debt curve. We have to keep borrowing more money each year to get the economy to work. The last time we had a debt reset like this one was the 1930’s.
What makes the fractional reserve banking system unstable is that when you get mass defaults on loans, as we are having now, the banks can’t cover their deposits and counterparties. The result is a bank run. One possible outcome of a world wide bank run is the breakdown of the electronic transfer of funds. This may or may not result in the interruption of food availability in cities. No food = no life.
Inflation, if you keep it under control, can accomplish the same thing as mass defaults. It can also do it without interrupting the distribution of food.
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Originally Posted by EmmanuelGoldstein
The only effect that continued globalization can have on wages in the US is downward pressure.
There is a way around this if we have a high enough savings rate then we can have our current wage structure and balanced trade.
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Originally Posted by EmmanuelGoldstein
Tell me, when compared to the cost of other goods, do you honestly believe that price to income ratio is out of whack?
Above 3.0:1 median house price to median household income too much money goes into interest payments and the economy tends to collapse. 2.5:1 is better.
I am more afraid of a collapse of the banking system than I am of inflation.
It is not desirable for housing prices to reach the insane peak of 2007 except for those who bought housing at those peak prices.
It is also good for those that loaned money to those that bought the houses.
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Originally Posted by Escort Rider
Inflating wages to support those prices would only make the competitive status of the United States in the global economy worse and would increase incentives for even more off-shoring.
A high savings rate can reduce the incentives for off-shoring. With the inflation of wages comes the opportunity to save more rather than to take on more debt.
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Originally Posted by Escort Rider
If we had everything we need here, that would be one thing, but we do not. The old isolationist mindset which was so prevalent right before World War II is no longer tenable. Like it or not, we are part of the world, not separate from it. Of course we should make every effort to grow and support our local economy in every possible way, but when we have done that we will discover that we are still part of the rest of the world. Strengthening our local economy will make our relative postition much better, but will not solve all problems.
It is also good for those that loaned money to those that bought the houses. A high savings rate can reduce the incentives for off-shoring. With the inflation of wages comes the opportunity to save more rather than to take on more debt. We need to invest here in the US.
High savings rate doesn't really reduce the incentive for off-shoring. Having a positive, or at least less negative, current account reduces the incentive to off-shore. Inflation of wages causes inflation of prices. Money has no intrinsic worth. It's just an arbitrary exchange mechanism used in the assignment of scarce resources. All else being equal, higher wages won't increase the amount of scarce resources. All it will do is raise the price. Price inflation causes a people to buy now. Really, you have to get to hyperinflation before the effect is all that meaningful. There it is. People get paid and then literally run out to spend everything or convert it to a stable currency as quickly as possible.
The thing that baffles me when I hear folks talking about a housing "recovery" is that I think we don't have a proper definition of what a recovery would look like.
Is it wise to think that we won't have a recovered housing market until prices are back up to their peaks in 2007? All we hear about is how inflated the housing bubble was at that time, so how is getting back to that point a good thing for anyone?
Housing was a bubble and the values at the peak in 2007 were not healthy. I don't ever want that to happen again.
Exactly, why housing prices going up again equals a recovery baffles me too. We are in the middle of the recovery right now, housing prices once again becoming affordable without the average person signing their life away to an unsustainable amount of debt. The recovery is housing prices going down, not up again.
High savings rate doesn't really reduce the incentive for off-shoring. Having a positive, or at least less negative, current account reduces the incentive to off-shore. Inflation of wages causes inflation of prices. Money has no intrinsic worth.
Increasing wages by inflation reduces the value of debts unless they are keyed to inflation.
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Originally Posted by Malloric
It's just an arbitrary exchange mechanism used in the assignment of scarce resources. All else being equal, higher wages won't increase the amount of scarce resources. All it will do is raise the price. Price inflation causes a people to buy now.
With one in nine houses vacant buying now would be a good thing. Doing a 200% inflation in GDP over a short time would be controlled hyper inflation. With the minimum a legal employ could be making full time at $60k per year there would buyers for those vacant houses.
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Originally Posted by Malloric
Really, you have to get to hyperinflation before the effect is all that meaningful. There it is. People get paid and then literally run out to spend everything or convert it to a stable currency as quickly as possible.
OK if you know that wages are going to be going up then you spend your cash on making product before the wages go up (this is from the perspective of a corporation sitting on large cash reserves). Cash has no intrinsic value, but red ink on ledgers is bad for banks.
House aren't scarce, at this time there is a glut of them. More money should lead to more utilization of the existing houses. When you get to full utilization then the prices should go up.
"All else being equal, higher wages won't increase the amount of scarce resources. All it will do is raise the price."
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Originally Posted by newonecoming2
There is a big unless: Unless you up the minimum wage a lot. If you bump the minimum wage to $30 hr then you will see the price of houses going up sooner than ten years from now.
Thank you. A big part of what is wrong with the economy is the falling price of houses. Turn this around and you will turn the economy around.
Correct, inflation would decrease real fixed rate debts. It also freezes up investment. Debt = investment even more so than it does consumption. Unpredictable inflation such as that caused by drastic monetary manipulation makes banks wary to lend. They don't want to be caught out on a 30 year fixed rate mortgage at 4% if the prime rate shoots from 3% to 10%. They'll just stop offering fixed rate mortgages put a substantial premium on them. That'll leave customers with the choice of a 8% fixed rat mortgage or a 3.5% ARM based on prime plus .5%. They'll either choose the ARM or not buy. When prime goes from 3 to 10% and their mortgage payment doubles the net effect of doubled wages (if that is what caused the inflation) would be completely negated. If it was caused instead by monetary manipulation they just go into another wave of foreclosures. Most people just can't afford for their mortgage payments to double. If you think home prices are low now, wait until you see what they fall to when the interest rate goes from 4% to 10+%. I'm talking about in real dollars, not nominative dollars. If you double wages tomorrow you'd expect prices to, in short order, double as well. All you've succeeded in doing is giving existing borrowers at fixed rate (businesses and homeowners) a windfall profit at the cost of freezing the credit markets which supposedly what the bailout was designed to prevent.
You can't control inflation with an on-off button. Ask Nixon how effective his command economy policies were in reducing inflation, and that wasn't even hyperinflation. There's no such thing as controlled hyperinflation. Even it puny little third-world countries it takes massive organizations like the IMF, World Bank, and UN years of financial assistance, political pressure, economic sanctions, etc years to pull those countries out of hyperinflation. In most cases it ends up failing and causing more harm than good. That's your silver lining since no one is big enough to step in and seize control of America to put our economic house in order. If you're objective is to cause an economic collapse, then "controlled" hyperinflation would be a guaranteed way of doing that. There are people who think we need just that.
Falling house prices were a symptom of what was wrong with the economy. The problem is the economy has a cold. You can give it cough medicine to alleviate the symptom but that doesn't do a thing to help recovery. Actually, even Keynesian who champion that sort of treat the symptom approach acknowledge that, like cough medicine, treating the symptom does nothing but harm the economy in the long run. Their point is that long-run harm is worth the cost to treat the short-run symptom. You sacrifice a bit of long-term economic growth to even out the cyclical nature of the economy.
Originally Posted by bale002
The underlying problem with the US economy is that the US ruling classes have as a priority their power position in the global economy, while stewardship of the economy on US soil and its inhabitants is by now, for them, second fiddle.
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Originally Posted by Philip T
A+
Thanks.
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Originally Posted by Philip T
The morons even documented it.
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Originally Posted by bale002
For as long as the bulk of people on US soil do not see past that smoke screen and focus their efforts at being productively competitive (and I do not mean pencil-pushing and other meaningless service jobs) in the global economy, their station in that same global economy will continue to sink.
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Originally Posted by Philip T
It is not that the working slobs do not work hard/smart/fast enough.
They have their nose to the grindstone and do not know what else to do.
I would submit they should help undermine the Empire fantasy.
Instead be Productive In Their Own LOCAL Economy.
I agree and to fine-tune the point, I would sumbit that the two are by no means mutually exclusive. On the contrary, they complement each other: productive investment, including sane zoning policy, for example, in the local economy is key to remaining globally competitive.
In this thread I am trying to stigmatize the adolescent fantasy that a mere residence, especially financed by debt, is a magical fount of wealth and productivity and should be an important factor in the money supply of the economy on US soil, and that a new general rise in housing prices is the magical key to getting the US out of recession or somesuch nonsense.
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Originally Posted by bale002
This idea that residential housing, a wasting asset, like cars, is key to economic health and growth was, and apparently still is, a smoke screen thrown in the sheeple's eyes to mask the underlying issue as stated above, and a very effective one at that.
You called things down and downer. Fair enough. Would have tended to agree.
However, a vector has both Direction and Magnitude.
So getting the direction correct is only half the game.
Magnitude is lacking.
How far down does this submarine go -- at least before imploding?
Until the huge foreclosure backlog gets dumped on the market, worked through, and a bottom is reached. Two or three years at least, and probably another 20% price drop.
Last edited by Bideshi; 10-04-2011 at 04:10 AM..
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