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BGriffinFlorida (26.59)

Deflation, impotent injections by the FED, & the forgotten value of perceived scarcity.



December 26, 2008 – Comments (32) | RELATED TICKERS: AAPL , GOOGL , MSFT

So, I was having this particularly vivid dream last night. 

>>>>In my dream, I am a reporter. I am entering (ostensibly for a story) a seedy brothel evidently named 'US Economy' from the flashing neon sign.  After working my way inside, I find a long line of pleasure industry workers.  I note plenty of makeup and perfume have been applied, but far too few baths..  Branded on the buttocks of each of these beauties is their working name; Citi; AIG, Chrys(ler), GM. and numerous others.  The line leads to a door that opens upon a most repulsive scene.  There is Bernanke, riding on GM's twin sister GMAC, yelling 'You brought this on yourself!'  'Take it Take it, you know you like it!'.  Bernanke glances over to the corner where Snoop Dog nods approvingly and adds, 'Take it, BAiaaanchNK'.

I can tell Bernenke thinks he's giving it to GMAC, like GMAC has never had it.  Maybe he is, but from the look on GMAC's face, he's not even touching both sides of that loose coffer.  Like a hot dog down a hallway, his multi-billion buck 'contribution' doesn't get a rise out of GMAC, or anyone else for that matter.  A little flush and far too naked, Bernanke dismounts and bellows 'NEXT'!!<<<<

Were it not for a previous dream in which  I was witness to a very graphic and most unsettling menage-a-trois between Alan Greenspan, Margaret Thatcher and Yassar Arafat, this would easily have qualified as a nightmare.  That, and the fact, it pales in comparison to many probable outcomes of our present economic trajectory. So, while you have been spared the ludir details of said menage-a-trois,you should realize the potential catastrophe looming, and with that point of reference, agree I merely experienced a bad dream but no nightmare.

Nightmare or not,, why proceed this way?  Why present these scenes, which by all accounts should have remained private?    Consider it a vaccination, temporarily inoculating against prurient distractions, and allowing  concentration upon a completely non-sexy topic: economics. 

A few themes concerning economics, which I consider very off base, come up again, and again, in traditional media,  blogs, commentary, and everyday conversation. 

Here is a partial list of the themes and why these are misguided:



1. Deflation is a 'good', since it makes things more affordable.


This myth probably stems from a confusion between 'a decrease in prices' and 'deflation', as well as a lack of understanding about the effects of actual deflation.   A good analogy is weight loss.  For most Americans, losing 10 lbs in a month would be a good thing, but losing 10 lbs a month continuously quickly becomes disastrous if it cannot be stopped.  The former is analogous to a decrease in prices, the latter to deflation. 


Specifically, three aspects of deflation make it particularly troublesome: Delaying/Hoarding Feedback Loop, Prices Falling Below Production Costs, Production Destruction.


Delaying/Hoarding Feedback Loop:  This is a self exacerbating characteristic of deflation.  When presented with continually declining prices, consumers delay or cancel most planned purchases (when money is tight, why would you buy today for $10 what you can buy next month for $9) , and investors are heavily biased to short term, high liquidity investments or cash.  As economic activity decreases as a result of decreased investment and decreased purchases (i.e. Demand Destruction), more people are laid off and investments decline even more, causing further Delaying/Hoarding, and creating a self amplifying feedback loop, or deflationary spiral.


Prices falling below production costs:  typically material costs are only a fraction of the total cost of producing goods.  As prices fall, producers are hard pressed to reduce other costs so they can remain profitable (and in business).  The largest component is typically labor costs, so reduction in wages is inevitable.  Wage concessions that were previously unthinkable will be accepted in a time of high and increasing unemployment, after all, any wage is better than no wage.  Prices do not decline evenly and some costs are more fixed than others. When price declines reach the point that the cost to produce exceeds the price at which goods can be sold, massive layoffs result.  When this effects numerous businesses, deflation accelerates.  This phenomenon is now evident in US housing and some other industries.


Production Destruction:  If Demand Destruction causes and fuels deflation, Production Destruction is one of the results. As demand continues to fall, and businesses shut down, the capability to produce goods may actually be destroyed at a more rapid pace and to a greater degree than the decline in ultimate demand.  The ubiquitous delays in purchasing even vital goods (as consumers eliminate personal inventory, or go without for a limited time) and the stocks of unsold goods remaining in inventory and supply chains,  create conditions where substantial production capability may be lost, before any scarcity develops. Since production cannot be turned on, as quickly as it was turned off (companies that went out of business, sold assets, and dispersed remaining capital.  workers who were laid off, may not be easy to contact and rehire), when consumers can no longer delay vital purchases and return to purchase, they may find an alarming under supply of vital goods. Hyperinflation, even to the point of complete destruction of the currency (how much would a mother pay for food for her children...) and civil unrest could result.   

Food is an easy example to consider.. As prices drop, and families become more worried about layoffs, they begin to use the food inventory in freezer and pantry.  Because times are tough, everything gets used, even the old cans of cranberries and the frozen who-knows-what in the back of the freezer.  The steep reduction in sales causes the grocery store to cancel or severely reduce orders to restock.  The elimination in orders cause the food processing companies to layoff workers and idle plants.  With no demand from those processing plants, farmers and ranchers curtail future production: for example if corn is not selling, then fewer acres will be planted and less fertilize used (leading to a destruction of the ability to produce fertilizer); if chicken are not selling, or the price keeps dropping, fewer will be kept to produce, instead most will be sold or eaten. This effect is compounded by livestock sold and acres unplanted due to bankruptcies. Commodity futures are likely to exacerbate this effect.  By the time inventory at the consumer, retailer, and wholesaler levels have been depleted and demand returns to the vital minimum, the supply deficit may take more than a year to correct, since the fields are not planted and the brood stock has been sold off.  At this point, people become acutely aware that no amount of money can correct the gap between what is required to feed people and what is available.

So, no, deflation does not make things more affordable.  Deflation is definitely not good.



2. The credit crisis was caused by the Greedy  _________  (fill in the blank with: Bankers, Consumers, Wall Street Executives, CEOs, or choose your own favorite group to hate on).


Sure, there is plenty of blame to go around.  What strikes me as absurd is that invariably, the adjective used to describe those to blame is Greedy.  What the blame casters are suggesting is that the Greedy are responsible, or that Greed itself is responsible. 

Perhaps you even agree the Greedy are to blame.  'Pot calling Kettle... Come in Kettle'  

Just so we are on the same page, here is Merriam Webster's definition:  Greed: a selfish and excessive desire for more of something than is needed.

I'm going to go out on a limb here and say that no one reading this is a subsistence farmer, producing only what is needed for you and your family.  Even if you are, and you just happened to wander into a friends house, or a library to use the Internet, why would you be in CAPS, if you do not desire for more than you need?  Even if you have rationalized yourself past those two ideas... which of you would not accept a $10,000,000.00 Publisher's Clearing House prize, if it showed up on your doorstep tomorrow morning?To accept it is to  desire to more than you need, even if your desire is ostensibly for the purpose of deciding to which charity it is to be given.

If it is just now you realize greed is part of your person, do not despair.  Greed is a healthy part of the human condition.  Greed is not evil as some would suggest.  Closer to evil, is making suggestions to others that cause feelings of guilt for possessing very human qualities (such as greed).

You may not swallow that last bit, but hopefully you will think twice about blindly blaming Greed.  Greed is a necessary part of a market driven capitalist economy, and although a representative capitalist republic is a terrible form of government, it is still better than all the rest.



3. Allowing __________ (fill in the blank: Auto producers, home builders, horse and buggy whip manufacturers, etc) to go bankrupt will be a huge blow to the economy, so we need to provide loans, and loans are not a bailout.


First of all: Yes it is a bailout.  These loans have a high likelihood of default, and just because you might get paid back, does not mean you didn't bail them out (if you help a guy push his stalled car out of traffic, when he says "thanks, I owe you one', that doesn't mean you didn't help him out.)

More importantly, in industries where financial difficulties exits throughout the industry because the assets and labor allocated to production far outweighs what is required by demand, propping up failing companies only delays that companies downfall, or worse, shifts the downfall to a more health competitor in the market.  A supply demand imbalance cannot be fixed by artificially sustaining the ability to produce at levels greater than that required by demand. 

Supporting builders or auto makers or whomever, on the grounds that any downfall will be devastating, is idiocy.  The tragedy is that any devastation is unavoidable, has already begun, and is only exacerbated by dim-witted meddling. Bankruptcy must occur so that assets can be liquidated and put to better use, and so that production can be curtailed to those who are more efficient.



4. All the stimulous is INFLATIONARY, the powers that be will continue injecting liquidity, and soon we will see growth again.


The fallacy here is a misunderstanding about what constitutes money.  For the purposes of money supply and inflation/deflation,  money is only money if it is transacted.  Every citizen in the United States could be given an extra $100,000.00 in their bank accounts, and if they only spent $10.00 of it, it would have the same stimulative effect as if every citizen has only been given $10.00 and spent all $10.00.

Increasing the money supply is reaching a level of diminishing returns of effect. Thankfully there is another side available for managing this money supply/demand imbalance causing our current pricing crisis.  This other side goes woefully unmentioned; the demand side.

What is desperately needed is an increase in the demand for money.  A increase in the demand for money can be brought about using incentives to invest and to loan to those who would invest.

Most investors are searching for investments with a favorable probability of sufficient returns as related to the risk incurred.   If a large asset class can be expected  to experience significant market based price increases over a long period, then investment will eagerly follow.

And this (finally) brings me to the point.  Increases in perceived future scarcity is a strong motivator for price increases. Reasonable expectations of continued price increases in a major asset class would certainly stimulate significant investment.  Significant investment is a demand for money and would be an increase in the velocity of money and therefore and increase in the real supply of money.  If sufficient in scope, this inflationary effect  would end the deflationary spiral, and begin reflation. Growth in the economy would soon follow.

Investors can reasonably expect sustainable price increases in residential housing, if the future production of newly constructed residences will be significantly constrained.  Pricing disincentives are likely to be the most effective method for constraining production and maintaining a perceived future scarcity.

An example of such a pricing disincentive is a tax targeting both housing starts and sales of newly constructed homes.  Ideally the portion on housing starts would go into effect immediately while the sale portion would be initially delayed to go into effect no sooner than 6 months after passage, but no later than one year.  The tax should also be significant but should lessen in later years.

An example would be a tax with two components.  The first component being a tax due when permits are approved in the amount of 10% of the estimated final sales price (with a penalty due at closing for portions unpaid due to underestimating or a refund for any excess), this tax would go into effect when signed into law. The second component would be a  tax of 10% of the actual sales price or 10% of twice the assessed value due prior to occupancy or at closing.  One year later the tax at closing or occupancy would decrease to 9%, and 1% each year thereafter until eliminated, after which the tax upon permit approval would decrease by 1% each year until eliminated.

The growing need for housing and the predictable constraint on new supply would cause an increase in existing housing prices and an increase in investment in housing.


I encourage critical comments and suggestions.




32 Comments – Post Your Own

#1) On December 26, 2008 at 3:47 AM, Daretoth (< 20) wrote:

I only have one comment: why is it that the only people who seem to know this info are on CAPS?

I seriously can't seem to find them in the mainstream media. Even many of the Chicago school profs are abandoning the old philosophy (Freidman) for the "new" older and already previously failed philosophy (Keynes).

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#2) On December 26, 2008 at 4:49 AM, saunafool (< 20) wrote:

Investors can reasonably expect sustainable price increases in residential housing, if the future production of newly constructed residences will be significantly constrained.  Pricing disincentives are likely to be the most effective method for constraining production and maintaining a perceived future scarcity.

I think your analysis misses one critical point: I don't think investors can expect sustainable price increases in residential housing until they can buy the asset for a reasonable price. Prices still need to fall by 30% before prices are in line with historical ratios to incomes or rents. Taxing new construction, limiting foreclosures, or any other scheme to limit supply will simply slow the price decline and it will take 13 years instead of 3 years to get to the bottom of the housing cycle.

So, until the price is right, there is no reason to expect positive returns.

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#3) On December 26, 2008 at 4:59 AM, starbucks4ever (89.16) wrote:

I will suggest two minor modifications, and if you have no objections to them, you can count me as an ally. These modifications are really minor, and as you claim to have no ulterior motives, they should not cause any objections.

1) a comprehensive rent freeze across the board while your quick self-enrichment scheme is in action, to substantiate your false claims that happy renters will only see affordable rates.

2) a tax cut for renters in the amount equal to the expected gain in homeowners' property value due to your Proposition Highway Robbery. Since you claim you merely care about the economy without ulterior motives, it's would be logical to maintain the existing distribution of wealth by spreading the gains (and losses) evenly. That could be accomplished by raising the property tax you pay every year, and by taxing your HELOC withdrawals, to make you share those gains in property value that you will have obtained by preventing other people (first-time buyers and builders) from engaging in legitimate economic activity. 

Now please accept my congratulations with having your motives fully exposed, as I have no doubt that you will instantly withdraw your economy-saving proposal if it has to come with those strings attached.


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#4) On December 26, 2008 at 5:19 AM, starbucks4ever (89.16) wrote:

While we are at it, may I suggest some additional measures that will save the economy as represented by BGriffin from Florida.

1. Whenever BGriffin buys a stock, the SEC should announce a 20% tax on new purchases of that stock unless you purchase it directly from BGriffin.

2. Whenever BGriffin buys a car, the Government should tax new production of that model, to incentivise new buyers to bypass the dealer and go directly to BGriffin.

3. Whenever BGriffin gets a job, the government should impose a 20% payroll tax on all new hiring in his field, to create a perceived future scarcity of labor that will translate into a comfortable payraise for BGriffin. 

If that is not enough, we can apply the same to groceries, computers, vacation packages, investing newsletters, and every other product that BGriffin happens to buy.


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#5) On December 26, 2008 at 5:51 AM, johnw106 (< 20) wrote:

Yawn.....someone wake me when an original thought happens to get posted.
Regurgitated blogs and articles from gold bug web sites get boring after a while.


And please tell me you are not part of the Ben Hill clan from Frostproof. You know, the sons who stabbed their father and the life time epmployess in the back by selling out to corporate interests who promptly fired everyone and replaced them with company hacks and lower wage unskilled help?

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#6) On December 26, 2008 at 5:52 AM, valueandprice (< 20) wrote:

This was a fantastical read. +1!

I do have one constructive criticism: your nightmare intro was great, but I don't want to see this post removed because of the intro. The rest of the post is just too great to have the post deleted.

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#7) On December 26, 2008 at 6:00 AM, BGriffinFlorida (26.59) wrote:

Thank you for you comments.


Dartoth:  I think this proposal (even when facing the prospects of a deflationary depression), is too socially out of fashion and too politically incorrect to garner support by those who are more interested in assigning blame than fixing the problem.  I expect and encourage disagreement and debate, but each time I am surprised at responses that assign positions to me and create statements for me (which I have not written nor suggested) which they can rail against.  I am still not certain if these  are the result of willful efforts of disinformation propaganda, or these people are earnestly responding to delusions they believe to be as real as the rest of my blog.  Check out ZLOJ's comments; a prime example.



Saunafool,  I would argue that any time prices fall below the cost to create the good, that prices are too low.  In the end however, I am not concerned about the price level but the direction and velocity, optimally increasing along with inflation and median wage at about 3% per year.   Also, consider for a moment how very different this is from limiting foreclosures (which I do not support).  This does not eliminate construction, it only places a temporary degrading restraint using market forces, not by negating legal contracts.... just holding our thumb over the end of the hose so the water has enough velocity to do its job.




ZLOJ :  I hardly know what to say to you:  I saw you bashing Obama in another blog, blaming him for all the money spent as he tries to spread the wealth, and now you suggest rent freezes and compensating renters for investors gains. I'm glad you feel so compelled get my 'motives fully exposed', but please at least use what I actually blog, and not what the voices in your head tell you I probably meant.     One thing you say is definately spot-on.  If any legislation along these lines were to come up for a vote, any attachment of your making would (hopefully) lead to defeat. Congratulations, you have the deft ability to alter a thing in such a way as to completely destroy its innate value.  Unfortunately, if this skill of yours had any innate value, I'm sure you have already destroyed it.

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#8) On December 26, 2008 at 6:05 AM, BGriffinFlorida (26.59) wrote:

Johnw106.  If you have seen this idea previously, please provide a link.  I would be very interested to see a similar proposal suggesting a time degrading supply constraint on residential housing as a viable solution to deflation...  really I am not being sarcastic.  Please send me a link.


Valueandprice: you are right.  i am also too wordy.. I'm going to submit a bare bones blog which just outlines the suggestion.  thank you.

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#9) On December 26, 2008 at 7:04 AM, starbucks4ever (89.16) wrote:

BGriffin, I had no doubt that you won't be interested in a proposal that would restore the economy in a way that does not let you profit at the others' expense. No big surprise here. I am also very well aware what it is that you perceive as the "innate value" of your proposal, and you're spot on, it it that "innate value" - your hand in my pocket, to put it bluntly -  that I am seeking to completely destroy).  Just one question. The "investor's gain" that you are seeking can be described in this unflattering way: you would like buy the house at the old price, then make sure that nobody else could do the same. What makes you think this would qualify as an "investment"? A closer analogy, IMHO, would be a 19-th century robber baron building a railway, then blowing up competitors' rails. Don't get me wrong, I am not against some legitimate moats, but this one is more in Al Capone's line...

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#10) On December 26, 2008 at 7:41 AM, starbucks4ever (89.16) wrote:

And yes, I'm flattered that you're reading my posts (my criticism must have touched a sore nerve, I guess), looking for inconsistancies. Sometimes I contradict myself. But not in this case. It will be really easy for me to justify my contempt for Obama while making it clear that I'm being perfectly consistent. If Obama were spending his own money, or even not his own, perhaps somebody else's, but to make a long story short, if he were spending the money that actually existed and spreading wealth around, I would have nothing but praise. But the fact is that he is spending money that doesn't exist yet. Printing presses don't "spread wealth", as you have put it. The right word is "redistribute". They redistribute wealth from those who don't have assets to those who have assets with lots of leverage - from consumers to shareholders and from renters to landlords. I hope you can see now that I don't "flip-flop" on issues and that I despise Obama for a good reason - for precisely the same reason that you like him.

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#11) On December 26, 2008 at 9:03 AM, BGriffinFlorida (26.59) wrote:

 Zloj, don't flatter yourself.  I was reading DWOT's blog 'commercial time bomb detonating'


when I unfortunately stepped in your commentary; like dog poop in the botanical gardens. 


On a related note;  you are far and away the person with the most responses in to my blogs.  I have long known I am a psycho magnet, perhaps this is my oportunity to discover some of the mechanics of this phenominon.  Perhaps you will share the motivations for your incessant need to  read an comment on blogs for which you express so much distain?  Do tell.  Hold me in thrall me with your acumen.

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#12) On December 26, 2008 at 9:12 AM, BGriffinFlorida (26.59) wrote:


I realize I won't win any prize in a battle of wits with an unarmed opponent.  There is no sport in it, no challenege and no fun.

On a completely different matter: you repeatedly contribute positions and quotes to me that I did not write. Not in this blog. Not in any other.  If you are doing this on purpose, I don't understand it.  On a more serious note, if you aren't doing this on purpose, you should consider a psych eval. you appear to be experiencing delusions.

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#13) On December 26, 2008 at 10:00 AM, outoffocus (23.12) wrote:

Im sorry but I'm going to have to agree with saunafool on this one.  First of all, I highly doubt that it cost builders $300k to build a home.  Theres probably no more than $50k worth of materials in most of these new single family homes. Plus most of the labor used was (lets be honest) from illegal immigrants so you cant blame labor costs either. Simple fact is housing is still way too overpriced.  Home prices increased in double digit percentages for at least 5 years. Do you really expect all of that to be corrected in just 1.5 years and a 30% drop?  There are still alot of first time homebuyers that are priced out of the market in alot of areas.  Once prices come down to incomes and credit loosens, then we can see a tangible bottom to housing prices.  Thats the pill that most current homeowners can't seem to swallow.  You can't price people out of the market and then expect housing prices to keep going up.  You can slow down housing starts all you want, if it remains cheaper to rent, people are going to continue to rent.

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#14) On December 26, 2008 at 10:26 AM, saunafool (< 20) wrote:


I assume we are in a phase where all real estate is local in that prices may be below replacement costs in some places. However, in the bubble cities, I don't think we are anywhere near that price. What I've seen from California and D.C. markets suggests that only a few foreclosure auction properties are going for really low prices.

Furthermore, it really doesn't matter what the replacement cost is if rents do not support the existing prices. If you can rent a house for $1000 per month, but buying costs $300,000, there are clearly too many houses available. Limiting new construction will not make the $300,000 number go higher. Not until all the rental units are filled and rents rise to something like $1500 per month or more.

Beyond that, if current prices are below construction cost, that alone should limit new construction. No need to have the government involved.

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#15) On December 26, 2008 at 10:37 AM, alstry (< 20) wrote:

Why penalize innovation and growth by taxing new construction?  What about those areas that have a scarcity of housing where new industry is increasing?  In effect, you would be inhibiting growth where it naturally wants to expand.

Does not sound very productive as far as the tax on new construction.........

The other ideas.....interesting.

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#16) On December 26, 2008 at 11:29 AM, BGriffinFlorida (26.59) wrote:

outoffocus, saunafool, alstry:

Thank you for the critique.  I really appreciate intellegent, coherent disagreement. 

Alstry:   I have a tendency to be abit too wordy and want to explain every aspect to the Nth degree, which turns readerrs off.  I have been attempting limit my explanations.   In this blog i refrained from explaining some of the characteristics of this type of supply contraint.  One of these characteristic is that very easy to manage for the  scarcity needed in individual areas, through mechanisms like silent seconds, rebates for housing types in need or housing with certain traits (energy efficiency or handicap accessable for example).  You are correct in pointing out that creating contraints in supply where it is not needed would have unwanted consequences.

Outoffocus and Saunafool,  I am in agreement with much of what you say.  however, i am suggesting attracting investment funds which do not have the immediate need to service debt and that can wait to benefit from capital appreciation  after several years, receiving no regular income and perhaps requiring some regular investment.  the type that feels comfortable investing in growth stocks with no dividends when appreciation is likely.  the supply constraint does not cause immediate scarcity, it causes a future perceived scarcity, with the prospects of housing needs outgrowing the inventory of housing available untaxed.  Prices and perceived future scarcity are strongly correlated.  People rush to the sotre and are willing to pay higher prices with an approaching hurricane, not because they thing there isn't any food at the store currently, but because they believe their won't be any in the future.

at to, if housing prices are below the cost to produce.  i agree that all real estate is local and there are definately pockets of wide variences, but on the whole, if builders could still build houses that they could sell at a profit..... they would still be building.....

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#17) On December 26, 2008 at 11:39 AM, alstry (< 20) wrote:

There is no better filter than the free market, once you start to meddle with with  the specifics, you create unintented consequences......

the key word is unintented.......

the market  adjust for is government meddling  which  often  creates  the imbalances  or exacerbates them....

at this point, we simply have to let  supply and  demand balance out...the process may not be fun....but niether is the morning after a hard night of partying.......and let me tell you it was one  hell of a party.

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#18) On December 26, 2008 at 12:09 PM, GNUBEE (< 20) wrote:


Regarding your diet analogy for delflation, it seems to be based on the assumption that you were not morbidly obese prior to weight loss. If your health is being jeaopardized by really being overwieght, juist losing 10lbs is not going to make you healthier. You will need consistent loss to get you back to a healthy wieght. While I am not saying delfation is not detrimental in a runaway scenario, it is not unhealthy to consistently lose 10lbs a month if you wiegh 400lbs.

So yes I am saying, with all the created wealth of recent, it was unhealthy. It is that excess wieght (wealth) that must be lost, for the body to function in a healthy state. 

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#19) On December 26, 2008 at 12:29 PM, outoffocus (23.12) wrote:


Well said.

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#20) On December 26, 2008 at 1:00 PM, SkyWestNM (65.39) wrote:


      While your opening dreams were a bit graphic for my tastes, I find your economic analysis that follows to be some of the best and simplest to understand for both my hypo and non-economic friends, to whom I shall refer them. Outstanding and thank you. 

     The well intentioned intrusion of any government on behalf of its people seems to often carry with it unintended and often unknown/unforeseen byproducts. And yet unfortunately, for a government to have no response at all will always carry with it the shadow of the post-event question "what did you do Mr/Ms Politician to stem the tide?" Thus the nature of our democracy is that we expect some form of action and immediate action, at that, from our leaders. We are not a patient people in this day of immediate gratification, communication and instant 1 minute managers. Oh yes, and we expect perfection even in these most complex of times. We aren't asking for much, huh? :)

        I'm not a fan of your tax proposal. As Alstry said, to negatively craft any proposal that would curtail a sector of economic growth in these times seems counterproductive. Yet I also agree with you that bailouts only prolong the inevitable demise of those who were failed at growing their businesses, in times of robust growth, with care and the wisdom that economic cycles require. The minority wise have known this for a long time.

       It is my belief that no amount of regulation/intervention will correct where we find ourselves, with the caveat that we can take some action to minimize forseeable damage. It will take time and reliance on the time tested businesses who have squirrelled away their acorns to survive the nuclear winter to come. Those consumers, too, who have saved and place their trust in other, more, stable currencies will benefit long term too.

       When the printing presses in this country finally stop rolling out currency that they have needlessly devalued, we shall see the short sighted wisdom of trying to stem the economic tide with our fingers. The forces of economics all academia and the rest of us have yet to fully understand. But this much we do know. The tide advances and recedes. And for politicians, nay, anyone, to believe they are able to control such awesome forces, is for them to believe themselves gods.


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#21) On December 26, 2008 at 1:49 PM, BGriffinFlorida (26.59) wrote:

Alstry, Gnubee, Skywest:

Thank you.  You have made me realize I need to go back and scratch my head some more.  I normally lean very libertarian, believing better is synonamous with small when considering government.  The threat of deflation has me concerned, but in the end, concern is not a reason for action in and of itself.

 I'm not throwing this idea out just yet, but I need to think on it for a while.

The thing that alwsys gives me reservation about my overriding belief that government should not mettle, is that often deciding mot to mettle, does not mean removing all influeince but instead refusing to consider the impact.

An example of this is Eugenics.  The horrors of Natzi Germany villified the idea of eugenics to such an extreme that even today, to mention considering the implications of any legistlation with regard to its effect on the rate of reproduction in various segments of society if political suicide.  And so we continue to refuse to look at the effects.  But this doesn't mean that  legislation does not have effects, the effects are enormous, we just mutually refuse to look.  

Government programs have profound effects on rates of reproduction in various segments of society.  Whould you say that the more successful and more well adapted individuals are bringing more childeren into the world? Since government programs are definately effecting reproductive rates, what are the programs biased towards... i.e. what qualities are we breeding for?

Without looking, it is impossible to know.  And this is what concerns me.  How many bad effects will we promote and never bring to public awareness because we have deemed it improper to consider....thinking that we are not mettling, but actually just not considering the biases we introduce....

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#22) On December 26, 2008 at 2:28 PM, GNUBEE (< 20) wrote:

If quantity of children were the variable you were looking for I'd say it's the opposite. The wealthy have less children, and provide more for them. Lower economic levels have more children per capita, and less to provide, sort of a turbo boost up and a double whammy down.

This applies to wealthy/poor countries as well as economic striations within those countires.

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#23) On December 26, 2008 at 2:54 PM, starbucks4ever (89.16) wrote:


I am not interested in arguing with your lunatic economic theories, but I will feel free to expose your lies whenever you write that white is black and black is white.

You have claimed that your sole purpose is to increase the price of housing to avoid deflation. I called your bluff by suggesting an alternative way to increase the price of housing that would have exactly the same effect, but without benefiting you personally, and sure enough, you instantly admitted that arranging for inflation WITHOUT wealth redistribution would destroy the "innate value" of your proposal.

I also took the liberty to summarize the gist of your post by removing the empty sentences and trivial appeals to emotions. Once the Freudean dreams and other verbal diarrhea was removed, it came down to a simple two-liner: a) BGriffin deserves to own a house that he bought tax-free, b) Those who come to the market after BGriffin should pay a tax to give BGriffin an "investor's return" that he wants. You made no reply. Know why? Because you knew it was true and becuase you felt you didn't know how to put a spin on this.

Those are the real issues that I brought up. You can think of me whatever the hell you want, frankly, I don't give a damn, but we still  have a freedom of speech (so far), and I can and will comment when I feel like it.

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#24) On December 26, 2008 at 3:23 PM, SkyWestNM (65.39) wrote:


We get it. Your point is made. You see BGriffin's ideas as self serving. No need to pile on with the flames. Got any more ideas how we can avert the disaster most of us see ahead to add?

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#25) On December 26, 2008 at 6:30 PM, starbucks4ever (89.16) wrote:


Frankly, I don't think there is anything to avert because I see no disaster if consumers can buy a house and not get robbed in the process. That will leave them with more money to spend somewhere else. So less money will be spent on housing, so what? More will be spent then on some other industries we don't have yet, for example, personal robots or space tourism or whatever. There will be new companies listed on Nasdaq, and plenty of investment opportunities for those who miss the old bubble. I don't think overpaying for ANY product is very good to the economy. See also my last post.

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#26) On December 26, 2008 at 8:36 PM, BGriffinFlorida (26.59) wrote:


Please stop attributing ideas to me, please stop paraphrasing my words.  You are getting it wrong.  This constitutes lying. Whether intentional or accidental, it is not right.

 People in CAPS are smart enough to read and understand the blog all by themselves.  They do not need a condensed/reworded version from you to grasp what i have said.

I don't mind if you comment.  Type all you want.  When you feel you need to reference somethign I have said, then just copy and paste..  Everyone will be able to agree you are not lying, if you copy and paste what I say.

Just to rephrase, so that you don't feel compelled to:

Commment all you want, but don't attribute ideas or summarize my ideas.  If you HAVE to quote me, then copy and paste.


...and one more time....

 Again, please refrain from summarizing or interpreting my writing, you can reference what I say by copy&paste-ing.


Thank you for playing.

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#27) On December 26, 2008 at 9:05 PM, BGriffinFlorida (26.59) wrote:

I appreciate very much the toughtful consideration many of you have given to this idea, and the many pertenent counterpoints made.

Of all this, I want to encourage those of you with an open and inquisitive mind, to study the known effects of a deflationary spiral, if you haven't already.  It is important to grasp the threat a deflationary spiral presents.  Counter-intuitively, a deflationary spiral makes everythign much less affordable, collectively and among individuals.  The reason for this is that a deflationary spiral results in a decrease in wages, through paycuts, and layoffs.  these are almost certain to exceed and gains made from contiually falling prices.

If you do not understand we face a serious threat, I urge you to be open to the possibility there may be some aspects of this you haven't considered, research the subject and then decide.

I am hopeful we will avoid a deflationary spiral.  i also think it is best to understand the threat, should it materialize. 


Another thing to consider:  Deflation is not about worth or value of goods.  Vatrious schools of thought in economics define it  in various terms with meanings not far from 'a creation of value of currency', but since ours is a fiat currency this is no more than a trick of semantics.  Viewing deflation as a pricing problem,(which can have woeful consequences if it reaches a point of significant self amplification) provides a more straight-forward and useful approach when a fiat currency is involved..

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#28) On December 26, 2008 at 9:44 PM, starbucks4ever (89.16) wrote:

Paraphrasing by itself is neither good nor bad. It can be put to bad use when the person distorts the original meaning. It can also be put to good use when the original source itself represents an attempt to hide the intended meaning under multiple verbal layers and the paraphrase captures the gist of the message. I think we can agree on this point. 

The comments are available for reading. If I did a clumsy paraphrasing, it should be apparent and you can always point out my mistake. Let's see if I owe you an apology.

1. I have described your comments as self-serving. If you rent a place and intend to buy in the future, paying the same 20% tax you would impose on other buyers, my apologies, your motives are in fact unselfish.

2. I suggested that boosting prices and benefiting from artificial scarcity don't have to go together, so one's opennes to suggested modifications would be a good litmus test to distinuish a genuine unselfish, if misguided, fear of deflation from a not-too-subtly-hidden request for a refill of one's personal ATM. You wrote back that a pure deflation-busting measure with no perks for current owners would destroy the "innate value" of your proposal. Was I then wrong to describe the gist of your proposal as self-enrichment rather than deflation-busting? Again, you can offer your own explanation of who wins and who loses under your proposal and why it is so essential that you must stand first in line to benefit from it.

In summary, while always open to reconsideration, I don't think at the moment that I will need to apologize for inaccurate paraphrasing.

Thank you for playing.


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#29) On December 27, 2008 at 10:42 AM, BGriffinFlorida (26.59) wrote:


Your reading comprehension skills (or lack there of) are the primary reason I am asking you to refrain from paraphrasing, interpreting, rewording or otherwise attributing statements or ideas to me.  You do not have some special insight, that other CAPS members lack.  You do not have a unique purview of my thoughts.

Your belief that some evil subversive plot is hidden beneath the surface of the actual words, is a paranoid delusion. It probably seems as real to you as the keyboard you type on, but it is not.

Your writing suggests that you believe you have special insight, and unique abilities, and that these compel you to take action to protect others from the perceived threat (me).  This trait is known as graniosity, and is a symptom found in those with bipolar disorder during states of mania or hypomania.  Grandiosity may also be present in psychopaths.

It might be a good idea to get a psych eval.  You may not think there is anythign wrong with you, but if your cheese really has slipped off your cracker, you aren't the best person to make that judgement.

Shakespeare was far better with words that I will ever be


My liege, and madam, to expostulate

What majesty should be, what duty is,

Why day is day, night night, and time is time,

Were nothing but to waste night, day and time


Therefore, since brevity is the soul o wit,

And tediousness the limbs and outwards flourishes,

I will be brief: your nobel son is mad:

Mad call I it; for, to define true madness,

What is't but to be nothing else but mad?

But let that go.


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#30) On December 27, 2008 at 4:30 PM, starbucks4ever (89.16) wrote:

Back to the point, dear Sir, back to the point :) You feel your brilliant proposal has been grossly misconstrued. Go ahead, expose the slanderous libels and let everyne see how harshly and unfairly that nasty opponent of yours, Zloj, has described your great ideas. The market is currently saying that BGriffin's main asset is not going up 20% next year. So that means the market is crazy. The government should now abolish that crazy market and create some other market in its place, the one that will give BGriffin his coveted 20%. Zloj doesn't think it makes sense, so Zloj must me crazy as well. BGriffin can't explain who is going pay him the 20% that he wants, so that means he has been misconstrued. He hasn't really said that. Well, the records show that he actually did. Never mind. We are not of the factinistas. If we say that BGriffin is a misundersttod guy with good intentions who's been quoted incorrectly, and repeat it a hundred times, people will believe it and nobody will remember what the original issue was. Ok, time for me to end the discussion. I said what I wanted to say, and your other statements don't bother me...have you been to the zoo? when a monkey throws stuff at you, you don't get offended... Sit down, dear Sir, relax, put your hands on your stomach, and repeat a hundred times: I need my 20%, I need my 20%, I need my 20%, they wouldn't give it to me, I need my 20%, oh why wouldn't they give it to me, I need my 20%, they are all paranoid, they are all paranoid, I need my 20%, they are all paranoid, they are all paranoid, they are all paranoid. :):):)

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#31) On December 27, 2008 at 8:24 PM, alexdryclean (< 20) wrote:

Constant meddling by Federal Reserve bank, and our politicians have led us to where we are. Everything is fake. Its like a musical chair, everyone is fine until the music stops playing. So we artificially pumped up the growth, created an auction environment for everything that has to do with housing, and we want to use the housing prices again to go on yet another round of the same thing. Game of smoke and mirror. A whole bunch of smart well connected people who have everything going for them, from the tax laws to bailouts get rich again, and the poor people end up holding the bag again. This whole thing is a scam !!!

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#32) On December 29, 2008 at 3:42 AM, BGriffinFlorida (26.59) wrote:

Look ZLOG, it isn't as if you have misrepresented one or two items.  It is constant persistent annoying racket of misrepresentation and misunderstanding.  i'm not interested in repeating your racket, in hopes you might grow an appreciation for sometignother than your own racket.

Basically Ithink you are far to disinterested in understanding what I am saying, and far to interested in continuing this disagreement.

Here are some basic truths.

I never attacked renters.

The supply constraint (in the form of a tax) is characterized by both a delayed onset, and by a diminishing size.  In the current glut of units available, this serves to both provide time such that any current inventory can be purchased tax free prior to the taxes onset, and so that the constraint, once in effect diminished gradually until it is no more.

I used 20% as an example.  It could be 5%, it could be 30%.  If you are focusing on the number you are missing the point.

Fiscal responsibility would suggest that stimulous that requires less expenditure is more prudent. All the tools being used so far are spending unprescidented amount.  Implementing plans that do not have these expenditures would be a welcome change.

the effects of deflationary spirals are well documented. Is seems to me that the point you and many others miss is that falling prices in a deflationary spiral do not magically skip the price one would pay for a unit o labor... meaning wages also decrease.  This is why things get less affordable instead of more affordable in deflationary spirals.

The common suggestion that 'real' jobs and 'real' wealth will be created if prices are allowed to fall to their 'true' value and not to some 'artifically' supported price, suggests to me a profound lack of understanding of the mechanisms of a fiat currency, as well as the FOMC.   I can also never get a list of jobs people consider to be 'real' jobs.  Do you have to make something physical?  Or do sugeons, teachers and housekeeper have real jobs.  If you marrry your housekeeper, should it decrease the GDP?


Prices are in the end determined by supply and demand, the proposed supply constraint is not a tax on existing home owners, it is not a tax on people buying exiting homes. For the same reason a gas-tax holiday wouldn't have reduced prices at the pump this summer, any affect on renters will be negligable. 


In the end, my proposal is selfish and self serving, because I will be much better off if we somehow side-step the deflationary spiral we are approaching.


Anyway, I'm asking you again, please do not paraphrase, enterperet, reword or otherwise attribute statements to me.  You may copy and paste if you feel compelled to reference something I said.  CAPS memebers have sufficient reading comprehension skills to read and make up their own minds 



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