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JakilaTheHun (99.93)

The Hunnish News Invasion: Inflation/Deflation + Housing + Environment

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April 06, 2010 – Comments (9)

National Housing Survey and RE in a Bear Market

Link -Seeking Alpha

Felix Salmon laments the latest figures that suggest that Americans still overwhelmingly believe high levels of home ownerships are necessary for a vibrant economy.  I feel his pain.  I'd actually make the argument that home ownership in America not only creates problems such as the recent bubble, but also creates economic inefficiencies in an age where most people work outside of the home.  It seems to me that specialists could more efficiently provide a lot of services that homeowners get stuck with. 

Btw, I agree that the housing bear will last for several years.  Most RE busts last at least 6 years and this was the mother of all RE bull markets, so this could be potentially even be an 8-10 year RE bear market. With Federal support slowly being withdrawn, a massive backlog of foreclosures, and rising interest rates (b/c they can't move downwards much more, can they?), I'd be surprised if housing bottomed before 2012 and it may take even longer than that.  Houses are still expensive on a historical basis and people are still under the delusion that their houses' values will come back soon.

 

Housing and Cognitive Dissonance on Wall Street 

Link - Seeking Alpha

Yet another excellent article on housing.  I'd put this near the top of my recommendation list for financial readings this year.  

 

Who Controls the Bank of Japan?

Link - Seeking Alpha

And speaking of "top recommendations", this article falls into that category, as well.  The article deals with the Bank of Japan's Dilemma in the Aughts and how no matter how much liquidity they pumped into the system, the result was the same --- no significant inflation.  The article really provides a sobering view of what the US could face over the next 5-10 years.  

 

Inflation Low on List of Worries, Says Dallas Fed Chair

Link - Wall Street Journal

Chair of the Dallas Fed, who was critical of the Fed's relunctance to up interest rates during the 07-08 inflationary episode, talks about inflation and how he views it as an unlikely problem for the next few years.  

 

Deflation on the Prowl

Link - The Telegraph

Another article suggesting that deflation is a bigger concern right now than inflation.  The author also criticizes the Fed for eliminating the M3 money supply measure, which seemed to be a very prescient indicator of what was about-to-come back in '05 and '06.  The Fed not only ignored the warning signal, but decided that M3 was an irrelevant measure, a big mistake according to the author.  Now, M3 seems to suggest the exact opposite --- it's crashing downwards like a plane without any engines.  

 

Taxes, GDP, and Over-Taxation

Link -Money Illusion

Excellent piece on the topics in the article title.  

 

EPA Tightens Rules on Mountain-Top Removal Mining

Link - Smart Money

Good move by the EPA.  I'd say we need to go a step further and gradually ban mountain-top removal. Not only are the environmental hazards tremendous (groundwater contamination is a *major* issue), but it basically is a wholesale destruction of objects of significant cultural value in the Appalachia region.  For those who want to look at this from a market perspective, I'd argue that one of the major problems with this type of mining is that it passes tremendous costs onto the taxpayers, which means the miners profit at taxpayer expense.  The miners should absolutely be subject to heavier regulation and higher costs to reimburse the taxpayers for their wanton destruction.  

 

Mexico City's Air Quality Improves

Link - Washington Post

It's not all bad news on the environmental front as Mexico City's air quality has been improving over the past decade.  China and India should consider modeling themselves more after Mexico City in this regard.  

 

Interactive View of Unemployment Since 1948

Link - WSJ

 

Dan Quayle's Whiny Editorial

Link - Washington Post

Last, and almost certainly "least", is this editorial from Dan Quayle that appeared in the Washington Post recently.  It's one of the most infuriating pieces of whining I've ever read and it reminds me why the two party system in America is so thoroughly broken. 

Essentially, Quayle blames Perot voters for Clinton's election.  This was f@#$ing 16 years ago --- get over it you whiny jacka@@!  He claims he doesn't want Tea Party members to make the same mistake --- that is, abandon the sacred Republican Party.  Let's just ignore the fact that the Republicans have been every bit as bad as the Democrats in the "big government" department over the last two decades and that the GOP is probably more to blame for our budgetary nightmare than the Democrats, as well.  

No, I'm not happy with the Democrats, either, but I do find Quayle's editorial almost insulting.  If anything, I think our nation missed a golden opportunity to displace the two party system and set ourselves on a more responsible pathway when Perot got relegated to 3rd Place in the 1992 election. 

If anything, the lesson shouldn't be to mindlessly support the Republicans (or alternatively, the Democrats).  Rather, the lesson should be to support a third party candidate with momentum even if they are trailing and it hurts your choice of "lesser of the two evils".  There's a good chance that we wouldn't be in nearly as big of a mess if Perot had been elected for 8 years rather than Clinton (or the two Bushes).  

9 Comments – Post Your Own

#1) On April 06, 2010 at 3:52 PM, vriguy (79.74) wrote:

1 extra rec for the final item.  Both parties, aided and abetted by the voting public, have recklessly spent us into this mess. 

 

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#2) On April 06, 2010 at 11:10 PM, Option1307 (30.12) wrote:

(from Who Controls the Bank of Japan?)

When fiscal consolidation was attempted in 1997 and 2001 under the Hashimoto and Koizumi governments, it came too early, according to Koo. The result was that the economy suffered, tax revenues fell and the budget deficit actually increased. Koo therefore believes that fiscal stimulus should remain in place until it’s clear that companies have repaired their balance sheets and started borrowing again instead of paying down debt. That’s the signal for an exit strategy to be employed.

To be clear I know nothing of Koo and his actual stance but this point strikes me as almost ludicrous. Is he really suggesting that companeis should just resume borrowing money in order to keep the shell game alive? Instead of, I don't know, actually redcuing their already adquired debt. Really? I get his point and understand his logic behind it. But with that being said, he seems to be taking it too far. He goes on to criticize Bernake (rightfully so!) about not correctly regulating banks etc. and letting bubbles grow too large, yet at the same time he suggests stimulus should be continued and companies should borrow more regardless of their already large debts. How do these two jive? They seem contradictory to me.

Btw, I really like his example of the "failed" inflation from 2001-06 in Japan,

I mean there are no borrowers. And if the money multiplier is zero negative, what can monetary policy do?

I am well aware of the lost decade (errrr 20+ yrs.) in Japan, but his discussion of this topic was intersting and extremely relevant to America today. I know many Fools have debated this topic before, but it's always good to see the "other" side (read, no inflation) again from time to time to keep things in perspective.

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#3) On April 06, 2010 at 11:32 PM, Option1307 (30.12) wrote:

 from EPA Tightens Rules on Mountain-Top Removal Mining

The industry said that the regulation could cost jobs and affect other industrial activities in Appalachia. The region accounts for about a third of U.S. coal production, with 40% of that from mountaintop removal and other forms of surface mining.

I know very little about coal mining and the appalachia in general, but this does seem like it will have a significant effect of the local economy there. I'm not saying we shouldn't have higher environmental standards, but with their local economy already down in the pits, is this really the opportune moment to instil these new policies? Does this just further crush this region of the US? I think you are origianlly from this area (I sort of recall you saying this), thoughts on this Jakila?

 

 

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#4) On April 07, 2010 at 2:07 AM, JakilaTheHun (99.93) wrote:

Option1307,

It probably will have a significant effect on job in places where it's used.  It is more limited to West Virginia and Eastern Kentucky to my knowledge.  However, I'd argue that it's an unsustainable practice.  It might create jobs now, but it's no different than how homebuilding and banking were creating jobs in the Aughts.  Long-term, it will do much more harm than good to the regions where it is utilized.  It's completely possible that people will have to deal with the effects of mountain top removal mining for generations and the costs are going to greatly exceed any short-term benefit of having more jobs.  

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#5) On April 07, 2010 at 12:02 PM, leohaas (31.21) wrote:

Excellent comment on the Quayle wail!

If I could do anything to get rid of the two-party system I would. Unfortunately, it requires a change in the way we elect Congress. Districts with one representative (winner-takes-all) are the foundation of the two-party system. Only a system that awards a percentage of seats based on percentage of votes (that is, a party with X% of the vote gets about X% of the seats) can change this...

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#6) On April 07, 2010 at 12:38 PM, JakilaTheHun (99.93) wrote:

leohaas,

I definitely agree with you that eliminating the winner-take-all system would end the two party strangehold.  However, I do believe there would be a simpler way --- mandate that all Federal elections use instant-runoff voting (IRV).  If we used IRV rather than the current pluarlity-takes-all system, that would put an end to the "wasting your vote" argument that normally dooms third parties.  Certainly, the Democrats and Republicans will still have all the advantages, but people would no longer fear voting third party under IRV.

Of course, the odds that the Dems and Reps are going to relinquish their strangehold on Congress might not be that great.  If it were put to a floor vote in Congress and the media followed it closely, it might potentially pass, because there would be so much scrutiny on the process.  However, the real way the Dems and Reps kill things like IRV is by never allowing them to be put up for consideration to begin with.  I'm sure there are probably a few people in Congress who have pushed IRV, but have been unsuccessful in gaining traction in having it considered. 

 

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#7) On April 08, 2010 at 5:18 PM, DragontoadX (< 20) wrote:

Richard Koo's submitted testimony linked from the "Who Controls the Bank of Japan?" article was excellent

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#8) On April 08, 2010 at 9:14 PM, sentinelbrit (82.32) wrote:

I just don't know about all this negative talk about housing. All these "facts" are known by the market. They are discounted in share prices. The market obviously expects a different outcome from the Shulman's. Now, the market may be wrong. It may be discounting a recovery or a more stable housing market that is not going to come. I am not as bearish as Shulman.

I lived in the UK where housing booms and busts are much more common than in the US and the economy can recover without housing making a recovery or staying in the doldrums for a long period of time. Perhaps the greatest surprise in the unfolding economic reocvery will be the fact that it takes place against an anaemic housing recovery.

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#9) On April 09, 2010 at 9:05 AM, JakilaTheHun (99.93) wrote:

sentinelbrit,

The problem goes a bit deeper than housing itself.  Whether or not the homebuilding industry does well is irrelevant (in a sense) to an economic recovery.  However, the real problem is that housing prices have fallen so much that they put massive strain on banks' balance sheets, which then in turn, creates credit contraction.  So long as there is credit contraction, economic growth is going to be stagnant.  If housing prices continue to fall, the situation only gets worse for the banks.  

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