Of course, now the government completely owns Fannie and Freddie, which just means that our Federal deficit will only grow larger as they issue more bad mortgage paper in a down economy as those people eventually default.
Ultimately, the Federal government can’t keep this up either. They have creditors as well. I also wouldn’t overstate this effect. Nobody’s buying MBSs anymore, so the collusion of mortgage brokers and bankers is over. Fannie may be issuing more bad paper, but it’s a minor effect.
Re inflation:
Negative CPI
The lesson from Japan
Housing prices:
Case-shiller composite
Westside of Los Angeles (notice a pattern?)
There may be frenzied buying in some areas, but as the bubble continues to deflate and wages continue to sink, the people who buy will realize the mistake they made in buying.
Of course, now the government completely owns Fannie and Freddie, which just means that our Federal deficit will only grow larger as they issue more bad mortgage paper in a down economy as those people eventually default.
Ultimately, the Federal government can’t keep this up either. They have creditors as well. I also wouldn’t overstate this effect. Nobody’s buying MBSs anymore, so the collusion of mortgage brokers and bankers is over. Fannie may be issuing more bad paper, but it’s a minor effect.
Re inflation:
Negative CPI
The lesson from Japan
Housing prices:
Case-shiller composite
Westside of Los Angeles (notice a pattern?)
There may be frenzied buying in some areas, but as the bubble continues to deflate and wages continue to sink, the people who buy will realize the mistake they made in buying. [/quote]
In the video I posted at the beginning of this thread Schiff talks about what you have posted. He explains it better then I ever could.
I have seen wages actually increase because the cost of such things as food, clothing, medical insurance have all increased, but that’s a discussion for another time.
Now the housing bubble will continue to deflate, and when people find out they are paying more then there house are worth they are going to walk away from them. The problem with this is the bank already put the money out their, and when the people who bought the house walk away then its very hard to get money back. That puts more money into the market causing inflation.
But then again I could be crazy, I am finding it hard to put into words what I am trying to describe is going to happen.
[quote]PRCalDude wrote:
I would like to see your data that states no one is getting these 0-.5% ARMS. The numbers don’t have to be big, all you need to add is a little more already on top of whats already there.
You made the claim that they’re blowing up another bubble by issuing more ARMs. I was asking what data you had to support that assertion. The link you gave me supported mine: that there are more waves of ARMs waiting to reset to carry more people into default.
You can not deny that a massive amount of money has been printed. How can Inflation not happen?
The banks have to actually lend that money to the economy for the money to be in circulation. They’re not doing so b/c there’s too much bad debt out there and they need a certain amount of cash on hand to keep from going under.
Also, if inflation does start to happen, the Fed can just raise interest rates, causing people to save more and thus shrinking the money supply.
[/quote]
At the end of this video Peter Schiff explains what would happen if they raise interest rates. I would really recommend listening to the whole 50 minute video I posted at the beginning of this thread.
I see that the banks are loaning out money. Cash for Clunkers is a great example. People had to get loans to pay for the cars.
All the banks have to do is spend the money, and when there banks start to collapse its what they are going to do.
[quote]In the video I posted at the beginning of this thread Schiff talks about what you have posted. He explains it better then I ever could.
I have seen wages actually increase because the cost of such things as food, clothing, medical insurance have all increased, but that’s a discussion for another time.[/quote]
Peter Schiff loses his clients money:
Clothing prices haven’t gone up. Food went up only slightly.
[quote]Cash for Clunkers is a great example. People had to get loans to pay for the cars.
[/quote]
Cash for Clunkers was paid for by the US government. The dealers made loans hoping to be repaid under the CFC plan. The government hasn’t been making its payments.
That doesn’t put more money into the market. That causes more credit contraction. If you walk away from your house, your credit goes into the toilet and the bank has an asset it needs to re-sell. If the mortgage is underwater at the time of the person walking away (as a good chunk of mortgages are now), the bank is losing money.
Point 1.Everyone lost money in 2008 but right now his clients are making money. He is a long term investor, and right now his clients are making a killing in foreign markets.
Point 2.You are missing what I am trying to say about cash for clunkers. When the people bought the cars most had to take a loan out to get it. That right there proves that money is being loaned out.
Point 3.Lets say someone buys a house and they take out a 120,000 loan. Over the next few years they get it down to 100,000. But at this same time lets say there house went down to only being worth 80,000. The person decides to walk away from the house. Now the bank is forced to sell this house at 80,000.
That’s 20,000 that was just added to the market, this is the best I can explain it.
He lost his clients a lot of money because he bet on gold and the foreign equities, which he thought would be decoupled from our markets. Basically, he’s trying to re-coup his clients money by scaring everyone into buying gold because he’s got a) a lot of money riding on gold and b) he’s been getting a lot of attention lately.
That was a one-time deal, and it wasn’t that much money. Also, a lot of the dealers haven’t been able to recoup their money from the government under that program, therefore, they’ve had to eat some losses.
No, the 20,000 stays with the bank, not with the people who walk away. The bank now has an asset it doesn’t want and is forced to sell at a deep discount (foreclosure auction) costing it a lot of money. The people who have walked away have their credit ruined, but at least they stop throwing good money after bad. Everyone loses except for those looking to buy a cheap house, ie the people who knew the entire housing boom was going to collapse eventually and kept their money in cash.
[quote]PRCalDude wrote:
Everyone lost money in 2008 but right now his clients are making money. He is a long term investor, and right now his clients are making a killing in foreign markets.
He lost his clients a lot of money because he bet on gold and the foreign equities, which he thought would be decoupled from our markets. Basically, he’s trying to re-coup his clients money by scaring everyone into buying gold because he’s got a) a lot of money riding on gold and b) he’s been getting a lot of attention lately.
Point 2.You are missing what I am trying to say about cash for clunkers. When the people bought the cars most had to take a loan out to get it. That right there proves that money is being loaned out.
That was a one-time deal, and it wasn’t that much money. Also, a lot of the dealers haven’t been able to recoup their money from the government under that program, therefore, they’ve had to eat some losses.
That’s 20,000 that was just added to the market, this is the best I can explain it.
No, the 20,000 stays with the bank, not with the people who walk away. The bank now has an asset it doesn’t want and is forced to sell at a deep discount (foreclosure auction) costing it a lot of money. The people who have walked away have their credit ruined, but at least they stop throwing good money after bad. Everyone loses except for those looking to buy a cheap house, ie the people who knew the entire housing boom was going to collapse eventually and kept their money in cash. [/quote]
Schiff did buy a lot of gold yes, and right now its doing pretty good. He also invests heavily in foreign markets. They too are doing good.
While it may have been short time yes, it still does prove that banks are giving out loans. I know this for a fact because I know a few people who just took out loans last week.
3.That 20,000 does not stay with the bank. It goes to whoever they bought the house from.
Gold is doing good, but it’s not beating what he paid for it with his clients’ money. That’s the real issue here. He needs it to do EVEN BETTER so he can make them money.
Which foreign markets are doing good? Are they up from where they were when he bought into them? I’m invested in foreign markets myself and, while they’re doing better than they were, they’re not doing better than what I paid to get it. In fact, I lost money betting that they would be de-coupled from what went on in the US. I unwittingly used part of Schiff’s strategy and took losses. You know what did do really well for me? Keeping the overwhelming bulk of my money in cash from 2005 onward. I didn’t make money, but I at least DIDN’T LOSE MONEY, which is the first rule of investing in anything: DON’T LOSE MONEY.
I misunderstood you. If the house is sold to an even greater fool at 120k, than the first owners make 20k. The people defaulting on the 120k note, though, lose whatever down payment and principle they’ve paid on it when they default. The bank, now the holder of the title, has to get rid of the house at auction. So while one party makes 20k, the money they’ve put into circulation is overwhelmed by the money PULLED OUT of circulation by the losses of the other 2 parties.
Some people are actually credit-worthy. Hint: they’re not they illegal immigrant drywallers from Chiapas that overwhelmingly took out these bad loans. The overall percentage of credit-worthy people right now is way, way, down. Wages are down. Unemployment is up. You’re less credit worthy if you make less money or don’t have a job. Since we know people were deficit spending based on the availability of cheap consumer credit, the people with substantial savings is very low, and you need quite a bit of money saved up if you want to be credit-worthy under traditional lending standards.
John, I have been very busy this week so haven’t checked in much.
Just a few quick points.
As far as cash for clunkers. Take for example a 2010 Dodge Caliber. Lets say it listed for $18,000.00. Now, you trade a $500 clunker in for $4500.00. Chrysler steps in and matches it with $4500 rebate. When it is all over, you pay $9000 for a car that was previously $18,000.
This is DEFLATION.
In the housing example you gave above, $1 will now buy you 50% more house than it would have the year the first note was taken out. Again, this is pure deflation. The $40,000 is not still floating around “out there.” It is being reconciled on the banks books as they absorb the write down and take the loss.
Read the articles that PR and I posted above. Consumer credit is contracting at an astounding rate. Consumers are pulling in their horns. All this is in spite of cash for clunkers. As consumers curb their spending habits, producers have to compete harder and harder for a shrinking pool of consumer dollars. They do this by cutting prices, again deflation.
[quote]JEATON wrote:
John, I have been very busy this week so haven’t checked in much.
Just a few quick points.
As far as cash for clunkers. Take for example a 2010 Dodge Caliber. Lets say it listed for $18,000.00. Now, you trade a $500 clunker in for $4500.00. Chrysler steps in and matches it with $4500 rebate. When it is all over, you pay $9000 for a car that was previously $18,000.
This is DEFLATION.
[/quote]
I’m not so sure this is deflation. While the consumer spends less money, the car manufacturer is still receiving the same amount as if it sold the car simply with a $4500 rebate incentive. Car manufacturers give rebate incentives all the time to boost sales, they don’t represent deflation any more than the C4C program does.
Edit: Not to mention, considering the federal government probably has to print that extra $4500, that would represent inflation due to increased money supply (that is actually being given to the car manufacturer, unlike the money given to banks which they are holding).
You are confusing different aspects of the issue. We are discussing deflation, which is the lowering of prices paid by the consumer for goods (and services).
Monetary supply is one of the tools used to combat inflation or deflation and to varying degrees of success.
Both examples I gave above are examples of DEFLATION.
[quote]JEATON wrote:
You are confusing different aspects of the issue. We are discussing deflation, which is the lowering of prices paid by the consumer for goods (and services).
Monetary supply is one of the tools used to combat inflation or deflation and to varying degrees of success.
Both examples I gave above are examples of DEFLATION.
Again, don’t confuse cause and effect. [/quote]
deâ??flaâ??tionâ??â??/d�ª�?fle�ª�?�?n/ Show Spelled Pronunciation [di-fley-shuhn] Show IPA
Use deflation in a Sentence
See web results for deflation
See images of deflation
â??noun 1. the act of deflating or the state of being deflated.
2. Economics. a fall in the general price level or a contraction of credit and available money (opposed to inflation ). Compare disinflation.
I’ll stop confusing cause and effect if you stop making up your own definition for deflation.
Deflation is the lowering of GENERAL price levels OR drop in the level of credit. They’re one in the same and have nothing to do with 1 product in particular (cars) or how much the actual consumer is spending. To equate the government rebate with deflation would be like equating my big brother (see what I did there?) buying me a car to deflation. I didn’t pay anything, so prices are dropping!
I’m not even arguing against deflation, in fact, I think there has been some level of deflation over recent months. However, your car example is not deflation.
Sorry to poke my head in here, I admit I stand a chance to get ass raped in these threads.
[quote]LankyMofo wrote:
JEATON wrote:
You are confusing different aspects of the issue. We are discussing deflation, which is the lowering of prices paid by the consumer for goods (and services).
Monetary supply is one of the tools used to combat inflation or deflation and to varying degrees of success.
Both examples I gave above are examples of DEFLATION.
Again, don’t confuse cause and effect.
de�¢??fla�¢??tion�¢??�¢??/d�?�ª�??fle�?�ª�??�??n/ Show Spelled Pronunciation [di-fley-shuhn] Show IPA
Use deflation in a Sentence
See web results for deflation
See images of deflation
�¢??noun 1. the act of deflating or the state of being deflated.
2. Economics. a fall in the general price level or a contraction of credit and available money (opposed to inflation ). Compare disinflation.
I’ll stop confusing cause and effect if you stop making up your own definition for deflation.
Deflation is the lowering of GENERAL price levels OR drop in the level of credit. They’re one in the same and have nothing to do with 1 product in particular (cars) or how much the actual consumer is spending. To equate the government rebate with deflation would be like equating my big brother (see what I did there?) buying me a car to deflation. I didn’t pay anything, so prices are dropping!
I’m not even arguing against deflation, in fact, I think there has been some level of deflation over recent months. However, your car example is not deflation.
Sorry to poke my head in here, I admit I stand a chance to get ass raped in these threads.[/quote]
The Austrian economists define inflation and deflation as expansions and contractions of the money supply either through printing of money or interest rates and lending. The CPI changes are just a side-effect.
Maybe I would have done better not to include the “don’t confuse cause with effect” statement at the end. It might have been taken as though I was looking for an argument when that is not the case. John and I started this thread as a place to track real world phenomenon to support our beliefs. His, that we are headed for inflation. Mine, that we are in for deflation.
We simply share info and some friendly ribbing. PRCaldude is a welcome participant, with well backed opinion and sources. As are you Lanky.
I am not trying to split hairs, however. There are so many variables and unknowns that I can assure you that no one posting hear is going to hit the mark due to anything other than luck.
You do bring up some interesting points though. I was trying to keep it simple, and did not mention that a $4500 rebate on top of a huge government subsidy is a bad sign, and to me indicative of deflation in the system.
Another thing to think of is that even though the gov has pumped huge amounts to money to the banks, if they are holding on to it in anticipation of further beatings in residential and commercial real estate, that money is not, in any real sense, circulating.
Also, and very important to the previous posts, we were talking in context to the Bloomburg article PR had linked to and that I linked from Yahoo Fin. I am not sure that you read it, but would encourage you to if you have not. A contraction of credit is definitely happening. Whether it is caused by banks not lending or customers unwilling to borrow is a separate issue.
[quote]JEATON wrote:
Maybe I would have done better not to include the “don’t confuse cause with effect” statement at the end. It might have been taken as though I was looking for an argument when that is not the case. John and I started this thread as a place to track real world phenomenon to support our beliefs. His, that we are headed for inflation. Mine, that we are in for deflation.
We simply share info and some friendly ribbing. PRCaldude is a welcome participant, with well backed opinion and sources. As are you Lanky.
I am not trying to split hairs, however. There are so many variables and unknowns that I can assure you that no one posting hear is going to hit the mark due to anything other than luck.
You do bring up some interesting points though. I was trying to keep it simple, and did not mention that a $4500 rebate on top of a huge government subsidy is a bad sign, and to me indicative of deflation in the system.
Another thing to think of is that even though the gov has pumped huge amounts to money to the banks, if they are holding on to it in anticipation of further beatings in residential and commercial real estate, that money is not, in any real sense, circulating.
Also, and very important to the previous posts, we were talking in context to the Bloomburg article PR had linked to and that I linked from Yahoo Fin. I am not sure that you read it, but would encourage you to if you have not. A contraction of credit is definitely happening. Whether it is caused by banks not lending or customers unwilling to borrow is a separate issue.[/quote]
You have made some good points here. Even though the gov is pumping money into the economy (inflationary pressure) corporations and banks are holding onto this money in low risk accounts (deflationary pressure). The paradox of this is that though this shows an increase in the money supply that mimics inflation it is actually the defaltionary pressure of uncirculating money that is hurting the economy. The real problem is if the Fed reads the increased money supply as a signal of inflation and begins to raise interest rates, watch out.
Also ask yourself why the stock market is going up. I’m no analyst but I would bet it is due to a lot of institutional investors parking their money in the companies that are hording cash instead of loaning it out to businesses that want to expand.
What can the government due to break this cycle? REDUCE CAPITAL GAINS TAX. But they won’t. The administration is in a punish greedy capitalists mode. This uncertainty is causing this money hoarding deflationary phase.
[quote]JEATON wrote:
Maybe I would have done better not to include the “don’t confuse cause with effect” statement at the end. It might have been taken as though I was looking for an argument when that is not the case. John and I started this thread as a place to track real world phenomenon to support our beliefs. His, that we are headed for inflation. Mine, that we are in for deflation.
We simply share info and some friendly ribbing. PRCaldude is a welcome participant, with well backed opinion and sources. As are you Lanky.
I am not trying to split hairs, however. There are so many variables and unknowns that I can assure you that no one posting hear is going to hit the mark due to anything other than luck.
You do bring up some interesting points though. I was trying to keep it simple, and did not mention that a $4500 rebate on top of a huge government subsidy is a bad sign, and to me indicative of deflation in the system.
Another thing to think of is that even though the gov has pumped huge amounts to money to the banks, if they are holding on to it in anticipation of further beatings in residential and commercial real estate, that money is not, in any real sense, circulating.
Also, and very important to the previous posts, we were talking in context to the Bloomburg article PR had linked to and that I linked from Yahoo Fin. I am not sure that you read it, but would encourage you to if you have not. A contraction of credit is definitely happening. Whether it is caused by banks not lending or customers unwilling to borrow is a separate issue.[/quote]
Yeah, man, I’m not hear for arguments, either. Economics and pretty much anything related to finance has always interested me and I probably stand to learn more from these threads than anyone. Like I said, I stand a chance to get assraped in threads like this, but I still like to jump in here and there as it’s something I’m interested in.
As for the main point of this thread, I think you are both right to a degree. As long as companies struggle with their sales numbers, they will continue to set lower prices and advertise different sales in order to get traffic into their stores. However, once the “extra” money finally gets ciculating throughout the economy, prices should (and will) rise. The only problem is predicting when this will happen, especially for someone like me who is in the market to buy a house. I’m trying to time it just right so I get the cheapest price possible along with a good interest rate. At some point, the deflationary period will reverse and the predicting when this will happen is anyone’s guess.
I think we’re having bear market rallies. During the 1930s, the stock market continued to climb but the United States had the largest industrial base in the world, thus the companies listed on the stock exchange had real value. Nowadays, this is not the case. We’re overwhelmingly importers, thus we need consumption to go back up to pre-crash levels in order to get corporate profits back to where they were. The problem is that the only way we can get consumption up is to get people using consumer credit again. Real wages haven’t climbed in 10 years at least, so people aren’t making more money. But there’s already so much debt out there and the banks are so far in the red that there’s really no way to get people into more debt to get consumption back up.
Of course, we could try bringing manufacturing back to this country or at least reducing the burden on businesses to operate here so we can get some more job creation. This would be a real fix to the problem.
