Dec212012
The federal reserve’s printing money may save housing but at a very high cost
Back in the early 1970s, Richard Nixon took America off the gold standard. It was a watershed moment in monetary policy the implications of which were not recognized at the time. As long as we were tied to a gold standard, theoretically, we could run out of money. We couldn’t spend any more money as a country than what we had in gold to back it up. Once we were off the gold standard we ceased to be a currency user, and the United States became a currency issuer. Unlike a household or an individual that can run out of money, a currency issuer can simply print more. The only restriction on a currency issuer is inflation. If they print too much money, it devalues it, and goods and services produced outside the economy of the currency issuer become much more expensive, and even those goods and services produced within the economy can rise in price if more currency is chasing after it.
Right now, the money being printed by the federal reserve is being offset by the destruction of currency through deleveraging. When deleveraging occurs and there is little or no asset value backing it, that money is permanently removed from circulation. Basically, it is unprinted. The huge amount of mortgage and credit card write offs the banks continue to perform are counteracting the inflationary effect of the federal reserve’s activity — for now.
But what happens if the federal reserve continues to print money after deleveraging has hit bottom? Won’t all that extra money floating around the system inevitably result in price inflation?
The federal reserve is usually deliberately vague in its policy making in order to keep the flexibility to react to changing conditions. That’s why the new statements from Ben Bernanke pledging to print money until unemployment falls is so surprising, and unusual. If he sticks to his word — assuming he is still in charge in the future — we will have high inflation. It’s only a matter of when.
Fed ties rate pledge to a threshold as new stimulus set
By Pedro da Costa and Alister Bull
WASHINGTON | Wed Dec 12, 2012 6:58pm EST
(Reuters) – The Federal Reserve, announcing a new round of monetary stimulus, took the unprecedented step on Wednesday of indicating interest rates would remain near zero until unemployment falls to at least 6.5 percent.
It was the latest in a series of unorthodox measures taken by central banks around the world as major economies face erratic, sub-par recoveries from the global financial crisis and recession of 2007-2009.
The chart of deleveraging above explains exactly why the economic recovery has been so weak. Consumers are paying down debt instead of buying goods and services. Or to be more accurate, the banks are writing down debt rather than giving new money to Ponzis who would blow it and stimulate consumer spending.
The Fed said it expects to hold rates steady until its new threshold on unemployment was reached as long as inflation does not threaten to break above 2.5 percent and inflation expectations are contained.
Well, which is it? If inflation rises before unemployment falls, what will the federal reserve do? I suspect they will keep the pedal to the metal and watch as inflation rises much higher than 2.5%.
Fed officials, who cut their forecasts for both economic growth and inflation next year, also replaced an expiring stimulus program with a fresh round of Treasury debt purchases.
“The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Fed’s policy-setting panel said in a statement at the close of a two-day meeting.
Sufficient policy accommodation? Don’t they really mean printing money?
Fed officials committed to purchase $45 billion in longer-term Treasuries each month on top of the $40 billion per month in mortgage-backed bonds the U.S. central bank started buying in September. They also repeated a pledge to keep pumping money into the economy until the outlook for the labor market improves “substantially.”
The Fed will fund the new Treasury purchases with an expansion of its $2.8 trillion balance sheet. Under the “Operation Twist” program, the Fed bought an identical amount but paid for them with proceeds from sales and redemptions of short-term debt.
Some policymakers view actions that expand the Fed’s balance sheet as economically more potent than those that do not. However, Fed Chairman Ben Bernanke told a news conference that the stimulus would remain about the same, given that the central bank is still purchasing a combined $85 billion per month in longer-term securities.
I know this seems only tangentially related to real estate, but the federal reserve’s program of buying mortgage-backed securities is supporting our record-low interest rates. And as I pointed out yesterday, it’s these low interest rates that are sustaining the recent so-called market recovery. If the federal reserve changes its policies, house prices will be strongly effected.
A very astute observation
We are blessed on this blog with many insightful commentators who share their insights in the comments each day. A recent comment by Carl Pham was relevant to today’s discussion, and I am sharing it with you here.
Carl Pham says:
December 15, 2012 at 4:04 pm
The ultimate result of all this monetizing of debt, both public and private, is just to inflate it away. That’s what’s always happened, since the time of Constantine.
The price of houses will not fall, or at least not fall precipitously. Debts, both public and private, will not prove onerous. But the prices of things other than houses and T-bills will rise steeply, and wages will not keep up. The net results will be that savings are destroyed — essentially looted to pay off debts, both your own and those of others — and the standard of living of most people declines. You won’t be underwater on your $650,000 house any more, and your salary will have risen to a handsome $100,000 — but milk and gasoline will be $18 a gallon, a decent shirt $300, and a quick meal at McDonald’s $25, so you’ll feel (and actually be) less well off than you were. That’s how the debt will be paid.
Unfortunately, the effect of inflation will not be borne evenly. Those wage earners whose salaries do not rise with inflation will be hurt most. They will see a dramatic decline in their standard of living as higher costs for goods and services eat into their meager paychecks.
And arguably it’s fair in the crudest sense. Essentially, we just pile all our debt in a big honking steaming mess, and then each of us is forced to choke down a roughly equal share of it. Obviously this sucks if you’ve been a careful saver, but if you have been you’re in the minority, and the thing about a democracy is the choices it makes usually benefit the majority, whether or not that makes moral or practical sense.
This is why the under-appreciated genius of the Founders is not that they figured out how to set up a democracy — how to do that has been obvious since ancient Greece — but that they figured out a way to set up a democracy with profound restrictions on the power of the majority, so that individual entrepreneurship and brilliance, always a rare flower, could not be prematurely plucked by a greedy and ignorant majority. It worked for a very long time. But for most Americans these days, a visceral fear of the majority and its clumsy whims or ignorant prejudices is no longer a daily occurrence. We have succeeded at the “melting pot” too well — we no longer fear our neighbor’s essential craziness. Instead of mutually agreeing with him to mind our own businesses, we attempt to build common cause with him (to screw over and steal the goodies of the neighbor down the block, or one street over).
We need more mutual distrust. We need to forget how to work together, and start working individually, and start wanting to be left the hell alone while we do.
Amen, Carl. Amen.
Look at that growth in student debt on the charts. I also heard, but I don’t know if it’s true, that when inflation occurs it happens very fast, you basically need to be prepared before it happens.
I have family in the ranching or business in Texas. Most of the time it was side business, it like our rentals here. In the 70’s-90’s they slowly expanded their lands or cattle when land was $300 an acre. Now, it’s $2,500 (in a bubble) however, the commodities produced by the land has skyrocketed. I wonder if these first signs of the coming inflation.
“Look at that growth in student debt on the charts…”
Whenever I start feeling cheated for buying a townhouse in 2007, I remind myself how lucky I and my wife are at timing the education cost bubble. We both got through undergrad in the CSU/UC system without any debt, when tuition was far more reasonable. We also got through grad school right before tuition there began to skyrocket!
We have a current “loss” on residential real estate of ~$100k. If we’d gone to grad school just 5-10 years later, we’d have $200k+ more in student loans.
With the new student debt forgiveness legislation, those with huge debts don’t have to pay it all back. It’s another bailout. Some of those with huge debts will come out okay.
I remember finishing graduate school with about $30,000 in student loan debt, and I thought that was a lot. I too am glad I completed my education in the early 90s before everything got really expensive.
40% of foreclosure evictions were renters
Industry data suggests by the end of 2010, more than 5 million homes had been foreclosed as a result of the recent housing crisis, and some anticipate another 8 million to 10 million more foreclosures will make their way through the pipeline over the next few years.
However, as the National Law Center on Homelessness and Poverty points out, this is only part of the picture. About 20 percent of all foreclosed properties have been rental properties, according to a recent NLCHP report.
In fact, about 40 percent of all families evicted in foreclosure are renters not owners, according to NLCHP.
“Renters are innocent bystanders caught in the crossfire of the foreclosure crisis, becoming vulnerable to homelessness through no fault of their own,” NLCHP stated in its report, Eviction (Without) Notice: Renters and the Foreclosure Crisis.
In 2009, the federal government enacted the Protecting Tenants at Foreclosure Act (PTFA), which is set to expire at the end of 2014.
Under PTFA, tenants are allowed to continue living in their rental properties throughout the duration of their lease, even if their rental property is foreclosed. If a tenant has a short-term lease or no lease, the new property owner must give a 90-day notice to all tenants before eviction.
NLCHP, however, found evidence that “violations of the PTFA are widespread across the country,” and tenants are often uniformed about the law protecting them.
Often, new property owners fail to communicate with tenants or provide “illegal, misleading, or inaccurate written notices,” according to an NLCHP survey.
At times new property owners fail to maintain the property for tenants, and NLCHP also found instances of “harassment from real estate agents, law firms, or bank representatives.”
As a result of its findings, NLCHP recommends congress appoint one federal agency to enforce PTFA. The group also advises bank regulators to monitor compliance with the law to ensure tenants are protected.
NLCHP also encourages states to enact increased protections for renters when their landlord faces foreclosure.
Furthermore, as NLCHP expects the foreclosure crisis to continue for the next several years, the group advises congress to make PTFA a permanent law, rather than a temporary one.
Mortgage rates rise on inflation concerns
Mortgage rates went in both directions this week as investors mulled over recently released data on inflation and housing construction.
According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed-rate mortgage (FRM) averaged 3.37 percent (0.7 point) for the week ending December 20, up from the previous week’s 3.32 percent. On the other hand, the 15-year fixed average eased down a bit, falling one basis point to 2.65 percent (0.7 point).
Both measures remain near their record lows of 3.31 percent and 2.63 percent, respectively.
Interest rates on adjustable-rate mortgages (ARMs) showed similar mixed movements. The 5-year Treasury-indexed hybrid ARM averaged 2.71 percent (0.7 point) this week,
up slightly from 2.70 percent previously. The 1-year ARM averaged 2.52 percent (0.4 point), falling back from 2.53 percent.
While Freddie Mac reported mostly muted rate movement, other sources saw much more activity. Bankrate’s weekly national survey of mortgage rates saw its biggest week-to-week increase since March, with the benchmark 30-year fixed averaging 3.62 percent—a 10-basis point jump. The average 15-year fixed rate also increased (though more modestly), rising four basis points to 2.89 percent.
Meanwhile, the 5-year ARM rose four basis points to 2.78 percent, its highest level since August.
Only 16 percent of analysts approached for the December 13 survey predicted a rise in rates; the remainder were split evenly between “down” and “unchanged.” This week, 67 percent of panelists anticipate a rate increase as investors approach the year’s end on a hopeful note, Bankrate doesn’t seem to think the spike will last.
“While this newly announced bond-buying program is designed to keep long-term interest rates and mortgage rates low, the initial reaction was opposite because of concerns that the Fed’s printing of more money would eventually lead to higher inflation….”
GSEs May Have Lost More than $3B in Rate-Rigging Scandal
Fannie Mae and Freddie Mac may have lost billions of dollars as a result of borrowing rate manipulation, according to a report from the Office of the Inspector General of the Federal Housing Finance Agency (FHFA-OIG).
The banking world was rocked in late June as it was revealed that traders at Barclays spent years rigging the London Interbank Offered Rate (Libor), a global interest rate at which banks lend money to each other. Investigations have been underway since that time to uncover the roles any other banks might have played in the scandal—so far, only Barclays and UBS AG have reached settlements to resolve investigations of their practices.
As those probes continue, the Wall Street Journal is now reporting Fannie Mae and Freddie Mac may have sustained more than $3 billion in losses from the rate-rigging.
Home values inch up due to restricted inventory
Home values still rose into November, marking more than a year of monthly price gains, while national rents fell flat, according to data from Zillow.
On a monthly basis, home values inched up by 0.6 percent from October, with the Zillow Home Value Index at $156,200 for November. For 13 straight months now, prices have displayed monthly gains. Compared to November 2011, home values have increased by 5.2 percent, which is the biggest yearly gain since August 2006.
Zillow also tracked home values for the nation’s 30 largest metros and found 25 saw price gains.
Sacramento led with a 1.8 percent monthly gain, and was followed by Detroit (1.5 percent). Las Vegas, San Francisco, Riverside, and Phoenix all tied with 1.4 percent increases.
Twenty-six of the 30 metros registered yearly gains. Not surprisingly, Phoenix led with a 23.2 percent increase.
Phoenix was followed by San Jose (+13.4 percent), San Francisco (+12.1 percent), Las Vegas (+11 percent), and Denver (+10.8 percent).
The four metros to see yearly decreases were Chicago (-1.4 percent), Atlanta (-1.4 percent), Philadelphia (-0.4 percent), and New York (-0.3 percent).
Dr. Stan Humphries, Zillow’s chief economist, says he expects to see the housing market recovery continue into 2013.
“Tight inventory, courtesy of negative equity, is running headlong into high demand driven by historic affordability and renewed consumer and investor interest. This is helping home values rise in a majority of metro areas nationwide,” he explained.
Here comes the delinquencies.
LPS: 7.12% of U.S. loans are delinquent
By Kerri Ann Panchuk December 21, 2012 • 8:34am
Mortgage delinquencies ticked up in November even though the nation continued to experience declining distressed inventory levels and fewer delinquencies year-over-year, according to data firm Lender Processing Services.
Roughly 7.12% of all U.S. loans surveyed by LPS ($25.68 0%) ended up classified as delinquent in November.
LPS reached this conclusion after analyzing statistics from its own loan-level database, which can access data on 70% of the entire mortgage market.
From October to November, the U.S. delinquency rate edged up 1.19%, while still falling 9.06% from a year earlier.
The number of properties 30 or more days past due, but not in foreclosure, totaled 3.53 million in November, while 1.584 million were 90 or more days delinquent.
When tallying delinquent homes with properties in foreclosure, the distressed segment of the market includes 5.35 million homes.
The U.S. states of Florida, New Jersey, Mississippi, Nevada and New York had the highest percentage of non-current loans.
Those with the lowest percentage of non-current loans in November included Montana, Wyoming, South Dakota, Alaska and North Dakota.
The nation’s pre-sale inventory rate hit 3.51% last month, down 2.84% from October and a decline of 16.42% from last year.
[email protected]
Since lenders began focusing on loan modifications after the settlement, the loan delinquency rate has stayed the same. They still tout the year-over-year declines, but over the last 10 months, they have made no progress.
Extremely well put Carl Pham. Kudos to IR for posting that gem.
You have posted some great comments in the past as well.
numeraire
[noo-muh-rair, nyoo-] Show IPA ; noun
1) a basic standard by which values are measured.
Why does the populous think in terms of–for example–the $ price of gold? Because our ‘handlers’
wantneed people to do so in order to maintain the status quo-(stealth confiscation of the people’s income and savings thru inflation).However, thinking in those terms is a prime example of the ‘cart pulling the horse’ simply because there are about 192 various currencies in the world that fluctuate in value daily, and only 1 gold. Thus, gold is the true numeraire. Once understood, consider yourself prepared 😉
Muchacho,
The numeraire is down 12% since peaking out 16 months ago. What could possibly explain this aberration?
The dollar gained about 12% in value against the numeraire. Some of the other 190+ currencies did as well, some didn’t.
Next!
And yet you’ve pumping gold for some time now. In fact, you seem to have an infatuation with it. To each his own I guess.
Well, if merely pointing out basic monetary realities in the past equates to words like ”pumping” and “infatuation” in your world, so be it 😀
One more thing to keep in mind….
If we see the true numeraire undergo a sustained sell-off and its uptrend shifts to decidedly down, this will signal our ‘handlers’ (by choice or by force) will let the economy die instead of our currency.
Stay tuned….
normalcy bias, perceived safe haven, scared money running from europe, faith
short term correction in a secular bull market
At a social event last night I had a few friends gang up on me making fun of my views on the necessity of a gold standard (or some basket-of-commodity standard) in regards to maintaining discipline on the supply of money.
I am viewed as extreme, conspiratorial, and probably slightly off my rocker by the majority of my friends and 100% of their wives. I am the only one in the group with a degree in accounting and the only one self-employed in a white collar profession. What gives?
I view it morally wrong that a government can tax citizens’ past, current, and future productivity involuntarily; especially being that the poorest in society suffer the greatest from the result of the inflation of the money supply – rising prices.
Do you think those friends are more interested in…
(1) Finding the truth? Or maybe…
(2) Finding a way to believe what they already hope is true really is true?
Convincing you you’re wrong certainly helps with (2), doesn’t it?
“Man is not a rational animal, he is a rationalizing animal.” (The immortal Heinlein).
Vigorish, or simply the vig, also known as juice, the cut or the take, is the amount charged by a bookmaker, or bookie, for his services. In the United States it also means the interest on a shark’s loan. The term is Yiddish slang originating from the Russian word for winnings, выигрыш vyigrysh.[1] Bookmakers use this practice to make money on their wagers regardless of the outcome. To minimize their risk, bookmakers do not want to have an interest in either side winning in a given sporting event. They are interested, instead, in getting equal betting on both outcomes of the event. In this way, the bookmaker minimizes his risk and always collects a small commission from the vigorish. The bookmaker will normally adjust the odds or the line, to attract equal action on each side of an event.
To counterfeit means to imitate something. Counterfeit products are fake replicas of the real product. Counterfeit products are often produced with the intent to take advantage of the superior value of the imitated product. The word counterfeit frequently describes both the forgeries of currency and documents, as well as the imitations of works of art, toys, clothing, software,[citation needed] pharmaceuticals, watches, electronics, handbags and shoes. Counterfeit products have a fake company logos and brands. In the case of goods, it results in patent infringement or trademark infringement. Additionally, it is fairly common in big cities for would-be criminals to sell counterfeit illegal drugs, such as a bag of pure baking soda sold as cocaine or heroin, or a bag of oregano sold as marijuana. This takes advantage of the extremely high prices of illicit drugs and the relatively low prices of common materials such as baking soda and oregano, as well as taking advantage of the similarity in appearances that certain house-hold items share with certain illicit drugs. Counterfeit consumer products have a reputation for being low quality.
The counterfeiting of money is usually attacked aggressively by governments. The counterfeiting of goods is condoned by some governments. Counterfeit money is the most popular product counterfeited.
Fiat currency is counterfeit gold.
The only way to guarantee a dignified life for the less able in society is healthy families or printing money (taxing without passing taxes). The people at the controls now seem to be intent on enriching themselves. Maybe with the goal of saving themselves from something that appears more and more unhealthy.
Incorrect. Printing money is a hidden tax, yes; however, it is a regressive tax that negatively impacts the poor/less able the most. This guarantees the opposite of a dignified life.
gold bug
Does going off the fiscal cliff also affects deductions? I know tax rates will increase across the board, but will deductions be touched?
I don’t think any deductions were part of the original Bush tax cuts. The only deduction that’s part of the fiscal cliff is the forgiveness of losses on a short sale.
It “affects” deductions in that they’re far more valuable IF no deal is reached – higher effective tax rates means any deductions from the income subject to that rate are more valuable. If the AMT isn’t patched, many of those deductions will be affected though. What a complicated mess…
“What a complicated mess…” 100% Agree
FHA (I remember your comments), AMT, mortgage interest tax deduct, Debt forgiveness, and taxes. It’s like changing all the variables at once.
Yes. Those eeeevil Bush tax cuts for the rich, as Democrats and the media (but I repeat myself) have long called them, did many things beyond reduce tax rates. Expiring provisions include reducing income limitations for personal exemptions and itemized deductions, as well as expanded earned income tax credit (EITC), the child tax credit, and the dependent care tax credit, student loan interest deduction, non-taxability of certain scholarships and fellowships, as well as some adjustments to reduce the so-called “marriage penalty.” All of those expire as well.
In general the tax code has become significantly more progressive over the last 20 years, and the BTCFTR were no exception, so when things revert on January 1, you can expect the overall result to be less progressive — meaning those in lower income brackets will be hit harder, relatively speaking.
No lender really wants to pay for 50% of a principal write. But I get to add this on my list tomorrow.
Federal foreclosure relief funds fail to reach borrowers
A $7.6 billion federal program to help prevent foreclosures is still struggling to get money out to homeowners more than two years after the money went to states.
Through November, $900 million had gone to homeowners, and another $620 million had been committed to them in the 18 states and Washington, D.C., involved in the Hardest Hit program, the Treasury Department says.
How much went to pay the handsome salaries of Washington lawyers to oversee the program, make sure everyone files Form XYZ-666/poo on time and in triplicate? Forward!
I wonder how much the servicers make, particularly since many of the largest ones are the banks themselves?
I encourage all to read and truly ponder the several page script by Howard Buffett called “Human Freedom Rests on Gold Redeemable Money”
Howard Buffett is Warren Buffett’s father and was a true statesman:
http://en.wikipedia.org/wiki/Howard_Buffett
Gold is only a proxy for man’s ability to produce. It represents individualism and humanity because it represents hours of a man’s life.
For a government to deny its citizens a gold standard and be able to print away HOURS OF YOUR LIFE is anti-human and anti-individual.
Zero percent interest rate policy (which we have now) also places zero time value on your savings ie your production ie hours of your life.
What happens if man discovers a way to make gold, large large amounts of gold, as much as hwants for as long as he wants?
He would be Nixon.
I understand the inflation argument here. I am not contradicting you, it is just some of my observations in my life say otherwise.
1. I am a shopper so I am familiar with pricing in my small world. The full price of clothing is skyrocketing high. But I do not buy them until they are on deep sale. Case in point: I just bought a 100% wool with lining coat for 75% off. That is brand new, new to the season from a South Coast Plaza store. With the social media and blogging and pouring discounts/promotions, people has become savvy in their spending. This winter and last, I felt like the goods are priced as in year 2008 when there was a financial crisis and companies were dumping their products to raise cash. Now, people are talking about the recovery this or that, but the prices have not inflated much. That similar coat could be had for about $200 – $250 in 2008, and it was at $300 full time in fall 2012, but people do not buy at full price. They only buy when they can afford. It seems the companies cut the price to move the products. So I do not see the inflation here.
2. We just bought a 60″ Sharp LED for a $1000 with loaded new technology. Our previous TV was a 40″ gigantic big box old technology for $ 600. That was 20 years ago when gold was in the range of $ 300/oz. Now gold is at $1600 range. The inflation does not seems to reflect on my purchase.
4.Food: there are always deals. High-price gasoline: I spend online and have the products delivered to me for free to save on my gasoline, so I do not drive much these days.
In short, I could see the inflation in many cases but at the same coin, I also see that people like me do not spend what we could not afford. Yes, they can inflate things but then they have to cut the price. Savers like me do not spend if we could not afford. So to whom do they sell their inflated-priced products?
On a side note, my husband works in the private sector. His salary does not increase since early 2000, after the tech. bubble busted. His salary increased every year for his performance, but only up to a certain threshold, he has been through 3 different companies and had to restart every time. What O El has said about wage suppression is so true. On the other hand, I worked in the public sector for about decade, my salary had increased several times due to classification upgrade/promotion, etc. By the time I left, my salary and benefits were double my initial starting point. When I will receive retirement benefits, it will be more than what my husband will receive his. That is why the public sector will be in a shocking readjustment down the road because the private sector does not make enough to support the public. We talk about this every day. My husband is in high tech and in high demand for a real economy to product real goods, yet, his salary does not commensurate with his skills. I, on the other hand, and many other public employees receive a comparable salary with benefits compared with his. My salary is supported by his taxes and there are just too many of us for similar job tasks. My husband’s family members work in the private sector as well. I know they secretly hate it when we talk about the salary and benefits discrepancies in a gathering. I am the direct recipient of the union power but I could see that this imbalance is not sustainable. There is not enough angry white men to overturn this imbalance, yet.
Someday…, just some day. I am saving, despite inflation eats away my saving, to prepare for the future.
The other thing you are overlooking is the value of your time and convenience. You are only buying on sales, and spending a lot of time and effort searching social media (or whatever) to locate those prices. You’re timing your purchases, so you must be shifting your budget and activities around to conform to those new necessities.
Unless you consider your time and convenience worthless, you are paying “higher prices,” because the only true ultimate meaning of “higher prices” is “lower quality of life.” It doesn’t matter how you get there — it could be (as in the Depression) wages that fall while prices stay the same, or (as in the 70s) prices and wages that rise, but prices rise faster, or (as you describe here) prices rise but you can spend time and energy (that you could otherwise spend relaxing) compensating running around to sales and stuff.
I just think that deals chase after me and my money. I am bombarded with deals every day in my mail box. I am not sure how other people shop but I rarely shop in stores now. Many department stores offer a “personal shopper” service, I was assigned one. She has my acct. info. I often email her at night like 11 pm what I like and the price range I am willing to pay. She will send them to me when it reaches my price. Sometimes, she would apply a promotion to close on a transaction. If it is sold out, she would do a store search all over the country to find it for me. I many times receive packages from TX, MN, NY, etc for free shipping from stores that I have never visited. If it is not what I want, I just simply mail it back or drop it at a store when I have time. It is very convenient for me. I do not have time to chase after a bargain, do not like driving or fighting for a parking lot, and do not like shop-worn clothes. I shop for my husband this way too. Technology changes every thing and makes every thing globally accessible.
Technology changes every thing and makes every thing globally accessible. And prices will fall due to competition.
Excellent response. Thank you for your insight. thank you for your honesty and realistic views on your public sector wage increases and long term viability. It is refreshing.
Please consider that inflation is like rust. It moves very slowly and usually unevenly. It is less obvious now because our economy is still contracting in real terms. Prices should be falling. Savers should be benefitting from falling prices. The fact that prices are not falling is directly correlated to the money printing efforts and suppression of interest rates. This smoke-and-mirrors tactic causes confusion among investors and businesses. It is a bane to the economy. Von Mises and the austrian school call this ‘distortion’ in the market and ‘malinvestment’ with respect to land, labor, and capital. Money is forced into places the market would normally not send it; all thanks to government decree.
Also consider that Capitalism, when allowed to function properly, creates rising standards of living. The Capitalists’ gift to society is increased supply and falling prices. Wages can be falling but if the prices of good fall even faster, standards of living will continue to rise. Your savings and wages gain value in real terms. Savers benefit and debtors do not. This creates a high savings economy and debt accumulation is disincentivized. Savings is capital and the backbone of job creation. When the supply of jobs is high and thus demand for labor high, wages see upward pressure (this may not mean wages rise, but they may fall less fast or not fall at all). This is how standards of living rise. We have the exact opposite and thus our economy suffers and standards of living suffer. The worst part about it is that Capitalism is the scapegoat for problems created by a lack of Capitalism.
I witness the inflation first hand. When I was a little girl living in Vietnam during the transaction of the old and new government 75-80, and with a bare conscience to understand my surroundings, currency was a yo-yo. In 75 or 76, they changed the old dong to a new dong. It was understandable because they had a new gov. But here was the deal: people could not exchange for more than $ 200 per family! (Please whoever lived through that time can correct me any time. I have been proven wrong countless times.). $ 200 old to $ 200 new, any excess will be confiscated as they tried to rid of capitalists. I knew some rich family gave their money to their servants or neighbors in hope they could exchange for them. Or they bought everything, any physical thing to spend that worthless currency. The inflation ran extremely high. In 1977 or 78, the new currency was issued again. This time, the value was reduced by a 0. $ 1000 was a new $100. Many people lost their live’s savings as well as their ancestor’s wealth. Years later, I talked with a lady whose her father was a rich Chinese Cholon with bags with dongs. He lost all his money. Whatever left, he bought gold and bought his way out of the country. This really happened in my family. During those years, I saw my mother cut out pieces of gold from her stash of gold leaves to exchange for food and energy for a couple of days. She just cut enough gold because the price of gold might rise the next few days. But it was nothing compared to my rich uncle. You could easily mistake him for a hobo. He had a bag of diamonds hidden somewhere. His reasoning: diamonds were valuable and easily hidden. He gave my mother a diamond to exchange for gold leaves which in turn was exchanged for food and energy. 100 oz of gold could weigh 3.11kg. If you run for your lives, how could you hide that much weight?.
From my own experience, I keep pondering if these chaos could happen here in the US. What happens when the mighty military could not defend our dollars? Gold will be the answer as a gold bug would say. I believe life necessities are valuable, gold is a conduit of the transaction.
I have my thoughts on capitalism, but I will stop my rambling now.
[…] It would have taken too much time, but adding a cost to each program would be very educational. Some would be hard to measure, because how would measure the cost of QE, Larry did a post on that very subject yesterday. […]