Housing and Health Care

The article was written in 2005 but it saw one thing coming....they mentioned that it's not a good idea to deceptively market mortgages (or deceptively advise people that they can support a bigger mortgage that they should) to people that really shouldn't have a mortgage.

That one came home to roost, didn't it?

Should have been a good, hard lesson learned by the financial industry, except that they convinced Uncle Sugar to bail them out and thus insulated themselves from the consequences of their actions.

Which is why medical spending is thru the roof....most of the people creating the demand for medical services have been insulated from paying the true cost of the services, thus there is no market discipline to throttle-back the engine.
 
So what we have taken back...

spending with one hand and increaed it with the other?! That rings true to my situation a year or more ago. We hjave never been big spenders on clothes, cars, etc. but we were starting to spend on the phnes and internet and having someone help with the cleaning once a month, etc...... it did add up pretty fast.

I think another thing may be a purely statistical one, which is that the foreclosures and so forth are concentrated in areas where the price of housing went high and went there fast. So, the numbers for average housing cost and size may be right overall but a lot people were in way above that average.
 
Hard not to see the banks....

swimming an ocean of 'moral hazard' at this point. Despite their increased capital reserves and their tightened credit,how long before they start getting reckless again? And, they are bigger than ever and even more the beneficiaries of 'too big to fail'. What administration is going to stand for watching BofA go down? Or GM if it should get in troube again? the car industry worldwide is still operating with over 30% excess capacity; it isn't inconceivable that GM could falter. They are smaller and leaner now so maybe private capitial could save them-but that was probably true before if Obama had just left it alone. Their stock price history since the IPO shows they are no powerhouse of future earnings.
 
Increased bankruptcies and foreclosures are a product of artificially cheap credit. If the credit rates were set by the free market they would have been higher and the housing boom and bust never would have happened.

Every mortgage that banks write today are going to lose money if they are carried to term. Real interest rates are probably double the average 30 year mortgage rate. If inflation really takes off, and I suspect it probably will in the next 36 months, banks could fall like dominoes. And if that happens I'm sure Paul Krugman will say it's because the government didn't spend enough money:bla:
 
Maybe, who can tell what will happen...

in the next 3 years? Right now there isn't much to back up claims of inflation in anything but commodities. Wages certainly aren't rising; there is overcapacity all around the industrial world; housing here and in parts of Europe are dragging on the advanced economies. The Greek infection can't go very far becauser of the Germans; there is no political incentive for the Fed to raise interest rates and not much industrial demand for borrowing (American companies alone are sitting on over $2T in capital) so not much competition for capital to drive up rates. The Japanese are in debt to the tune of 220% of GDP and just posted their first non-deflationary quarter in over two years. China is aging and the 'miracle' there may be shorter lived than anyone cares to admit.
Paul Krugman always says to spend more money, just like Ron Paul always says to slash taxes-I wouldn't give excess credence to either position-rather like trusting a broken clock because it is right twice a day:D
 
Commodities are a leading indicator of inflation. Kinda like a canary in a coal mine. The canary has been dead for a while. There are strong deflationary forces in the economy right now holding back prices at the consumer level. In the long run the Feds policies are going to make that irrelevant especially since the debt is so bad they can't fight inflation when it comes without completely destroying the economy and exploding the debt with interest payments.

And I don't think Ron Paul's answer is always to slash taxes. You could say that about Art Laffer or Steve Forbes maybe. Ron Paul is more about making the government small which then makes low taxes possible.
 
They may be A leading indicator...

but not THE leading indicator. There is a lot of headwind against inflation right at the moment, which is not to say that it couldn't change. But the markets are pricing debt pretty low and the role of the government in this has already been discounted by the markets. It would be silly to completely ignore the capital market's take on inflation-it would probably be foolish to totally depend on it either.
A big problem with inflation indicators now is that the price of capital has virtually no effect on the amount of borrowing. Mortgage rates are incredibly low but that doesn't do anything to the number of those seeking or the number the loans actually floated. inflation needs not only fuel but an engine to burn it and right now the engine is stalled. There is a lot 'punditry' potential in the inflation story because it 'could' happen but that is different from it 'probably' happening.
I apologize for singling out Ron Paul-there may be better whipping boys than he, as you point out.:)
 
A lot of economists have argued that inflation can't happen in a weak economy. Then came "stagflation" which they have a hard time explaining.

oh yeah, I forgot this thread is about health care:mallet:
 
Interest rates were astronomically high...

when 'stagflation' set in last time. it requires some balance to the walk the line that separates ignoring the past and lending past lessons to much weight. A thing is what it is and not something else. One of the worst rhetorical tropes that Obama engaged in was his "..worst economic downturn since the Great Depression" fair enough, but that didn't make it the Great Depression and it sure did not justify hauling out every Keynsian remedy available. Now we are stuck with not only some of the disease but some of the cure as well.

Hey, health care, shmealth care! It's just a thread about stuff:grin: One subject is as good as another.:)
 
Interest rates were somewhat high throughout the 1970's but the really high rates were in response to inflation and eventually cured it (sort of). Of course these days 7 or 8% seems high but that was pretty normal in the post Bretton Woods era until recently.
 
Well, sort of....

but remember the whole stagflation thing didn't last very long and even in the midst of it there was a fairly robust housing market. The economy was relatively weak but as I recall unemployment was not severe(in the 7% range) until Volker blew up the well fire with his recession, when it went over 10%.
Stagflation, like any other scenario, has some chance of recurring, but the underlying issues now are not the same-at least in America.
here is a link to the Misery Index History-it is instantly clear that the composition of the current Index is dramatically different than that of the late 70s to mid 80s. It is something ponder.

http://www.miseryindex.us/customindexbyyear.asp

I think the inflation hawks are there largely because there isn't any other macro-economic issue of any real interest out there. The news cycle doesn't want hear that all the dire predictions about Weimar- like hyper inflation haven't happened-they want something sexy ( I suppose inflation is naturally sexier than deflation:D)
 
I think the biggest difference between then and now is that the economy was still fundamentally sound then and now it's not at all. Back then our manufacturing sector was much stronger and we were owed much more by others than we owed to them so we had the tools to dig out. Now we have no way to get out of this without a long period of a reduced standard of living.

With the debt as big as it is inflating out of it is the most attractive option for those that control monetary policy. Inflation is a great way to increase taxes without actually doing it. Instead of have to vote to raise taxes you just take the money from savers without having to actually take it and you increase taxes on the "rich" and eventually the middle class move into the "rich" tax bracket through inflation. So you raise taxes on half of the population and they don't even know it happened. Because everyone who controls monetary policy needs and wants inflation it will be amazing if there isn't significant inflation. There has been far more "quantitative easing" in the last few years than in the seventies and the dollar lost 90% of its value then. I wouldn't be surprised to see it lose even more than that in the next ten years.

The misery index uses unemployment numbers and CPI number from what I understand. I think the unemployment numbers are reasonably comparable to the numbers in the seventies as far as the way they figure them but the CPI has changed quite a bit because it was believed that the CPI overstated inflation. So todays CPI numbers can't really be compared directly to the CPI from the seventies. The MI would probably still come out higher then than now if the formula was the same but it would be a lot closer.

And what would happen to the MI under a gold standard? In an economic down turn the deflation would cancel out the unemployment and make the MI close to zero or maybe negative. That wouldn't make much sense. Or does deflation count that same as inflation?
 
Somehow I don't see any great urgency...

to inflate our way our of this mess. All the monetary easing so far has barely kept pace with the deflationary pressures. Part of the problem is that the standard narratives for what is happening just aren't fitting the picture so in some quarters commentators are simply falling back on the nearest ideology that bears any resemblance. The 'normal recovery but a slow one group' see a recovery but then why are all the central banks still holding to emergency levels of interest rates. The 'deflation fraidy cats' see the obvious recovery in equities as just some kind of last gasp hubris. The inflationary guys see the potential energy buliding up for some catasrophic kinetic blow up in inflation. But none of them are able to reconcile all the contradictions. The normal recovery guys probably have the upper hand by a very small margin because there is recovery in a way. The employment numbers aren't great but there is a bit of good news. Equities are improving. Interest rates and corporate cash reserves say that if things improve there will be money to support more robust growth. On the other hand housing stinks and that represents a drag on everything. Empoyment is improving but wages are all but stagnant.
It is not the standard story.
The point about the MI is just that our current situation is so different from almost every other period with such relatively high unemployment and such miniscule inflation and low interest rates.
it's seductive to try and fit all this into an existing framework but that is probaly exactly what Krugman is doing on one side and Paul Ryan is doing on the other. But what if they are both wrong.:hmm2:
 
The debt is really the difference this time and why none of the traditional predictions will be correct. There has been massive monetary inflation while there has been significant deflation at the consumer level especially in housing. There won't be a traditional recovery because there is just too much debt for that. The monetary inflation will push up wages and prices at the consumer level eventually it just may take longer than you would think. The real question is will inflation go hyper or will it just be like the 70's.
 
It might do neither...

after all the debt ceiling has been raised 74 times since 1962 and we are still here with the reserve currency. The debt level at 100% of GDP may simply be like the sound barrier, something frightening until it's broken and then everyone adapts.
I think you are right that the recovery will not be normal, it hasn't been after all. We have been technically out of recession for like two years already and it sure isn't normal yet. Of course it might be; this might be the new normal, who's to say. Nothing promises 5% unemployment and 4.5% CD rates and house price appreciation. Those are just what people expect.
The bigger question, IMO, is whether the country conducts it's economic life according to some rule or another and actually sticks to it-REGARDLESS OF THE IMMEDIATE CONSEQUENCES. We just do not do this yet. Every decision is becoming 'consequentialist' in nature that is how we got where we are. All the well intentioned laws that were put in place to arrest spending by Congress have either been repealed,allowed to sunset or overridden by 'emergency' legislation. There is 30 years of this kind of thing so it is no big surprise the deficit and the debt are what they are. Congress and the various administrations going back to the 80s have done this eyes wide shut. :sigh:

it all scares the living s**t out of me but what's a girl to do:grin:
 
The history of fiat (of the NFC variety;)) currency would suggest that it is extraordinarily unlikely it will do neither.
 
What is the alternative?

I'm not talking about in dreams,I mean what alternative is there that has any practical chance of being adopted all around the world?
Net debtor nations would never, ever support a change and the biggest creditor nation-china- is the world's leading proponent of fiat money. So how does this work? you can't have a credible gold standard Iif that is what you are talking about) only for your country.

Matthew, let's give this discussion a break at this point -we are dominating the space in here and a reasonable airing of the fiat money vs. gold standard could run on and on and on...... It is a true dispute, meaning there a credible, arguable claims all around and that can't be fully handled here.
 
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