You complain about the "corporate monopolies", but do you just want to replace it with a government monopoly? How is that any better? The only difference is that you'll have completely inept and/or corrupt people running the monopoly, with little or no check on their powers or budget.
Why should I have to pay more for things the government doesn't want me to see than I do for things the government does want me to see? Or, put another way, why should my tax dollars be used to subsidize the dissemination of information the government wants me to see while I must shell out extra money to see information the government does not want me to see?
> If the collective "landlords" want to impose certain requirements for use > of their property, so be it.
Fine, but just because we "can" doesn't mean we should. And it doesn't mean we shouldn't pause to decide whether such regulations are positive or negative in the long run, or if we cannot tell whether they would be positive or negative in the long run.
I hate to agree with the Bush administration on almost anything, but I have to give them a head-nod on this one.
I love how people knock current government health solutions by pointing out all the problems with it and then say the only answer is an even bigger government health solution.
And I love how any criticism of government market interventionism is dismissed as a troll rather than responded to logically.
So even MORE spending of money the government doesn't have and MORE market manipulation in order to handle the side effects of the original market manipulation. Absolutely genius and no way will there be more side effects.
But you are 100% right. There will be no profits in medicine when universal health care is done with it, so the government will have to step in to provide those profits in order to prop up supply.
Supply is limited. All you have to do is take a look at any country with universal health care
> You can always train more doctors
Wow. Well we live in a capitalist society, not a centrally planned one. The US government cannot train more doctors when they are needed. Free men and women must decide they want to become doctors.
Insurance is to mitigate impact of unpredictable catastrophic events. Being diagnosed with cancer is an unpredictable catastrophic event. Having a yearly physical is not.
> No, that's not true at all. A *part* of the interest rate is a risk premium. > If risk goes to zero, interest rates don't go to zero.
Zero is the theoretical floor. Given supply and no risk, interest rates will fall to zero, since a lender will lend as long as return is equal or greater than cost. You are right that it is in reality never going to be zero because we have a finite supply of dollars at any given time (but not over time); so I guess I should have said "absent risk, interest rates are nearly zero". It doesn't really change the point though, and even the money supply factors into risk calculations.
> based on the assumption that real interest rates don't reassert themselves > over time
How could they? It is the Fed who is controlling interest rates, not the market.
> You invested $850M and got $900M back. It would only be a malinvestment if it > turned out to return less than you expected it to.
You only made money because the Fed depressed interest rates below market. There was not enough value in the investment itself to make it worthwhile in its own right. You should have kept the liquidity for a more worthy investment.
> Suggesting that volatility has increased since the Federal Reserve
*STILL* did not say this.
> Anybody trying to explain the housing bubble has to explain the sudden > shift toward mortages.
We already covered this. Interest rate manipulation + legislative obsession with increasing demand on homes.
> the risk premium that the market puts on a given investment does not > necessarily reflect actual risk.
That's like saying that prices don't reflect market value. Yes they do, if government is out of the way.
> More to the point, this is all a bit of a red herring as monetary policy > shouldn't affect risk spreads at such a fine granularity, only overall > investment patterns. An individual whose behavior is changed by a change > in interest rates is not usually changing because of a change in > perceived risk but because of a real change in opportunity cost.
That is an oversimplification. When the money supply increases, the banks must find a way to lend it out or let it sit. In almost all environments, they will find a way to lend it out.
Increase money supply. Increase housing demand through legislation and policy. Housing becomes outlet for money supply. Housing bubble. And if you look at where that demand had to increase (people who weren't already in the housing market), you begin to understand the focus on the subprime market.
> That's not totally out of left field, but most economists are talking > about a general increase in price levels when they use the word.
Price "inflation" is not very interesting. It's like saying global warming is the increase in average temperature. That's true, but it's just a measure of the underlying phenomenon.
> Because you can't talk about manipulating interest rates and their > effect on asset prices (local or global) and not talk about inflation. > The subjects are inherently intertwined.
??? This is only true if you're saying that "inflation" is any increase in price. But again that isn't a meaningful statement.
> it assumes that low interest rates will necessarily cause those > malinvestments. That's what I'm quibbling with.
How? You keep talking about risk and how investors didn't assess risk properly. Well, that is what interest rates are! Interest rates index risk. I will lend you $x for your investment in Y, and I will charge you z% because I believe your investment has a w% chance of failure, which will impact my ability to get paid.
I don't know how you can say that fixing interest rates outside of market valuation won't cause malinvestment. Think of the individual business decision. Should I invest in widgets? It will cost me $1 billion over the lifetime of the loan, and I will reap $900 million from it. I should not make the investment. The market is indicating that it is too risky. Let's now rewind and assume the Fed, in efforts to increase spending levels higher than they otherwise would be, depressed interest rates such that it will only cost me $850 million over the lifetime of the loan. I would now decide to make the investment, even though absolutely nothing about how the market would accept the investment has changed.
> A consistent monetary policy is one that produces relatively predictable > price inflation.
Relatively predictable based on... our understanding of the personality and economic philosophy of the regulator in charge? Or relatively predictable based on our understanding of market fundamentals?
> Let me pretend to be surprised that the link is from mises.org
Actually, I only meant to point to the historical rate chart to point out that it's not very predictable. I'm not trying to suggest that page explains the housing bubble.
> I'd argue against FM/FM being a major player in the low grade debt bubble
> You seem to be under the impression that this cycle of volatility didn't > exist before the Federal Reserve. I'm not sure why.
I didn't say volatility didn't exist. I said the Fed creates unnatural volatility. Volatility in interest rates is a natural part of the market changing its willingness to lend money when risk changes. You can't separate interest rates from risk and then wonder why interest rates are no longer regulating risk.
If there was no risk in an investment, the cost of capital would be zero.
> The cost of capital has always fluctuated.
Not the point!
> One thing that has never made sense to me about the Austrians' business cycle > theory is that they attribute deep wisdom to investors when dealing with new > information unless that new information is Fed policy. Gold price shock? No > problem. The Fed made a relatively predictable change in the interest rate? > Total meltdown.
The point is that interest rates are a key indicator and provide extremely valuable insight into the worthiness of an investment. The Fed's manipulation divorces interest rates from their cause, so they are no longer a valid measure.
> > The Fed manipulations alter cost-benefit analysis and result in businesses > > inves
Why? Did you think this through before saying it? You would rather have the government hire new people to build this functionality rather than procure it from a private company who has a specialized team devoted to building this functionality, and has already proven it viable?
I truly don't understand why people think government is the answer to stuff. Government can't do much of anything. They contract out almost everything to private organizations. Construction, technology, business strategy, research... everything.
People as a whole aren't as stupid as you think. Don't be so biased against uneducated individuals. They have as much a right to address the government with their grievances as you do.
This is an American ideal that came about in a time when the states decided most of what happened in their own territory. If your state was overrun by stupid people, you had options. Majority rule has devastating consequences when there is a strong federal government, because (a) there is no choice to escape stupid legislation, and (b) there is no opportunity to identify when legislation is stupid because there is no alternative against which to compare, except in theory/argument, which is always at a disadvantage vs the status quo.
Is this direct democracy? No. But this is clearly in that direction. Direct democracy is fine... if the federal government's power is curtailed.
I think you're misreading the mainstream economics position on inflation. Consistent increases in the overall price level are completely sustainable.
Inflation is not price increases. Prices increase as a result of inflation, which is why it is often used as one measure of inflation.
The problem with bubbles is a misallocation resources because the players in the market did a bad job of assessing risk and predicting future prices of that asset. I can't think of a rational argument that could make a good causal relationship between uniform price increases and an asset price bubble.
That's because I didn't make that argument. I am not sure what gave both you and the other responder the impression that I was talking about inflation. It is the manipulation of interest rates and the legislative obsession with increasing home ownership that kicked off the price appreciation. Then, once there was consistent price appreciation, investors jumped in looking for those same high returns. That continued to fuel the bubble.
I'm just suggesting that misallocation of investments are not a necessary consequence of consistent monetary policy.
What is "consistent monetary policy"? The Fed is manipulating the cost of capital at its will. How is that consistent or predictable?
How can you realistically value an asset if the Fed can change interest rates tomorrow and completely invalidate your valuation? The Fed's policies create unnatural volatility and unnatural volatility causes bubbles.
How can you do a proper cost-benefit analysis to determine if an investment is a good investment by market standards if the cost of capital is x% one day and y% the next day? The Fed manipulations alter cost-benefit analysis and result in businesses investing in things they would otherwise not invest in -- OR NOT investing in things that they otherwise would have invested in -- if the cost of capital was at the market valuation.
I can respond more precisely if you can clarify what you meant by "consistent monetary policy", as I genuinely don't know what that means when it comes to closed-door government intervention in the market.
What if it really IS the most dirty place that person has ever seen? How can you invade someone's privacy without showing harm? IANAL, but this seems pretty obvious (at least based on my professional opinion of the 4 sentences in the summary). It's one thing if he had said "there are dead rats in the kitchen"; but he didn't; he said it was one of the most dirty places he had seen. How can you disprove that or even show that it LIKELY isn't true?
> I don't think any responsible people are suggesting propping up housing prices
Actually, that is what they are all saying! Their thinking is that the problem is that borrowers are "upside down" (because they owe more than their homes are worth), and the way to keep the problems from growing is to keep prices from continuing to fall down to what the market would otherwise value them at.
I didn't say deficit spending would prop up home prices (though, it probably would, because the whole point is to increase demand). I said the manipulation of the market through interest rates causes price appreciation without associated value increase. This is a bubble. To continue to artificially depress interest rates absolutely does intend to prop up prices above $x. Do you see what I'm saying?
No, supply-demand curves cannot explain bubbles. Real estate is in far oversupply, hence the devaluation, yet prior to the market fully realizing that real estate was overvalued, the prices continued to appreciate. This is a behavioral/psychological effect of the market factoring expected future appreciation into the current asset pricing. It was set forth by the monetary policy which showed consistent (but unexplainable) asset appreciation in real estate over long periods of time.
> Well yeah, that's what we're talking about, right? Our immediate problems. > The goal isn't to get people to buy houses in a bubble, the goal is to to > prevent a deflationary spiral. Bubbles are bad, but better than decades-long > deflation.
Unfortunately, your view is common. A bubble is a mis-valuation, meaning that the market value should be $x, but the assets were valued at $x+y. There is no inflationary action one can take in order to keep pressure from bringing the valuation down to its proper value of $x. What you and others are talking about is propping up prices above $x, but all this does is prolong the agony. Your presentation of a bubble-or-deflation view is ill-conceived at its very premise.
What is your point? The war in Iraq should be stopped. Done. Move on. But let's not act like it will have one single effect on our financial situation. To do that you have to attack Medicaid and Medicare and Social Security.
Absent manipulation of the money supply, price appreciation is caused by... wait for it... an increase in value! When you manipulate the market with inflationary actions, you cause people to invest in things they would not otherwise invest in. Why would they not otherwise invest in them? Because they don't have a likelihood of increasing in value. So, you want people to invest in things that won't increase in value by forcing price appreciation? And then people will turn around and say the housing bubble was created by dirty money grabbers looking for more and more appreciation. Well, isn't that what you wanted?!
At some point, what goes up must come down. Consistent price appreciation absent any value creation is NOT SUSTAINABLE. I do not understand how mainstream economics can be so short-sighted.
Even your quoted article admits it was only a solution to immediate problems.
Spend spend spend. Wealth is not spending. Cheap debt and depressed savings interest rates cause malinvestment, ruin market insight from cost-benefit analysis, and ultimately result in the formation of economic bubbles.
Slashdot Mirror
You complain about the "corporate monopolies", but do you just want to replace it with a government monopoly? How is that any better? The only difference is that you'll have completely inept and/or corrupt people running the monopoly, with little or no check on their powers or budget.
Why should I have to pay more for things the government doesn't want me to see than I do for things the government does want me to see? Or, put another way, why should my tax dollars be used to subsidize the dissemination of information the government wants me to see while I must shell out extra money to see information the government does not want me to see?
> If the collective "landlords" want to impose certain requirements for use
> of their property, so be it.
Fine, but just because we "can" doesn't mean we should. And it doesn't mean we shouldn't pause to decide whether such regulations are positive or negative in the long run, or if we cannot tell whether they would be positive or negative in the long run.
I hate to agree with the Bush administration on almost anything, but I have to give them a head-nod on this one.
I love how people knock current government health solutions by pointing out all the problems with it and then say the only answer is an even bigger government health solution.
And I love how any criticism of government market interventionism is dismissed as a troll rather than responded to logically.
So even MORE spending of money the government doesn't have and MORE market manipulation in order to handle the side effects of the original market manipulation. Absolutely genius and no way will there be more side effects.
But you are 100% right. There will be no profits in medicine when universal health care is done with it, so the government will have to step in to provide those profits in order to prop up supply.
Supply is limited. All you have to do is take a look at any country with universal health care
> You can always train more doctors
Wow. Well we live in a capitalist society, not a centrally planned one. The US government cannot train more doctors when they are needed. Free men and women must decide they want to become doctors.
When you asked government to take on this project, you asked for bureaucracy, in-fighting, and inefficiency.
Healthy behavior lowers risk and should reduce insurance premiums. There is no need to have healthy behavior paid for by insurance.
Unfortunately, you aren't and you won't.
Insurance is to mitigate impact of unpredictable catastrophic events. Being diagnosed with cancer is an unpredictable catastrophic event. Having a yearly physical is not.
Someone should tell all the Economics professors they have it all wrong: increasing demand reduces prices.
Never mind the fact that the government already can't afford to pay for promises made on Medicare and Medicaid.
> we have to cut Medicare and SS benefits to a needs-based program
> rather than an entitlement.
No we don't. It will happen regardless.
> No, that's not true at all. A *part* of the interest rate is a risk premium.
> If risk goes to zero, interest rates don't go to zero.
Zero is the theoretical floor. Given supply and no risk, interest rates will fall to zero, since a lender will lend as long as return is equal or greater than cost. You are right that it is in reality never going to be zero because we have a finite supply of dollars at any given time (but not over time); so I guess I should have said "absent risk, interest rates are nearly zero". It doesn't really change the point though, and even the money supply factors into risk calculations.
> based on the assumption that real interest rates don't reassert themselves
> over time
How could they? It is the Fed who is controlling interest rates, not the market.
> You invested $850M and got $900M back. It would only be a malinvestment if it
> turned out to return less than you expected it to.
You only made money because the Fed depressed interest rates below market. There was not enough value in the investment itself to make it worthwhile in its own right. You should have kept the liquidity for a more worthy investment.
> Suggesting that volatility has increased since the Federal Reserve
*STILL* did not say this.
> Anybody trying to explain the housing bubble has to explain the sudden
> shift toward mortages.
We already covered this. Interest rate manipulation + legislative obsession with increasing demand on homes.
> the risk premium that the market puts on a given investment does not
> necessarily reflect actual risk.
That's like saying that prices don't reflect market value. Yes they do, if government is out of the way.
> More to the point, this is all a bit of a red herring as monetary policy
> shouldn't affect risk spreads at such a fine granularity, only overall
> investment patterns. An individual whose behavior is changed by a change
> in interest rates is not usually changing because of a change in
> perceived risk but because of a real change in opportunity cost.
That is an oversimplification. When the money supply increases, the banks must find a way to lend it out or let it sit. In almost all environments, they will find a way to lend it out.
Increase money supply. Increase housing demand through legislation and policy. Housing becomes outlet for money supply. Housing bubble. And if you look at where that demand had to increase (people who weren't already in the housing market), you begin to understand the focus on the subprime market.
Majority rules promotes popular ideas. There is no requirement for popular ideas to be good ideas. Need I point to historical examples?
> That's not totally out of left field, but most economists are talking
> about a general increase in price levels when they use the word.
Price "inflation" is not very interesting. It's like saying global warming is the increase in average temperature. That's true, but it's just a measure of the underlying phenomenon.
> Because you can't talk about manipulating interest rates and their
> effect on asset prices (local or global) and not talk about inflation.
> The subjects are inherently intertwined.
??? This is only true if you're saying that "inflation" is any increase in price. But again that isn't a meaningful statement.
> it assumes that low interest rates will necessarily cause those
> malinvestments. That's what I'm quibbling with.
How? You keep talking about risk and how investors didn't assess risk properly. Well, that is what interest rates are! Interest rates index risk. I will lend you $x for your investment in Y, and I will charge you z% because I believe your investment has a w% chance of failure, which will impact my ability to get paid.
I don't know how you can say that fixing interest rates outside of market valuation won't cause malinvestment. Think of the individual business decision. Should I invest in widgets? It will cost me $1 billion over the lifetime of the loan, and I will reap $900 million from it. I should not make the investment. The market is indicating that it is too risky. Let's now rewind and assume the Fed, in efforts to increase spending levels higher than they otherwise would be, depressed interest rates such that it will only cost me $850 million over the lifetime of the loan. I would now decide to make the investment, even though absolutely nothing about how the market would accept the investment has changed.
> A consistent monetary policy is one that produces relatively predictable
> price inflation.
Relatively predictable based on... our understanding of the personality and economic philosophy of the regulator in charge? Or relatively predictable based on our understanding of market fundamentals?
> Let me pretend to be surprised that the link is from mises.org
Actually, I only meant to point to the historical rate chart to point out that it's not very predictable. I'm not trying to suggest that page explains the housing bubble.
> I'd argue against FM/FM being a major player in the low grade debt bubble
Really, because I've heard that argument before, have never bought it, and now seems to be a bit moot: http://www.nytimes.com/2008/12/10/business/10fannie.html?ref=business
> You seem to be under the impression that this cycle of volatility didn't
> exist before the Federal Reserve. I'm not sure why.
I didn't say volatility didn't exist. I said the Fed creates unnatural volatility. Volatility in interest rates is a natural part of the market changing its willingness to lend money when risk changes. You can't separate interest rates from risk and then wonder why interest rates are no longer regulating risk.
If there was no risk in an investment, the cost of capital would be zero.
> The cost of capital has always fluctuated.
Not the point!
> One thing that has never made sense to me about the Austrians' business cycle
> theory is that they attribute deep wisdom to investors when dealing with new
> information unless that new information is Fed policy. Gold price shock? No
> problem. The Fed made a relatively predictable change in the interest rate?
> Total meltdown.
The point is that interest rates are a key indicator and provide extremely valuable insight into the worthiness of an investment. The Fed's manipulation divorces interest rates from their cause, so they are no longer a valid measure.
> > The Fed manipulations alter cost-benefit analysis and result in businesses
> > inves
Why? Did you think this through before saying it? You would rather have the government hire new people to build this functionality rather than procure it from a private company who has a specialized team devoted to building this functionality, and has already proven it viable?
I truly don't understand why people think government is the answer to stuff. Government can't do much of anything. They contract out almost everything to private organizations. Construction, technology, business strategy, research... everything.
This is an American ideal that came about in a time when the states decided most of what happened in their own territory. If your state was overrun by stupid people, you had options. Majority rule has devastating consequences when there is a strong federal government, because (a) there is no choice to escape stupid legislation, and (b) there is no opportunity to identify when legislation is stupid because there is no alternative against which to compare, except in theory/argument, which is always at a disadvantage vs the status quo.
Is this direct democracy? No. But this is clearly in that direction. Direct democracy is fine... if the federal government's power is curtailed.
Hi,
War and economic problems are not separate from political corruption, and it is dangerous to think otherwise.
Thanks,
-Matt
Inflation is not price increases. Prices increase as a result of inflation, which is why it is often used as one measure of inflation.
That's because I didn't make that argument. I am not sure what gave both you and the other responder the impression that I was talking about inflation. It is the manipulation of interest rates and the legislative obsession with increasing home ownership that kicked off the price appreciation. Then, once there was consistent price appreciation, investors jumped in looking for those same high returns. That continued to fuel the bubble.
What is "consistent monetary policy"? The Fed is manipulating the cost of capital at its will. How is that consistent or predictable?
http://mises.org/story/3130
How can you realistically value an asset if the Fed can change interest rates tomorrow and completely invalidate your valuation? The Fed's policies create unnatural volatility and unnatural volatility causes bubbles.
How can you do a proper cost-benefit analysis to determine if an investment is a good investment by market standards if the cost of capital is x% one day and y% the next day? The Fed manipulations alter cost-benefit analysis and result in businesses investing in things they would otherwise not invest in -- OR NOT investing in things that they otherwise would have invested in -- if the cost of capital was at the market valuation.
I can respond more precisely if you can clarify what you meant by "consistent monetary policy", as I genuinely don't know what that means when it comes to closed-door government intervention in the market.
No need to postulate.
What if it really IS the most dirty place that person has ever seen? How can you invade someone's privacy without showing harm? IANAL, but this seems pretty obvious (at least based on my professional opinion of the 4 sentences in the summary). It's one thing if he had said "there are dead rats in the kitchen"; but he didn't; he said it was one of the most dirty places he had seen. How can you disprove that or even show that it LIKELY isn't true?
Should be thrown out.
> I don't think any responsible people are suggesting propping up housing prices
Actually, that is what they are all saying! Their thinking is that the problem is that borrowers are "upside down" (because they owe more than their homes are worth), and the way to keep the problems from growing is to keep prices from continuing to fall down to what the market would otherwise value them at.
I didn't say deficit spending would prop up home prices (though, it probably would, because the whole point is to increase demand). I said the manipulation of the market through interest rates causes price appreciation without associated value increase. This is a bubble. To continue to artificially depress interest rates absolutely does intend to prop up prices above $x. Do you see what I'm saying?
> High demand? Low supply?
No, supply-demand curves cannot explain bubbles. Real estate is in far oversupply, hence the devaluation, yet prior to the market fully realizing that real estate was overvalued, the prices continued to appreciate. This is a behavioral/psychological effect of the market factoring expected future appreciation into the current asset pricing. It was set forth by the monetary policy which showed consistent (but unexplainable) asset appreciation in real estate over long periods of time.
> Well yeah, that's what we're talking about, right? Our immediate problems.
> The goal isn't to get people to buy houses in a bubble, the goal is to to
> prevent a deflationary spiral. Bubbles are bad, but better than decades-long
> deflation.
Unfortunately, your view is common. A bubble is a mis-valuation, meaning that the market value should be $x, but the assets were valued at $x+y. There is no inflationary action one can take in order to keep pressure from bringing the valuation down to its proper value of $x. What you and others are talking about is propping up prices above $x, but all this does is prolong the agony. Your presentation of a bubble-or-deflation view is ill-conceived at its very premise.
What is your point? The war in Iraq should be stopped. Done. Move on. But let's not act like it will have one single effect on our financial situation. To do that you have to attack Medicaid and Medicare and Social Security.
Absent manipulation of the money supply, price appreciation is caused by... wait for it... an increase in value! When you manipulate the market with inflationary actions, you cause people to invest in things they would not otherwise invest in. Why would they not otherwise invest in them? Because they don't have a likelihood of increasing in value. So, you want people to invest in things that won't increase in value by forcing price appreciation? And then people will turn around and say the housing bubble was created by dirty money grabbers looking for more and more appreciation. Well, isn't that what you wanted?!
At some point, what goes up must come down. Consistent price appreciation absent any value creation is NOT SUSTAINABLE. I do not understand how mainstream economics can be so short-sighted.
Even your quoted article admits it was only a solution to immediate problems.
Is 0% too much savings?
http://www.saschameinrath.com/2008/sep/08/united_states_personal_savings_rate_freaks_me_out
http://www.bankrate.com/brm/news/sav/20060308a1.asp
Spend spend spend. Wealth is not spending. Cheap debt and depressed savings interest rates cause malinvestment, ruin market insight from cost-benefit analysis, and ultimately result in the formation of economic bubbles.