It's the PRICE stupid!

By Randolph

Listen to the cacophony of despair oozing out of the mouths of our mainstream media and politicians.  It would be comical if not for the pathetic nature of it all.  All these whining shills and self proclaimed experts seem willing to cackle about everything under the sun ... except for price.  What do I mean, read on...

From the August 29, 2007 Financial Times, Barack Obama, Democratic candidate for US President, said:

Normally these borrowers could avoid foreclosure by refinancing their mortgages or selling their homes. The problem today is that they cannot refinance because no one will lend to them, and they cannot sell because the housing market has fallen. With some arguing that the effects of the worst subprime loans will not be felt until 2008 and 2009, this may be just the beginning.

What the F@!K do you mean "they cannot sell because the housing market has fallen"?!!!?  No, Barack, they can sell; they just don't want to sell because they think they're guaranteed to make some money.  Disgusting, truly disgusting.  I do note that pretty much every other pandering fool running for President this year has made similar statements about the housing market and proposed bailouts.  I was just picking on Mr. Obama because he was billed as some kind of fresh new direction for the country.

---

Overhead conversation at a popular local deli in downtown Mill Valley August 31, 2007, lunchtime:

[first guy] ...yea, we wouldn't be able to get the mortgage today we got last month!

[other fatter guy] What do you mean?

[first guy] We wouldn't come close to qualifying for our mortgage today.  We got in just under the wire [smiling like the greatest fool]!

[other fatter guy] You and the missus should count your lucky stars, you got in just in time.  I feel bad for all the young guys starting out now.  They'll never be able to buy a home at this rate...

So let me get this logic straight.  I bought a massively overpriced house I couldn't afford with a bullshit mortgage and I should 'count my lucky stars'??!!  It doesn't take a genius to figure out that both dumbass guy and other dumbass fatter guy are assuming that PRICE will never go down.

---

Tuesday, September 4, 2007, paraphrased babbling lunacy from CNBC's morning show (which had slide whistle clown guy filling in along with Erin):

[big debate with lots of little heads in boxes on the screen arguing about housing and the Fed]...

[Jimmy the Clown] Mister Bernanke has zero credibility!  There are people hurting out there!

[Rick Santelli] No, Wall Street wants to make this Main Street's problem so they get a quick fix!

[Jimmy the Clown, interrupting] I have neighbors who can't sell their [stifled expletive] homes!!!  You have no...

[Rick Santelli, for once standing up to The Clown] NO! THEY **CAN** SELL, THEY JUST DON'T WANT TO LOWER THEIR PRICE!!!  WELL, TOO BAD!!!

[All the other little bobbing heads]  Oh no no no no no no no no!  No one wants to see that Rick!

[Erin]  My neighbors houses are selling, so I don't see why there's a problem [pondering her afternoon show which panders to get-rich-quick-dad-hucksters].

I don't have much to say about this spectacle.  Only that I never really realized what wimpy, whining, mealy mouthed, cry babies the "Masters of the Universe" on Wall Street were until the past couple weeks.  Geez, I mean, you're hardened investment bankers and hedgies, right?  WTF?  If you can't stand the fire...  I'm sure that every hard working American who got rightsized, downsized, outsourced, and offshored right into a job as Wal-mart greeter is crying a river for your subprime MBS CDO credit debt long short macro dice roll fund losses.  But good try.  If Jimmy the Clown keeps screaming long enough you just might convince Ma and Pa that it's all their fault after all.  I just hope you can sleep at night.

---

So, do prices ever go down?

Yes.  Of course they do.  You don't have to be in a little box on the TV screen to know that.  Hell, we only bought our first California house about 11 years ago, in 1996, in Redwood City.  We bought from a pleasant couple who'd bought before that in 1989.  We paid about 9% LESS than they did, which factoring in inflation (which was a bit high then) and transaction costs, those guys took a pretty nasty loss.  As I described in an earlier thread, that little house has appreciated almost 250% since then!  WTF?  And no, we sold it in 2002, so we didn't even get the real meat of that bubble.

Yes prices will come down.  Whether all these screaming ninnies like it or not.  Even with a bailout.  Even with a Fed rate cut.  It's over.  No more $1.9mm in loans on less than $100K down to buy a freaking $2mm house.  That fraud con is over now, and that means all those giggling fool friends of other fatter guy at the deli cannot afford your overpriced house anymore.  You're stuck selling to folks who *can* afford your house, and they ain't gonna pay you no stinking $2.00mm for a $850K house.

I thought about drawing a graph.  But I've been criticized so much for too much econospeak on my threads, so I'll just use a little improvised "ascii art" to help those stuck on the whole concept of dynamic price to visualize it all. 

Follow these simple instructions and you will be able to sell your house!

            You 

             ,-.
            /   `.
,--_.       \     \
\    `-_     `.    \
 ^-_    `.     `.   \
    `.    `.     `.  \ 
      `.    `.     \  \
        `.    `-___/   |
          `.           '--.
            \      ,--.--.'
             \    |*  |* | 
              \    `--' --.
              |         --'\
              |   .~T--____/
              /   `~|_/\_/
            ,'       |
          ,'     .--.|
        ,'  ,-   |   |
       /  ,'     |   |

 

(it's an ax, signifying cutting...I'm considering the intended audience)

  _________________.---.______
 (_(______________(_o o_(____()
              .___.'. .'.___.
              \ o    Y    o /
               \ \__   __/ /
                '.__'-'__.'
                    '''
                [Your Price]
 

Comments

[randolfe_]

Some CNBC links to Jimmy the Clown and The Great Santelli.

http://www.cnbc.com/id/15840232?video=499888906

http://www.cnbc.com/id/15840232?video=500002151

[skibum]

Amen, Randy - Nice post.

What I'd add to the mix is that this assumption that prices should never go down is made not only by the shills like Cramer, pandering politicians like Obama, and the FBs as in your example, but also economists.

The consensus filtered through the MSM from the Jackson Hole Fed meeting seems to be that the credit crisis could threaten our overall economy. Sure, but is the solution to prop asset prices further by Fed action? And why was the paradigm of a MEW-funded consumer economy good, much less sustainable?

[astrid]

I've been away for internet range for a while, so I might not be getting the whole picture here. However, I'm not sure what Obama is saying here warrants such a strong response. Like many people, he did not do mental calculation to include all the possibilities - including bankruptcy and foreclosure. And plenty of people indeed cannot sell and avoid bankruptcy. I haven't seen anything here that indicates a particular FB support strategy.

Incidentally, I'm not an Obama supporter, Edwards or Gore would be my choice and I strongly dislike Clinton and Dodd. However, I do think that any Democrat in the field today would have better governing sense that any of the Republicans. Any price support Dems might provide is likely to be one time subsidized loans for relatively modest mortgages...that sounds better than the surefire Republican strategy of getting into more debt via tax cuts.

[randolfe_]

@skibum

To be honest, I don't know what the Fed will do. I am not as hard on Bernanke as many, especially in the bubble-blog crowd. I think Bernanke could yet surprise us all. Will he cause a recession? I doubt it. But he may well slow GDP growth down to around 0.5% per year for a protracted period of time. So protracted, in fact, that everyone will be begging for shock therapy and a quick end to it all.

[randolfe_]

@astrid

I ran an article on Patrick.net about the Obama FT op ed piece. I am particularly hard on Obama because he has shown himself to be absolutely no different than the mainstay candidate, Hillary.

* He didn't once finger any reform or blame on the real estate industry. All he did was complain about Wall Street.

* He doesn't understand the issue, yet he's proposing a bailout? In many states (most of which are bubble states), for example, people are *not* bankrupted when they are foreclosed.

* His staff writer who prepared his little pander piece didn't bother to ask anyone about the difference between APR and EAR, so he made a categorical error stating that APR is the "effective annual rate". Bzzzt. Try hiring a staffer who actually knows these things before writing a piece in one of the two largest *financial* papers!

Would a Republican be any better. Apparently not. They're falling all over themselves to bailout too. Just they're going to bail out their Wall Street buddies at the same time. ... Or, at least they don't hide that fact. The Dems will bail out the Street too, because they'll have to to get any bill through and signed. I imagine they'll whine and cry it was the big, bad Republicans who made them do it. Hmmm. Well, then don't do it.

Sorry, I'm not entertaining complex answers to things when very simple answers will suffice, of late.

The world is going on. No bailout is needed. The Fed should keep the banks running, and let everyone else take their medicine. Even if that causes a recession. Instead of bitching about the Fed, maybe we should blame ourselves for gorging on greed and letting our pandering politicians feed that greed to buy votes.

[skibum]

astrid,

Are you checking in from Iceland? How's the puffin?

RE: Obama, like Randy H, I don't really differentiate him from the other Dem frontrunners, and for that matter, most of the Republican frontrunners on finance. It's just that many people have glommed onto him without bothering to digest what he has to say, which so far sounds pretty damn populist, uninventive, and frankly run of the mill.

[skibum]

Randy,

Of course we can play all sorts of "what will the Fed do" parlor games, but if indeed Ben wants to slow growth to barely positive territory, is that the new metric for a "soft landing"?

It would be opting for the slow, painful peel-away of the band-aid, rather than the sharp, but quick tearing away that most people generally prefer, if only in hindsight.

[randolfe_]

skibum

Good analogy. The problem is none of your patients would willingly opt for the 'quick tear' if they were deluged day and night by drug company tv ads extolling the painless virtues of the 'slow, smooth, virtually relaxing peel'. Of course, that is unless someone bothers to read the side effects. But no one reads anymore, do they?

[astrid]

Randy,

I agree with you completely in that case. The Democrats are certainly politically compromised and math challenged as well.

Incidentally, Obama and Hillary are favorites of the "left" if you define the "left" as the progressive blogosphere -- many of whom saw this bubble burst coming (I was originally led to patrick.net from DailyKos, believe it or not) and are strongly against a bailout.

Gore, if he can hire good sensible people (big IF), would be my dream choice. He's a policywonk and likely to be more thoughtful in his approach (though there will inevitably be FB support - the question is where and how much).

[astrid]

skibum,

I wish! Iceland was rainy, cold, exhausting and quite wonderful. All the patrick.net reports are right: the food is wonderful, Reykjavik is fun and quirky with tons of amazing musuems, the landscape was everchanging...

I'll upload the pictures soon.

[randolfe_]

astrid,

I would strongly consider voting for Gore. No candidate will ever meet my ideal criteria (unless that candidate were to be me, which would mean I've been possessed by a much stupider, less mentally stable demon, in which case I wouldn't vote for me after all).

The main reason I'd support Gore in 2008 is because he'd have to show very serious, hardcore conviction to break through the Hillarstablishment, probably by running as an independent.

Risking it all on something you believe in; now that's something I'd vote for almost regardless of the ideological nuances.

[astrid]

Oops, I meant to have a not in this sentence: "Incidentally, Obama and Hillary are favorites of the "left" if you define the 'left'"

I meant to say Obama and Hillary are NOT favorites of the "left"

[astrid]

PS - unfortunately, the puffins already left for the sea when we got there. We did eat smoked puffins with blueberry sauce - very interest and very tender.

[randolfe_]

I envy your Icelandic adventure experience. I've long wanted to find an excuse to visit.

[astrid]

Randy and skibum,

If you ever fly to Northern Europe, check out IcelandAir fare prices. You can get a free layover of up to 7 days.

Iceland is very easy to get around: you don't need a visa and they let you drive with a valid American driver's license. Everybody spoke good English. They take credit cards everywhere except at city parking meters - get some 50 kronor coins for that.

The prices were also not quite as bad as I expected because all the nature areas are free, the restaurant prices are okay by big American city standards since they include tip and taxes, most Reykjavik activities are covered by the Reykjavik visitor card, and we were able to rent an automatic Corolla through a consolidator for around $100/day. The big cost is probably hotels - we got around it by camping and sleeping in the car, but hotel doubles would cost about $150-400/day.

With 3 or 4 days in the summer you can:
- go whale watching and puffin spotting
- look through 7 or 8 museums
- swim in a municipal pool (there are 7 in Reykjavik and at least one in every other major settlement)
- sample puffin and whale and cod (Seafood Cellar in the Reykjavik visitor center building has an amazing exotics fixed menu, Tapas Barinn next door has very tasty tapas and is open until 11:30 PM, Eldmjdan Pizza has wonderful thin crust woodfired pizzas)
- soak up at the Blue Lagoon
- use your relative good weather day to visit the "Golden Circle" of Geysir, Gullfoss and Thingvellir.

With an extra day or three, you could visit superjeep daytrip visits to Landmannalaugar, Thorsmork, Skogarfoss, Jokulsaron, and even Vatnajokull.

One really nice thing about Icelandic natural attractions is that there's no need to do much hiking to get really close. Most attractions are only 5 or 10 minutes walks from the parking lot. It's very kid friendly for someone your son's age.

[Brand]

Randolfe, you've got a huge flaw in your concept! If people sold at a loss, that would imply that real estate can sometimes go down. That's just silly. :o

I'm betting that the bailout talk will go on for many months, leading some people to desperately hang on to their alligator, not realizing that the bailout will almost certainly not help them. In the end, the results will be the same, but that will only become apparent far after the 2008 election is decided.

I am curious to hear your thoughts on the predictions that we are in an asset bubble for all classes (real estate, commodities, stocks, bonds). It's tough to tell if some people have donned a tin foil hat just to sell books and blogs, or if there's really a meaningful case that says we will see reversion to mean in most categories.

[Brand]

astrid, did you have a chance to try the shark that's been buried for several days? A friend described it in horrific terms, but apparently that is a very traditional Icelandic "treat".

[astrid]

Brand,

I did not try the rotten shark or the reportedly equally vile brennivin.

I claim the stinky tofu exemption (that is, I eaten pounds of stinky tofu in my lifetime, so I don't need to prove myself in the rotten foods department)

I did try whale kebob and puffin :)

[randolfe_]

@Brand

I'm not as well versed in all of the commodities, so I'm not so sure if those are in a bona fide bubble, or just in a normal boom cycle. I followed copper for a while when people were starting to worry that was a bubble, but it turned out to be a fairly normal cycle aggravated a bit by hedge funds.

When it comes to corporate balance sheets I tend to think that the non-real estate portion of non-current assets are mostly fairly valued.

[randolfe_]

@astrid

You're still welcome to author threads here if you're interested. I can resend the invite.

[astrid]

Randy,

I would love to author a thread on what I observed in Iceland. It's a rather interesting geopolitical case study, in addition to being a nice place to visit.

Please send an invite to the gmail address.

(Sorry for hijacking this thread!)

[DinOR]

Randy,

A few days (and several thousand posts ago) you had mentioned a very slick trader being interviewed by "newsmodels" on CNBC smugly boasting about how they were cutting a fat hog on the subprime play and saw this unwinding for the next several years.

Care to elaborate?

[randolfe_]

@DinOR

I will when I get some more free time tomorrow. I don't have much more than what you already heard. Just what I saw on CNBC. No insight really.

@astrid

I re-mailed you the author invite. Let me know if you have any trouble.

@other_regulars

Just let me know if you'd like to author anything. It doesn't have to be my normal dry, or pissing-off-gamers kind of stuff. I'm just happy to provide a troll-free shop until some of the dust settles. I find posting on Zillow about real estate is a good outlet for troll-fights.

[DinOR]

Randy,

If we can find out which "shop" said trader was actually with, that will tell us a lot. I don't recall the interview and it just goes to show the slightest inattention can cost you. I'd love to learn more as this would create a great window to enable clients to bring over accounts from firms that loaded them up w/MBS.

Who doesn't like being a hero?

[DinOR]

Randy,

By the by, I hope you'll appreciate that Wall Street's outright smoldering anger over what they felt was unwarranted regulation thrust on them (post tech meltdown) isn't lost on me. They simply latched on to the lenders (the next directly adjacent industry) as they saw the mortgage arena as being COMPLETELY unregulated!

With them as their firewall they were reaping huge profits once again in spite of a decimated equities market. Since I've been bearish on REIT's/MBS since at least 2003, I hope you'll respect that I've made every effort to distance myself (and clients) from this debacle.

Had I been making a mark-up peddling MBS paper AND THEN turning around after the damage is done, pretending to be part of the solution, that's just sleazy.

If John Devaney christened his yacht "Positive Carry" what shall we name ours?

[DinOR]

@skibum,

The Michael Lewis article was hysterical! Yet, through his seething anger you get the sense that he didn't really understand the securitization process either. Had he a better read, he probably would've taken a pass. All he had to do is call me and I could've spared him a rant.

Oh btw Michael, pension funds are largely made up of "poor people money".

[randolfe_]

DinOR

Honestly, I don't remember the name of the firm. I'm pretty sure I remember him saying it -- or the interviewer said it -- but it wasn't one I'd ever heard of.

He did say that there were a number of hedge funds out there like his that had been betting heavily on an outright meltdown in subprime, and that they were doing extraordinarily well. Something like +80% annualized so far.

That's about when I started paying attention, but all he said after that was that there were some bigger funds who he knew had bet very heavily, involving leverages of all sorts, on a larger meltdown in the MBS and CDO markets, and related collateral damage. The interviewer asked him if they'd started to take profits with a hint that she expected this was a short-term event. He smiled even though you could tell he was trying not to, and he said that this was only the beginning. They expected many times more profits yet to come, and that this would be a much longer correction.

He also said that no one is talking about their positions against subprime because they're afraid they'll become a scapegoat. I think he's right. If the mainstream media got hold of some major hedge funds earning 100%, 200%, or more off of ma & pa losing their houses, they'd have a literal freaking field day with it.

[randolfe_]

I used to have a handful of guys who work at some of the more respectable hedge funds as readers. But I'm not sure they're still around after my foray into online gaming coverage and then my long break.

If anyone out there like Fewlesh or the guys at BGI or D.E. Shaw who used to post are still around, it would be great to hear a more inside opinion of this notion.

[DinOR]

Randy,

Thanks for the feedback. I suspected there had to be more to it than simply shorting sub-lenders? With the "Imlope-O-Meter" just about pegged out and AHMIQ trading on the pinks, well let's just say nothing good lasts forever...

I'll see what I can't learn on my end as well.

[GK]

Randolf,

I was hoping you could educate me on the topic of Trade Deficits and their impact on US GDP Growth.

1) I realize that GDP amounts to Investment + Consumption + (Exports-Imports).

2) US Exports are much less than imports, thus the US runs a Trade deficit of $800B annually, or whatever.

3) Since the Trade Deficit was relatively small as a percentage of GDP as recently as 1995, it was much less of a drag on GDP growth then than it is now.

4) Yet, the fact that GDP growth is still a moderate 2% to 2.5% means that the INVESTMENT + CONSUMPTION portion of GDP growth is possibly even higher than it was in the 1990s.

5) Thus, if not for the trade deficit, US GDP growth would be about 4.5% to 5%, or about the same, or even higher than what it was in the late 1990s. Is this correct?

6) Most of the trade deficit is due to the high price of oil, as the US imports about 4 billion barrels of oil a year, and at $70/barrel, is about $280 Billion.

7) Thus, if Oil prices were still $20/barrel, the Trade Deficit would be smaller by $50 X 4 billion Barrels = $200 Billion a year.

8) Thus, theoretically, greatly reducing US consumption of Oil = Eliminating Oil Imports = Shrinking the Trade deficit = higher US GDP growth.

9) More realistically, if Oil falls to $40/barrel, that alone will shrink the trade deficit enough to make GDP growth much higher.

Are all of the above statements generally the right idea? Do you have anything to add?

[randolfe_]

GK

You're right on track and I agree with your reasoning. Some more neoclassical minded economists thus reason that *deficits* are not that relevant, but that *debt* is the problem. An improvement in the direction of capital flows would not help the debt, but would drastically change the deficit position. Some argue that the US current account deficit and consequent "global imbalance" is a both a problem and a benefit to the US (even ignoring reserve currency status), as it is for foreign current account surplus/capital export nations. It depends upon your perspective. The US gets the use of foreign capital inflows in our economy, leveraging our standard of living by paying with dollars leveraged against our own deficit.

This is one of the reasons why, when blogs I frequent start whipping on the Fed and central banks in general for poor monetary practices (not that they don't have some poor practices), I argue that the larger issue is *fiscal* in nature. The above net import of capital isn't a problem but for the fact we are extending that on ever growing debt. That debt costs us dearly to service, and amounts to a our politicians loaning future GDP standard of living to foreign debt holders. This game can go on a long time, but it will not end well. The resolutions are either (a) fiscal responsibility, which means much more efficient government, higher taxation, and reduction in some services; and probably a large reduction in US foreign aid and military spending. (b) Massive future US inflation potentially spiraling towards causing domestic unrest. (c) Inflation so high it forces the US to effectively default on its US debts, either by implementing a ZIRP policy, or by outright military global geopolitical realignment (a very fancy, politically correct way to say very unhappy, real wars).

We may have passed the point of being able to undertake option (a) practically. That is what keeps me awake at night.

What I do hope as a salvation is technological innovation. Primarily, energy efficiency, alternative energy, and locally self-sufficient energy sources. If the US can reduce it's foreign oil import needs, and more importantly (the US could live without foreign oil if it had to already) transferring that technology and/or resource to our allies like Japan and Europe which very much need Mid East and Russian oil, then we can shift net capital flows greatly back to net capital exports.

The risk is that technologies which break the oil portion of the energy complex could just as well result in global wars as the entire equilibrium of the past 60 years would come unraveled.

The easier answer would have been incremental steps towards fiscal responsibility over a multi-decade period. But, like I said, maybe too late for that now.

[ColoradoBear]

DinOR,
I don't know if this is the same guy who was on CNBC but BusinessWeek ran an article on a guy named Nandu Narayanan. His bets on bad credit are paying off nicely. Here's a link to the article:
Cleaning Up on the Meltdown

Santelli shutting down Cramer was funny. iTulip has been having fun at Cramer's expense lately too.

One thing I like about sharp guys making money on the downside is that there is a different mentality about it. You've got your data, you place your bets, and you stay quiet while the game plays out. When it's over you take your money and leave. It is clearly a temporal situation. Meanwhile, on the "upside" you've got hucksters like Cramer projecting (and now clinging to) the image that you can ride the wave forever.

[GK]

Randolfe,

Wow, that is a pretty gloomy future. Are you certain that options b) and c) are imminent unless innovation revolutionizes many sectors of the economy?

I am still very optimistic when I think about how US GDP growth, if not for the burdensone trade deficit, is actually accelerating and running at 4.5% to 5% a year.

US National Debt is still somewhat constant at 65% of GDP for the past 15 years. This does not seem to be worsening.

But I will say that the stupid GOP missed the opportunity of a lifetime. The tax cuts caused tax revenue to surge, growing 40% in 7 years from 2000 to 2007. But they grew spending at an even greater pace, negating the revenue surge and golden opportunity to take a chunk out of the national debt. Had they done this, they would have cemented their electorcal fortunes for a generation. But they blew it in a spell of profligate gluttony.

[randolfe_]

GK

I probably did come across a bit gloomy. Take my predictions as very long term. I am quite bullish on the overall US global position for at least the next 2-3 generations. Even if the US does everything wrong -- which we're not right now -- our economic dominance will have a _very_ long tail. I've argued about the sheer scale of US economic dominance quite a lot on Patrick's, and usually it provokes quite a lot of gloomsters into fits.

What I truly do believe in is US technological and scientific leadership. I am a technologist myself, so I'm biased. But I believe this is the dawn of a golden era for innovators and inventors to establish the solutions, products, systems and business empires for the next era, whatever we end up calling it.

I see the primary investment sectors as being energy, infrastructure, medical/meditech, tech & biotech, roughly in that order and with obvious crossovers. The wildcard is agriculture, in my mind, which is undergoing both a demand and supply revolution right now, and is putting the US agribusiness sector quite frankly 2-3 waves ahead of most of the rest of the world.

[Brand]

Speaking of prices, Fort Collins is FINALLY starting to see consistent major price declines. As predicted, owners and investors are sticky, but the banks are putting REO out there for cheap prices. A snapshot of the latest low-ball property:

05/18/2007: $240,298
05/12/2006: $330,000
05/11/2004: $214,400

This is within two blocks of CSU campus, 5 bed, 3 bath, 2400 sq.ft. and probably rents for $1200-1500/month. Asking price is $178,500 from Wells Fargo.

Maybe somebody did major damage to the place, but I'm seeing that banks are trying to move REO very quickly. I'm beginning to wonder if some of them aren't just trying to get cash to keep their balance sheets working. Is WF having any liquidity issues? I hadn't seen them mentioned in articles yet.

[randolfe_]

I'm still seeing a number of bank owned homes sitting at exactly the same final price the foreclosee settled at, which usually equates to their purchase price, or maybe a bit lower (since most of them had little to no equity).

My current working theory is that the banks simply don't have the personnel or process to move these properties since the past half decade they've been able to simply dump them onto a broker and sell them instantly. Now that they are faced with cutting prices, there probably isn't anyone on staff locally empowered or willing to make that decision, since it affects their balance sheet.

Just a theory. We'll see if these things all start moving at once.

[GK]

Randolfe,

So, do you think it is possible that the Investment + Consumption portion of GDP (i.e. excluding the trade deficit) will continue to accelerated (as it has over past decades) and be solidly above 5% a year by the middle of the next decade?

I am beginning to think that too much of emerging market GDP growth is just trade surplusses with the US. Without the trade distortion on both ends, the gap between US GDP growth and Asian GDP growth would be much less.

[Brand]

Most of the banks here use local real estate agents. However, some lenders appear to prefer using their own internal departments. Their postings tend to be very dry and immediately recognizable.

[randolfe_]

GK

Yes. I think US GDP growth is actually much higher than stated because of capital flow distortions caused by global trade. There is a serious problem in that emerging economies are not growing very much but for their trade with the US, most of which is a direct result of the US' leadership in open global trade.

In many cases the US has asymmetric open trade policy with developing nations which grants them a large GDP growth handicap. Economists like Stiglitz advocate this as an appropriate US policy along the lines that the US has an obligation as world leader to help "incubate" developing nations. Others argue that the policy actually retards true development of those nations. I think it can go either way depending upon the specific situation. The policy is problematic when viewing it in relation to India or China, which clearly protect domestic markets while relying upon US open trade to boost their own GDPs through trade surplusses.

[DinOR]

Thanks ColoradoBear!

This could get interesting.

[astrid]

Randy,

My post "Random Observations on Iceland I" is ready to go. I think I need your approval to publish.

[randolfe_]

Astrid

I reset your author permissions. You should be able to post now. I also added some new categories, including Travel and Leisure.

I'm working (slowly) on a pretty significant upgrade of the site overall so that it's not so "me focused". I'd like to just open things up for lots of different mature, relevant discussions.

If you or anyone else has any ideas... In fact, that would be a good thread itself.

[Doug]

One problem the US has re. the trade deficit is that as we've moved up the food chain to production of IP-heavy products (e.g. movies, music, software, drug discoveries) we are vulnerable to countries simply appropriating what we have to offer, while selling us (literal) boatloads of physical goods which cannot likewise be stolen.

[randolfe_]

Doug

That is a point of concern. I'm not sure how to handle it other than strong arming our trade "partners" into honoring international copyrights and patents.

There is another point, however. US trade weighted by value of tangible goods has been growing, which is usually missed by those worried about trade deficits. The reason being we've moved up the ladder on production of complex, usually automated machinery, control systems, and high-tech materials. The US manufactures, for example, a very large portion of the avionics and computer systems that Airbus' are built from. And there's also our military hardware exports, but that's an entirely different can of worms...