Pepper sprayed for public safety.

[sebastian_dangerfield]

Originally Posted by Adder

You are a scholar and a gentleman, but I don't understand what money you think is waiting in the wings to invest once stock prices get back to where they were a few years ago and once housing prices fall yet further.

Millions of first time home buyers are shut out of the housing market right now because prices remain too high. If prices dropped another 10-20%, they might be able to pony up the down payment to get a home (non-FHA). You also see the currently dead first-to-second home buyer jump into the market.

Regarding the market, the reasons most offered for why people are avoiding it are volatility and a fear it's overpriced. Tons of people have pulled their money out of it, which you could read about on almost any finance website. Correction = New investment + Gains, which = Wealth effect, which = Consumption.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

No, I'm discounting a consumer-initiated recovery. Even the upper middle class consumer is showing weakness: http://blogs.barrons.com/stockstowat...er-struggling/

I am trying to figure out where we disagree most fundamentally, and I think it is this:

In my world, we have had more less steady economic progress for years, broken by the Great Recession. Thus, we've had a radically departure from what was basically working OK -- from a macroeconomic perspective, that is -- and we need to figure out how to get back on track.

In your world, things have been going to hell for years, in a handbasket, and we have been in denial, papering over problems and trying to avoid the inevitable day of reckoning. Things need to get even worse before they can get better, and anything that doesn't involve grappling with our most fundamental problems and making some radical changes is counterproductive because it distracts us from the deep shit we're in.

Now, I don't really think there's much point in arguing about whether things were basically good or basically bad before the Great Recession, partly because I've overstated our differences above and we surely both will agree that there was some good and some bad and the truth lies somewhere in the middle, but more fundamentally because to me the important question is not whether we're all swimming our way to heaven in gravy or riding the shitter down to hell, but what we can do on the margin, right now, to improve things as we go. Which is to say, I'm more focused on the question of how we respond to the specific economic problem we have now.

What I hear you saying is, there's no demand, but everyone is broke so there isn't going to be any demand anyway, so let's talk about spurring investment. (At a macro level, this is silly. We are richer than we have ever been before.) But that's not an explanation for why things are different the last few years.

Here is Krugman's story, which makes a lot of sense to me:

What, after all, is the story of this crisis? The simple take many of us have now adopted, which I think gets at most of it, runs along the lines of my Sam and Janet story. At any given time there are some people who would like to borrow more at current interest rates, but are constrained by norms about how much debt is too much. If these norms are loosened, they will borrow more — which is in fact what happened between around 1980 and 2007, as deregulation, financial innovations nobody understood, and general complacency led to a broad willingness to accept higher leverage.

Now, if people are borrowing, other people must be lending. What induced the necessary lending? Higher real interest rates, which encouraged “patient” economic agents to spend less than their incomes while the impatient spent more.

OK, so that’s what happens when an economy is engaged in increased leveraging. Then something makes people remember the dangers of debt, and leveraging gives way to deleveraging.

You might think that the process would be symmetric: debtors pay down their debt, while creditors are correspondingly induced to spend more by low real interest rates. And it would be symmetric if the shock were small enough. In fact, however, the deleveraging shock has been so large that we’re hard up against the zero lower bound; interest rates can’t go low enough. And so we have a persistent excess of desired saving over desired investment, which is to say persistently inadequate demand, which is to say a depression.

By the way, this is in a fundamental sense a market failure: there is a price mechanism, the real interest rate, that because of the zero lower bound can’t do its job under certain circumstances, namely the circumstances we face now.

What to do? One answer is fiscal policy: let governments temporarily run big enough deficits to maintain more or less full employment, while the private sector repairs its balance sheets. The other answer is unconventional monetary policy to get around the problem of the zero lower bound: maybe unconventional asset purchases, but the obvious answer is to try to create expected inflation, so as to reduce real rates.

Now look at what the serious people say: we must have fiscal austerity, not stimulus, because debt is bad; we must not have unconventional monetary policy, because that would endanger “credibility” (where it’s not at all clear what that means).

So basically, we must do nothing to fix this horrific market failure, and allow unemployment to fester instead.

It’s really awesome, when you think about — not just that we’re committing this massive act of folly, but that it’s all being done in the name of sound policy.

Why is that not right?

[Adder]

Originally Posted by sebastian_dangerfield

Read about Ireland lately?

Yes, having fobbed off some of the ill-advised guarantees of debts to foreigners, things are looking better. They probably would have looked better still had Ireland gone the way of Iceland in the beginning, but it didn't really have that option.

They're going to be left idle either way.

Yes, it's easy to make your logic unsailable if you simply assume your conclusion.

Out of the ashes we get a grand rebuild.

Only in fantasy land.

True. But I disagree. These global monstrosities crowd out competition and are way too cozy with the govt. This is not good economically or in terms of the Republic's civic health.

I actually don't disagree with you, but there are few Teddy Roosevelts out there and his party seems to have been taken over with people who have confused campaign rhetoric about the evils of government for actual policy.

[Adder]

Originally Posted by sebastian_dangerfield

Millions of first time home buyers are shut out of the housing market right now because prices remain too high.

They are shut out by inadequate availability of credit, not prices. And that nonavailability of credit is driven in no small part by continuing price declines.

Regarding the market, the reasons most offered for why people are avoiding it are volatility and a fear it's overpriced. Tons of people have pulled their money out of it, which you could read about on almost any finance website. Correction = New investment + Gains, which = Wealth effect, which = Consumption.

I really can't say it often enough, but you do yourself a disservice by reading the financial press.

Your story, that prices are too high and "tons" of people are thus sitting on the sidelines just cannot be. It's people being in the market that makes prices go up, you know.

As for your little tautology, shouldn't that already have happened in the rally since early 2009?

[Adder]

Originally Posted by Tyrone Slothrop

(At a macro level, this is silly. We are richer than we have ever been before.)

A minor quibble, but I don't think this is right, at least not on a per capita basis. We were richer before the crash.

[sebastian_dangerfield]

They are shut out by inadequate availability of credit, not prices. And that nonavailability of credit is driven in no small part by continuing price declines.

And what causes them to be unable to borrow? Oh, that's right: Nobody can come up with 20% down. Why is that?

I really can't say it often enough, but you do yourself a disservice by reading the financial press.

Your story, that prices are too high and "tons" of people are thus sitting on the sidelines just cannot be. It's people being in the market that makes prices go up, you know.

I've gotten that from friends who work in finance, many of whom are pulled out, and investing elsewhere. Your view that individual investors are all in doubled-fisted is cute though. It shows an endearing guilelessness.

Re the tautology, can you read? My whole point was we need a real rally people won't see through as artificially propped.

[Adder]

Originally Posted by sebastian_dangerfield

And what causes them to be unable to borrow?

Because banks are being especially tight on credit. Even my parents, who have two homes and significantly more assets than they are seeking to borrow, have had a little trouble adding a mortgage for the one property they currently own outright.

Oh, that's right: Nobody can come up with 20% down. Why is that?

To the extent that is the problem and folks don't have any cash saved despite having not purchased, falling prices aren't going to help them that much, especially as it's going to impose as much or more pain on the seller.

ETA: You realize that housing prices have substantial down-side stickiness due to the leverage involved, right?

I've gotten that from friends who work in finance, many of whom are pulled out, and investing elsewhere.

You know who are often the dumbest about finance? People who work in finance.

Your view that individual investors are all in doubled-fisted is cute though.

Who said that?

But speaking of gullible, you're arguing at the same time that market prices are too high and that there is money sitting on the sidelines waiting to take them higher if only they would fall a bit. That's nonsense.

Re the tautology, can you read? My whole point was we need a real rally people won't see through as artificially propped.

"Artificially propped" is nonsense too.

[Tyrone Slothrop]

“I’ve become less conservative since the Republican Party started becoming goofy.”

-- Hon. Richard Posner

[Tyrone Slothrop]

Stimulus!

[Sidd Finch]

Originally Posted by Tyrone Slothrop

Stimulus!

Why is Local Government - Education down 14%, but Local Government Excluding Education up 18%? Those figures (which, I acknowledge, do not come close to giving a complete picture) suggest that local governments are not starved for money but directing it to places other than teaching jobs.

[Hank Chinaski]

Originally Posted by Sidd Finch

Why is Local Government - Education down 14%, but Local Government Excluding Education up 18%? Those figures (which, I acknowledge, do not come close to giving a complete picture) suggest that local governments are not starved for money but directing it to places other than teaching jobs.

I love it when one of you guys try to explain facts to Ty- mostly it's baseball by Thurgreed- Get ready for a world of frustration.

[Adder]

Originally Posted by Sidd Finch

Why is Local Government - Education down 14%, but Local Government Excluding Education up 18%? Those figures (which, I acknowledge, do not come close to giving a complete picture) suggest that local governments are not starved for money but directing it to places other than teaching jobs.

How goes it suggest that?

[sebastian_dangerfield]

Because banks are being especially tight on credit. Even my parents, who have two homes and significantly more assets than they are seeking to borrow, have had a little trouble adding a mortgage for the one property they currently own outright.

Banks aren't being especially tight on credit. They're being prudent, which they weren't in the past (which is a big part of why we are where we are). I agree it's ludicrous to treat good risks like your folks as though they were first time buyers, but you're talking about huge banks. They treat everyone the same. (Your folks should have gone to a local bank where underwriters with brains actually examine the risk up close. The big banks suck because all their r/e lending is based on Zillow and Trulia valuations, which are shit.)

To the extent that is the problem and folks don't have any cash saved despite having not purchased, falling prices aren't going to help them that much, especially as it's going to impose as much or more pain on the seller.

It will hurt sellers for a short time, but then as the herds start buying, prices will rise. The followers will do what they always do - "Get in now... before prices get too high!"

ETA: You realize that housing prices have substantial down-side stickiness due to the leverage involved, right?

No. I suffered brain damage in an MMA match last week.

You know who are often the dumbest about finance? People who work in finance.

I'm not talking Ibankers. I'm talking people who work in private equity and hedge funds.

But speaking of gullible, you're arguing at the same time that market prices are too high and that there is money sitting on the sidelines waiting to take them higher if only they would fall a bit. That's nonsense.

This is silly. You know how a vulture rally gets started. The idea is to get the money on the sides to start grabbing bargains and then let the herds follow. Natural inflation. To do that, we need to wipe out the perception that assets are overvalued, and that the govt will continually prop them up via monetary policy.

"Artificially propped" is nonsense too.

Then why is it not even the bulls trust this rally? Everyone believes our economy cannot survive without consistent govt interventions. If that isn't artificially propped, I don't know what is.

[Tyrone Slothrop]

Originally Posted by Sidd Finch

Why is Local Government - Education down 14%, but Local Government Excluding Education up 18%? Those figures (which, I acknowledge, do not come close to giving a complete picture) suggest that local governments are not starved for money but directing it to places other than teaching jobs.

That's a good question. I'd like know.

I see that total government -- federal ,state, local -- is down 4%. Stimulus!

[Sidd Finch]

Originally Posted by Adder

How goes it suggest that?

If there is a net increase in local government jobs, but a significant decline in local government jobs in education, it suggests that local governments have the money available to hire more people but are choosing to cut education jobs in favor of increased hiring elsewhere. (Note also that my original post referred to %, but it was realy K -- numbers of jobs, in the 1000s. The chart shows a net increaseof local govt jobs.)

As I said, the one pair of statistics paints a very incomplete picture. Not all jobs are equal, in terms of cost, funding sources, obligations, etc. But I'd be more convinced that this was a sign of austerity or excessive austerity in local governments if local government employment were actually falling, rather than just falling in education while increasing overall.

The headline of the article refers to the number of teaching jobs lost, then says that a major cause of the unemployment crisis is cuts at the state and local level. Maybe true about state-level cuts, but an overall increase in local government jobs isn't causing much unemployment.