House of Paine

more Delong: bubblenomics

after 
a stark  admission 
   that
his very own
" world financial flows "
                      theory 
                 is prolly "dead wrong"

u'd think he'd shut up
for a few days 

right ?

  nope ....
he goes right on from there

in the same piece even .....

==================== 


  seems  
he  feels 

he's got 
a pant load or two
 worth saying.....

about our house lot bubble 


---------------------------------- 


--------  brad
   thinks
we better start figuring out
 an " optimal'
            lot  bubblenomic 
                         credit policy   antedote    ---------------



---------  but first his usual 
     tall  pointy hat
                       pontification -------------- 



"The housing boom is due
 first of all 
 to low interest rates  
which mean 
  that large amounts of money
 can be borrowed for mortgages
 with moderate monthly payments"

" Low interest rates strengthen 
the ability to pay, 
and thus boost demand.
 And, with demand high
 and housing supply fixed
at least in the short run
        prices go up"


----------PURE TEXT BOOK 
left out the quantity
of such low rate loans

which is nearly unlimited 
remember we ration credit

ie
low raters might have many more applicants then recipients
and even for those higher income qualifications could off set the low rates
in terms of toal crdit dollars chasing lots for sale --------

    "Second,
 the 70-year period that began 
with the widespread diffusion 
of the automobile
during which one could get nearly anywhere
 in a typical metropolitan area 
in half an hour or less
is over"

" Before there was widespread automobile ownership
 land prices depended on location"

 "proximity to the central city 
or to the local railroad station
 carried a premium "

"Now, with serious congestion
 slowing traffic in major cities to a crawl
 the land gradient in housing prices
 is steep once again"

" Perhaps this steepening 
of the location gradient 
could be delayed for a decade 
if we were willing to shift
 to denser residential patterns"



" We could, for example, tear down 
San Francisco’s row houses 
and replace them with buildings
 more like those of New York’s Upper West Side
 But we aren’t willing to do that"

-----------hmm

very pat answer here my tubby grinning  bubster 

maybe theres more 
to low density zoning
 then just goood  sense
and good taste
eh  brad? ----------


---------- but ya gotta love this glib turn of phrase -----------

 "our cars no longer marginalize location costs"



--------BUT  he admits
there is a "real" pure 
" BUBBLE " component too

A PART THAT IS REAL FROTH... ------------


"  filled by people
 with money who are buying extra houses
 because they think home prices
   will continue to rise"


--------------IE  BIGGER FOOL  RUBES ------------------

 " and  people without money 
who are buying $400,000 houses 
in less-fashionable neighborhoods 
with zero percent down 
and floating interest rates"

   -----------BOTH GROUPS ARE BORN TO "DUMP "------------


-------------------------------------------------
--------BRAD ON 
DEVALATION INDUCED 
           INFLATION------------

 "The United States imports 
the equivalent of 16 percent of its GDP
 A 40 percent fall 
  in the value of the dollar
of which half passes through 
to increased dollar prices of imports.."

------HERE HE'S RIGHTLY ASSUMING
 SOME SWALLOWING
 OF THE DECREASE IN  "REAL REVENUE" 
  BY THE OUTSIDE TRADER
LOOKING TO HOLD MARKET POSITION-------------

---------HOW HE FIGURES THATS HALF
                    NOT SAY
                       20%

                             OR 70%
                WELL
                            HE'S A WIZZARD -------------------


------- STILL GIVEN HIS ASUMPTIONS
 HIS MATH LOOKS KOOL
 
(16 DIVIDED BY 2 EQUALS 8
40% OF  8 EQUALS 3.2)
                 WHICH...--------


" implies an extra 
  3.2 percent rise
 in the overall price level"


" A Federal Reserve committed
 to effective price stability 
will likely raise interest rates 
rather than allow 
any year’s inflation rate 
to jump from 3 percent
 to 6 percent"

-- buttsky  brad
  WHAT IF THE PRICE ADJUSTMENTS 
 ARE SPREAD OVER ...
             THREE OR FOUR  YEARS ?????----------------.

----------
  HOWEVER GRANTING A SPIKE
IN RATES HAPPENS ....--------

------NOW COMES SOME 
                need of 
           first rate  helmsmanship --------------

TO NAVIGATE 
 between  two  near fatal consequences 
 and indeed

a very  narrow 
  and nice path between
it may prove to be -------------------

----------- as our  brad 
             very pertly  puts it  ------------------- 


" we may get to
 see  just how good 
  the Federal Reserve really is"

as we try sailing between 

SCYLLA 

"  interest rates rising  too far
 and triggering
     the collapse of housing values 
 leading  to large-scale foreclosures
 and a collapse in general consumption spending 

Tand from there
  on to  a  major contraction 
 not just for the United States
 but for Asia and probably Europe as well"

--------- more sage  brad ....--------------

" the United States can remain
 the world’s importer of last resort
 and guarantor of effective demand
 only as long as 
its domestic consumption is strong"


--------  however avoid scylla too liberally
          
 and face ...---------------------

CHERIBDUS 

" let  interest rates 
stay low 
 and
  the value of the dollar 
will spiral downward 
and U.S. inflation 
will spiral upward
like in the 1970s 
 setting the stage 
for the type of extremely painful measures
 imposed by then-Federal Reserve Chairman
    Paul  "figure four "  Volcker"

---------- do u sense a thrill 
           running up delong's pee pee here ? ------------



--------------------------------

the hiis quick 
leave em wantin more wrap up...


"hardly an enviable position
 to throw 
 greenspan's replacement  into eh? "



oh ya then 
he gives us
one of  his " signature'
  raffish   final twists 


" And to think
  journalists
    keep asking  me
  who's gonna  get
 the “plum job” 
of Fed Chair next year"