3 ms·

"The solution? Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levyin

by spangry 11y ago

"The solution? Dissolve land-use regulation, pay residents to allow developers to build new structures, and distort the market in favor of the renters by levying a land-value tax." Small nitpick. Land markets are generally distorted by default: improvements in the immediate area generate 'privately captured positive externalities' for land-owners in the form of increased unimproved land-value: in other words, pure economic rents that are capitalised into increased private land values. Taxes (like LVTs) that transfer some of this value from private to public hands reduce this distortion: they actually enhance allocative efficiency. It's a fascinating dynamic, and IMHO this uncorrected distortion is a major driver of boom-bust cycles in the macro-economy. Mark my words: the economic depression that will occur in the next 5 years will be started by bubbles popping in residential property markets (China's first, most likely). Consequently, we'll be looking at financial system collapse when this is transmitted to banks via insolvent residential property speculators (to whom they've loaned significant amounts of money). This ain't going to be pretty.

kqr2 11y ago
How will this be different from the 2007/2008 financial crisis? Although subprime no longer seems to be the catalyst, won't the government and federal reserve use the same playbook? Namely they will bailout banks, investment firms (either directly or indirectly), fannie mae/freddie mac, and engage in new rounds of QE?
- linkwray 11y ago
  Imo 2008 is probably not the best comparison. What I believe is happening now is the China crash is the catalyst of a regional Asian/emerging market crisis on a parallel with 1997. Note this was 18 years ago, and this not coincidentally is the average length of land price cycles. These divide roughly into 3-5 year depressions, then an upswing of just over 14 years usually punctuated around year 7 by a mid cycle recession and then an exponential ponzi period leading up to the crash. What is significant is that despite globalization broadly Asia and the West still seem to have separate land cycles. Weak as the recovery in the West has been, it is unlikely the Asian crisis will have a significant enough effect outside of the stock markets, indeed it is cities like London and New York that will attract much of the capital flight from the region. The time period for the Western cycle is likely to be 2019 mid cycle, 2026 crash. I would also look at Australia and Canada however, as their markets did not correct after 2008 due in part to links to China so as well as being they may have become linked to the Asian cycle. And areas such as San Francisco which popped in the dot com boom are already in the 'it's different this time' denial phase so it may well be this region will not survive the mid cycle.
- spangry 11y ago
  For the US specifically (I'm an Australian), I'm not entirely sure. I must admit I'm a few months out of date information-wise as I stopped reading the news about half a year ago. It was just too damn depressing to watch these trends unfolding and no-one seeming to give a crap. On the hopeful side, countries like the US, Ireland and Iceland who 'took their medicine' during the GFC (sustained heavy property price declines or significant bank collapses), will be closer to fundamental values already. So they may have less distance to fall, even though there will probably be some overshoot. Also, OPEC flooding the world market with oil (to try and kill the US shale oil industry in the crib) and the likelihood that China will run down its foreign currency reserves to pay for stimulus (depreciating the US dollar) will mean US export industries (excluding oil and natural gas) become very competitive indeed. Countries like China, Australia, Canada and the UK on the other hand, who staved off significant property market corrections during the GFC (especially Australia), are in for a very bad time (http://www.economist.com/blogs/dailychart/2011/11/global-house-prices http://www.economist.com/blogs/dailychart/2011/11/global-hou... ). Like worse than 1920s depression bad time (closer to 1890s depression). On government response, it's hard to predict. Frankly, in both the US and Australia, our legislatures are now controlled by even crazier and stupider politicians than during the GFC, so I don't hold out much hope for sensible fiscal responses. There's also less room to move fiscally, as we used up most of our powder during the GFC and won't be able to fire as strong a shot this time around. The thing that truly worries me is that government underwriting of financial system liabilities will therefore be less credible, so there is an increased probability of bank-runs causing a complete financial system collapse. Our central banks also have less room for more traditional responses (i.e. reducing the cash rate), as they'll be starting from a much lower initial rate (and so will hit the zero lower bound much quicker). QE will therefore be deployed more rapidly and in greater quantity. Even though the Fed Reserve may have appeared confident re: QE, I'll bet they were privately shitting themselves because QE was (and still is) uncharted and risky territory. This time around they'll have to go much harder and earlier. At this point, I really have no clue what could happen. On the bright-side, at least we'll be able to settle the question of whether theorised 'liquidity traps' truly exist... All this is just my best guess. A more positive but still plausible theory is that China will manage their economy into a 'slow-melt', and will experience a long period of economic stagnation similar to what Japan has gone through in the last two decades. In this scenario, the damage might be contained and the US could come out relatively unscathed. I think Australia's screwed either way though...

by spangry 11y ago

kqr2 11y ago

How will this be different from the 2007/2008 financial crisis? Although subprime no longer seems to be the catalyst, won't the government and federal reserve use the same playbook? Namely they will bailout banks, investment firms (either directly or indirectly), fannie mae/freddie mac, and engage in new rounds of QE?

linkwray 11y ago
Imo 2008 is probably not the best comparison. What I believe is happening now is the China crash is the catalyst of a regional Asian/emerging market crisis on a parallel with 1997. Note this was 18 years ago, and this not coincidentally is the average length of land price cycles. These divide roughly into 3-5 year depressions, then an upswing of just over 14 years usually punctuated around year 7 by a mid cycle recession and then an exponential ponzi period leading up to the crash. What is significant is that despite globalization broadly Asia and the West still seem to have separate land cycles. Weak as the recovery in the West has been, it is unlikely the Asian crisis will have a significant enough effect outside of the stock markets, indeed it is cities like London and New York that will attract much of the capital flight from the region. The time period for the Western cycle is likely to be 2019 mid cycle, 2026 crash. I would also look at Australia and Canada however, as their markets did not correct after 2008 due in part to links to China so as well as being they may have become linked to the Asian cycle. And areas such as San Francisco which popped in the dot com boom are already in the 'it's different this time' denial phase so it may well be this region will not survive the mid cycle.
spangry 11y ago
For the US specifically (I'm an Australian), I'm not entirely sure. I must admit I'm a few months out of date information-wise as I stopped reading the news about half a year ago. It was just too damn depressing to watch these trends unfolding and no-one seeming to give a crap. On the hopeful side, countries like the US, Ireland and Iceland who 'took their medicine' during the GFC (sustained heavy property price declines or significant bank collapses), will be closer to fundamental values already. So they may have less distance to fall, even though there will probably be some overshoot. Also, OPEC flooding the world market with oil (to try and kill the US shale oil industry in the crib) and the likelihood that China will run down its foreign currency reserves to pay for stimulus (depreciating the US dollar) will mean US export industries (excluding oil and natural gas) become very competitive indeed. Countries like China, Australia, Canada and the UK on the other hand, who staved off significant property market corrections during the GFC (especially Australia), are in for a very bad time (http://www.economist.com/blogs/dailychart/2011/11/global-house-prices http://www.economist.com/blogs/dailychart/2011/11/global-hou... ). Like worse than 1920s depression bad time (closer to 1890s depression). On government response, it's hard to predict. Frankly, in both the US and Australia, our legislatures are now controlled by even crazier and stupider politicians than during the GFC, so I don't hold out much hope for sensible fiscal responses. There's also less room to move fiscally, as we used up most of our powder during the GFC and won't be able to fire as strong a shot this time around. The thing that truly worries me is that government underwriting of financial system liabilities will therefore be less credible, so there is an increased probability of bank-runs causing a complete financial system collapse. Our central banks also have less room for more traditional responses (i.e. reducing the cash rate), as they'll be starting from a much lower initial rate (and so will hit the zero lower bound much quicker). QE will therefore be deployed more rapidly and in greater quantity. Even though the Fed Reserve may have appeared confident re: QE, I'll bet they were privately shitting themselves because QE was (and still is) uncharted and risky territory. This time around they'll have to go much harder and earlier. At this point, I really have no clue what could happen. On the bright-side, at least we'll be able to settle the question of whether theorised 'liquidity traps' truly exist... All this is just my best guess. A more positive but still plausible theory is that China will manage their economy into a 'slow-melt', and will experience a long period of economic stagnation similar to what Japan has gone through in the last two decades. In this scenario, the damage might be contained and the US could come out relatively unscathed. I think Australia's screwed either way though...