7 ms·

When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable t

by dpweb 5y ago

When it's all assets going up, it's not the assets cost more, it's the dollar is worth less. So for all the help and assistance. Housing is LESS affordable than ever before. You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.

the_gastropod 5y ago
I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi
- markus_zhang 5y ago
  It's more like inflation of asset prices.
  - the_gastropod 5y ago
    I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.
    - larksimian 5y ago
      Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues. Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal. 'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
      - the_gastropod 5y ago
        > It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming. Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.
- willcipriano 5y ago
  That's CPI, not inflation. CPI has a number of ways that a thumb may be put on the scale, for example hedonic quality adjustments seem to me to be highly subjective.
  - the_gastropod 5y ago
    Right, vs REAL inflation, which is measured by whatever I think happens to be too expensive right now.
    - willcipriano 5y ago
      I mostly just look at the money supply. Print 10% more money, that's 10% inflation. It may not be uniform throughout the economy, or take effect immediately but that's 10% more money chasing the same assets. It's all has to go somewhere.
      - haskellandchill 5y ago
        Money supply in theory is chasing actual economic effects such as growth, so your view of just one side is not very meaningful. The flaw is in considering assets static.
        willcipriano 5y ago
        To some extent sure but were 2020 and 2021 boom years in terms of productivity, because they were certainly boom years in terms of money printing.
      - munk-a 5y ago
        What is the actual money supply though - if I earn 1k and put it in a bank and it gets loaned out to someone else is there now 2k in circulation since my money is insured? Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.
greesil 5y ago
You can if you're in a liquidity trap. Question is, are we in one now?
- robocat 5y ago
  I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem! On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments. Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income). I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner. Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage). Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
  - greesil 5y ago
    Wrong liquidity.
  - bluGill 5y ago
    Eventually people decide they have enough house.
  - notJim 5y ago
    > Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small. You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
munk-a 5y ago
Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is not one - in actuality all the houses people own are constantly depreciating while the land they're built on continues to gain value from age - they gain value from the increased shortage of supply - and they gain value from the constantly increasing cost of building houses (labour and materials - the material increase mostly also due to labour). There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages). 1. In a very very infinitesimally unmeasurably minor manner.
- mywittyname 5y ago
  > 1. In a very very infinitesimally unmeasurably minor manner. Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.
  - xyzzy123 5y ago
    Meanwhile entropy is eroding the value of many of the made and manufactured things in the world. Termites are eating houses, cars are wearing out, children are breaking toys, clothes get holes in them...
    - munk-a 5y ago
      If you're interested in the scenario where that depreciation outpaces all else I might suggest reading the Foundation by Asimov series which includes an empire in its sunset and suffering from systems collapse. If we were in such a situation it'd be pretty clear to everyone as maintenance costs would prevent any sort of productive activity. I personally think that, short of a sudden disaster that causes extreme knowledge loss, a systems collapse is infeasible in the modern world since we've invested so much of our ongoing maintenance into detecting these sorts of insidious critical failures. But, in short, those depreciations are far outweighed by value creation right now.
throw0101a 5y ago
Lots of money supply in Japan, and are their asset prices going up? * https://fred.stlouisfed.org/series/MYAGM2JPM189S https://fred.stlouisfed.org/series/MYAGM2JPM189S Their central rate has been <1% since 1995. Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.
- b9a2cab5 5y ago
  Japanese asset prices would otherwise be deflating, so the "infusion" has absolutely had an effect. The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.
- ItsMonkk 5y ago
  Lyn covers this topic fairly well in her article on Japan[0]. In short, private debt in Japan has shrunk by 300 trillion yen over the past 25 years. The growth of the money supply is all coming from public debt. It matters who gets the new money and what they spend it on. [0]: https://www.lynalden.com/economic-japanification/ https://www.lynalden.com/economic-japanification/
  - deleted 5y ago
    [deleted]
- RC_ITR 5y ago
  Yes they are - https://www.bloomberg.com/news/articles/2021-09-03/japanese-stock-futures-rally-after-report-suga-plans-to-resign https://www.bloomberg.com/news/articles/2021-09-03/japanese-...
blake1 5y ago
Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation. People worry about inflation, but forget how awful deflation is. (And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)
- hcurtiss 5y ago
  I've never understood how deflation could ever be a concern in countries that print their own money. Can you not just print your way out of it every time?
  - lotsofpulp 5y ago
    Not if you need to import anything, since you can inflate your currency all you want, but the world will deflate it relative to other currencies.
  - whimsicalism 5y ago
    Political constraints around central bank policy. Or really strong deflationary market expectations, for whatever reason.
  - blake1 5y ago
    I know of two examples from the Depression. In Germany, it was a deliberate policy. In France, it was a zealous adherence to the gold standard. I am also bewildered. So many bad effects of deflation.
  - throw123123123 5y ago
    The problem is that you can get both at the same time: deflation of asset prices and inflation of goods prices.
  - imtringued 5y ago
    Politicians don't give a damn about deflation. They will tell you how governments must be responsible with their budgets and do debt ceilings and austerity, while simultaneously promising income tax cuts for the rich which they finance by cutting public investment. It'll trickle down.
notJim 5y ago
I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about. Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in. The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?
- arrosenberg 5y ago
  > Is there a plausible way we can get out of this situation? Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian. If we are responsible with the new revenues (we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.
imtringued 5y ago
This was linked in this submission: https://blog.firstam.com/economics/todays-house-prices-are-over-40-percent-more-affordable-than-the-housing-boom-peak https://blog.firstam.com/economics/todays-house-prices-are-o... Housing has become more affordable.

by dpweb 5y ago

the_gastropod 5y ago

I know this is a common belief in the hilarious world of crypto enthusiasts. But, y'know, we measure inflation, and what you're suggesting is just flat out not true. https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi

markus_zhang 5y ago
It's more like inflation of asset prices.
- the_gastropod 5y ago
  I take much less issue with that assertion. That high housing prices are because the dollar is worth less is what I find rather absurd. Inflation is measurable. And you have to embrace some real quacky conspiratorial thinking to go down the rabbit hole that dpweb seems to have gone down.
  - larksimian 5y ago
    Inflation is not just about measuring prices. It is a really complicated number synthesized from both price signals(arguably the most objective data), surveys and ... educated opinions. For instance, economists just kinda have to put a number on what new technologies are worth. Modern car maybe costs more dollars, but you're also getting a better product type issues. Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal. 'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
    - the_gastropod 5y ago
      > It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming. Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.
willcipriano 5y ago
That's CPI, not inflation. CPI has a number of ways that a thumb may be put on the scale, for example hedonic quality adjustments seem to me to be highly subjective.
- the_gastropod 5y ago
  Right, vs REAL inflation, which is measured by whatever I think happens to be too expensive right now.
  - willcipriano 5y ago
    I mostly just look at the money supply. Print 10% more money, that's 10% inflation. It may not be uniform throughout the economy, or take effect immediately but that's 10% more money chasing the same assets. It's all has to go somewhere.
    - haskellandchill 5y ago
      Money supply in theory is chasing actual economic effects such as growth, so your view of just one side is not very meaningful. The flaw is in considering assets static.
      - willcipriano 5y ago
        To some extent sure but were 2020 and 2021 boom years in terms of productivity, because they were certainly boom years in terms of money printing.
    - munk-a 5y ago
      What is the actual money supply though - if I earn 1k and put it in a bank and it gets loaned out to someone else is there now 2k in circulation since my money is insured? Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.

greesil 5y ago

You can if you're in a liquidity trap. Question is, are we in one now?

robocat 5y ago
I imagine creating cash to solve a liquidity trap is like continuously taking laxitives for a constipation problem... At some point you get a different problem! On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments. Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income). I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner. Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage). Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
- greesil 5y ago
  Wrong liquidity.
- bluGill 5y ago
  Eventually people decide they have enough house.
- notJim 5y ago
  > Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small. You can't purely demand-side subsidy your way out of housing being expensive. You have to build.

munk-a 5y ago

Even when the world ran on the gold standard not all value was actually backed by anything - now we're not even close. You can pick a stick up off the ground and whittle it into a boat - you have, by doing so[1], made the dollar worth slightly more since, for all the dollars in existence, there are now more goods to purchase. Inflation is spurred to increase over time for a variety of reasons - but asset accrual is not one - in actuality all the houses people own are constantly depreciating while the land they're built on continues to gain value from age - they gain value from the increased shortage of supply - and they gain value from the constantly increasing cost of building houses (labour and materials - the material increase mostly also due to labour). There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages). 1. In a very very infinitesimally unmeasurably minor manner.

mywittyname 5y ago
> 1. In a very very infinitesimally unmeasurably minor manner. Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.
- xyzzy123 5y ago
  Meanwhile entropy is eroding the value of many of the made and manufactured things in the world. Termites are eating houses, cars are wearing out, children are breaking toys, clothes get holes in them...
  - munk-a 5y ago
    If you're interested in the scenario where that depreciation outpaces all else I might suggest reading the Foundation by Asimov series which includes an empire in its sunset and suffering from systems collapse. If we were in such a situation it'd be pretty clear to everyone as maintenance costs would prevent any sort of productive activity. I personally think that, short of a sudden disaster that causes extreme knowledge loss, a systems collapse is infeasible in the modern world since we've invested so much of our ongoing maintenance into detecting these sorts of insidious critical failures. But, in short, those depreciations are far outweighed by value creation right now.

throw0101a 5y ago

Lots of money supply in Japan, and are their asset prices going up? * https://fred.stlouisfed.org/series/MYAGM2JPM189S https://fred.stlouisfed.org/series/MYAGM2JPM189S Their central rate has been <1% since 1995. Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.

b9a2cab5 5y ago
Japanese asset prices would otherwise be deflating, so the "infusion" has absolutely had an effect. The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.
ItsMonkk 5y ago
Lyn covers this topic fairly well in her article on Japan[0]. In short, private debt in Japan has shrunk by 300 trillion yen over the past 25 years. The growth of the money supply is all coming from public debt. It matters who gets the new money and what they spend it on. [0]: https://www.lynalden.com/economic-japanification/ https://www.lynalden.com/economic-japanification/
- deleted 5y ago
  [deleted]
RC_ITR 5y ago
Yes they are - https://www.bloomberg.com/news/articles/2021-09-03/japanese-stock-futures-rally-after-report-suga-plans-to-resign https://www.bloomberg.com/news/articles/2021-09-03/japanese-...

blake1 5y ago

Do you mean fiscal policy? You absolutely can infuse trillions of dollars into the economy without causing inflation after the economy takes a $4T hit from a pandemic; the government spending will be what prevents disastrous deflation. People worry about inflation, but forget how awful deflation is. (And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)

hcurtiss 5y ago
I've never understood how deflation could ever be a concern in countries that print their own money. Can you not just print your way out of it every time?
- lotsofpulp 5y ago
  Not if you need to import anything, since you can inflate your currency all you want, but the world will deflate it relative to other currencies.
- whimsicalism 5y ago
  Political constraints around central bank policy. Or really strong deflationary market expectations, for whatever reason.
- blake1 5y ago
  I know of two examples from the Depression. In Germany, it was a deliberate policy. In France, it was a zealous adherence to the gold standard. I am also bewildered. So many bad effects of deflation.
- throw123123123 5y ago
  The problem is that you can get both at the same time: deflation of asset prices and inflation of goods prices.
- imtringued 5y ago
  Politicians don't give a damn about deflation. They will tell you how governments must be responsible with their budgets and do debt ceilings and austerity, while simultaneously promising income tax cuts for the rich which they finance by cutting public investment. It'll trickle down.

notJim 5y ago

I'm not really sure the "dollar worth less" framing is super helpful, but maybe I'm wrong. I think it's a little better to specify in what context we're talking about. Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in. The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?

arrosenberg 5y ago
> Is there a plausible way we can get out of this situation? Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian. If we are responsible with the new revenues (we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.

imtringued 5y ago

This was linked in this submission: https://blog.firstam.com/economics/todays-house-prices-are-over-40-percent-more-affordable-than-the-housing-boom-peak https://blog.firstam.com/economics/todays-house-prices-are-o... Housing has become more affordable.