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home prices and money supply
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Feb 29, 2008 4:25 am GMT    Post subject: home prices and money supply Reply with quote

http://graphics8.nytimes.com/images/2006/11/04/business/1104-web-MONEY.gif

http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply.svg

http://en.wikipedia.org/wiki/Image:Us_proportionate_m3.svg

Check out "M Prime" money minus credit...

http://globaleconomicanalysis.blogspot.com/2007/05/money-supply-is-soaring-right.html

http://bp1.blogger.com/_nSTO-vZpSgc/RZSYOEZfrHI/AAAAAAAAAE0/nTcbX3UQZrI/s1600-h/MPrime-CPI-2006-12.png

http://www.financialsense.com/fsu/editorials/gnazzo/2006/images/0518_2.gif

look at this model and think about Paulson's Stimulus Plan...

http://www.economicswebinstitute.org/essays/is-lm3.gif
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john p



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PostPosted: Fri Feb 29, 2008 7:17 pm GMT    Post subject: Reply with quote

I just posted data before because a decent thought hadn't come to mind (which usually doesn't stop me from blabbering)...

Anyway, think about this:

Think about a fundamental relationship between an asset and say the water table.

Think about the freeboard vessel height.

http://www.mcga.gov.uk/c4mca/appendix3_img1.jpg

http://www.ibinews.com/ibinews/ebb/tech_6.html

http://www.uscg.mil/hq/g-m/nvic/10_86/n10-86.htm

Now think about an asset class and how they sink into the water. I mean if the supply of money is flooded into the market, won't all assets eventually sit like vessels in the water and rise? Unless there is turbulence will they take on water and sink right?

I wonder if there is a fundamental relationship between the median price of a home relative to the money supply?

Food for thought is grist for the mill....
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john p



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PostPosted: Fri Feb 29, 2008 8:03 pm GMT    Post subject: Reply with quote

Bernake use a term "Strain"

http://www.gg.uwyo.edu/content/lecture/structure/style/ss-plot.asp?type=ss&color=008080&callNumber=12220

My thoughts lately surround this deformation, lift and buoyancy. I think about the properties of the currency like the nature and level of the water and the characteristics like current turbulence etc. Then I see asset classes within this water kind of like vessels.

Think about when a submarine gets too deep the stresses they get. Then think about quarry jumping and dropping and dropping only to have the buoyancy bring you back up to the surface.

What I think is that we have two types of economic strata, one which grows at the pace of the Stock Market and the other that grows at the pace of Inflation.

Now think about it, if you get winners and losers in a society strain builds up like stretching out an elastic band. The gravitational force of dropping eventually turns around when you’re under water and you seemingly defy gravity and go up because of the property of the water versus air. My thoughts are that if the economy is the water and people are under water, they of course can drown, but there is only so far down they can go before they come back up and float. I think that there is a relationship between how far something can fall based on the water level (the M3 money supply amount in an economy). A 150 pound kid will fall 12 feet into the water if the fall to the water is say 30 feet or something right? If the water level of the quarry rises 30 feet, don’t expect that kid to fall to the same benchmark as when the water was much lower is all I’m saying….


So the people who are on the stock market pace will be dragged by those stuck on the inflation pace. The two groups pull against eachother. Sometimes you get a stock market correction and stocks drop and other times you see salary inflation.

What's also happening is that the global economy is like making canals between waterways and it is altering water levels...
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Mar 03, 2008 1:49 am GMT    Post subject: Reply with quote

Another point regarding the two tracks of people: one ownership rich following the growth of the stock market and the other living month to month having their growth follow inflation.

My earlier point that if one is tracking at 8 to 10 percent and the other is like 2% you will get internal tension. Well guess what's happened, instead of a correction with either a salary inflation or a stock market correction, the banks (FED) have made it such that people live off of credit. The economy has been flooded with unearned money, debt. Instead of colleges and universities having to lower their tuition costs to align with what families could afford, they pressed families to take out equity from their homes to pay their bills. So the market correction got post poned.

Town and State governments are doing the same thing. We let salaries go up and up and up and just cut roadway maintenance out, I mean roads don't vote. Most of our infrastructue was rated for a certain length and I'd think a good percentage is on borrowed time. So, in the pie chart certain segments ate into others, the State would sell State owned land to get cash, they'd make money off of the lottery to pay their bills, and now these losers want casinos. Corrupt, and loser people come up with loser ideas that leave an impression that corruption will flow through for a real long time.

If I were younger and Massachusetts gets casinos, I'd really think about relocating. Casinos are a decent tell sign that things are corrupt and are in no way aligned with anything productive. I never thought that casinos would make it here with the traditional commonsense people here. Casinos are a good ph test. If it is so acidic and polluted, I wouldn't think about planting seeds here; I'd get out if I had the chance.

The problem is that some of the unions have eaten everything, they have made our schools cost too much in construction and in operation, they have made the cost of simple roles and tasks cost well beyond their value, they have eaten so much that they need to run on lottery revenue and want so much that they want to have casinos. They think like drug addicts that would happily rob their neighbors to get their fix. I mean the unions want these jobs at the casinos even though they know that many of their fellow citizens will go into financial ruin. I mean wasn't the whole point the organizing principle of unions to allow a way for regular folks to school together and protect themselves from predators? I mean aren't they now turning into predators and once they turned on their fellow citizens and created an unreasonable burden for construction costs, operating costs, and now to a point where they want their money so bad that they don't care about the social and financial costs of anyone else. I mean these unions want us to care about them, why don't they start caring about us? It's a shame because I'm sure there are lots of very quality people in Unions and I wish they would begin to take control of them before the greedy ones ruin the good will unions have built over generations. If people who play by the rules can't succeed, the sleazy and the lightweights will seize control, honor and responsibility will be hinderances and those that lie and cheat will prosper. Casinos will be a good tell sign as to the state of affairs in Massachusetts and if the good cells can fight off the infection or if this area is going down for the count. I wouldn't invest in a polluted area, and for those that have invested here, it is time to purge out the pollution and the corruption and start to ask hard questions to those that want to prey on the weak in our Commonwealth.

The flood of money is like the flood of drugs in a neighborhood, when it makes people who are supposed to be community minded turn on eachother it will tear the fabric and deform the state of the Commonwealth.

From a macro perspective, I see that the flooding of money into the system and the economic remedy for people to take on loans to pay for their children's colleges and health care has brought in way too much unearned money into the economy and the costs of everything have readjusted to this new amount of money, but as the problem gets deeper and deeper there is no way it plays out right? I mean if a young person is way too deep in college loans, how will they get out in front of the cost of living to pay for them let alone save for a down payment, their retirement and their childrens education. They're talking about extending mortgage terms etc.

I just hope that we can dial back in time and we don't run full steam and run out of leash...
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Mar 03, 2008 4:27 pm GMT    Post subject: Reply with quote

Look at the last graph at the light blue line showing the amount of gold necessary to buy a US median house.

http://www.nowandfutures.com/key_stats.html
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john p



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PostPosted: Mon Mar 03, 2008 8:08 pm GMT    Post subject: Reply with quote

Deval Patrick and the unions...

http://www.boston.com/news/local/massachusetts/articles/2008/03/03/patrick_senses_casino_support_developing_despite_jobs_dispute/


Patrick claims to have lifted job creation from 49th to 15 in the Nation. He did this?

http://devalpatrick.com/agenda07a.php
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Mar 03, 2008 9:47 pm GMT    Post subject: Reply with quote

http://www.boston.com/business/articles/2004/08/19/big_dig_jobs_are_nearing_end_of_road/

At the peak of the Big Dig, it employed 5,200 jobs.

Our moron Governor claims that the construction of these 3 resort casinos will generate 30,000 construction jobs. Is this guy the biggest friggin idiot or is the most corrupt casino lobbyist on record?

http://www.boston.com/news/local/breaking_news/2008/03/speaker_dimasi.html
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Phil O. Math
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PostPosted: Sat Mar 08, 2008 2:28 pm GMT    Post subject: Casinos Reply with quote

You make an interesting point about casinos, John. Personally, I've never been a gambler and I fail to see how casinos add any value to anyone's life.

To some gambling is an innocuous entertainment like professional sports, but I think there's more to it. Our minds, our thoughts and our psyche is affected by the activities which we pursue. Professional sports gets us all thinking about teamwork, sportsmanship, success through adversity, exercise, strength, skill, patience, diligence and a whole host of other positive life-lessons.

Sports are good for the zeitgeist or the collective consciousness. Professional sports, for the most part, exert a very positive influence on our lives as individuals and as a community.

What effect does gambling have on our communal and individual mindset? Gambling changes our attitude toward money, work and our contribution to society. Gambling devalues our own work and the work of others.

If money is originally acquired as the fruit of our labour and labour, as it should be, is a major component of our self-worth, then throwing money away on a role of the dice cheapens our work, it devalues us.

Winning at the gambling table means being able to make others work for us (via money) even though we have not contributed our own work evenly in exchange.

Gambling enhances the disconnect between our contribution to society and our enjoyment of material goods. It makes us think it's okay to enjoy material goods and services even though we have not earned those materials.

A society's standard of living is directly related to it's productivity, how much 'value' that the community produces. Casinos and gambling discourage individuals from working and adding value to society by further enhancing a growing disrespect for honest work.

Casinos create no real value; they are an insidious cancer on the moral fiber of our community.
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Mar 10, 2008 1:45 pm GMT    Post subject: Reply with quote

Wow, that was very well put. (read above, or is it below...)

What makes Deval Patrick such a low life in my eyes is that he made it because he got a golden ticket. There was some program that gave a few token poor kids a chance and it was his ticket.

The problem is that these programs that offer a tiny token attempt to help people aren't really addressing the problem, they are just there to make us feel less guilty. I think you need to put emphasis on a value system that people can focus their efforts through in order to build a chance to grow.

So, now that Deval has this knowledge what does he do with it? He tells his followers that casinos are a good thing. Casinos are decay, they are decadance. Telling people to throw away what little they have to take a foolish long shot is the most irresponsible thing a leader can say.

It is so hard to get ahead for some. Think about seeing those old stores that frame their first dollar earned. They treasure that dollar because it was one of the first and the first are always the hardest to get ahead. But if you treasure those first few dollars and you build off of that hard work that got you those dollars, you're headed in the right direction.

It is hard for leaders to tell people that the only way they are going to make it is if they work hard. People don't want to hear that, they want to be passive and have things handed to them. Deval Patrick should know that it is irresponsible to tell people that it is good to gamble. He should know that not everyone can be given the golden ticket like himself and it is not possible for everyone to follow in his footsteps because he didn't work his way out of his neighborhood, he took a golden token program that only a very, very few can take advantage of.

Here's a "I Have a Dream" moment: How about I have a dream that Jamaica Plain, Roxbury, etc. become one of our nicest neighborhoods? How about the fact that these neighborhoods have an amazing location and access to great world class jobs, how about people begin to engage in the opportunities that are right there for the taking and they focus their energies on a value structure that bears fruit for them and their neighborhoods? I'm not talking about gentrification, I'm talking about those same folks grabbing the horns of the bull, working their asses off and making their neighborhoods the envy of the City. That would be a good dream to see all those folks live a better life. A nightmare would be to see the Fung Wa Bus driving back and forth from those neighborhoods to the casinos. If anyone cared about those folks they would want to get the drugs out and certainly not want to have casinos, another form of decay that will weaken their chance.
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melonleftcoast
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PostPosted: Mon Mar 10, 2008 9:41 pm GMT    Post subject: correlation to college costs... Reply with quote

john p.,

i just wanted to chime in that I think there is a direct correlation between an increase of money supply and prices. i think that the connection is between the borrowing availability of money to consumers and prices. as money became easier and easier to borrow, housing prices rose precipitously. now that the spigot has dried to a trickle, prices have stated to come down.

this has also appeared to have happened for college costs. as more funding became available to college students, whether government backed loans or private loans, the costs of college have risen dramatically compared with inflation. especially when one takes into account that private schools, like Harvard, don't really need to raise costs because of their expanding endowments, but they do anyway, because they know that people can borrow more money to pay.

are autos also so expensive because of the unending willingness of dealerships and banks to lend?

i met someone in college in the early 90's, who was probably one of the most fundamental religious zealots I've ever met. she told me that credit and credit cards were sent by the Devil to destroy our world. i thought she was more than a little crazy and naive, but now, I think she may have a point. a d@mn good point.
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john p



Joined: 10 Mar 2006
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PostPosted: Mon Mar 10, 2008 10:56 pm GMT    Post subject: Reply with quote

Right, fundamentals about what the market "can bear" got deformed because of the amount of liquidity (lending amounts) flooding in. They would have hit elastic limits but they were deformed because of government intervention. Is this government intervention a regulatory taking that some can claim a hardship? They certainly screwed up the free market by tipping the scales and changing the properties of the market.

They say rich people don't earn wealth, they create it. I think that the financial industry didn't bring anything other than basic custodial and analysis to the table, so they manufactured artificial/ unearned wealth. They pumped more unearned money and wealth into the system and it flowed right to the rich. These financial folks are delusional enough to think that they actually earned their money. They set up like water turbines and when the water flowed in, they pumped the money right out. They dilluted the dollars of those that actually worked to create value.

The cynic in me thinks that we might be in so deep financially that we're going to have to appropriate oil from countries in the Middle East. I mean we're almost forced to decide between a deep recession or an oil taking. I mean think about it, you'll have all these union folks and public sector/ well connected people wanting their pensions, many seniors who don't have any retirement savings, and if we get a depression do you think we're just going to sit there while we do nation building in Iraq and not take their oil? I mean the guy from Venezuela is afraid of the US and is trying to form an alliance with Iran. Russia won't be stoked on us controlling any oil. In the course of our history, it was massive expansion that fueled the growth and wealth; could this ever grow beyond our borders?

The construtive side of me thinks we need a massive WPA project to absorb the liquidity in the market and to redistribute the society's resources to those who have a constructive mentality and not a destructive one.

For example, I think we should build several new planned cities throughout the country and link them to existing neighboring cities and to eachother. I mean we need to have something to show for the trillions that we spend right? As it stands right now, we're giving the money to China and everyone else who borrows our notes and to pay for nation building and war. I not only think we should buy local, but build local too. Our best and brightest are building Dubai right now; is that right? Our most brave are being shot at to help build a country that hates us and they will come home to a country that has no jobs available to them. The truth is that we would not be in Iraq if it were not for the oil; there are other areas of the world that we could do nation building and there are other leaders that are threats that we don't address like we did with Saddam. So the question is, when will we grab the oil?

I'm not trying to be holier than though, it's just that I'd rather see us do nation building in the United States than nation building somewhere else. If we don't pay attention to history, we could end up like most empires that had such an appetite that they had to eat outward so much that they were forced to start wars to take from others.

If this current crop of people in charge are the "Me" Generation and they are a generation of takers; we might try to "take" to survive. I'd rather it be a generation of builders that built wealth with something to show for it and leave behind to future generations. This is something that this generation in power is not wired to do. They haven't empowered the right people in their generation, the lightweights are in charge. It would, again, be a sin to put our future generations into debt and have nothing left but crumbling infrastructure and weakened realtionship with our neighbors in the world.
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john p



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PostPosted: Tue May 06, 2008 3:59 pm GMT    Post subject: Reply with quote

http://en.wikipedia.org/wiki/Quantity_theory_of_money

http://en.wikipedia.org/wiki/Monetary_Disequilibrium_Theory

http://en.wikipedia.org/wiki/Sticky_%28economics%29

http://www.bized.co.uk/virtual/economy/policy/outcomes/inflation/inflth5.htm

http://www.bized.co.uk/virtual/economy/library/economists/friedmanth.htm

page 24:

http://www.terry.uga.edu/~last/papers/house_price/draft1.pdf

prophetic on pg 5:

http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1011&context=iber/finance

http://en.wikipedia.org/wiki/Spontaneous_symmetry_breaking
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john p



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PostPosted: Tue May 06, 2008 4:02 pm GMT    Post subject: Reply with quote

I guess these links above and this one:

http://en.wikipedia.org/wiki/Lagrangian

make me think of rate, direction and speed of a projectile, so when I see formulas exhibiting velocity and direction, I think about all of that to understand inflection points.
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samz



Joined: 19 Feb 2008
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Location: Medford, MA

PostPosted: Tue May 06, 2008 6:41 pm GMT    Post subject: Reply with quote

I'd like to go back to Phil O. Math's (not his real name?) recent post drawing an analogy to gambling...

It seems like the tax treatment of different kinds of income has had a huge effect on asset bubbles. Home prices were already strongly influenced by the tax benefit given to mortgage interest. But it looks like prices really started to soar when the government eliminated the tax on most of the profit from the sale of a home (1997?). I think a similar thing has happened with stocks and bonds, and now commodities, due to changes in the way those profits are taxed.

I think the core problem is one of incentives: when capital gains are taxed at a lower rate than regular wages, you're basically telling people to focus their efforts on profiting from the change in market value of assets, securities, and commodities (aka "gambling"), rather than on earning a salary from working or earning a profit from value-added products and services.

My proposal, which would certainly be impossible to implement, would be to rebalance the tax code to encourage production rather than speculation: lower the income tax and increase the capital gains tax (including capital gains on a home sale).

OK, flame away!
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admin
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Posts: 1823
Location: Greater Boston

PostPosted: Tue May 06, 2008 7:00 pm GMT    Post subject: Reply with quote

samz wrote:

My proposal, which would certainly be impossible to implement, would be to rebalance the tax code to encourage production rather than speculation: lower the income tax and increase the capital gains tax (including capital gains on a home sale).


Lower capital gains rates may encourage speculation, but they also encourage investment, which can be a good thing. Production and investment can both be valuable. What would you think about having a consumption tax (national sales tax) in place of both income and capital gains taxes? I'm just thinking out loud - I haven't thought this through.

What bugs me most about the capital gains tax is that part of your tax is due to the fictitious gains which result from inflation. The government can therefore claim a large chunk of your assets by simply devaluing the dollar. I'd go for higher capital gains rates if gains attributable to inflation were excluded.

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