Am I Late? writes:
Foremost, ignore repeated sebastian topics
Am I Late? | 05.29.08 - 4:32 pm | #

android writes:
Where is this new chart?
android | 05.29.08 - 4:39 pm | #

tj & the bear writes:
You're still quite the optimist, CR.

The "extremely weak economy and high unemployment" will get here, too.
tj & the bear | 05.29.08 - 4:41 pm | #

FFDIC writes:
George Soros: 'We face the most serious recession of our lifetime'
http://www.telegraph.co.uk/money.../ ccsoros126.xml
FFDIC | 05.29.08 - 4:54 pm | #

w writes:
I expect we'll get a drought too.
w | 05.29.08 - 4:54 pm | #

Phil Glau writes:
Just speaks to how much air was in the bubble. I don't see any other correlations to the depression.

The Depression caused the fail in price then. But as we know because A caused B doesn't mean that B causes A.
Phil Glau | 05.29.08 - 4:59 pm | #

tyaresun writes:
CR,

Wasn't the depression preceded by the roaring 20s and easy credit just like today? Did that spill over into housing at all back then?

I am not expecting a depression, but certainly a prolonged period of growth below potential for USA as well as the rest of the world.
tyaresun | 05.29.08 - 5:03 pm | #

Outsider writes:
Any info on this federal oil trading probe?

http://money.cnn.com/2008/05/29/ ...sion=2008052915

(Maybe this has been posted on and I missed it)
Outsider | 05.29.08 - 5:03 pm | #

tj & the bear writes:
I don't see any other correlations to the depression.

You're not looking very hard.
tj & the bear | 05.29.08 - 5:06 pm | #

unirealist writes:
OT: Oil and PM's decline as the dollar rises. Oil has fallen about five dollar a barrel as the dollar has gone from 72 to 73. Assuming a straight-line relationship, that means oil would be about $75/barrel if the dollar index were where it was less than a year ago (before the Fed began debauching it).

Kinda tells us why oil is so high. Blame falls on the Fed's doorstep.
unirealist | 05.29.08 - 5:08 pm | #

gab writes:
And yet, short treasury yields have spiked over 150 bps from their lows of mid-March. They're either expecting an economic recovery or they're expecting the Fed to tighten in the face of, what seems on its face, to be a very weak economy.

Both scenarios strike me as unlikely, yet that's the only possible explanation.
gab | 05.29.08 - 5:18 pm | #

--Andrew writes:
Hmm.. CR, the article in the Economist states "his shows that the latest fall in nominal prices (of 14.1%) is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year."

Is this saying "thank goodness for inflation" in a backhanded sort of way?.. Even though the price drop is higher, deflation has the effect of adding to a person's relative debt burden, while inflation eases it.

It would be interesting to see the relative debt burden lifting effect of current projected inflation versus the debt burden increasing effect of deflation in the 30's.
--Andrew | 05.29.08 - 5:21 pm | #

tj & the bear writes:
Andrew,

*Wage* inflation eases debt burden. We don't have that.
tj & the bear | 05.29.08 - 5:25 pm | #

dryfly writes:
w writes:
I expect we'll get a drought too.
w | 05.29.08 - 4:54 pm | #

There was a lot (too much) rain earlier this spring over much of the bread basket - but it is drying out some now (though we had rain again today).

But I've heard commentary from ag-climatologists earlier this spring saying things were falling in place for a fairly dry if not drought prone year over much of the heartland. I'll believe it when I see it.

Of course the opposite might be more 'destructive' economically - ample rain & mild temps producing a bumper crop where the majority of farmers didn't lock in & hedge the current high prices via futures... only to see the cash market bottom fall out on them in the fall.

So they would get the double whammy of paying super high input prices now only to lose their ass next fall as their crop prices crash. Serve the morons right if they didn't lock in some of these super high prices.

If I was a farmer, I'd ALWAYS forward contract at least some of my next season crop IF the future prices going forward locked in a profit given spring input costs. I'd also take out crop insurance on enough yield or acres to cover that forward contract.

The rest I'd probably play in the cash markets but only if I had the bin capacity to carry over. If you can't hold it you can't play - not for long.

Forward contracting & crop insurance really eats into their windfalls but takes away the risk of the bottom falling out on them.

But then I still remember what a 'bottom falling out' looks like... like when local elevators 'broke the buck' - offering less than a dollar a bushel for corn - during the mid80s farm crisis. That was only a few years after the markets set record high prices & farmers responded by levering up like mad, planting fence row to fence row. A couple bin buster years later and prices had fallen to all time lows (in real dollars anyway).

Like none of that could ever happen again.

dryfly | 05.29.08 - 5:26 pm | #

Bento writes:
No, not a depression. But, a Japanese-style protracted period of stagnant growth is one not-so-distant possibility.

Our current institutional and policy environments are much smarter than what they did have during the Great Depression.
Bento | Homepage | 05.29.08 - 5:31 pm | #

Darkness writes:
>Kinda tells us why oil is so high. Blame falls on the Fed's doorstep.

I think it falls on all of our doorsteps for always voting for the people who promise tax cuts while the deficit ballooned, leaving the fed no room. But, a minor quibble. The fed has a lot of blame to absorb and won't notice another thing heaped on.
Darkness | 05.29.08 - 5:34 pm | #

--Andrew writes:
tj, as I understand it, wage (or built-in) inflation usually comes in after an initial demand or cost-push inflation. In other words, we may be seeing it soon, absent some compensating force - and the cheap imports that have pushed down domestic wages are on the way out.

http://en.wikipedia.org/wiki/Pri...ice/ wage_spiral
http://en.wikipedia.org/wiki/ Inf...es_of_inflation
http://en.wikipedia.org/wiki/Cos...- push_inflation
--Andrew | 05.29.08 - 5:35 pm | #

Anonymouse writes:
gab writes:
And yet, short treasury yields have spiked over 150 bps from their lows of mid-March. They're either expecting an economic recovery or they're expecting the Fed to tighten

For the last time: the market leads, the Fed follows.
Anonymouse | 05.29.08 - 5:41 pm | #

Name writes:
I would like to see the chart too- I cancelled my Economist subscription during Tony Blair's long good-bye. Something about the magazine changed during that time, and they went from moderate-centrist to Bush-deranged-liberal. Good to hear charts and data are creeping out of the back few pages again. It was the only publication that ever gave me weekly updates on the FARC guerillas...
Name | 05.29.08 - 5:41 pm | #

Anonymouse writes:
Does the link CR posted not work for some? Just click it - the chart is free.
Anonymouse | 05.29.08 - 5:43 pm | #

Jim D writes:
Think that the Depression caused house prices to go down? That the Depression wasn't caused by a credit collapse?

Look again - see that first dogleg down in '28? That was the sound of "balloon" mortgages popping. Kinda like an Option ARM. Started in Florida in, I think, '26, and spread from there. Helped along by a drought that killed farm land values, which had been a little property bubble all their own.

That, combined with the collapse of a consumer credit bubble (hastened by the property crash), was the proximate cause of the severe downturn that manifested itself in the Stock Market crash... which in turn caused the unwinding of the stock and margin bubble.

Sound familiar yet? It should....

And then the government decided to help, by doing some really, really dumb stuff.

History doesn't repeat, but it does rhyme.
Jim D | 05.29.08 - 5:44 pm | #

--Andrew writes:
Jim D, speaking of rhyming. Anyone have an idea of what the inflation readings were in the '20's (especially '28) when the roaring '20's credit bubble was popping? I'm just wondering if there was an inflationary surge before deflation kicked in.
--Andrew | 05.29.08 - 5:48 pm | #

tj & the bear writes:
Our current institutional and policy environments are much smarter than what they did have during the Great Depression.

You can't be serious, given the overwhelming (and daily) evidence to the contrary.
tj & the bear | 05.29.08 - 5:58 pm | #

--Andrew writes:
According to this chart, it looks like the answer to my question is "sort of." Inflation in 1913-1919 is 8.7%, then 0.8% in 1920-1929, and -1.34% in 1930-1939. Seems that inflation was already running low when the deflationary spike of the 20's credit bubble popping hit.

http://www.inflationdata.com/ inf...ation_chart.htm
--Andrew | 05.29.08 - 5:58 pm | #

RayOnTheFarm writes:
Wasn't the depression preceded by the roaring 20s and easy credit just like today? Did that spill over into housing at all back then?

The 1920s Florida Land Boom basically collapsed about 1926. I don't know if there is any correlation between that and the stock market crash 3 years later. One did precede the other during that event tho. The Great Depression just made a bad situation (in Florida) that much worse.
RayOnTheFarm | 05.29.08 - 6:00 pm | #

Jim D writes:
Since the inflation numbers have been so massaged in the last two decades, I don't feel like they'd be measuring anything similar enough to actually try to compare them... But here you go anyway:

http://inflationdata.com/ inflati...n_currentPage=6

I can say that home prices were in a bit of a bubble (obivously), as were farmland prices.

But inflation was contained during the 20's for the same reason why it was contained in the 50s - Europe was in ruins, which meant we were getting richer in real terms, i.e., healthy growth. Also, the war years had ruinous inflation, and the country was still coming back from that. (There were food riots in NYC during WWI, IIRC.)


But don't directly compare the numbers - they aren't measuring the same thing.
Jim D | 05.29.08 - 6:01 pm | #

tj & the bear writes:
Andrew,

Not so sure. Outside of a few very specific industries it's doubtful we'll see any significant wage pressure in a weakening economy.
tj & the bear | 05.29.08 - 6:02 pm | #

Jim D writes:
"Our current institutional and policy environments are much smarter than what they did have during the Great Depression."

I keep hearing this whenever I mention another Depression, and I keep waiting to see evidence. None ever appears.

So far, we've:

Covered up major bank failures (most of the big IBs are insolvent)

Failed to prosecute *anyone* for the systematic fraud that caused the crisis.

Debased the currency.

And we're even starting to tip-toe down the protectionist path.

Soon, we'll try price fixing, just wait and see.
Jim D | 05.29.08 - 6:05 pm | #

gamma writes:
Darkness-

Maybe the problem isn't voting for people who promise to let us keep our money (aka tax cuts). It's close though. I think the problem is we keep voting for people who promise to curtail spending and then don't. EVERY politician is guilty of that. Why? Because we have turned into a country of whores who look to shirk responsibility by having others (aka the gov't) bail us out when we lose. The rich (Wall Streeters) do it, the poor do it, the middle class do it. The majority of this country has turned into a bunch of wimps who think they're entitled.

If the government would stop spending (Medicare, Medicaid, Social Security, farm subsidies, bridges to nowhere, wars (not just Iraq, but how about Kosovo????), homebuilder tax credits, homebuyer tax credits, etc etc etc.) we wouldn't have these problems.

"End the spend", all problems solved.
gamma | 05.29.08 - 6:05 pm | #

Name writes:
Oops... there's the chart right there.

I didn't recognize it because of the "noise".

Serious question:

In a crashing illiquid market, drop in quantity sold precedes drop in price. We were calling this "sticky down" earlier threads.

In that case, I think viewing a price-only comparison would not give a complete picture.

What factors should be considered to make a complete picture?

I'm trying to put words around an idea for multiplying volume exchanged by price to get active market size, then normalizing vs total available market size to get the relative impact of the price change on the market.

And: For those who neither bought nor sold nor refinanced between 2002 and 2008, there was no net effect. We know that almost half of the US owns outright, while average equity is less than half. So the risk was relatively concentrated in certain demographics (younger homeowners).

Also I think the new construction boom has to be accounted for somehow. On an ex-bailout basis the price-destroying inventory is also a relatively concentrated risk.
Name | 05.29.08 - 6:06 pm | #

Anonymouse writes:
Recommended reading: "World in Depression" by Charles Kindleberger.

http://www.amazon.com/Depression...h/dp/ 0520055926

Still reading it. Institutions and policies have certainly changed since the Depression. Asset manias and resulting deflations have not. But there's good reason people distinguish between pre-WWII/post-WWII economic cycles. For example, we have a concept called "aggregate demand" that didn't exist prior to the Depression, as well as no Gold Standard restricting currency debasement. Kindleberger is not an Austrian economist, btw, but differs from the Monetarist and traditional Keynesian views.
Anonymouse | 05.29.08 - 6:14 pm | #

tj & the bear writes:
Jim D,

[sarcasm]
They obviously could've avoided the depression had they only been smart enough to reclassify everything as "Level 3".
[/sarcasm]

One of the overriding themes of the book "Empire of Debt" is arrogance. People always assume that we're somehow smarter than those that preceded us, despite the fact we (as a people) keep making the same mistakes.
tj & the bear | 05.29.08 - 6:19 pm | #

Anonymouse writes:
I'm familiar with some predictions from the '80s for Japan's economy circa today, esp. by Lester Thurow. GDP bigger than the U.S. and all that. I don't know of anyone who predicted two decades of route and deflation - and certainly not after what the world went through in the '70s. So these economic structural changes take most by surprise and defy conventional wisdom.
Anonymouse | 05.29.08 - 6:32 pm | #

tj & the bear writes:
Anonymouse,

Current "peak earner" demographic trends here in the states are just like those for Japan preceding their decline. Hard to expand an economy when your consumption base is shrinking, and they weren't burdened by our debt levels.
tj & the bear | 05.29.08 - 6:39 pm | #

Vader writes:
Yea you cannot have a depression without a gold standard.

My favorite article on the gold standard
http://www.econbrowser.com/ archi...if_wed_bee.html

What we will have may be very bad, but not depression bad.
Vader | 05.29.08 - 6:41 pm | #

tj & the bear writes:
Yea you cannot have a depression without a gold standard.

That's pretty funny, too.
tj & the bear | 05.29.08 - 6:57 pm | #

Danny writes:
Vader,

That is ridiculous. It is a total myth that the gold standard caused the Great Depression. It was our abandoning of the Gold Standard in the 20's by printing money beyond what we should have which caused the Great Depression. When there was a run on the currency in the early 30's because countries realized what we were doing (printing more money than we had gold), we were forced to raise interest rates to save the dollar. Just because we are not tied to the gold standard does not mean that there cannot be a run on the dollar. In fact, there most probably will be a run on the dollar which will force the Fed to raise rates, which will be absolutely disastrous, as most of our debt is in short term treasuries owned by foreigners. Not to mention the effect that will have on adjustable arm mortgages.

All in all, the Fed and our government are in a tight spot. Drastically cutting spending and raising interest rates is in our future. The sooner the better, but I'm with TJ and the Bear on this one, current policy makers are not any better than the clowns that caused depression in the 20's. Speaking of them, why don't we just sue OPEC, because they provide us with all our oil and buy a significant chunk of our treasuries?
Danny | 05.29.08 - 6:58 pm | #

Anonymouse writes:
Danny,

That 'printing too much money'/'abandoning the Gold Standard' causing the Depression is the most ridiculous argument perpetuated on this and many sites. You'd do well to read Kindleberger's work I linked to above.
Anonymouse | 05.29.08 - 7:15 pm | #

mojo writes:
"Our current institutional and policy environments are much smarter than what they did have during the Great Depression."

Really? What's ironic is that Glass Steagall (put in place under FDR) was completely repealed by 1999 during Greenspan's reign. Citigroup, free markets & all.

Another fine piece of deregulation, in this case of 'complex derivatives', was pushed thru by then Sen. Phil Gramm in 2000, just before he went to work for UBS.

Former CFTC director Michael Greenberger gave a great overview in this interview last month: http://prairieweather.typepad.co...hadow- syst.html

Ahhh, dark markets, completely unregulated.
Money quote: "At this point, worldwide, there is more money invested in derivative products that there are in stocks and bonds"
mojo | 05.29.08 - 7:16 pm | #

Danny writes:
Anonymouse,

I misspoke, the massive increase in credit and money in the 20's caused the stock market crash in 1929, and the subsequent economic contraction. Government policy exaggerated what should have been a recession into a depression. Even with my slight exaggeration, you provide no argument besides, go to amazon and check out this book. It blames the Great Depression on a rickety international financial system? And theories like aggregate demand didn't exist until after the Depression? Good riddance. Aggregate demand is a fictional creation of modern economics. Provide essays or papers or even the book itself, not an amazon link to a book that most people have not read. Don't call ideas ridiculous, not say why you think such, and then link to Amazon.
Danny | 05.29.08 - 7:48 pm | #

Canadaman writes:
The Austrian school of economists are the only ones that truly understand the causes of the depressions.

There was such optimism during the 20's that people went into debt like never before.

At that point debt to GDP at the stock market top reached something like 120%

At the bottom of the depression earnings had collapsed and debt contracts had not been nullified such that debt to GDP rose to +250%

We are starting our stock market collapse/depression at +330% debt to GDP.

During our good times we levered up a whole lot more than they did in the roaring twenties. What comes next will be a whole lot worse.

western economy business cycles are caused by the linear extrapolation of the recent past to project into the future when making decisions involving the assumption of debt and use of credit.

At the top of this business cycle everyone acted like a cheerleader trying to spur people on into greater and greater amounts of debt. We are Fu$$ed
Canadaman | 05.29.08 - 7:49 pm | #

Vader writes:
The one and only tangible claim of the Austrian school of economists is that its founder ran a 2-3rd class country's, Austria, central bank. He got it on a solid footing just in time to be looted by Germany.

Basically the Austrians are like fundie Christians, promise heaven but cannot produce anyone that has lived there. Moreover are their beliefs applicable in the some imaginary world with where the political establishment supports them at all cost.

The Austrians cannot exist in a real world with conflicting power centers or politicians who not only want reelection but rather not to be hung from a lamp post. They can only exist in a rather imaginary world. Anytime you see someone preaching they have absolute truth with a lot of verbiage and no real world examples of success-run.
Vader | 05.29.08 - 8:20 pm | #

Danny writes:
Vader,

Not surprisingly, you show a total lack of knowledge of what the Austrian school teaches. Your first mistake is to say that its founder (I'm assuming you mean von Mises, but since you don't know the history of the Austrian school, you wouldn't know that he wasn't its founder) ran the Austrian central bank. That would be a negative, as Austrians don't believe in central banks.

In this past century, it is tough to find examples of Austrian economics in practice. The closest would be Switzerland, arguably the most peaceful and most prosperous country throughout the course of the tumultuous 20th century.

There are many other examples from history, including the period after the Civil War in America, up until just after 1900, when America experienced its fastest growth.

I think you would do well to read some Mises or Hayek. The 20th century has not proved a fertile ground for free markets and Austrian economics. But that does not detract from its ideas whatsoever, and to claim it does is a logical error. Mises and Hayek and other Austrians were proven right by their predictive powers. While Keynes was marveling at the roaring 20's, Mises was warning about the upcoming collapse. While socialism thrived in Europe, Hayek was predicting its eventual downfall. The same goes for the Soviet Union.
Danny | 05.29.08 - 8:51 pm | #

El Cliffo writes:
No, the Austrians exist in the real world. Only they understand that credit is not money.
El Cliffo | 05.29.08 - 8:53 pm | #

doom writes:
Ask anybody who has lost their home lately and everything they had (including their job) if they feel like we're in a period of just an economic slowdown, a recession, or a depression.

I bet to them, it feels more like a depression.
doom | 05.29.08 - 8:55 pm | #

SP writes:
Japan may be a more apt comparison now than our Great Depression.

What was Japan's debt to GDP before their crash? And now?

What would their housing price graph look like in terms of rate of descent?

And how have they coped with 15 years of negligible growth? Have they had 15 years straight of cheerleaders promising the "Recovery" in just 6 more months?
I wonder...
SP | 05.29.08 - 9:38 pm | #

FFDIC writes:
Lose Homes, Pay More Tax
http://www.nytimes.com/2008/05/3...ml? ref=business
FFDIC | 05.29.08 - 9:45 pm | #

tjdj writes:
so if everyone here is so convinced that there was a housing bubble - which would seem to indicate that the laws of supply and demand were not the true determining factors in home prices - then why don't people believe that there is a bubble with oil prices? as a mortgage industry veteran of many years, i can assure you that everyone i knew had an explanation handy for why home prices made sense given demographics, land scarcity, geography, etc. and were thus based on true fundamentals. but we know now, don't we, that home prices were just being driven by speculative excess and the great wall of money that i always heard so much about.

isn't it quite possible that the price of oil is also being driven by speculative excess for the same reasons, even as plenty of seemingly fundamental explanations are bandied about? isn't it also likely that the distortion of credit fundamentals that occurred in the mortgage market is still playing out across other assets, including, potentially, oil?
just curious why it is such a certain case that oil prices make sense but home prices did not. other than just a persistent bearish view...
tjdj | 05.29.08 - 10:16 pm | #

dryfly writes:
El Cliffo writes:
No, the Austrians exist in the real world. Only they understand that credit is not money.
El Cliffo | 05.29.08 - 8:53 pm | #

That makes them only 'half right' because credit IS money but only as long as your counterparty says it is. We are learning now that isn't 100% of the time.

dryfly | 05.29.08 - 10:28 pm | #

Spiv writes:
isn't it quite possible that the price of oil is also being driven by speculative excess...


Which price of oil are you talking about? West Texas for delivery at the Henry Hub, Gulf f.o.b. Ras Tanura, futures prices at ICE or NYMEX?

The only way to speculate on oil is to play in the futures markets and for every buyer you must have a seller. For speculators to bid the futures prices to new and much higher price levels, you would have to have be pretty certain the market isn't going to break down on you.
Spiv | Homepage | 05.29.08 - 10:45 pm | #

dryfly writes:
tjdj writes:
so if everyone here is so convinced that there was a housing bubble - which would seem to indicate that the laws of supply and demand were not the true determining factors in home prices - then why don't people believe that there is a bubble with oil prices? as a mortgage industry veteran of many years, i can assure you that everyone i knew had an explanation handy for why home prices made sense given demographics, land scarcity, geography, etc. and were thus based on true fundamentals.

I would agree with you but not for all the same reasons - I would argue that speculation (both long & short) IS a true fundamental and in times of 'mania' can trump all the other true fundamentals - at least for a while if the conditions are right.

We saw it in housing, we see it now in commodities. Like housing we are likely to see the commodity bubble back up too - how far? Who knows.

Why will the commodity bubble have to back up? Because current incomes at current lifestyles can't support those commodity prices. Just like current incomes couldn't support housing costs at current lifestyle expectations forever.

So wrt commodity prices, and just like housing, something has to give - either the commodity prices come down OR the lifestyle (how and how much we consume of them) has to change - or some mixture of both.

And like housing - it too will be painful. My guess is living in the heart of the commodity belt (central Us plain states) that I'll see some of that pain - again.

dryfly | 05.29.08 - 10:45 pm | #

yogurt writes:
so if everyone here is so convinced that there was a housing bubble - which would seem to indicate that the laws of supply and demand were not the true determining factors in home prices - then why don't people believe that there is a bubble with oil prices

A bubble in a capital asset exists when its price exceeds the present discounted value of its earnings. Whether it be RE or stocks.

It was as obvious as anything can be in economics that RE prices were out of line with any reasonable scenario of future rents, i.e. they were in a bubble.

A bubble in oil stocks, i.e. high oil stock prices at a time of low oil prices, would be analogous to the housing bubble.

A bubble in a consumable, e.g. oil, exists when the price is above the market clearing level. But this means that physical supply exceeds physical demand, so stockpiles of the consumable have to be building up somewhere. Stockpiling is not the same as supply management (the restriction of production) - it means someone is buying the production and holding it somewhere.

The proof of a commodities bubble is in the stockpiling. Where is it?
yogurt | 05.29.08 - 11:44 pm | #

yogurt writes:
During the Depression, the rapid decline in house prices was primarily due to the extremely weak economy and high unemployment. This time prices are falling rapidly because of the excesses of the housing bubble - especially excessive speculation and loose lending standards.

A crucial difference in the house price fall during the Great Depression is that prices fell well below fundamental valuation - it cost less than half as much to buy the same house as to rent it. It was a reverse bubble, not a price correction. Government policies during the Depression to assist homeownership were actually facilitating price correction, and increased consumer demand, because renters could increase their disposable income by becoming owners.

Current government efforts to maintain ownership at bubble prices lead to the exact opposite - delaying a price correction and decreasing demand because owners are better off renting.
yogurt | 05.30.08 - 12:00 am | #

FT Woods writes:
The proof of a commodities bubble is in the stockpiling. Where is it?
yogurt | 05.29.08 - 11:44 pm

Is this why the Bush administration was filling the oil reserve?
FT Woods | 05.30.08 - 2:04 am | #

Jim D writes:
"so if everyone here is so convinced that there was a housing bubble - which would seem to indicate that the laws of supply and demand were not the true determining factors in home prices -"

Supply and demand weren't repealed... but there's the supply of houses, and the supply of money. If the supply of money (through easy credit) goes up, house prices go up.
Jim D | 05.30.08 - 2:08 am | #

Jim D writes:
"A crucial difference in the house price fall during the Great Depression is that prices fell well below fundamental valuation - it cost less than half as much to buy the same house as to rent it."

Errr, no. That's not a difference.

If you measure the beginning of the Depression as being in the '26, then the real action didn't get going until 6 years later.

We're two years in. Give it time. Heck, we haven't even had our Black Day of the Week yet.
Jim D | 05.30.08 - 2:11 am | #

Lurking Larry writes:
I find it perplexing to have experts quoting statistics that have not been seen since the Great Depression, then state it very unlikely we are heading into a depression.

Certainly we wouldn't want to draw any conclusions from a single stat, but how many have there been?

Definitely the levels of speculation and subsequent housing correction, personal debt levels and savings rate (or do those count as the same stat?)

I dunno, as Jim D wrote above, you add a Black Day of the Week and we're getting closer to a resemblance of the events leading up to a depression.
Lurking Larry | 05.30.08 - 4:37 am | #

Pondering the Mess writes:
"*Wage* inflation eases debt burden. We don't have that."

I just want to repeat this fact. Runaway inflation, especially in NEEDS, is not going to "fix" anything. Wages have nowhere to go but down as jobs vanish and our Dear Leaders relish the concept of adding more illegals and other underpaid workers to the workforce, displacing more Americans. Once gas costs $5 a gallon and your best hope is part-time Wal-mart greeter, nobody is going talking about how this disaster "fixed" the housing mess.

There will be no wage inflation this time around; instead, we'll all just be much poorer as the dollar is destroyed to benefit the bankers. As for housing, it should fall at least 50% from peak to get back to where it should be based upon price to income ratios (assuming people still have incomes, of course!)
Pondering the Mess | 05.30.08 - 8:15 am | #

k harris writes:
CR,

What Jim D said, though if you squint, you can fit capital problems in the banking sector into "bad economy". Mortgages were mostly 5 years and under, and when they had to be refinanced, banks didn't have the capital to do the refinancing. As a result, people who had never missed a mortgage payment were faced with the need to pay off the full outstanding balance on their mortgage when it came due, and many couldn't. The modern equivalent seems to be ARM resets.

Jim D,

We don't need to think policy is better now to think that we won't see a repeat of the Great Depression. We know that the institutional structure is vastly different, that the size and complexity of the financial sector are vastly greater and that the US economy has shifted from farm and factory toward service and factory. Comparisons to the Great Depression need to be made cautiously because all the elements have changed. ARMs vs balloon, and RMBS vs bank capital, just to take two marrow examples. It will be different this time, even if it won't be better.

gab,

A third alternative is that the majority of participants in the money market had hoped for more easing than now seems likely, and have adjusted to the recognition of error by boosting yields at the short end. Which is to say, feel free to ignore Anonymouse. More realistically, market participants anticipate Fed action, so that the market appears to lead the Fed. when market participants are wrong, they have to adjust.
k harris | 05.30.08 - 8:22 am | #

Angry Renter writes:
The oil bubble is somewhat different than housing because there's a depreciating dollar element driving the price increases. Oil prices haven't gone up as much for economies like the EU that have a more stable currency.
Angry Renter | Homepage | 05.30.08 - 8:44 am | #

--Andrew writes:
I agree k harris. As often said "don't fight the Fed" in investing.
--Andrew | 05.30.08 - 11:23 am | #

Chuck writes:
Here's a link to the referenced historical house price chart created some time ago by Schiller, I believe. It's pretty scary if one really thinks that prices will, over several years, revert to the mean as a result of inflation and real price decreases.

http:// www.marginalrevolution.co...house_his_2.gif
Chuck | 05.30.08 - 1:25 pm | #