1.  
    Originally Posted by Dyzalot View Post

    The answer to question one is because the market price of money is the interest rate, when it isn't set by central planners. Inflation isn't a price. As for the second question, no one knows unless you are talking about some arbitrary definition of inflation used by government and pop culture today.

    You realize that basically all interest rates in the world are derived from a short-term central bank rate in every country that has a central bank? When you build a yield curve for US, you use deposit rates for the short-end, use Eurodollar FRAs up to 2 years and then bootstrap further out with to 30 years with Swaps. But these rates depend a lot on the Fed Funds rate. But this is true for every country... I know you'd say down with the central banks but good luck with that. And even in a scenario where central banks backed their money by gold they would still control interest rates depending on how much gold they buy/sell.
     
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  2.  
    Originally Posted by saxman View Post

    of course - anyone who is able to time things perfectly and get in and out before the bubbles burst is a genius.

    And who do you think helps create these "bubbles"? o hi der greenspan. Let's push super low interest rates, guarantee shitty bank loans, create massive moral hazards, and then take over Freddie and Fannie. Oh yeah, then bail out the banks, while fucking the homeowners. All the while forcing the market to mis-allocate resources where they wouldn't have naturally gone and fucking over other industries in the process.
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  3.  
    Originally Posted by saxman View Post

    of course - anyone who is able to time things perfectly and get in and out before the bubbles burst is a genius. If you invested in the dot com boom and sold before the crash you would be rich. If you were buying oil and sold when it hit $145 you would be rich. I was referring to long term historical returns rather than market timing.


    how bout if you bought it in 1971? is that long-term enough?

    how did gold compare to the stock market during late 2008?
    Edited By: USCphildo Sep 22nd, 2012 at 05:03 PM
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  4. how about gold from 1980 to 2001? do you think it's possible gold could lose 50% of it's value again? i mean, i don't know where the top is before it crashes back down. I don't think anyone does.

    @ krispy - the fed doesn't create bubbles - they adjust interest rates and the money supply in response to inflation and unemployment. Market bubbles are created by speculators.
    Edited By: saxman Sep 22nd, 2012 at 05:52 PM
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  5. How did speculators cause the housing market crash?
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  6. How about the Dow Jones from 2008 to 2009? Do you think the market could lose 25% of its value again? I don't know where the top is...
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  7.  
    Originally Posted by krispycream View Post

    How did speculators cause the housing market crash?


    two things come to mind - banks were writing mortgages to people that couldn't afford them, bundling up toxic mortgages and other debt and selling it to third parties trying to profit from the debt - real estate speculators were buying properties and flipping them which drove up the prices of homes.
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  8.  
    Originally Posted by USCphildo View Post

    How about the Dow Jones from 2008 to 2009? Do you think the market could lose 25% of its value again? I don't know where the top is...


    lol - well there you go. Nobody knows the answers to these things until years after the fact when we can all study the graphs and play armchair quarterback as to why it happened. There are tons of charts out there comparing the historical relationships between gold, oil, stocks, bonds, and macro trends.

    edit: i'm sure you know that if you study the charts provided by the gold bugs, they will tell you we are in a secular bull run and gold is still way undervalued. If you study the charts of long term investors and commentary from guys like Warren Buffet, they will tell you the exact opposite.
    Edited By: saxman Sep 22nd, 2012 at 06:21 PM
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  9.  
    Originally Posted by saxman View Post

    two things come to mind - banks were writing mortgages to people that couldn't afford them, bundling up toxic mortgages and other debt and selling it to third parties trying to profit from the debt - real estate speculators were buying properties and flipping them which drove up the prices of homes.

    And many of the loans were guaranteed by the Federal government. So the banks were enabled to lend to them thru the fed basically being a co-signor of the loan. Creating a massive moral hazard by having banks give out loans to people who shouldn't have qualified.

    What is wrong with buying property, fixing it up, and reselling it? Isn't that basically making an investment?
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  10. Yeah it's just my opinion, but I don't think gold will lose half it's value. I do think the market could tho.
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  11.  
    Originally Posted by USCphildo View Post

    Yeah it's just my opinion, but I don't think gold will lose half it's value. I do think the market could tho.

    and i'm just playing devil's advocate b/c i honestly don't know either - i have about 15% in gold which i think is a reasonable hedge. Some people have way less and some have way more. Just hope to be on the right side of the trade is all you can do.
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  12.  
    Originally Posted by krispycream View Post

    And many of the loans were guaranteed by the Federal government. So the banks were enabled to lend to them thru the fed basically being a co-signor of the loan. Creating a massive moral hazard by having banks give out loans to people who shouldn't have qualified.

    I don't disagree with your statement - in canuckland, we don't have the whole mortgage interest write off thing and i could never understand that in your system. Ultimately, the lender has to assume responsibility tho when they are issuing mortgages to people who can't afford them (or for not getting enough money to cover the risk involved).

    What is wrong with buying property, fixing it up, and reselling it? Isn't that basically making an investment?

    nothing is wrong with this at all - the problem comes when it becomes a large scale commercial venture based entirely on debt

    i think we're starting to confuse fed policy with gov't regulations and taxes tho
    Edited By: saxman Sep 22nd, 2012 at 06:33 PM
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  13. I think Ray Bitar was actually the mastermind behind the housing bubble.
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  14.  
    Originally Posted by saxman View Post

    i wasn't in favor of QE3 - the economy seems to be recovering VERY SLOWLY but it is recovering. It's really good news that the housing market seems to be coming back b/c a home is the biggest single investment for most middle class people and when they are underwater on mortgages, it does not instill any level of confidence regardless of what the stock market is doing. It's really hard to convince people to spend / borrow regardless of rates, when they still see themselves being underwater, and most businesses are focused on cash flow and cost savings as opposed to growth and are trying to clean up balance sheets.

    the biggest problem is that the FED has no control over gov't policy with regards to stimulus spending (infrastructure programs), military spending, or tax policy. As long as the gov't continues this stalemate and fears of the fiscal cliff are looming, it's still a very difficult economic climate. When the automatic spending cuts kick in at the end of the year, people are going to start scrambling and you can count on the R's panicking over the huge automatic cuts to military spending.


    Middle class people should not see buying a house as an investment unless they are buying it to flip it. And the fact that you characterize the non-cuts to defense spending as if they were "huge cuts" means the war party has been successful at setting the narrative on that issue. If the housing market comes back because the fed reinflates the bubble, is that a good thing?
     3
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  15.  
    Originally Posted by saxman View Post

    there have been a number of articles about the housing market recovery - again, its slow but it is recovering. When interest rates start to rise, it will put pressure on prices but we are at historically low mortgage rates and will remain there for a number of years.

    no, i don't think the FED should have any control over gov't policy - i'm saying that they are very limited in what they can do

    the spending cuts are automatic should they not be able to reach an agreement on the debt ceiling - both sides will panic but especially the R's over military spending cuts


    There are no spending cuts. Why do you guys persist with this illusion?
     3
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  16.  
    Originally Posted by saxman View Post

    it doesnt appear that incomes are rising - supply may be decreasing as the housing crisis eases and there are less distressed mortgages out there to buy up.

    i hope you're right about them coming to some agreement on the debt ceiling but there doesn't seem to be any willingness to compromise at this point.


    They always compromise to ignore the problem for another year.
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  17.  
    Originally Posted by Leet8s View Post

    Inflation refers to prices... That's how inflation is measured with the CPI.


    No it doesn't. Rising prices can be caused by inflation but are not themselves inflation. If prices go up because demand increases, is that inflation? If prices go up because supply decreases, is that inflation? No. Inflation means the inflation of the money supply. Inflation is a cause of rising prices but is not the rising prices themselves. What you think of as inflation is really an arbitrary number come up with by choosing an arbitrary "basket" of goods and then pretending that their prices all somehow relate to each other. Sorry but the price of a banana has nothing to do with the price of chicken.
     3
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  18.  
    Originally Posted by Leet8s View Post

    You realize that basically all interest rates in the world are derived from a short-term central bank rate in every country that has a central bank? When you build a yield curve for US, you use deposit rates for the short-end, use Eurodollar FRAs up to 2 years and then bootstrap further out with to 30 years with Swaps. But these rates depend a lot on the Fed Funds rate. But this is true for every country... I know you'd say down with the central banks but good luck with that. And even in a scenario where central banks backed their money by gold they would still control interest rates depending on how much gold they buy/sell.


    No they're not unless you are only talking about each central bank's prime rate. I'm talking about the rates that banks actually lend money out at. That is a market dependent upon price signals that gets all fucked up like it is today when interest rates are affected by the fixing of prices by central banks. There is a reason this country has no pool of savings to draw investment money from.
     3
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  19.  
    Originally Posted by saxman View Post

    how about gold from 1980 to 2001? do you think it's possible gold could lose 50% of it's value again? i mean, i don't know where the top is before it crashes back down. I don't think anyone does.

    @ krispy - the fed doesn't create bubbles - they adjust interest rates and the money supply in response to inflation and unemployment. Market bubbles are created by speculators.


    Wrong. Easy money causes bubbles because there are no good investments left for the free market to find to put that extra money into so when it hits the market it is put into riskier investments or investments favored by the government such as housing. This causes much more investment to go into that market than would have without the artificially low interest rates, thus causing a bubble that collapses once everyone realizes that the market is oversaturated and gets out.
     3
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  20.  
    Originally Posted by saxman View Post

    two things come to mind - banks were writing mortgages to people that couldn't afford them, bundling up toxic mortgages and other debt and selling it to third parties trying to profit from the debt - real estate speculators were buying properties and flipping them which drove up the prices of homes.


    Speculators do not drive prices up unless there is government policy that gives incentives to invest above and beyond what the market can bear. If speculation is bad then so is the whole stock market and any time the market goes up we can just say "it was because of speculators".
     3
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  21. the entire "housing as an investment" argument is a huge debate - if you listen to Peter Schiff he has been saying for years that real-estate is a bad investment b/c you could take that money and invest somewhere else at a higher return. This is true if you ignore the fact that people still need to pay money for rent. If you are spending a significant portion of your disposable income on rent, most people have little left over for other forms of investment or saving. Paying down a mortgage is a form of saving for those people and real-estate does appreciate over time, but as we have seen , nothing goes up in a straight line. Things tend to have short term corrections and if you happened to buy a home at the height of the housing bubble, you got screwed (for now). Sad but true.

    we never had the housing bubble in Canada for a number of reasons - partly b/c of your tax write off on mortgages, and partly b/c of the highly speculative markets in the USA in the early 2000s. All you need to do is pull up a chart on house prices to see the parabolic rise - those things are simply not sustainable.

    As far as your comments on the fed and gov't intervention, i always get the feeling that people want to use the gov't as the boogieman and don't take personal responsibility for things that are taking place. The government does not create booms and busts in the stock market. Speculators create them.
    Edited By: saxman Sep 22nd, 2012 at 08:10 PM
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  22.  
    Originally Posted by saxman View Post


    As far as your comments on the fed and gov't intervention, i always get the feeling that people want to use the gov't as the boogieman and don't take personal responsibility for things that are taking place. The government does not create booms and busts in the stock market. Speculators create them.

    Without artificially low interest rates those speculators wouldn't have cheap money to gamble with. And as for booms and busts, I didn't think we were talking specifically about the stock market. By the way, the dot com bubble was caused by easy money. The housing bubble, easy money. The next bubble, easy money. Easy money creates the boom which is then inevitably followed by a correcting bust.

    Hayek won a Nobel Prize talking about this.

    http://en.wikipedia.org/wiki/Austria...s_cycle_theory
    Edited By: Dyzalot Sep 22nd, 2012 at 08:16 PM
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  23.  
    Originally Posted by Dyzalot View Post

    Without artificially low interest rates those speculators wouldn't have cheap money to gamble with. And as for booms and busts, I didn't think we were talking specifically about the stock market. By the way, the dot com bubble was caused by easy money. The housing bubble, easy money. The next bubble, easy money. Easy money creates the boom which is then inevitably followed by a correcting bust.

    Hayek won a Nobel Prize talking about this.

    http://en.wikipedia.org/wiki/Austria...s_cycle_theory

    She definitely does know a lot about inflation



    Edited By: dolphin13 Sep 22nd, 2012 at 08:27 PM
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  24.  
    Originally Posted by Dyzalot View Post

    No they're not unless you are only talking about each central bank's prime rate. I'm talking about the rates that banks actually lend money out at. That is a market dependent upon price signals that gets all fucked up like it is today when interest rates are affected by the fixing of prices by central banks. There is a reason this country has no pool of savings to draw investment money from.

    Yes they are. Treasuries, Deposit Rates, Swaps, Libor are pretty damn dependent on the Fed Funds rate.
     
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  25.  
    Originally Posted by Dyzalot View Post

    No it doesn't. Rising prices can be caused by inflation but are not themselves inflation. If prices go up because demand increases, is that inflation? If prices go up because supply decreases, is that inflation? No. Inflation means the inflation of the money supply. Inflation is a cause of rising prices but is not the rising prices themselves. What you think of as inflation is really an arbitrary number come up with by choosing an arbitrary "basket" of goods and then pretending that their prices all somehow relate to each other. Sorry but the price of a banana has nothing to do with the price of chicken.

    Keep believing that inflation just equals change in money supply. You belong to a group of economists which have been proven wrong with this regard. And tell that to all economic textbooks and global data which represents inflation in terms of CPI. Keep living in your fantasy world of economics.
     
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  26.  
    Originally Posted by Leet8s View Post

    Keep believing that inflation just equals change in money supply. You belong to a group of economists which have been proven wrong with this regard. And tell that to all economic textbooks and global data which represents inflation in terms of CPI. Keep living in your fantasy world of economics.


    It is a matter of definition. There is no "proving wrong" as if this is theory or something.
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  27.  
    Originally Posted by Dyzalot View Post

    It is a matter of definition. There is no "proving wrong" as if this is theory or something.

    Of course there is. You can see how much money supply has increased under Bernanke. You can see how much inflation has changed. They are no where close to the same number ergo you're wrong.
     
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  28. i was referring to the stock market but sure also include commodities and foreign exchange markets where trillions of dollars are traded for and against various financial instruments, and where the largest companies in the capitalist system raise money for their ventures. I realize there are also many privately held companies, and many markets that are not part of the publicly traded markets.

    i still don't blame the gov't for the billions that were wagered on companies who never made a profit, or who had P/E ratios in the 40's during the dot com boom. It's just pure speculation fueled by the ever growing competition between fund managers (often owned by the largest of our banks) to become the next billionaire. Similarly with the housing boom and the misallocation of funds in the financial industry to try and reap profits and trade billions in unregulated credit default swaps around the world. Financial institutions relying on quants to develop complex algorhythms as a means of trading stocks to maximize profits. These are not government induced policies although i do agree that the notion of "making housing affordable for everyone" is a message gone wrong.

    The debate between austrian theory and keynesian theory continues at the highest levels.
    Edited By: saxman Sep 22nd, 2012 at 10:00 PM
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  29.  
    Originally Posted by Leet8s View Post

    Of course there is. You can see how much money supply has increased under Bernanke. You can see how much inflation has changed. They are no where close to the same number ergo you're wrong.


    If I define inflation as simply an increase in the money supply then I am not wrong. It all depends on how you define "inflation". As I said, I was taught in college that inflation equals an increase in the money supply that tends to lead to an increase in prices. See this reference here.

    http://inflationdata.com/articles/20...ion-inflation/

    Twenty years ago even Webster's defined it that way. Rising prices can be caused by inflation but they are the result of it, they aren't inflation in and of themselves.
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  30.  
    Originally Posted by saxman View Post

    It's just pure speculation fueled by the ever growing competition between fund managers (often owned by the largest of our banks) to become the next billionaire.


    People gamble with their money because the fed makes their dollar worth less every day. Idle money does not make one wealthier in a system of perpetual inflation. Pour more money into the system and it will find outlets no matter how risky they might be since the money becomes worthless if it isn't invested.
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