Replies to post #22741 on Your Economy (No Politics) (YE1)

[dvdmogul]

Your an idiot. posturing this left wing propaganda for what? This article has no concept at all of what is happening in the economy, and you prefer this type of argument because your self interest is on the side of this arguments flow.

[skono4]

The lack of job growth in higher productivity, higher paid occupations associated with the American middle and upper middle classes will eventually kill the US consumer market.
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Geez Ernie, I'm from Pittsbugh area where my father, grandfather and all the uncles and in-laws worked in the steel industry. They were losing their jobs and familes were sucking wind and going in the hole almost two generations ago by my measure. Why is Paul Craig Roberts interpreting the August jobs data as if we're hitting some crescendo of economic chaos. This isn't a train wreck where a 100MPH commuter train runs into a car trying to sneak around the gates. This whole globalization is happening more analogous to a freight train hauling hundreds of cars up over the mountain pass at 10-15 MPH top speed.

It's pretty foolish to get hit by a passenger train going 80MPH through an urban area. It's almost impossible to get hit by the freight train unless you lay down in the tracks and wait there until the spider webs are covering you.

[fuagf]

Thanks Earnie, good article; found this bit

"Recently an economist, Susan Houseman, discovered that the
reliability of some US economics statistics has been impaired
by offshoring. Houseman found that cost reductions achieved
by US firms shifting production offshore are being miscounted
as GDP growth in the US and that productivity gains
achieved by US firms when they move design, research, and
development offshore are showing up as increases in US
productivity. Obviously, production and productivity that
occur abroad are not part of the US domestic economy."

particularly interesting and new.

[Bullwinkle]

CPI fraud directly linked to subprime credit crisis
ROBERT HARDAWAY
Home News Tribune Online
08/29/07


In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.

The BLS's solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called "Owner Equivalent Rent" component based on what a homeowner might "rent" his house for.

The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment.)

While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the "hormonal teenagers of the capital markets."

The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the "benign" inflation figures reported over the last 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home-price increases of as much as 30 percent. With the illusion of low inflation inducing lenders to offer 5 percent and 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but homebuyers by the millions have been tricked into buying homes even though they only qualified for the "teaser" rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral; but once home prices stabilized and even declined, many families were forced into foreclosure.

If economic history were a required subject in our public schools, borrowers would be aware of the dynamics of such frequent bubbles that have occurred in the past. In 1624 in Holland, frenzied speculators saw that the price of tulip bulbs was rising and rushed to buy them on the expectation that the price would rise even further and they could make an easy profit. Banks were eager to lend money to such speculators, because they, too, stood to make handsome profits. Oblivious to the underlying value of the bulbs, more buyers entered the market, pushing the price of a single bulb to the preposterous price of 3,000 guilders (equivalent to perhaps $100,000 today).

Houses are today's tulip bulbs, and in California they are the equivalent of the 3,000 guilder tulip bulb. But instead of letting the bubble play itself out in order to create conditions for long-term economic stability, the Fed, under extreme political pressure from the power brokers and banks, seems determined to keep the bubble from bursting for as long as possible by continuing to lower interest rates and flood the market with liquidity, much as the Dutch banks did in 1624 to keep up the price of tulips. Such a short-sighted strategy will not only keep the price of homes beyond the reach of the average American, but will make the final and inevitable collapse that much more horrendous.

Robert Hardaway is professor of law at the University of Denver Sturm College of Law and the author of 14 books on law and public policy.

http://www.thnt.com/apps/pbcs.dll/article?AID=/20070829/COLUMNISTS/708290339