The Bailout: Part 2

Parent Cafe
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<p>Well, it looks like we are choosing inflation and a bailout over a little short term pain.</p>

<p>Oil prices hit a new high today. Food prices are accelerating upward at the fastest rate in over 26 years. Gold prices are making yearly highs. The dollar is declining all over the world.</p>

<p>Looks to me like we are committing ourselves to a lower standing of living in our future.</p>

<p>Martin Feldstein, a notable economist, wrote an op-ed piece in the Wall Street Journal today pushing for the Fed to lower rates a point.</p>

<p>I think he is insane. He wrote that our Fed Funds rate of 5.25% was very high historically because historically our real rate is 2%. In the same article he said our inflation rate ran 4.6% last quarter. I take the 2% real rate and add it to the inflation rate of 4.6% and I get a 6.6% rate. </p>

<p>It looks to me like our Fed is too loose. This is why we are getting inflation all over the place and the value of our dollar keeps dropping. This article also explains why we are in this mess. Our esteemed economists can’t add.</p>

<p>I hope our kids that are studying economics are learning how to add 2 and 4.6 and are also learning how to help our economy and not how to screw it up.</p>

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<p>With housing deflation the nominal inflation rate for the year will be closer to 2% than 4%. It already is hampering spending on many goods causing price reductions from the I Phone to the Range Rover. Food prices went up due to horrible weather which happens.</p>

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<p>No, Barrons. You are wrong. We don’t count housing prices in the cpi. If we did, over the last 5 years, our inflation numbers would have looked much worse.</p>

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<p>No, it is converted to rent, but lower home prices mean lower rents over time. Right now in the weaker home markets you can rent a house for half what it would have cost a year ago. Apts have to compete with vacant condos whose owners will take 50% on the dollar just to hold on.</p>

<p>PS. the fight over how to estimate housing costs in CPI has been going on for decades. </p>

<p><a href=“http://www.hoover.org/publications/digest/3541471.html[/url]”>http://www.hoover.org/publications/digest/3541471.html&lt;/a&gt;&lt;/p&gt;

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<p>Don’t worry Barrons. The cpi doesn’t overestimate our increases in cost of living. </p>

<p>Gap between incomes, price of homes widens</p>

<p><a href=“http://www.azcentral.com/news/articles/0912CensusHousing0912.html[/url]”>http://www.azcentral.com/news/articles/0912CensusHousing0912.html&lt;/a&gt;&lt;/p&gt;

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<p>Many think it does which is OK with me looking at collecting those CPI inflated SS checks in the near future. The comparing of median income and housing prices is a little off as in most markets under 70% of the households are homeowners with the rest–mostly at the lower income end–renting. Obviously as we know interest terms have a huge impact in home affordability. The payments at 5% are far lower than those at 10% on a $400k home.</p>

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<p><a href=“http://www.nytimes.com/2007/10/21/business/21every.html?pagewanted=1&_r=2&ref=todayspaper[/url]”>http://www.nytimes.com/2007/10/21/business/21every.html?pagewanted=1&_r=2&ref=todayspaper&lt;/a&gt;&lt;/p&gt;

<p>Those at the top are not paying the price for their companies mistakes.</p>

<p>Barrons 2.3% increases in the cola for social security next year. Yeah. Overinflated.</p>

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<p>Let 'em eat three-year-old computer chips, I always say.</p>

<p>(There might be a business in making them edible. ;))</p>

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<p>The same guy makes memory chips and grows potatoes. I wonder if the two are already mixed together. :)</p>

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<p>Yup, a tough year. I’m counting on 3+% next year. There have been some very high adjustments in the recent past though.</p>