The Coming Meltdown in Commercial Real Estate

[YoungTulsan]

Fixing the problems with the Federal Reserve having a monopoly over legal tender isn't a Reagan versus Obama issue.  Giving the Fed more powers surely isn't the fix.

[FOTD]

Fixing the problems with the Federal Reserve having a monopoly over legal tender isn't a Reagan versus Obama issue.  Giving the Fed more powers surely isn't the fix.

Printing more money is the fix and the fix is in.....

[nathanm]

Printing more money is the fix and the fix is in.....

I think the wealth destruction over the last year will more than make up for any printing the Fed has done.

And YT, saying that currency is debt-based is like saying the sky is blue. A dollar is a claim on a good or service, thus, it represents debt. Absent the economy-grenading move back to the gold standard as the Paulists would like, what other system would you propose?

[FOTD]

%40 of all Blockbuster's to close....

They already repositioned Tulsa but there will be a few more closings ....

Peoria is probably safe so don't get all dreamy.

[Townsend]

Peoria is probably safe so don't get all dreamy.

Why ya gotta crush me like that?

[YoungTulsan]

I think the wealth destruction over the last year will more than make up for any printing the Fed has done.

And YT, saying that currency is debt-based is like saying the sky is blue. A dollar is a claim on a good or service, thus, it represents debt. Absent the economy-grenading move back to the gold standard as the Paulists would like, what other system would you propose?

Rather than just torpedoing the whole system, you could legalize competition.  At the same time, the Federal Reserve and the Treasury need to adopt monetary policy more in line with reality.  The reality is that everyone is overextended.  When we are borrowed to the hilt, the monetary policy should encourage the savings that will swing the pendulum back the other direction.  Putting the target interest rate at 0% encourages no one to save money.  It punishes people who save money because they are robbed via inflation to pay for the new money being lent to the irresponsible and foolish.

The environmentalists and green movement seem totally oblivious that this is the main reason we are over consuming everything.  If the markets weren't artificially inflated, we wouldn't have built a million homes that no one needed.  Consumption should only exist as the result of excess savings.   If the economy produces enough that there is excess left over after basic needs are met, then consumption should occur with the proceeds.  Instead our entire economy is driven by consumption.  We borrow money to buy resources someone else produced, then we pay each other a fat bonus.  It only works right now because the rest of the world is still backing our dollar and paying the tab when we consume but don't produce enough to compensate.  The average person isn't evil, he is just going along for the ride in this bizarre system.

[nathanm]

Rather than just torpedoing the whole system, you could legalize competition.  At the same time, the Federal Reserve and the Treasury need to adopt monetary policy more in line with reality.  The reality is that everyone is overextended.  When we are borrowed to the hilt, the monetary policy should encourage the savings that will swing the pendulum back the other direction.  Putting the target interest rate at 0% encourages no one to save money.  It punishes people who save money because they are robbed via inflation to pay for the new money being lent to the irresponsible and foolish.

I think you should read about the consequences of deflation and the causes behind the Great Depression before calling out the Fed's response as irresponsible.

I do agree that lax monetary policy helped inflate the housing bubble to an unsustainable size, but in general small inflation is better than deflation. Beyond a certain point, savings is significantly deflationary and shouldn't be encouraged. In a recession, savings should also not be encouraged. Savings should be encouraged in the good times to head off bubble production and keep inflation in check, but that didn't happen, as you are no doubt aware. Between Bush's tax checks and Greenspan's keeping rates low for too long encouraging spending like wildfire, we ended up with that negative savings rate.

Perhaps you can explain to me how having several different currencies in the US would help matters? Last time we tried that, it didn't end well. The Federal Reserve isn't there "just because," it was created in response to problems that required a central bank to resolve, namely recurring liquidity traps culminating in panics and bank runs and an economy laid to waste. In its early years it didn't act in a big enough way, which was a large part of why the Great Depression was so much more sustained than our recent shock, which could have easily gone there if not for swift action by governments and central banks alike. To be fair, however, they likely presumed it to be just like every other panic in recent history and not the stock market bubble it actually was. We currently have the gift of hindsight.

Basically, if you want to have a permanent class of unemployed, encouraging deflationary monetary policy is a great way to go about it.

And current monetary policy is right about where it needs to be. The only question is whether or not Bernake will have the intestinal fortitude to raise rates next year as will be necessary if we don't have the backslide that I see on the horizon. We needed the incredibly low rates to offset the massive deflationary impact of a trillion dollars of "wealth" (whether it's real or not isn't relevant, only how market participants perceive it matters) evaporating in a month. Even rates at zero and massive government spending didn't stop the deflation, it only kept it to a low level.

The delicate balancing act going forward is charting the perilous course between massive inflation and deflation. If the fed raises interest rates too fast at the same time the stimulus is tailing off, none of us will be happy. As it is, I don't think we're really out of the woods, despite the recession probably technically being over. The unemployed are starting to run out of their extended benefits, which is not going to be good for the credit markets, housing prices, consumer demand, or anything else. Expect to see more wealth destruction in the next 6 months. We can't have a real recovery until the jobless rate doesn't only slow its level of growth, but actually reverses.

Sorry for the long screed. I'm sure it'll be a tl;dr for most, but hopefully not. I enjoy discussing these things. And for god's sakes, don't let us go back to the gold standard. We need that gold for industrial processes. It'll be too expensive to use if it has to back money again.