Wednesday, November 25, 2015

Bubble!!!!

Housing permits per capita aren't lower than the lowest points of the worst recessions since 1960 any more?  What?  Are you people crazy?! You think we can just keep building like this without paying for our greed and over-investment?  Someone needs to put a stop to this.  Close down the greedy banks!  Stop the treasury printing presses!  My goodness, you people are out of control.  You can't be trusted with money - that's for sure.
Source

7 comments:

  1. I hope they see the light during Thanksgiving Dinner!

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    1. Maybe the best we can hope for is that they overdose on tryptophan and sleep through the December meeting. :-)

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  3. You see, you tighten the money supply which causes real estate to collapse which proves that was a bubble which leads to tighter real estate supply which leads to higher prices...

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    1. Yes. I suppose that it's how some people feel about NGDP targeting, that it is a circular logic. Since I tend to look at things from a finance, DCF sort of viewpoint, the behavioral/ABC theory types of explanations seem to sort of assume their conclusion. If you assume that there is no tendency toward equilibrium or toward non-arbitrage pricing, then you can pretty much prove everything. The problem with disproving EMH is that you may just be disproving the model you are testing it with. But, with bubble explanations there is explicitly no model. The behavioral finance explanation does have some falsifiable predictions, like that rents should have collapsed before price, and it fails there. But the Austrians, in the end, fall back on the unavoidable correlation between money and prices. It's kind of like blaming forest fires on oxygen. It is technically true, but if they are bent on arguing that the solution is to suck out the oxygen, how do you respond?

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  4. Ooooh, I like the forest fire analogy.

    But who cares about Austrians?

    We have an FOMC more concerned about mild inflation than robust economic growth. The topic in FOMC meetings is inflation. At central bank confabs, inflation is the only topic.

    Inflation has been in retreat for 30 years, and in Europe and Japan we see deflation, yet all central bankers can talk about is inflation.

    I have yet to hear a single central banker in the United States discuss the impact of property zoning.

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    1. Thanks.

      I wouldn't care so much about ABC, but is there any other framework that leads people to conclude that monetary expansion leads to overinvestment in long-duration assets?

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