tag:blogger.com,1999:blog-1110014885778996459.post8176522795407084149..comments2024-03-29T04:50:03.060-07:00Comments on Idiosyncratic Whisk: Housing: Part 212 - Consumption from home equity.Kevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-1110014885778996459.post-80899592868908914322017-03-22T08:35:34.137-07:002017-03-22T08:35:34.137-07:00Even for firms, this would show up in Financials i...Even for firms, this would show up in Financials in a number of different ways, depending on how each security was accounted for. But I would expect that this lowered the value of foreign owned assets and lowered their income temporarily. I would guess that in the broad scheme of things, that doesn't amount to that much though. Probably more losses came through home equity declines on owned real estate.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-44374036278072406792017-03-22T04:59:05.976-07:002017-03-22T04:59:05.976-07:00Kevin, Losses on MBS. RMBS or CMBS. How does that ...Kevin, Losses on MBS. RMBS or CMBS. How does that show up in the trade stats? I'm thinking about US imports a widget, foreigner uses money to buy an MBS. That adds to our trade deficit (and current account deficit) at that time, and adds to our capital account surplus at that time. But then there is a loss on the MBS (mortgage defaults, foreclosure, etc., so a permanent loss, not just a price change during the holding period). Where does that loss get shown in our accounts? Thanks!billnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-75855968728457113772017-03-16T16:06:46.726-07:002017-03-16T16:06:46.726-07:00There is a lot going on. I'm admittedly still...There is a lot going on. I'm admittedly still working it out. Thanks for the input. I'll have to think on it.<br />Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-78193312480171430172017-03-16T09:22:36.619-07:002017-03-16T09:22:36.619-07:00Interest rates will rise because the homeowner (ra...Interest rates will rise because the homeowner (rather than borrowing from someone else) has reduced his own lending. Other people will consume less and save more, getting higher interest on those savings. Why think they will be worse off as a result--why think that the homeowner's gain is "at the expense of" anyone else? (Of course, we are both making a lot of background assumptions, without which we would simply be "reasoning from a price change.")Philohttps://www.blogger.com/profile/02814125172453918700noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-6466788379376924882017-03-14T20:52:31.452-07:002017-03-14T20:52:31.452-07:00Maybe there is a better way to get at it. What I ...Maybe there is a better way to get at it. What I tried to do is take total US corporate profits and subtract domestic profits, which would leave foreign profits.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-36637931345282130282017-03-14T20:44:22.421-07:002017-03-14T20:44:22.421-07:00"So what kept us afloat between 2006-2008? T..."So what kept us afloat between 2006-2008? Those foreign profits. Here is a chart of US corporate foreign profits as a percentage of GDP."--Kevin Erdmann<br /><br />The chart closest to the above sentence seems to be a start about domestic corporate profits, with some adjustments. Not sure I understand the drift. <br /><br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-65093386269739150722017-03-14T18:10:03.969-07:002017-03-14T18:10:03.969-07:00What if the homeowner normally save $20,000 of his...What if the homeowner normally save $20,000 of his income, but since his home appreciates an extra $20,000, he consumes $20,000 instead? This would have an inflationary effect on consumption goods and would induce some marginal additional savings from other consumers.<br /><br />What is it that is different about our scenarios that produces different outcomes?Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-47011930510517683362017-03-14T17:14:35.215-07:002017-03-14T17:14:35.215-07:00"[R]eal estate owners were consuming, in the ..."[R]eal estate owners were consuming, in the real sense, at the expense of producers." How "at the expense of"? The real estate owner who finds that his house has appreciated offers a new saving opportunity to someone else: lend me some money, against my house as collateral, and I will pay you interest at an attractive rate. This other person (in practice there will usually be a bank or the like as intermediary) curtails consumption he otherwise would have engaged in and instead lends money at interest to the homeowner. The lender's hypothetical consumption is replaced by the homeowner's consumption, but the lender is gaining interest payments that (over-)compensate him for his foregone consumption. What happens might be said to be "at the expense of" the lender's *consumption*, but not at the expense of *the lender*.Philohttps://www.blogger.com/profile/02814125172453918700noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-19337770579171708362017-03-14T11:44:48.321-07:002017-03-14T11:44:48.321-07:00I don't understand your last question. On the...I don't understand your last question. On the question of taxes, simply considering the implications of this issue and nothing else, I might favor the import tax. The reason is that my understanding from seeing the discussion about the proposed border tax is that the import tax would actually end up taxing the excess foreign profits of the Closed Access firms. That's probably bad for US incomes in the short term, but I'd prefer not to have incomes based on political exclusion.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-91970501043936491082017-03-14T10:33:33.839-07:002017-03-14T10:33:33.839-07:00Thanks for the link.
I think the international co...Thanks for the link.<br /><br />I think the international correlation bolsters my point. Yes, the same thing is happening everywhere. I like this line of thinking. I think I might incorporate this approach in the book. Basically just start with a single fact, which is well established - closed access home values are due to persistent increases in local incomes and rents that are made possible by limited supply. Just follow the logic from there. You get lower interest rates, higher labor participation, trade deficits, mortgage growth, etc. It matches the data better than the demand side explanation or the foreign saver explanation.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-11947683109548979292017-03-14T07:07:21.311-07:002017-03-14T07:07:21.311-07:00I think this paper agrees with you in part, though...I think this paper agrees with you in part, though it is a bit dated.<br /><br />http://www.bis.org/publ/work223.htm<br /><br />I sometimes wonder if it is "easier to make money" overseas. <br /><br />The US economy is very competitive, and foreign firms do not make much profit here, but US firms overseas do make money, especially when they introduce first-world operations to emerging nations, or US efficiency to Europe. <br /><br />Maybe profits are reported offshore to avoid US taxes. <br /><br />Also, there was a round of foreign buying of US assets in the 1980s through the early 2000s that did not pan out. Japanese were big buyers of West Coast real estate in the 1980s and 1990s that mostly crapped out. Somebody in Europe bought Chrysler and lost $10 bil. <br /><br />Still not sure how this plays into your real estate closed-cities explanation. <br /><br />Evidently, the US has had very profitable overseas operations going since well before 2007 (date of paper). <br /><br />Also, the NY Fed found many nations---not just the U.S.---running large trade deficits had the house-price booms. The same explanation applies to all such nations? <br /><br />https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr541.pdf<br /><br />Basically, the money that bought imported goods and services came back as real estate investments, whether the US, Australia or Spain. This makes sense to me.<br /><br />To further confuse matters, I have always been a bit suspicious of the international trade stats. Huge amounts of cash, digital and paper, sloshing around in offshore, in Cayman Island-land.<br /><br />Maybe $30 trillion in the offshore financial netherworld, and growing. <br /><br />$1.5 trillion in paper US cash is in circulation, or $4,700 for every resident of the country, including babies and old ladies. <br /><br />Really? If this paper cash turns over even three times a year, it is large relative to reported size of US economy.<br /><br />Non-PC question: If you had to just tax only imports or on;y labor, which would you tax? <br /><br />PS Your last chart---why is that only foreign profits? Am I missing something? <br /><br />Well, great post. Maybe this one is over my pay grade. <br /><br /><br /><br /><br /><br /> <br /><br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com