Chronicle of the Conspiracy
Saturday, September 22, 2007HOUSING BUBBLE REVISITED I visit Sacramento, California several times a year, mostly the outskirts of town, former farmlands now converted into acre upon acre of tract houses presumably financed by subprime mortgages. I quipped in May that I had sighted the infamous "housing bubble" and captured it on film:
Now I'm back, and I've sighted it again, and again captured it on film:
Hmmmm... seems like there's something a little different this time. Something about low 400's and high 300's (and they've done away with the silly quotation marks). Sounds like prices are finding a new and lower equilibrium. But fear not. I've never seen the strip-malls as crowded as they were today. Parking spots at a premium. Longest lines I've ever seen at Old Navy, Borders and Starbucks. This isn't subprime hell. How come? Same answer as usual. The bears were wrong about the impact of mispriced housing and mispriced loans -- and the entrepreneurial class is rising up to ease the transition to a new reality (a phenomenon I've also sighted and caught on film).
Update [9/24/2007]... Reader Liv Douglas notes,
The subprime "bust" is probably going to turn out to be more of a BOOM than I had previously thought. I stand corrected. I thought the sub-primers would get 2 months of mortgage-free, rent-free life. It turns out, at least here in Colorado, that the [uncreditworthy] homeowner is guaranteed at least 6 months of mortgage-free, rent-free living (according to my realtor).
Posted by Donald L. Luskin at 9:38 PM | link
Friday, September 21, 2007BEN BERNANKE, ACTION FIGURE Another view on whether the Fed got it right this week.
Posted by Donald L. Luskin at 2:07 PM | link
Thursday, September 20, 2007TURNING OFF THE LIGHTS OF THE WORLD The Associated Press reports:
The Golden Gate Bridge, City Hall, Alcatraz and other parts of the city will go almost completely dark for an hour next month as part of a campaign to conserve energy and fight global warming.My DC-insider pal "Mick Danger" comments,
MEOW stands for ďMoral Equivalent of WarĒ, Jimmy Carterís ineffective rhetoric advancing his energy policy program, which, not so incidentally, was a complete failure. Carterís energy policy blocked the markets from adjusting, making medium problems into huge ones. Reagan swept out the most draconian element of Carterís plan when he deregulated crude oil on his 8th day at work. Oil prices fell, silencing (for a minute) even Ed Markey. By the end of Reaganís first term, all of MEOW had been repealed or rendered moot.
Posted by Donald L. Luskin at 7:21 PM | link
DID THE FED DO THE RIGHT THING BY CUTTING RATES? Here's a Club For Growth symposium on that question, in which my contribution is to say "no." An excerpt:
The reactions to the Fed's rate cut this week of surging gold and oil prices, and a dollar falling to all-time lows on forex markets, confirms that there are serious inflationary consequences in our future. Inflation is monetary crack - it promotes short-term euphoria, but in the end leads to ruin. Any short run growth effect will be more than offset by the dislocations and arbitrary transfers of wealth created by higher inflation, and ultimately by ruinously high interest rates that the Fed will eventually have to enforce in order to rein in the inflation it has created.Here's a sample of the "yes" view from Paul Hoffmeister:
In real terms, the value of the nation's 500 largest companies appreciated 1.92% Tuesday in response to the 50 basis-point funds rate reduction. This is based on the facts that the S&P 500 increased 2.92% in nominal terms, while gold appreciated by approximately 1%. This real appreciation in the nation's capital stock suggests the FOMC made the right decision.I leave it as a challenge to readers to come up with the all the reasons why this analysis is incorrect -- and will publish them as updates (if space permits).
Update... Reader Richard Ridgeway takes a whack at it:
Well. I am a 'challenged' reader, but I'll give it a shot in taking on Mr. Hoffmeister's paragraph.Update 2... Reader Larry Eisen has a different view:
The dirty little secret about the gold price is that it is not determined in a free market. Central banks have a vested interest in the distortion the price of gold to maintain public confidence in paper currencies.Update 3... Rich Sinda says,
Being a believer in market efficiency, I would have to agree with Mr. Hoffmeister. Cutting rates was a good short run decision. Then again, going out last night for a couple of drinks was a great short run decision for me that I am now really regretting.Update 4... Matthew Cowie says,
Mr. Hoffmeister is wrong on this point for several reasons. Firstly, as of last month, the Zimbabwe Stock Exchange absolutely crushed inflation over the past year, rising 12,000% versus only 1,700% inflation. Nonetheless, Zimbabwe's economy is in shambles, in part because of inflation. Inflation distorts price signals, increasing uncertainty, leading to reduced investment and eventually reduced economic growth. So if S&P 500 rises 1.92 pecent and gold rises 0.0%, that's far better than 2.92% and 1.0%.
Posted by Donald L. Luskin at 6:58 PM | link
ARGH, ME BUCKO! My DC-insider pal "Mick Danger" tells me this is making the rounds on Capitol Hill. Before you leap to the unwarranted conclusion that this means these stiffs have a sense of humor, consider the high likelihood that they think it's real research.
Posted by Donald L. Luskin at 6:05 AM | link
Wednesday, September 19, 2007NOTE FOR OUR SEATTLE READERS! Our "public editor" Irwin Chusid is the leading authority on Jim Flora, the influential pre-pop American artist (Irwin is author of two sensational Flora books, The Mischievous Art of Jim Flora and The Curiously Sinister Art of Jim Flora). He tells me there's a Flora exhibit opening Saturday in Seattle, the first exhibit since the artist's death, and featuring a number of works not previously seen by the public.
Fantagraphics Bookstore & Gallery in Seattle will host a rare exhibition of Jim Flora's original art, fine art prints, and Flora ephemera from September 22 through October 24, 2007.For more information...
Posted by Donald L. Luskin at 5:05 PM | link
WE LEARN A NEW WORD: "VENTRIPOTENT" Our monetary affairs correspondent "Irrational Exuberance" cites a peculiar turn of phrase:
At the introduction for Greenspan's Barnes & Noble talk on Monday, the speaker cited an LA Times book review that described Greenspan as "the most powerful economic central planner the world has ever seen." The phrasing seemed generally odd even beyond the obvious cognitive dissonance of hearing a one-time Ayn Rand acolyte labeled as a "central planner." I should have guessed it was the ventripotent Marxist Brad DeLong that penned the quoted phrase from the LA Times.
Posted by Donald L. Luskin at 4:12 PM | link
LUCAS NAILS IT Nobel laureate Robert Lucas explains perfectly why yesterday's Fed action was a mistake:
The need for a lender-of-last-resort function is one qualification to the discipline of inflation targeting, but it is a necessary one. There is a second line of argument that seems to me much less compelling. It starts with the fact that monetary policy necessarily affects future inflation rates, not the current rate: That has already been determined when the open market committee meets. We also know that whatever funds rate target is chosen, all kinds of others forces -- anything that happens to the real economy -- will affect next quarter's rate of inflation, or next year's. So we would like to forecast these other forces as well as possible and take them into account.
Posted by Donald L. Luskin at 5:57 AM | link
Tuesday, September 18, 2007THE TIMES GIVES UP... ...on "TimesSelect," its online paywall for opinion columns. Damn! This mean that Paul Krugman is going to be relevant again? Thanks to Chris Ciancio for the link.
Posted by Donald L. Luskin at 2:57 PM | link
WORTH SOMEWHAT LESS THAN A THOUSAND WORDS This diagram is an informational embarrasment of riches, attempting to explain the flow of political discourse in the blogosphere. Get it? Good. There will be a test.
Posted by Donald L. Luskin at 9:32 AM | link
THERE'S A FIRST TIME FOR EVERYTHING I've never been called a "middle-of-the-roader" before!
Posted by Donald L. Luskin at 7:03 AM | link
Sunday, September 16, 2007HEY THERE, BOYS AND GIRLS! Order your Government Insect Trap today! Think of all the government insects you can capture! Look at what I've done with mine!
Posted by Donald L. Luskin at 2:22 PM | link