Fuck inflation

In the face of a housing market going down the crapper, and a looming credit crunch threatening to take the markets and the broader economy with it, the Federal Reserve Open Market Committee voted unanimously today to keep interest rates unchanged, and continue to focus on inflation:

“Although the downside risks to growth have increased somewhat, the FOMC’s predominant policy concern remains the risk that inflation will fail to moderate as expected,”

I’m no economist, but really… fuck inflation.

A little inflation can actually be a good thing, especially to people who owe money on things like mortgages, cars, credit cards, school loans, etc… you know, most Americans. And a little inflation would actually be a very good thing for the US Treasury, issuer of nearly $9,000,000,000,000 in public debt (almost $30,000 of debt for every man, woman and child in the U.S.)

In fact, the people who benefit most from the Fed’s decades long focus on maintaining record low inflation are the people who hold most of the debt. Wealthy and older Americans. (And I suppose, the Chinese government.) The Fed’s inflation policy is obsessively narrow at best, and intergenerational warfare at the worst.

So fuck inflation. A few quarters of 4% to 6% inflation isn’t going to kill anybody. And if a temporary cut in interest rates revives the housing market a bit and keeps a few hundred thousand families out of foreclosure, it would be well worth it.

Comments

  1. 1

    ivan spews:

    “A few quarters of 4% to 6 % inflation isn’t going to kill anybody?”

    Hey, Goldy, FUCK YOU! If you’re on welfare, or on Social Security, or disability, or working for minimum wage in a nonunion job, “a few quarters of 4% to 6% inflation” is a very big deal.

    What kind of “progressive” writes shit like this without considering the people at the bottom of the economic ladder, the working poor?

    Let the Mark the Rednecks of the world be callous pricks. There’s a world outside your comfortable middle-class bubble, you know.

  2. 2

    GBS spews:

    You won’t hear this truth on conservative talk radio or Fox Opinion Channel:

    Governor Gregoire and the DEMOCRATS have made Washington state a very BUSINESS friendly state according to that liberal financial publication Forbes. Washington state is the “Talk of the town” at Forbes when Washington rose from 12th to fifth place and was the only state to finish in the top five in three main categories: labor, regulatory environment and growth.

    What state has ranked #1 two years running? Virginia.

    http://articles.moneycentral.m.....iness.aspx

    Oh yeah, Democratic Governor Tim Kaine. Who was before him? Another Democrat.

    Democrats; right for businesses, right for workers, right on fiscal polices and right on our national security.

    Republicans are WRONG on everything. EVERY-THING!

  3. 3

    michael spews:

    @1

    A cut in interest rates will help some of those folks get better jobs and, like Goldy said, help keep some of the working poor from losing their homes.

    All the current Fed. policies do is help the rich stay rich.

  4. 4

    spews:

    Ivan,

    And what about the hundreds of thousands of families facing foreclosure? What about the millions of Americans that could lose their jobs if this housing collapse and the credit crunch plunges us into recession? We’ve got a Fed who worries about the inflationary pressure of high employment, but doesn’t give a damn about unemployment.

    All I’m saying is that the priorities driving our monetary policy are incredibly unbalanced. As for my “comfortable middle-class bubble” there is a huge difference between how I was raised and how I live. I’ve been barely scraping by for the past 4 years, and sometimes not even that. So don’t pretend you have any idea where my comfort level is.

  5. 6

    Luigi Giovanni spews:

    Did you write this in a fit of pique? Did emotion overwhelm your reason? Are you serious? You need to get a grip and carefully consider the consequences of your prescription. Be careful what you wish for.

  6. 7

    My Left Foot spews:

    Ivan:

    You just don’t get it do you? Thousands upon thousands of Americans are on the cusp of losing their homes due the downturn in the housing market, loose lending policies that were driven by greed on the part of lenders and ARM’s that are skyrocketing………… How can you be so ignorant.

    If you spread “the pain” (my characterization), as Goldy suggested, everyone (or most) would be better off.

  7. 8

    ArtFart spews:

    It’s already gone so far that there’s no way to keep the entire economy from going in the crapper. About all the Fed can do is try to control the descent and soften the landing.

  8. 9

    jacob spews:

    Yeah, Goldy, inflation does amazing things. Wait, flashback to the 1970’s, unemployment nationwide almost 15%, and what was the inflation rate? Higher than 10% (hint, go to wikipedia and look up stagflation). Companies do not employ people if it is negative to their bottom line. Inflation drives up prices, and people think they can negotiate higher wages, but the higher wages causes higher prices, and it is not sustainable. Companies lay people off, and we still have these high prices. Inflation is “healthy” between 1-3%, but 4-6% is a slippery slope.

  9. 10

    Commentator spews:

    It is very hard to turn off the inflation spigot once it has started. The recession in the early 1980s was terrible, but that’s what it seemed was necessary to stop the inflation. So before starting, it would be really good to have a plan of how to wind it down. Also there are other ways to help people who are overextended on their mortgages.

  10. 11

    spews:

    Jacob @8,

    See, that’s exactly what I’m talking about… it is so taboo even to consider a little inflation that nobody is will to publicly question the current doctrine.

    Nobody’s talking double-digit inflation. All I’m saying is that if the Feds loosened up credit to help cushion the housing collapse, and inflation inched up towards 5 or 6 percent, there is plenty of time respond without doing any lasting economic harm. We’ve had several quarters over the past decade with inflation well above 4 percent, and we’ve always managed to recover nicely.

    Inflation is not the boogeyman it is made out to be. Only out of control inflation is.

  11. 12

    drool spews:

    Interest rates aren’t that bad at all. The problem is the banks are getting tighter with who they will lend money to. It would seem the days of the zero down mortgage are over. These products relied heavily on building equity so the borrower could refinance out of the loan. These loose lending practices were going to die some day. You just didn’t want to be the person holding the paper on a lot of these loans. Kind of a financial hot potato. They don’t call it “sub prime” for nothing.

    My man Bob Brinker says the Fed is being overly sensitve withthe inflation thing. Brinker has been right way to many times in the past for me to discount what he says.

  12. 13

    Roger Rabbit spews:

    A little inflation would be good for Redneck, and a lot of inflation even better, because it would devalue the $100 debt he owes you.

  13. 14

    ivan spews:

    My Left Foot @ 6:

    Easy for you to decide who gets the pain, isn’t it? But for me, it’s not who gets what, it’s who gets what FIRST!

    My primary concern is for people on fixed incomes who have to choose between food and medicine. People who are stuck with adjustable rate mortgages can get in line.

    I have been as bombarded as anyone else by “financial experts” who told me I would benefit from an adjustable rate. My answer to every one of them was GFY. What kind of damn fool didn’t think they’d jack up the rates as high as they could?

    I have a 30-year fixed at 5.875 percent. I don’t think I’m the one who’s ignorant. People can choose not to buy overpriced products. I don’t buy adjustable rate mortgages, Starbucks coffee, or anything that Steve Jobs is associated with.

    I’m a damn sight more worried about the old and the sick, and the children of the poor. I guess that makes me ignorant. Whatever. Take your left foot out of your mouth and decide whose side you’re on.

  14. 15

    Roger Rabbit spews:

    Inflation is NOT a good thing. It is deadly to savings and pensions. No one gets hurt more by inflation than seniors on fixed incomes and minimum wage workers, the two groups who can least afford it. This is a lousy way to pay off debts that arguably shouldn’t have been incurred in the first place.

  15. 16

    Roger Rabbit spews:

    You’re no economist, Goldy. Neither am I, but I appreciate the fact that inflation causes “friction” in the economy, with an overall negative effect on everyone’s standard of living. The “friction” effects are manifold and pervasive; a few examples:

    1) Businesses are forced to reprice goods and service, and are bound to make mistakes in doing so, resulting in lost profits or sales

    2) Workers demand raises to offset higher prices, resulting in more labor strife and work stoppages

    3) Frequent price readjustments increase overhead and transaction costs

    4) Devaluation of savings reduces consumer demand, resulting in lost business and reduced employment

    5) Rising prices increase stress and reduce feelings of financial security among investors and consumers

    6) Inflation leads to repricing of currencies and impacts trade

    I could go on … but suffice to say, inflation — even a little inflation — is BAD. Period. There’s NOTHING good about inflation. You may think it’s an easy way to get rid of debt without paying it back, but the ugly truth is that for most salaried and hourly workers their pay adjustments will not keep up with higher prices, and for borrowers generally inflation results in higher interest charges, so on balance debtors do NOT come out ahead under inflationary economic policies.

  16. 17

    Libertarian spews:

    Goldy sid,

    “And what about the hundreds of thousands of families facing foreclosure?”
    ===
    They’re facing foreclosure because they over-extended themselves. They bought houses at high prices that they simply couldn’t afford. Now it’s time to suffer the consequences of foreclosure. It’s not nice, but it has to toccur to ensure the lending system works.

  17. 18

    Roger Rabbit spews:

    @2 You can’t have inflationary economic policy and falling interest rates at the same time. When you devalue the currency, lenders demand higher interest rates to offset the devaluation. If you want to borrow $1,000 from me, I won’t let you pay it back with dollars worth only 94 or 96 cents without adding the difference to the interest rate I charge you.

  18. 21

    Roger Rabbit spews:

    @6 I don’t see why I should be forced to bear some of the pain inflicted by reckless lenders and borrowers. Why should I pay higher prices at the grocery store so other people can buy houses they can’t afford for nothing down and then walk away from their loans?

    Nationwide, approximately 25% of all the homes sold during the “housing boom” of the last 5 years were purchased by speculators who intended to flip them for a profit, not live in them. Why should I bail those people out? Why should I bail out the lenders who financed them?

    The flippers and loosey-goosey mortgage brokers are quick-buck artists who drove up housing prices for everyone else. You and I owe them nothing. Morever, bailing them out destroys the discipline of the marketplace and encourages more reckless behavior in the future. There need to be consequences for bad financial decisions, and those consequences should fall on those who made the bad decisions, not on innocent retired rabbits scraping by on fixed incomes.

  19. 22

    chadt spews:

    It should be noted here that the relaxation of banking rules was a Republican scheme executed with diligence by that “conservative” entity…

  20. 23

    Roger Rabbit spews:

    @8 This may be a technicality, but you’ve got it backwards — inflation reached 15% and unemployment 10%, not the other way around. Unemployment peaked during Reagan’s presidency … specifically, it was generally in the 7% to 9% range during the Ford administration, dropped to the 6% to 7% range during Carter’s presidency, began climbing in the first year of Reagan’s presidency and topped out at 10.8% in November and December of 1982, with 10 consecutive months of double-digit unemployment during that period.

  21. 24

    Roger Rabbit spews:

    @10 We already have a little inflation. In fact, more than a little. I mention it in case you haven’t been in a grocery store lately. And you want more? I’d like to see less inflation.

  22. 25

    jacob spews:

    @all Roger Rabbit comments

    This has got to be a Roger Rabbit impersonator, because it is coherant, and agreeable by any sane person :-)

  23. 26

    Roger Rabbit spews:

    @11 “It would seem the days of the zero down mortgage are over.”

    They should never have started in the first place. The loose lending to private equity firms to allow them to pay premium share prices to take public companies private (and then regurgitate them back into the stock market) is highly questionable, too. The current tightening of lending standards is long overdue. These standards never should have been relaxed. The entire economy is now at risk because of pervasive lending practices that can only be described as reckless.

  24. 27

    ArtFart spews:

    All the decisions about economic policy are made by people who are already obscenely wealthy. As far as they’re concerned, inflation is in check as long as the currency isn’t losing value as fast as they can accumulate more of it.

  25. 28

    spews:

    Yeah, you know a billion dollars just doesn’t go as far as it used to.

    Seen the price of yachts or private jets lately? And the fuel and maintenace not to mention salaries for the help! Sheesh!

  26. 29

    John Pierpont Goldstein spews:

    Is anyone surprised that Mr. Goldstein wants to consign (via inflation) fixed-income old people to a diet of Chinese Alpo?

    It’s true that some gougers can ride on front of the inflation train and can make a killing. And perhaps it’s true that old grandma won’t die from her minimum daily ration of melamine. But inflation is a cruel tax extorted from those least able to pay it.

    And who are the gougers who can play the inflation game and win? Real-estate robber barons like Goldstein who want their obscene profits and unearned increments to always go up at the expense of enfeebled losers. A typical progressive, DG doesn’t care that real people get hurt when bubbles are propped instead of popped.

  27. 30

    GBS spews:

    A “ZERO” down mortgage has ZERO to do with the predatory lending practices of getting people into ARM’s they could only afford when interest rates ridiculously low and mortgages that actually have negative amatorization schedules.

    That’s like buying a house on a credit card.

    There’s no such thing as a “zero” down mortgage. Those fees are paid on the front end, the borrower just pays for them as a part of the balance.

    I know, I have zero down fixed VA loan; 4.5% for 15 years.

    I’d like to see the lending companies work more with the borrowers to get them into fixed loans they can afford without charging them fees for doing so. In the long run it will save their bacon from holding bad paper and millions of people won’t be forced out of their best investment and a shot at retiring.

  28. 31

    SeattleJew spews:

    Goldy … have you been practicing your Frank Sheirs “I don’t believe ..” role too much?

    Are you going to give a cross of gold speech next?

  29. 32

    John D. Goldstein spews:

    SJ: Yes. It’s yesterday, 1896, once more.

    Except that when Wm. J wanted to inflate and debase the currency via bimetalism, he wanted to help poor Western farmers and poor Southern Klansmen. Today’s inflaters, pampered privileged progressives, want to help themselves at the trough.

  30. 33

    Roger Rabbit spews:

    @25 Just because you’re a troll all of the time doesn’t mean I’m not Roger Rabbit all of the time.

  31. 34

    Roger Rabbit spews:

    @29 “Real-estate robber barons like Goldstein who want their obscene profits and unearned increments to always go up at the expense of enfeebled losers.”

    I’m not a brainless shill for Goldy — I disagree with him sometimes — but you’re exaggerating the extent of his mercenary successes.

  32. 36

    Proud To Be An Ass spews:

    Goldy,

    The fed spends way too much effort focusing on inflation. This helps creditors (i.e., bankers) at the expense of borrowers (just about everybody else). The fed is tasked also with maximizing employment. It’s the law. Look it up. This should be their primary goal.

    As for those worried about fixed income folks…Social Security payments are inflation adjusted. Fixed pension benefits are a problem, but most retired do not have defined benefit pensions. They have less, or they have nothing. The homeless can’t afford to eat anyway…so how do higher prices impact them? We need a saner care policy for them.

    Getting your pants in a knot about low grade inflation is missing the bigger issue: Employment. Good jobs. Low inflation, hard currency….yeah support your local lender and your international banker. Come on folks. Get a grip.

    @33: You can be roger rabbit as much as you desire! As if anybody could stop you!

  33. 37

    Danno spews:

    @20

    Daddyboylove-

    What a fucking idiot, you have to EARN a higher wage, It is going to be handed out to you. What do you think “wage-push” inflations is dumbass?

  34. 40

    Roger Rabbit spews:

    @30 “A ‘ZERO’ down mortgage has ZERO to do with the predatory lending practices of getting people into ARM’s they could only afford when interest rates ridiculously low and mortgages that actually have negative amatorization schedules.”

    In a literal sense that’s true, because zero down payments and predatory lending are two different things. However, both have contributed to the current crisis, and zero down payments certainly are relevant to the problem.

    A down payment provides a margin of safety against declining prices. What the zero-down lending practices have done is create a legion of borrowers who not only can’t make their payments but are “upside down” in their loans — i.e., they can’t sell the collateral for enough to pay off the loan. This guarantees heavy losses for the lenders and for investors who bought CDOs (collateralized debt obligations). Not to mention illiquidity of debt paper.

    Between the two, predatory lending practices clearly are the bigger problem. Requiring a down payment is only one piece of responsible lending. Zero-down VA loans are in a different category because the government guarantee behind these loans serves the same function as, and substitutes for, a down payment making the lender’s risk no greater than a conventional down payment mortgage.

  35. 41

    Roger Rabbit spews:

    @32 So what’s wrong with that in principle? Why should Republicans be the only ones helping themselves at the trough? Why shouldn’t they share the corn with the rest of the pigs?

  36. 42

    Proud To Be An Ass spews:

    Libertarian: “They’re facing foreclosure because they over-extended themselves.”

    Well, maybe. They were also sold a bill of goods, but I guess you believe in ‘buyer beware’. So if your family died from eating poisoned food, you’d just say, “well, that’s the breaks. I should had that food tested.” Right?

    And I’m sure you were up in arms about the S&L bailout, various bank and corp. bailouts (CitiCorp, Chrysler, that hedge fund whose name I have forgotten), etc., etc.

    Basically what we have in this country is socialism for the rich. Everybody else gets to experience the capitalist paradise. So why are we continually disappointed?

  37. 43

    Roger Rabbit spews:

    @36 “Fixed pension benefits are a problem, but most retired do not have defined benefit pensions. They have less, or they have nothing.”

    Well, the problem I have is that for 30 years I worked for far less than market salary, and this was supposed to be offset by better health and pension benefits. The state got a hell of a deal, because the pensions are paid for entirely with employee contributions and investment returns, without a dime of taxpayer money so the state got to pocket the savings from paying low salaries. It’s true that many private sector workers don’t have defined benefit plans, but they didn’t have 6% deducted from their paychecks for 30 years (on top of the income tax and FICA deductions everyone else pays too) either. And they didn’t work for 25% to 40% below market compensation, so they were in a better position to find 401(k)s, Roths, and IRAs — and to buy homes that subsequently appreciated in value.

    My fixed pension is just that — it’s fixed. No COLAs, ever. What it is today, I will have to live on 10, 15, 20 years from now. Even modest inflation will destroy that pension within my lifetime, which means I will eventually NEED Social Security just to survive. Needless to say, I’m not eager to hasten the process of inflation destroying my income. In fact, I’m terrified of inflation. Even a small increase in inflation is enough to turn me into a one-issue voter. And I have ZERO patience with people who want to destroy my livelihood to avoid paying their debts! Screw that.

    But the main point I’m trying to make in this thread is that inflation leaves everyone worse off.

  38. 44

    chadt spews:

    Well Rog, I am but a poor Postal employee, and think you should certainly be at the trough, you are demonstrably not a PIG.

  39. 45

    Roger Rabbit spews:

    @37 Speaking of fucking idiots, if you think rich people “earn” their money and wager earners don’t, you have your head up your ass. Earning has damned little to do with who ends up with how much.

  40. 46

    Roger Rabbit spews:

    @33 Some wingnut asshole did come on this site and put up imposter posts, then bragged about it on his wingnut site, but he was “outed” and all of his posts were promptly deleted.

  41. 48

    Roger Rabbit spews:

    @42 “Basically what we have in this country is socialism for the rich.”

    You nailed it. The people who bleat the loudest about “socialism” always crowd to the front of the line at the public trough.

  42. 49

    Roger Rabbit spews:

    For example, Bush’s cabinet is full of ex-CEOs, none of whom ran companies that had to survive by competing in free markets, and all of whom are experts at raking in corporate welfare.

  43. 50

    Roger Rabbit spews:

    @44 If I don’t get it, some Republican will, and we don’t want that to happen, do we?

  44. 51

    chadt spews:

    Agreed, Roger, that inflation victimizes everyone. It’s also sadly true that so much bullshit has been promoted by so many self-styled economists that everybody is in a pretty constant state of confusion, and that enables an outrageous amount of misconduct posing as investment opportunity. There’s no greater area where people suffer unintended consequences.

  45. 52

    Proud To Be An Ass spews:

    jeez, Roger. I’m on your side. Look, recent experience (you do remember the 90’s, do you not?) shows you can have robust employment coupled with low inflation. Everybody assumes there is some kind of inscribed in stone tradeoff here as between inflation and employment (that ol’ Phillips Curve stuff). This is simply incorrect, and I think this is Goldy’s basic mistake in his analysis.

    As to your current plight–what would you say if the investment returns were not up to snuff and taxpayers had to kick in to maintain your pension per law? Again, don’t get me wrong–I for one, would pay.

    We hear a lot of crap about lazy incompetent state workers….but they do work for below market wages. However, this is offset a good deal by employment security, pretty good benefits, and (mostly) decent working conditions. As to why you accepted a ‘below market’ salary…well, that’s your business. But I do thank you for your service!

  46. 53

    busdrivermike spews:

    Did anyone take an economics class?

    If the cost of home ownership was counted as part of the “market basket” of goods that are part of the inflation equation, we would have experienced over 10% annual inflation in Seattle for the past 5 years, at least.

    But, home ownership is considered an investment. And I do not remember anyone giving me the same tax break when I rented as when I own.

    So, Isn’t Goldy saying that all renters should subsidize peoples bad investments, investments which they already subsidize by their having to pay more taxes than a homeowner who gets a huge tax break by deducting interest on their mortgages?

    Free economics lesson: Inflation hurts the economy due to inflations economic multiplier. Every dollar gets devalued not once, but at every stop in the marketplace. Therefore, a little inflation hurts an economy by devalueing it, causing investors to seek a higher return on a dollar they lend, RAISING interest rates over time. Since the Federal government owes, what 9 TRILLION DOLLARS, mostly in short term notes, a little increase in inflation would cause the government to spend BILLIONS more each year in interest expense.

    So, playing with inflation is not playing with fire, it is playing with plutonium.

  47. 54

    Proud To Be An Ass spews:

    “Are you going to give a cross of gold speech next?”

    Not a bad idea. John Edwards is getting close in the rhetoric–but needs to put on weight and loose some hair first. We also need somebody to expand on this other famous line from the 1890’s: “We need to raise less corn and more hell!”

  48. 55

    Roger Rabbit spews:

    Take, for example, my oil stocks. Years ago, I put a few thousand dollars into IRAs for myself and Mrs. Rabbit, and over the last two years I bought several hundred shares of National Oilwell Varco (NOV) at prices between $44 and $58. I even told our wingnut pal Mr. Cynical to buy it for $58 … I bet he’s sorry now that he didn’t listen to the rabbit because NOV is up $7 today and is now worth $117 a share. Where does this money come from? Indirectly, from Mark the Redneck every time he fills up his SUV. NOV makes drilling equipment which it sells to companies that build drilling rigs which they lease to E&P (exploration and production) companies. With the huge profit margins now available in the oil production industry, E&Ps are snapping up all the drilling rigs they can grab, and this competition for rigs is driving up dayrates, which is putting more money in rig lessors’ coffers, some of which they’re spending to buy more rigs, whose prices are being bid up by the increased demand for rigs. Ergo, big backloads and fat profits for NOV = higher share price. I’m gonna be a rich fucking bunny — as long as oil prices stay high! Of course I had no way of knowing two years ago that oilfield services would be the #1 place to be during the Great Bull Run of 2006-2007 but let me tell you I have a damned lucky left foot! Yep, being a rabbit comes in handy sometimes.

    Most shares in oil companies, of course, are owned by rightwing assholes who contribute money to Bush/Cheney and Swift Boat Liars. A progressive rabbit owning a few hundred shares of NOV and reaping an immeasurably small percentage of the profits from its skyrocketing shares won’t change the world. But I guarantee that NOT ONE PENNY of what I made on my oil stocks will ever end up in the campaign coffers of any fucking Republican! Someday it will buy food, medical care, and pay property taxes for an aging rabbit whose modest pension has been destroyed by inflation. Better me getting it than some fucking Republican who already has more money than he can figure out how to spend!

    If you don’t like it, you can record your complaint on my automated complaint system. Call 1-900-HATE-ROG and wait for the beep! Your phone bill will be charged $39.95 per minute + hidden charges. All proceeds go directly to the Help Roger Rabbit Live Like A Republican Fund.

  49. 56

    Roger Rabbit spews:

    @52 I just can’t figure out what Goldy was smoking today. We need to seriously clue him in about economics.

  50. 57

    chadt spews:

    @55

    You’re just trying to make me feel a little better about my 4runner, aren’t you, Rog?

  51. 58

    Proud To Be An Ass spews:

    “But, home ownership is considered an investment. And I do not remember anyone giving me the same tax break when I rented as when I own.”

    If you rent, and the price is per what is assumed to be a “free competitive market” (often a stretch) you are overlooking several factors. Interest to landlords is a deductible business expense. Landlords also get to depreciate their property over time (the improvements, not the land, are wearing out) and deduct this as an expense. Landlords are responsible for repairs and maintenance (again, in theory). These costs\savings should flow through to the renter, and be reflected fairly in the rental rate. Renters also do not carry market risk that their property could decline in value (yes, this happens). So, there is a trade-off.

    It is true that the mortgage interest write-off is a sacred cow middle class subsidy. Pity that nearly half of those taking advantage of it scream like stuck pigs when it comes to ‘handouts’ to the less economically successful.

  52. 59

    Roger Rabbit spews:

    @52 “As to your current plight–what would you say if the investment returns were not up to snuff and taxpayers had to kick in to maintain your pension per law? Again, don’t get me wrong–I for one, would pay.”

    That ain’t gonna happen. The state investment board routinely achieves returns in excess of 20%. They have access to investment opportunities we don’t. For example, they can buy real estate in Hong Kong if they want to. They can benefit from foreign currency arbitrage. They have all sorts of sophisticated investment tools, and their managers seem to know what they’re doing. And they’ve got $50 billion to play with. At present, their investment income alone significantly exceeds their total pension payouts, so they can grow the fund’s principal even without employee contributions.

  53. 60

    Roger Rabbit spews:

    @53 “And I do not remember anyone giving me the same tax break when I rented as when I own.”

    The market does sort this out in a way that’s more or less fair to renters. The bottom line is that you can rent a house for less monthly cash flow than you would pay to own the same house. The property owner gets tax deductions on the mortgage interest and property taxes, but he also gets to pay the mortgage and taxes. The way the cash flow works out is that landlords make most of their money from appreciation, and unless they have a big chunk of equity tied up in the house, they have a negative cash flow on the property for years while they wait for it to appreciate. The renter gets a lower monthly cost, but loses out on the appreciation. Is it a better deal for the landlord? Yes and no. Everyone knows that over the long haul you’re better off owning than renting, but that’s for owner-occupied homes that aren’t being beat to death by renters. It’s awfully tough to make any money, let alone big money, by owning rental property; and when you figure in the amount of work it takes to screen potential tenants, collect rents, repair and maintain the property, clean it up after the tenants leave to get it ready for the next tenants or sale, etc., you don’t get paid very much for your time and work. For most people, being a landlord isn’t worth it.

  54. 61

    busdrivermike spews:

    #58
    “These costs\savings should flow through to the renter”

    Bullshit!

    A landlord charges market rate. Period. If you do not believe me, ask a Seattle renter. Any landlord who does not, is simply granting goodwill. What we are discussing is real world market economics, and when Mr. Goodwiller sells his property, the next entity will raise the rent to market rate, because that is what they payed for the property, market rate.

  55. 62

    Roger Rabbit spews:

    @55 Yeah. Next time you fill up, remember that Roger Rabbit is getting a cut. It’ll give you a warm glow. MTR — pay your fucking gambling debt, welsher! You’re seriously in arrears.

  56. 63

    Roger Rabbit spews:

    To rent Roger’s lucky foot, call 1-900-RENT-ROG. Your results may vary and no warranty applies. All proceeds go directly to the Help Roger Rabbit Live Like A Republican Fund.

  57. 66

    Proud To Be An Ass spews:

    “That ain’t gonna happen.” Most likely true. I’m just saying it could (in theory).

  58. 67

    Roger Rabbit spews:

    @61 Yes, but market rental rates usually are less than what a mortgage payment would be on the same property. And don’t forget that vacancy is a significant cost to landlords; even in a tight rental market, there’s always a vacancy rate of several percent, and in a soft market the vacancy rate can go into double digits, and it may take a landlord several months to re-rent the property. There definitely are market forces exerting downward pressure on rents. One of the things that would happen if market rents ever approached mortgage payments is that renters become buyers and leave their rental units. For landlords with less than about 35% equity in their property, the rental income is almost always less than the mortgage payment and taxes.

  59. 68

    Proud To Be An Ass spews:

    “A landlord charges market rate.”

    True (again, in theory). However, the statement you make above above is not germaine to your original claim. You appear to be confusing ‘market rate’ with some conception of ‘value’.

    So bullshit to you, too.

  60. 69

    Roger Rabbit spews:

    @66 Well, in theory, the legislature might prop up an insolvent public pension fund with tax dollars, but in reality I think they more likely would make the pensioners eat the deficit.

  61. 72

    Roger Rabbit spews:

    I’m not a pension expert, and don’t know for sure, but I’m pretty sure that if the state pension system sent me a letter saying “sorry, we can’t pay your benefits this month due to lack of funds,” I wouldn’t be able to sue the legislature for the difference; at most I’d have a lawsuit against the pension fund and maybe get an unenforceable judgment, but more likely I would merely be an unsecured creditor in a reorganization plan which is a fancy way of saying nobody ever has to pay me the defaulted pension benefits.

  62. 73

    Proud To Be An Ass spews:

    @69: We shall see. Currently on the books (if I’m not mistaken), isn’t there some provision that if the fund makes some kind of ‘above market return’ they have to kick it back to current retirees? This could open a big hole in state finances if we get a case of a large kickback (reduction in fund principle) followed by an extended down market–leaving the state with big obligations and little cash.

    Again, my apologies. I’m not up to speed on all the messy details, but interesting in any case.

  63. 74

    Roger Rabbit spews:

    That’s pretty much what happened to all those United Airlines Pilots who got 10 cents on the dollar and are now gathering up shopping carts in Wal-Mart parking lots to stretch their Social Security.

  64. 75

    Proud To Be An Ass spews:

    “I’m not a pension expert, and don’t know for sure, but I’m pretty sure that if the state pension system sent me a letter saying “sorry, we can’t pay your benefits this month due to lack of funds…”

    I’m not one either, but I don’t think you would ever get such a letter. The Legislature would have to change the law to reduce lawfully mandated payouts….not that they couldn’t.

  65. 76

    Roger Rabbit spews:

    @70 “@65: I called that number. All I got was a hang-up and a bill for $1.95.”

    What the — ?!! It’s supposed to be $19.95!!! @#&$%!!! The call center contractor is gonna hear about this!!! He must be a Republican … only a Republican could fuck something up this bad.

  66. 77

    Proud To Be An Ass spews:

    to continue….thus you would get a letter that says, “Sorry, we moved the goalposts. Too bad for you.”

  67. 78

    Roger Rabbit spews:

    @73 “Currently on the books (if I’m not mistaken), isn’t there some provision that if the fund makes some kind of ‘above market return’ they have to kick it back to current retirees?”

    Yeah, there is, but I’m only vaguely familiar with it. I think it only applies to PERS 2 and 3. In any case, I haven’t seen any of it, and don’t expect to.

  68. 79

    Roger Rabbit spews:

    In any case, the state pension fund currently has a deficit. It’s not a big deficit, they’re around 95% to 97% fully funded, which is much better than most private pension funds, but I would think they’d have to be 100% funded before there would be an excess return to distribute to retirees.

  69. 80

    ArtFart spews:

    What all you economic geniuses seem to be unable to focus on is that inflation is actually off the dial, and has been for some time. Fossil fuel prices have increased something like 150 percent in the last seven years, and most things we can’t do without (like food and clothing) have followed right along.

    Then there’s shelter….Christ, the reason for all the kinky lending is that with just plain old mortgages, nobody could afford to buy a house!!!!!

    The Gubmint just keeps jacking with the way inflation is measured, by indexing on stuff that’s dropping in price, like plasma-screen tv’s (now there’s one of the basic essentials of life, if ever there was) which are dropping in price because they’re new technology and we’re still learing how to make them…and giving less weight to whatever’s going through the roof. This makes it possible for the Faux News screech monkeys to claim that tax cuts for J. B. Rich Dork and spending hundreds of billions killing Muslims is actually making us all better off.

  70. 81

    busdrivermike spews:

    Yes, I agree Roger.

    We surely could render every little nuance out of the buyer/renter equation, but my point was that we are already in a period of higher inflation, due to the fact the property in Seattle has soared in value over the last ten years.

    The full thrust of my post was that playing with inflation to help out marginal investors may turn out to have dire consequences for the economy. Inflation is not a valve that can be opened and closed at will. Investors like stability, and inflation is inherently unstable. That is why the Fed constantly worries about it.

    Let us do some simple math, using simple numbers. If the Treasury had to absorb an extra basis point of interest on the national debt, and that debt was 10 trillion dollars, that would be an extra 100 billion dollars a year in interest. Would if runaway inflation occurred, and we had to absorb 12% interest, a six basis point gain?

    Yeah, it could be that scary, and a lot of little people would get poor real fast.

    Because the Government would pay that interest, we have not defaulted on a bond in our history. That is why the T-Bill is considered risk free.

    So, risk a little inflation to help out 500,000 people. It is a nice sentiment, but a very, very bad idea.

  71. 82

    Proud To Be An Ass spews:

    “The Gubmint just keeps jacking with the way inflation is measured,”

    Yes. Thank those wonderful republicans running the current administration for that sleight of hand. However, inflation is a monetary phenomenon.

    Oil prices are climbing fast for a variety of reasons (aonther fascinating topic) and home prices are wierdly high due to a government induced speculative financial bubble (again due mostly to republican greed and incompetence). See economists such as Dean Baker for the details.

    Just my econ genius 2 cents worth, Art.

  72. 83

    Roger Rabbit spews:

    @80 The fact official inflation rates are bunk is so obvious no one thought it necessary to mention it.

  73. 84

    Roger Rabbit spews:

    @80 “This makes it possible for the Faux News screech monkeys to claim that tax cuts for J. B. Rich Dork and spending hundreds of billions killing Muslims is actually making us all better off.”

    I would think the one-time $300 tax rebate all the $10-an-hour Republicans bragged about has been offset by deficit-spending induced inflation and higher local taxes (resulting from cuts in federal funding for domestic programs) by now.

  74. 85

    Roger Rabbit spews:

    @81 “Because the Government would pay that interest, we have not defaulted on a bond in our history. That is why the T-Bill is considered risk free.”

    The federal gubmint will never default on a Treasury bond. If the interest rate on the public debt hits 12% and they have to pay an extra 100 billion a year in interest, they’ll simply run the printing press that spits out $100 bills and devalue the currency even further. That’s how we got from $5,000 houses to $500,000 houses in the span of one lifetime. I can remember when hamburger cost 25 cents a pound and a soda cost 5 cents, and I’m not even 100 years old yet.

  75. 86

    Roger Rabbit spews:

    @82 “inflation is a monetary phenomenon”

    Inflation is purely a man-made phenomenon, and an intentional one at that. Inflation does not result from acts of God nor is it accidental.

  76. 87

    busdrivermike spews:

    What else floats?

    very small rocks?

    More witches?

    A Duck!

    EXACTLY!

    And therefore, logically…..if inflation weighs as much as a duck, it must be a witch.

  77. 90

    Proud To Be An Ass spews:

    “Inflation is purely a man-made phenomenon…”

    Well, yeah. That goes without saying.

  78. 91

    Proud To Be An Ass spews:

    “You work for Metro, don’t you?”

    You mean all the schoolbus drivers were fired?

  79. 94

    spews:

    All ..

    having digested this entire thread, I decided to post soe succinct comments on the state of the free market at SeattleJew
    Key issues? The role of the Chinese Communist Party in the market futures approach to the upcoming US election.

    Who would have thought that China ight control our election by buying political futures?

  80. 96

    jsa on commercial drive spews:

    rog @ 60 & elsewhere above:

    Good points on rents and landlords, but also note that the rise in housing prices has skewed the equation pretty dramatically.

    What it comes down to is that housing costs rise according to “market forces” while rents only rise according to prevailing wages. The cost of housing has risen at 15 to 20% a year. Rents go up by 5% a year if that. This has made it harder and harder to rent property at a profit. The number of condos and conversions going on now are happening because you would have to be high as a kite to build and rent at prevailing prices.

    I keep expecting that the market will hit a point where it levels off and sanity comes back, but it hasn’t happened yet.

    In the mean time, I’m busy house hunting in Vancouver, BC. Look! A perfectly unlovely 1000 square foot house in grimy gritty East Vancouver, with low ceilings that was sprayed with stucco siding 30 years ago is going for $750K! If I don’t buy it, no problem. Someone else will within a week or two. You get no tax deduction for your mortgage here, interest rates are a full percentage point above US levels, and everyone expects that escalator to keep going up until 2010 or beyond.

  81. 98

    John Maynard Goldstein spews:

    “Well, the problem I have is that for 30 years I worked for far less than market salary …”

    If Rabid Rabbit had marketable skills, he might have earned market salary. Too bad he had to settle for the Democrat-dominated minor leagues where he was used, abused, and exploited.

    Perhaps there’s a support group for recovering wetbacks from the progressive bureaucratic gulag. Won’t boost his un-COLA, but it will help his self-esteem. He’ll be starving to death in the dark, trying to recycle his Depends diapers so he can use them over and over, but he’ll feel better about himself.

  82. 99

    John Kenneth Goldstein spews:

    “The federal gubmint will never default on a Treasury bond. If the interest rate on the public debt hits 12% and they have to pay an extra 100 billion a year in interest, they’ll simply run the printing press that spits out $100 bills and devalue the currency even further.”

    Verily Mr. Rabbit speaks truth. That was the Dick-Jerry-Jimmy Administration’s solution to hyper-Keynesian inflation (we’re all neo-Keynesians now, said Nixon) of pre-Reagan America.

    Milton Friedman rules.

  83. 100

    uptown spews:

    Goldy,

    1) Yeah, let’s help all those suckers who paid outragous prices during a housing boom with cheap money and liar loans. Who cares that they’ll still be paying off the loans until they’re dead.
    If they can’t refinance at the current rates, it’s a good indication they can’t really afford the house.

    2) Try living on a fixed income with the current low interest rates, and tell me there is no inflation. My retired parents complain every month about something else that has gone up in price.

  84. 101

    uptown spews:

    3) As for the rich…
    who do you suppose will benefit the most from any bailout?
    With any bailout, homeborrowers will continue to pay their loans/rent to the investors. W/O a bailout the investors lose their money as is happening now with the hedge funds.

  85. 102

    uptown spews:

    Of course no one saw this coming…

    thehousingbubble.blogspot.com/2005/05/buyers-builders-lenders-may-get-burned.html

  86. 104

    Matty spews:

    What happened to this place? Am I on the right blog? Not only do I find myself giving Goldy the blank stare of confusion on this particular point, but I find myself agreeing with Roger Rabbit on multiple points?

    Next thing is that cats and dogs are going to be living together signing new ARMs for 9%!

    …to the positive….I like how the thread is 90%+ on topic since Goldy made the policy change!…..

  87. 105

    Rated R for ridiculous spews:

    This post is a great example of why Progressives always implode. You’ve got some meaningful ideas here but you run around spouting the F word to try and add weight to your argument. You just can’t communicate rationally and in a mainstream manner, yet you are convinced that your ideas and inflection are mainstream. No wonder your radio show occupies a time slot that would otherwise be a test pattern.

  88. 106

    MikeA spews:

    As someone on a fixed income, I really, really, hate inflation. Unfortunately our government has been systematically inflating the currency for decades and faking the numbers to make the inflation rate seem smaller. How can the reported 2.5 percent inflation rate eliminate 90 percent of the value of a dollar in just a few decades? I hate to say it, but the Fed is right to be concerned.

  89. 107

    homo economicus spews:

    “Next thing is that cats and dogs are going to be living together …” Verily, lions will by lying down with lambs, and horses with asses.

    Seattle Jew (wasn’t that the pony that won the Triple Crown?) was on a fine tangent with his allusion to progressive populist William Jennings Bryan in 1896. Back then the lines of progressivism were clearly drawn: people vs. powerful.

    New improved progressives like Goldstein just want to grab, get, and hoard. Too bad if the little people get hurt by gougers’ infationary speculative spiral.

    (And about Carter’s progessive hyperinflation of the 1970s, I failed to give him credit for doing one thing right: Paul Volcker. Reagan kept Volcker at the Fed, and the monster of inflation was dead.)

  90. 108

    spews:

    @107 homo

    Methinks David G just slipped up. A moment of bad judgement.

    As for progressives wanting to hoard and hurt the little people? Are you serious? Do you really think George Whatabush is concerned for low end Mericans?

    For the lst several decades the Republican party has consistently supported voodoo economics. BTW, if Reagan were not collaborating with the Iranians, the inflation issue might well have quickly poofed.

  91. 109

    Goldy Warbucks spews:

    Random notes: Even in 1896 progressives were distinct from populists. Bryan seemed mementarily to bring them into mysterious union, but proto progressives such as TR were not amused. Progressivism was then and is now an elitist phenomenon. The better classes of TR’s type launched crusades to improve the lesser classes, and occasionally let a few table scraps trickle down from Hyde Park or the Hamptons.

    Prohibition, installed mere months after TR’s death, was a progressive project. So was Sanger’s eugenics, via Darwin and Galton, in which upper-crust whites wanted to improve the lower, darker classes by sterilizing them. Post-Roe abortion, over 30 million dead, continues the crusade.

    Like Mr. Goldstein, who often or always overstates to make an obscure point, I probably overstate about modern Goldstein progressives. But Goldy Warbucks does want to “fuck inflation.” Here’s what that means: After picking up inflation at Volunteer Park, after sensitive new-age foreplay, Goldy will penetrate inflation, inseminate it, impregnate it, and will permit Little Inflation Jr. to evade the Democrat mincemeat machine, Big Abortion.

    Little Inflation will be allowed to grow until it’s, oh, five or six, before it’s sliced and diced, and nobody gets hurt.

    Except that inflation always hurts, Volvo progressives with sub primes excepted, who get to depreciate their debt. They make out like bandits, and get to spew obscenely in public about Important Things, using trash talk from The Stranger’s 4-letter-word style guide.

    Inflation, meanwhile, usually defies its own post-birth abortion. It picks up the pieces of itself and starts to metasticize. That, not Iran, is why Reagan and Volcker had trouble killing it in 1981-1982.