This chart hasn’t been updated in over a year and, with recent changes in both the Consumer Price Index and the Case-Shiller Home Price Index, the results are stunning.
Somehow, the bust of 2007-2009 seems to have been all so unnecessary, that is, if a more realistic measure of “inflation” had been used back in the middle of the last decade.
Back in 2003, Warren Buffet wrote the memorable Squanderville vs. Thriftville in which he lamented the growing U.S. trade deficit and wondered how long we Squandervillians could continue down a road where Thriftvillians in Asia would go on accepting our IOUs in exchange for goods they worked so hard to produce.
Buffet proposed some common sense solutions to remedying the problem and it was a timely warning that, if heeded, may have made the events of the last few years much less traumatic for the global financial system. But, ultimately, nobody really listened.
Fast forward to 2010 and Buffet’s partner Charles Munger now has an equally important commentary over at Slate (hat tip JW) and, it too is a desert island parable. This time, instead of Squanderville, it’s Basicland, where, after hundreds of years of responsible living, casinos seem to have destroyed the place.
Basically, It’s Over
A parable about how one nation came to financial ruin.In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature’s bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island “Basicland.”
The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or…
Based on the title of Charlie’s commentary and the one atop this post, it’s not too hard to figure out where this is all going – it all has to do with what was done with debt.
On February 23, 2010,
in Economy, Our Culture,
by Tim
The Christian Science Monitor had, by far, the best headline on the plunge in consumer confidence reported by the Conference Board a short time ago:
Contrary to what Treasury Secretary Tim Geithner and Goldman Sachs chief Lloyd Blankfein might want to believe, the two are not unrelated.
Details are provided in this EconoDay report where an important bit of information is left out, barely discernible in the chart, that this is the lowest reading since last April:
The Conference Board’s consumer confidence index fell back in a surprising and sizable way, down nearly 10 points to 46.0 in February (January revised to 56.5). Expectations, the index’s leading component, fell more than 13 points to 63.8 reflecting a sweeping sentiment downturn in income, employment, and business conditions.
The expectations index never really got going last year, barely approaching the watershed 80 level, a level consistent in the past with economic expansion.
Maybe that’s because, with the exception of Wall Street, the U.S. economy never really got going last year, and people are just now beginning to figure that out.
On February 23, 2010,
in Housing, Our Culture,
by admin
Before leaving the topic of the latest Case-Shiller home price data (the S&P site is still unavailable, at least from my computer) and looking at the most recent consumer confidence data that can only be described as “disastrous”, it seemed worthwhile to share a few of Jim Kunstlers thoughts about the nation’s housing market from his most recent missive.
Faced with the hangover of a housing bubble, the president’s team has insidiously nationalized the racket and is doing everything possible to keep housing prices unrealistically inflated, so that nobody still lucky enough to have a median income can afford the median price of a house.
Meanwhile, the agencies used to facilitate this accounting shell game — Fannie Mae, Freddie Mac, Ginnie Mae, etc. — are choking on worthless mortgage contracts and generating ever more new toxic mortgage paper.
That about sums it up but, you’re unlikely to hear similar candor from the vast majority of the mainstream media. Moreover, most government economists still seem to think that the fundamental problem here is that home prices have already fallen too far and another leg down could spell doom for economic growth as we once knew it.
Has the disconnect between policymakers and the real world ever been any greater?
On February 23, 2010,
in Housing,
by Tim
In response to an email request that asked the question of how current seasonal adjustments compare to past seasonal adjustments for this time of year for the 20-City Case-Shiller Home Price Index, the following chart was promptly whipped up.
The scale on the left is simply the difference between the seasonally adjusted monthly change and the unadjusted figure, so, in the case of December, +0.3 percent minus -0.2 percent (as noted in the last post) results in about +0.5, which looks to be low, if anything.
Seasonal adjustments peak in January and given the fact that the precise data was not yet available when this chart was prepared, there’s a built-in margin of error of +/-0.1, so, the most recent adjustment could actually be a bit higher, more in line with prior years.
On February 23, 2010,
in Housing,
by Tim
The server at Standard and Poors appears to be overloaded, so, without the entire S&P Case Shiller Home Price Index report for the month of December, the best that can be done here is to take the two conflicting headlines you may now be reading and update the chart below.
Note: The chart above is animated – if you don’t see it moving, it’s not my fault.
Adding to the ongoing confusion about what’s happening in the nation’s housing market, the 20-city home price index rose 0.3 percent from November to December on a seasonally adjusted basis, but fell 0.2 percent when seasonal factors are not taken into account.
So, are home prices rising or falling?
Technically, they are now falling and have been for three months, however, when you consider that upward price moves are much stronger in the summer months than during the winter and adjust the data accordingly, home prices are now rising.
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