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2008-10-15 Home Front Economy

Bush, Paulson take new approach to economic crisis

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Posted by tipper 2008-10-15 00:56|| || Front Page|| [1 views ] Top

#1 Now things will return to normal!!!

Posted by g(r)omgoru 2008-10-15 09:56|| 2008-10-15 09:56|| Front Page Top

#2 I just read this in the UK blog EU Referendum.

"I did note but only as an aside that the easy access to consumer credit had been fuelled in part by galloping house price inflation, which, "conveniently, does not appear on the government's official inflation index".

Does anyone here at RB know if this applies in the US as well? Have housing prices been removed from the calculation of inflation?

Posted by AlanC 2008-10-15 10:11|| 2008-10-15 10:11|| Front Page Top

#3 Housing prices -- A concept called "Owners Equivalent Rent" is what is used to figure the CPI. It's supposed to account for all the costs of home ownership. See this link for a start. There's a lot more to read on this with Google.
Personally, I place little store in government statistics such as CPI. It's in the interest of the gov't to underestimate inflation, since it must increase payments such as Social Security when the cost of living goes up.

Posted by Anguper Hupomosing9418 2008-10-15 10:27|| 2008-10-15 10:27|| Front Page Top

#4 The "new approach" is not all that new: The Treasury is buying non-voting shares, drawing only 5% interest, no limits on dividends to common stockholders, etc. This is very unlike what the UK is doing on their banking intervention and very unlike what Warren Buffet did when he recently invested in Goldman Sachs and drove a much harder bargain. The fix is in. The media is cooperating by averting its gaze and chattering about the irrelevant. From crony capitalism to crony socialism.

Posted by Anguper Hupomosing9418 2008-10-15 10:32|| 2008-10-15 10:32|| Front Page Top

#5 "Have housing prices been removed from the calculation of inflation?"

AFAIK, NO. housing prices are included in the CPI in two ways. The first is the cost to buy a home, but the multiplier for this is VERY small because most people who buy a home do so but a few time during their lives. The CPI, in any monthly figure does include housing prices, but the effect is small. The second way housing prices are included is by way of rental equivalences. I hope this helps.

Posted by Minister of funny walks 2008-10-15 10:37|| 2008-10-15 10:37|| Front Page Top

#6 MFW, look at AH9418's link. It's more complex and uglier. The inflation numbers from the Govt are BS.

Posted by Nimble Spemble 2008-10-15 10:42|| 2008-10-15 10:42|| Front Page Top

#7 Unless you are actually looking to buy or sell a home NOW, the going "housing price" doesn't really matter. (unless the tax assessor is coming around) Neither do changes in mortgage interest rates. Like most people paying a fixed mortgage, my P&I payments NEVER change! That, for me, is zero inflation over the last 11 years. So the CPI rather overstates my housing inflation by quite a bit.

Of course, I was responsible and purchased a home that I could afford without gimmicks.

Posted by Minister of funny walks 2008-10-15 10:54|| 2008-10-15 10:54|| Front Page Top

#8 Thanks for the feedback.

the more I read the more it seems as though ecomomists and environmentalists have similar attitudes toward math.

The more complicated the better to confuse the masses and to hell with anything approaching honesty.

Posted by AlanC 2008-10-15 10:56|| 2008-10-15 10:56|| Front Page Top

#9 zero inflation over the last 11 years Apparently you have paid nothing for home maintenance and taxes. You have also ignored the possibility that you could have bought less house (or rented) and invested the remainder for a profit. Home ownership has costs beyond P&I.

Posted by Anguper Hupomosing9418 2008-10-15 11:11|| 2008-10-15 11:11|| Front Page Top

#10 Alan, each of us has their own personal CPI that varies based on the weighting of the a personal basket of goods and services consumed. The official CPI, with its fixed market basket, will understate inflation for some just as it will overstate inflation for others. I prefer GDP deflator because it is based on what is actually bought and sold.

Posted by Minister of funny walks 2008-10-15 11:16|| 2008-10-15 11:16|| Front Page Top

#11 AH. It's a new house so there's not a lot of needed maintenance yet and believe it or not, my property taxes are actually a bit lower now than they were a few years ago!(still too high) On the other hand, paying for heating oil is a bitch.

I own a home so I worry: well, septic tank, bugs, foundation etc etc etc. But my housing payment hasn't budged in 11 years.

Posted by Minister of funny walks 2008-10-15 11:32|| 2008-10-15 11:32|| Front Page Top

#12 Minister, I understand on a macro-level the CPI individual vs. general etc. etc.

I remember well the Carter days when there was much talk about changing the "basket of goods/services" to alter the inflation rate numbers. Also a lot of talk about underestimating the real rate.

My personal CPI is immaterial to any discussion of the economy as a whole. BUT, if the CPI deliberately misses a large spike in housing prices it seems that it must have an effect as the CPI is factored in to interest rate calculations. So I was wondering if there was a large bubble being missed.

Posted by AlanC 2008-10-15 11:34|| 2008-10-15 11:34|| Front Page Top

#13 there was a large bubble being missed For sure.

Posted by Anguper Hupomosing9418 2008-10-15 16:37|| 2008-10-15 16:37|| Front Page Top

#14 Governments actually believe that fiddling the figures fixes the economy!

Posted by Bright Pebbles 2008-10-15 20:02|| 2008-10-15 20:02|| Front Page Top

#15 You have also ignored the possibility that you could have bought less house (or rented) and invested the remainder for a profit.

Or live in a cardboard box under a bridge and become really rich.

(lest you think I'm being sarcastic, there was one very nice Polish couple who did just that: camped out most of the year and rented a cheap room for the winter. Their estate disbursed a low-seven- figure sum among several charities.)

Posted by Milton Fandango 2008-10-15 21:18|| 2008-10-15 21:18|| Front Page Top

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