Tuesday, September 18, 2007

US Dollar Is Eroding Value

Consider this: In 2000, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.40 per dollar.

If Bernanke cuts rates, we’re likely to see oil at $125 per barrel by next spring.Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the euro don’t lie. According to economist Martin Feldstein, “The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6% in the most recent quarter.” (WSJ)

35 comments:

  1. David,

    It looks like you're starting to understand why those of us who "locked in" our nominal housing costs several years ago, despite seemingly high purchase prices, acted smartly. Do you remember my forewarnings about inflation? ... and how nominal prices wouldn't fall ... and even if real values did indeed fall, those who'd locked in their monthly costs couldn't lose? ... Actually, with inflation we will win big. Re-read my early posts if you've forgotten what I said ... Because it's clear you're understanding why your strategy of "waiting for a declinig market" isn't working ...

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  2. David

    what is the use of saving? Just take risks, go into debt-who cares the Fed will bail you out

    Dollar is worse crap-

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  3. Lance,

    Problem with your theory of skyrocketing inflation to bailout homeowners is this:

    Where are the skyrocketing salaries?

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  4. Where are the skyrocketing salaries?

    Bingo!

    Current housing is so far above incomes... at least with oil one can buy a smaller car.

    It takes income inflation to hold up housing cost inflation. Not to mention:

    Where are the savings? People are absolutely illiquid here in the US! If they cannot borrow against their homes, they must sell.

    This will start correcting by the end of October. Its just going to be very interesting between now and then.

    Got popcorn?
    Neil

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  5. No skyrocketing salaries except on Wall Street. Just the insidious process of inflation eating away at your purchasing power. Lance has a valid point unless there is a major crisis or panic, then it won't matter what strategy you employed, all will lose. Fiscal prudence has begotten fiscal confescation.

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  6. David,

    I agree with Lance; even if there are no sky rocketing salaries you are still saving with fixed costs vs rents which will be increasing with inflation.

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  7. "Where are the skyrocketing salaries?"

    My salary has gone from 160k on December 31 to 210k today.

    - a 30 y/o lawyer

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  8. There are not enough people with high six figure salaries to afford all the high priced property in this area; thus some neighborhoods will see price delines and others will not.

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  9. David asked:
    "Where are the skyrocketing salaries?"

    If you need to ask, then the problem is that you haven't been looking. Change is good. :)

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  10. There are no skyrocketing salaries to cover those hyperinflated housing prices. The winners this round will be those who locked in commodities and currencies other than US$.

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  11. Lance,

    How are you going to pay your skyrocketing property tax bill with. Municipalities will surly jack up the tax rate to offset the diminishing purchasing power of the dollar. The beauty of renting is that I can pick up and move whenever I want. I'm not locked into any local housing market. If rents get to expensive somewhere. I'll just move. With a 9.6% vacancy in rental and housing, I've got plenty to choose from.

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  12. "The Lance Show" is so boring. This blog sucks.

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  13. "The beauty of renting is that I can pick up and move whenever I want. I'm not locked into any local housing market. If rents get to expensive somewhere. I'll just move. "


    Sounds like a lot of fun. I wish you and your family the best of luck in your efforts to beat Lance.

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  14. The only thing that happened with the rate cut, is that now instead of housingheads being destroyed, everyone will get destroyed. Well, except the rich. Inflation will tear up everything. Ask anyone who lived in the late 70s and early 80s. Inflation hurts everyone equally.

    housing heads are not saved, savers just got hurt and the rich bankers just got a reprieve. Any housing head celebrating and interest drop doesn't understand the market economy.

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  15. Lance said...
    “If you need to ask, then the problem is that you haven't been looking. Change is good.”

    Sorry Lance, we must have missed the link you posted showing salary increases in step with housing prices. Please re-post so that we may see this data.

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  16. David,

    One additional consideration. It's only really inflation if you aren't getting extra value for your money. Looking at our current standard of living from a macro level, I'd have to say we are living far better today on our wages than we did a generation or two ago. As an example, the average car today has as standards just about everthing that was an "option" 40 years ago ... and then some. 40 years ago, a trip to the restaurant was a special occasion ... now it is almost daily for most of us. A 4 function calculator cost $100. The list goes on and on. Even the average house someone at your salary and stage in life can afford offers far more than a similar house 40 years ago ... and sq footage, which is constrained by the "they aren't making anymore land" axiom, isn't the only quantifier in determining "value" for a house.

    What we're experiencing (and benefiting from) is the globalization of the economy. Our prices may be going up not because our dollar is devaluing but because relative to what the Chinese and others producing the goods we consume are getting, we are getting far more.

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  17. eric said:
    "The beauty of renting is that I can pick up and move whenever I want."

    At first I thought you said whereever ...

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  18. Lance

    Your right man my rent is going to be exploding once they finish these 2 huge condo buildings they are turning into rentals because they can't find enough buyers...

    I've been watching the ads on craigslist for the other apts. in my apartment building and they are now renting for cheaper than last year, and they are still struggling to find renters.

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  19. odd, my rent has been the same cost 795 for 6 years straight :| the apartment building has even changed owners but no change in rent. i think the fact that they can't keep it 100% rented out may affect their decision though.

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  20. David,

    The price for a barrel of oil isn't climbing solely because of inflation. There are many things going on in the world today that factor into oil prices.

    Think of Chinese and Indian demand increases, Middle Eastern instability, continued increases in US demand, and the possibility that the world's oil supply could peak within the next few decades. Or perhaps it will peak tomorrow.

    LR

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  21. It looks like you're starting to understand why those of us who "locked in" our nominal housing costs several years ago....

    I don't know what others have been saying, but if I could have bought several years ago, I would have. However, if I could have bought in recent years (i.e., the past 3 years or so), I doubt that I would have.

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  22. Lance said...
    “Looking at our current standard of living from a macro level, I'd have to say we are living far better today on our wages than we did a generation or two ago.”

    -This Generation Not Better Off Than Their Parents

    If you thought that every generation was better off than the next and that a person, on average, earns more than his or her parents - think again! A new report has produced surprising results. It was found that the average American male in his mid thirties is actually making less than his father did a generation ago. The study also revealed that the income growth of the average American household was actually declining and not increasing as is generally perceived. –

    http://www.echolist.com/business/2007/may/
    news259885.html

    - ARE YOU BETTER OFF THAN YOUR PARENTS were at your age? Probably not.

    The average two-income family today earns 75% more (adjusted for inflation) than a one-income family earned a generation ago. Nonetheless, today's two-income family has significantly less discretionary income once the basic bills — mortgage, health care, education and so on — are met. And thanks to the proliferation of credit cards, the average household today carries 100 times more debt (adjusted for inflation) than their parents' generation did.

    That debt has become an enormous burden. Consider this: In 2004, more Americans filed for bankruptcy than graduated from college, suffered heart attacks or were diagnosed with cancer. The single best risk factor for bankruptcy? Having a child.-

    http://www.smartmoney.com/consumer/index.cfm?story=20050330

    -Americans Have Negative Savings Rate

    The government reported last week that consumers last year spent all they earned and then some, pushing the personal savings rate into negative territory at minus 0.5 percent.

    The savings rate has only been negative for a full year twice before, in 1932 and 1933, when Americans were struggling with huge job layoffs during the Great Depression.

    The Fed report showed that the increase last year in credit card debt and other types of revolving credit was just 2.6 percent, the smallest in 23 years.

    Analysts said some of that slowdown reflected that fact that Americans have stepped up borrowing through home equity loans rather than increasing credit card debt.-

    http://www.cbsnews.com/stories/2006/02/07/business
    /main1293943.shtml

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  23. robert said...
    "Lance said...
    “If you need to ask, then the problem is that you haven't been looking. Change is good.”

    Sorry Lance, we must have missed the link you posted showing salary increases in step with housing prices. Please re-post so that we may see this data."

    Robert, you should probably be looking too ... for a better paying job.

    There's nothing out there guaranteeing that everyone is entitled to afford a house. And house prices (like stock prices) are set at the margin. Those that have experienced high salary jumps are pushing up the prices by effecting the prices of whatis sold ...

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  24. $125 per barrel for oil by the spring is an extreme exaggeration.

    It's good to see that this blog is back. It was dormant when all the real excitement was happening!

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  25. Lance

    a suggestion

    join the Fox News Propaganda Network

    the network that has cheap republican lawyers, wall street scum, and those who have opposed fair health care for 60 years

    then you will see what your dime store American democracy-financed by Zionists will get you.

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  26. Dan said:
    Your right man my rent is going to be exploding once they finish these 2 huge condo buildings they are turning into rentals because they can't find enough buyers...
    Only two? I'm surprised that few.

    Also, rents are going down nationally. Did you see the WSJ article on the huge drop in rents in NYC, Manhattan!?! My complex has dropped rents 7% in 7 months. We'll move out when the lease is done... why not. There is so much to rent right now!

    We'll see a mixture of inflation and deflation over the next year. Oil and food will shoot up. Housing and wages are going to go down. :( Cest la vie.

    Hence why anyone paying above 29% of gross income for a home is going to realize all of the old rules prohibited that for a reason... (no margin)


    Got popcorn?
    Neil

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  27. You can't change fundamentals. Yes, it looks like the solution is going to devalue the dollar. Housing prices can be seen as a referendum on the number of nominal dollars people are willing to pay for a house. However, the money isn't there to lend if people want to buy a house.

    Prices on houses aren't being driven up. Their value is simply going to be eroded so that their value in real dollars is going to fall in line with the fundamentals. The answer, of course, is to put your money in investments whose value is not going to be eroded by inflation as a means of saving for a down payment. That would exclude houses (which, in any case, shouldn't be used as a substitute for real investment in the first place).

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  28. Lance said...
    “Robert, you should probably be looking too ... for a better paying job.”

    Lance, I fail to see how your statement shows that salaries have kept up with home prices. Please explain. While my household income is a little above my local average, my local median home prices are a little above 4x median income.

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  29. robert said...
    "ARE YOU BETTER OFF THAN YOUR PARENTS were at your age? Probably not.

    Yeah, the plasma and LCD TVs, DVD players, computers, digital cameras, Internet, and cell phones, etc. that are available today are so much worse than they were 30 years ago. Everything is going down hill.

    All joking aside, since the U.S. is becoming more of a knowledge-based economy and less of an industrial economy, whether you are better off than your parents were is largely dependent on whether you have a college degree or not. Most American adults do not have a college degree, but a higher percentage have a college degree today than 30 years ago.

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  30. Bush didn't take office in 2000. He officially took office after the first month of 2001.

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  31. Lance's posts examined:

    "There's nothing out there guaranteeing that everyone is entitled to afford a house."
    ....Is this an admission from Lance, after so many years, that not everyone should buy a house, or will he wiggle his way out of this one?

    "Actually, with inflation we will win big"
    ....And what will Lance do when the cost of gasoline, electricity, natural gas and food become more and more expensive? Take out a HELOC? Sounds like someone is house rich and cash poor.

    "What we're experiencing (and benefiting from) is the globalization of the economy. Our prices may be going up not because our dollar is devaluing but because relative to what the Chinese and others producing the goods we consume are getting, we are getting far more."

    ...And here I thought the Chinese were depressing the Yuan to sell more goods cheaply to the US consumer to keep their citizens employed until the Chinese could become their own customers for their own products.
    And here I thought the "Nuculear option" threatened by the Chinese, to dump the dollar was a real risk. According to Professor Lance there is nothing to fear and the US will always be an economic superpower. Who cares if the dollar loses more of its purchasing power, we will ALWAYS be number one.

    " A 4 function calculator cost $100. The list goes on and on."
    ....I guess Moore's law is a new one to you, huh Lance? I guess that as time goes on, the price of every electronic device stays exactly the same, in spite of improved manufacturing processes, cheaper components, competitive prices, all of which was going on when the US when it had a manufacturing base before the 1970's.

    "...you should probably be looking too ... for a better paying job."

    Actually most of those were exported overseas thanks to globalization. Can you say Brazilification?

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  32. I live near the Senate Square condos, and for those that have not heard, they are turning rental. My landlord owns 8 homes on my block and has several up for rent, but is unable to rent them. Unfortunately, comparable homes are now selling for 30% less than he paid so he can't sell without taking a big loss. Meanwhile, he decided to not increase my rent when my lease expired, since there is such a plethora of choices in the area.

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  33. http://www.cbsnews.com/stories/2007/09/20/opinion/main3281247.shtml

    But it won't happen in the DC market because of the federal government's "magic dust."

    Ok, but it won't happen "close in."

    Ok, but it won't happen in "my neighborhood" because it is "desiarable and trendoid."

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  34. Senate Square is going rental?! Yowza. If I were one of the suckers who bought at the outrageous prices (like the poor schmucks at Vaughn Place) I'd be pissed. So much for my resale values.

    Abdo can't be very happy either. He was making upscale lofts out of the old museum building, and now its going to be in the middle of a rental apartment complex.

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  35. My salary went up from 88k to 105k in the last 6 months. I think salaries will start inflating to catch up with housing.
    - 27 year old software engineer.

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