Is your disposable income going down?

[jared2]

Um, wasn't the stock market supposed to bounce back after Wednesday's big drop?


By Paul Krugman.


We shouldn't read too much into a couple of days' movements in stock prices. But it seems that investors are suddenly feeling uneasy about the state of the economy. They should be; the puzzle is why they haven't been uneasy all along.

The rise in stock prices that began last fall was essentially based on the belief that the U.S. economy can defy gravity — that both individuals and the nation as a whole can spend more than their income, not on a temporary basis, but more or less indefinitely.

To be fair, for a while the data seemed to confirm that belief. In 2005, the trade deficit passed $700 billion, yet the dollar actually rose against the euro and the yen. Housing prices soared, yet houses kept selling. The price of gasoline neared $3 a gallon, yet consumers kept buying both gas and other items, even though they had to borrow to keep spending (the personal savings rate went negative for the first time since the 1930's).

Over the last few weeks, however, gravity seems to have started reasserting itself.

The dollar began falling about a month ago. So far it's down less than 10 percent against the euro and the yen, but there's a definite sense that foreign governments, in particular, are becoming less willing to keep the dollar strong by buying lots of U.S. debt.

The housing market seems to be weakening rapidly. As late as last October, the National Association of Home Builders/Wells Fargo housing market index, a measure of builders' confidence, was still close to the high point it reached last summer. But on Monday the association announced that the index had fallen to its lowest level since 1995.

Finally, there are preliminary indications that consumers, hard-pressed by high gasoline prices, may be reaching their limit.

The National Retail Federation, reporting on a new survey, warns that "while consumers have seemed resilient in the face of higher energy costs, a tipping point may soon be in sight."

I can't resist pointing out that the Bush administration's response to the squeeze on working families has been, you guessed it, to accuse the news media of biased reporting.

On May 10 the White House issued a press release titled "Setting the Record Straight: The New York Times Continues to Ignore America's Economic Progress." The release attacked The Times for asserting that paychecks weren't keeping up with fixed costs like medical care and gasoline. The White House declared, "But average hourly earnings have risen 3.8 percent over the past 12 months, their largest increase in nearly five years."

On Wednesday Treasury Secretary John Snow repeated that boast before a House committee. However, Representative Barney Frank was ready. He asked whether the number was adjusted for inflation; after flailing about, Mr. Snow admitted, sheepishly, that it wasn't. In fact, nearly all of the wage increase was negated by higher prices.

Meanwhile, the return of economic gravity poses a definite threat to U.S. economic growth. After all, growth over the past three years was driven mainly by a housing boom and rapid growth in consumer spending. People were able to buy houses, even though housing prices rose much faster than incomes, because foreign purchases of U.S. debt kept interest rates low. People were able to keep spending, even though wages didn't keep up with inflation, because mortgage refinancing let them turn the rising value of their houses into ready cash.

As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.

Now that game seems to be coming to an end. We're going to have to find other ways to make a living — in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.

Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what's happening in the housing market is "a very orderly and moderate kind of cooling." Maybe he's right. But if he isn't, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.

[jared2]

Personally, I find that wage increases have not kept up with inflation for the past several years. House prices are going down in my area, although still high (averaging between $500,000 and $1,000,000) A quarter acre lot on my street just sold for $400,000. No house, just the land.

[hycamguy07]

I purchased my home: 3/3.5 on 1 acre fenced with seperate 3 car garage for 55k in 00.. the house is now est. at 300k with 20k in improvements....

I dont think housing will drop that much.. I refied at 5.5 locked apr w/$700 morgage
Cant rent a apt for that here

[jared2]

<div class='quotetop'>QUOTE(priusguy04 @ May 19 2006, 11:51 AM) [snapback]258062[/snapback]</div>

I purchased my home: 3/3.5 on 1 acre fenced with seperate 3 car garage for 55k in 00.. the house is now est. at 300k with 20k in improvements....

I dont think housing will drop that much.. I refied at 5.5 locked apr w/$700 morgage
Cant rent a apt for that here
[/b]

Not bad. In a good area of Long Island, a 1,200 square foot ranch house goes for $500,000. Taxes are typically $8,000 a year. You don't even want to know about Manhattan prices ....

[MarinJohn]

The Bush blame game is in full swing. Its Bill's fault. It's the media's fault. It's Osama's fault. It's Hillary's fault. It has nothing to do with lack of beleivable leadership. It has nothing to do with CEO's raping their companies. It has nothing to do with a bad attitude in this country. It has nothing to do with paying people a fraction of what their skills are worth. It's Mommy's fault!

[Mystery Squid]

<div class='quotetop'>QUOTE(jared2 @ May 19 2006, 11:54 AM) [snapback]258064[/snapback]</div>

You don't even want to know about Manhattan prices ....
[/b]

Heh, I remember seeing banner once, somewhere around 82nd and 5th, and it read, "Prices from $10 million"

[jared2]

<div class='quotetop'>QUOTE(Mystery Squid @ May 19 2006, 12:00 PM) [snapback]258072[/snapback]</div>

Heh, I remember seeing banner once, somewhere around 82nd and 5th, and it read, "Prices from $10 million"
[/b]

That's true. This morning, driving on the LIE I saw a townhouse development right beside the highway with a big sign: Starting under $1,500,000

[galaxee]

whew! basic town houses here go for 100-120. and i thought that was kinda stupid...

[jared2]

<div class='quotetop'>QUOTE(galaxee @ May 19 2006, 12:57 PM) [snapback]258112[/snapback]</div>

whew! basic town houses here go for 100-120. and i thought that was kinda stupid...
[/b]

There is no more land to build on Long Island, but people keep coming (many from Canada) Prices must go up.

[dbermanmd]

<div class='quotetop'>QUOTE(jared2 @ May 19 2006, 11:01 AM) [snapback]258031[/snapback]</div>

Um, wasn't the stock market supposed to bounce back after Wednesday's big drop?


By Paul Krugman.
We shouldn't read too much into a couple of days' movements in stock prices. But it seems that investors are suddenly feeling uneasy about the state of the economy. They should be; the puzzle is why they haven't been uneasy all along.

The rise in stock prices that began last fall was essentially based on the belief that the U.S. economy can defy gravity — that both individuals and the nation as a whole can spend more than their income, not on a temporary basis, but more or less indefinitely.

To be fair, for a while the data seemed to confirm that belief. In 2005, the trade deficit passed $700 billion, yet the dollar actually rose against the euro and the yen. Housing prices soared, yet houses kept selling. The price of gasoline neared $3 a gallon, yet consumers kept buying both gas and other items, even though they had to borrow to keep spending (the personal savings rate went negative for the first time since the 1930's).

Over the last few weeks, however, gravity seems to have started reasserting itself.

The dollar began falling about a month ago. So far it's down less than 10 percent against the euro and the yen, but there's a definite sense that foreign governments, in particular, are becoming less willing to keep the dollar strong by buying lots of U.S. debt.

The housing market seems to be weakening rapidly. As late as last October, the National Association of Home Builders/Wells Fargo housing market index, a measure of builders' confidence, was still close to the high point it reached last summer. But on Monday the association announced that the index had fallen to its lowest level since 1995.

Finally, there are preliminary indications that consumers, hard-pressed by high gasoline prices, may be reaching their limit.

The National Retail Federation, reporting on a new survey, warns that "while consumers have seemed resilient in the face of higher energy costs, a tipping point may soon be in sight."

I can't resist pointing out that the Bush administration's response to the squeeze on working families has been, you guessed it, to accuse the news media of biased reporting.

On May 10 the White House issued a press release titled "Setting the Record Straight: The New York Times Continues to Ignore America's Economic Progress." The release attacked The Times for asserting that paychecks weren't keeping up with fixed costs like medical care and gasoline. The White House declared, "But average hourly earnings have risen 3.8 percent over the past 12 months, their largest increase in nearly five years."

On Wednesday Treasury Secretary John Snow repeated that boast before a House committee. However, Representative Barney Frank was ready. He asked whether the number was adjusted for inflation; after flailing about, Mr. Snow admitted, sheepishly, that it wasn't. In fact, nearly all of the wage increase was negated by higher prices.

Meanwhile, the return of economic gravity poses a definite threat to U.S. economic growth. After all, growth over the past three years was driven mainly by a housing boom and rapid growth in consumer spending. People were able to buy houses, even though housing prices rose much faster than incomes, because foreign purchases of U.S. debt kept interest rates low. People were able to keep spending, even though wages didn't keep up with inflation, because mortgage refinancing let them turn the rising value of their houses into ready cash.

As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.

Now that game seems to be coming to an end. We're going to have to find other ways to make a living — in particular, we're going to have to start selling goods and services, not just I.O.U.'s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.

Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what's happening in the housing market is "a very orderly and moderate kind of cooling." Maybe he's right. But if he isn't, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.
[/b]

Hi again.

First, in order for some fair and balanced posting, try finding one Pro-Bush or Pro-American topic to post on. That would be a nice change.

Second, the market volitility is directly related to the inflation worry. You shoud read the lead editorial in todays Wall Street Journal for further clarity.

Third, the housing bubble is a lot more complex than some would lead us to believe. It will depend a lot upon interest rates, location, local economic conditions - things that lead me to believe that no blanket statement will adequately describe a segment of the economy that large.

Fourth, I did not know Krugman had a Ph.D. in economics.