Is your disposable income going down?

jared2 · May 19, 2006

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 â€” 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 â€” 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 · May 19, 2006

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 · May 19, 2006

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 :lol: :lol: :lol:
Cant rent a apt for that here :lol: :lol: :lol:

jared2 · May 19, 2006

<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 :lol: :lol: :lol:
Cant rent a apt for that here :lol: :lol: :lol:
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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 · May 19, 2006

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 · May 19, 2006

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

jared2 · May 19, 2006

<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" :lol:
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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 · May 19, 2006

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

jared2 · May 19, 2006

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

dbermanmd · May 19, 2006

<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 â€” 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 â€” 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.
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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.

jared2 · May 19, 2006

<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 01:35 PM) [snapback]258135[/snapback]</div>

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.
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Still waiting for an apology for your gross insults.

airportkid · May 19, 2006

<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 10:35 AM) [snapback]258135[/snapback]</div>

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.
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There is nothing whatsoever preventing you from doing exactly that.

By the way, if you can find anything pro-Bush, you could probably get a good price for it on e-Bay as an item of extreme rarity.

One must ask, in this land of free speech, WHY accolades for Bush are vanishing to extinction. It isn't as if they are being suppressed.
<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 10:35 AM) [snapback]258135[/snapback]</div>

Second, the market volitility is directly related to the inflation worry.
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Nice, succinct blanket statement there. You must have strong personal economic credentials that qualify you to comment so concisely about something as vast and complicated as the drivers of market volatility.
<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 10:35 AM) [snapback]258135[/snapback]</div>

Third, the housing bubble is complex. It will depend a lot upon interest rates, location, local economic conditions - no blanket statement can adequately describe a segment of the economy that large.
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True enough. But the only blanket statements so far are yours. Mr. Krugman hasn't made any; his article dedicates several paragraphs to the topic. And your statement that the market is complex, affected by three factors, without the slightest illumination as to HOW those three factors interact or are themselves affected by secondary and tertiary factors, is itself a blanket statement that conveys little useful information.
<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 10:35 AM) [snapback]258135[/snapback]</div>

Fourth, I did not know Krugman had a Ph.D. in economics.
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I can only assume here that your own qualifications to offer opinions on this topic exceed a Ph.D in economics; and that unless you possess a Ph.D. in economics you're not qualified to comment in public on the subject. What are YOUR credentials in the field of economics, O great one who warns us that comments should be taken seriously not by virtue of thoughtfulness, logic or knowledge, but by what diploma one has hanging on the wall?

hycamguy07 · May 19, 2006

You know here in the suburbs of Orlando land is at a preimium, we still have county & state protected wet-lands & forrests around the state.. Just 30 miles north of Orlando is Volusia County with land availible.. We have a town there called Deltona this town was mainly retirees until 1997 then people mostly cuban, purtorican, mexican families started moving in now due to cheap homes starting in the 40's, the locals now call it Del-Rico the town has tripled in size since then. the new people moving to Florida need to research the new home location they may buy, I have seen developers put whole neighborhoods on 100 yr flood planes and flood prone areas leaving the new owners surprized when they get flooded during hurricanes.

Did you know Approximately 800 people are moving to the state each and every day!
Making Florida one of the four fastest growing states in the US.....

More information:
http://www.florida-relocation.com/stateinfo.htm

jared2 · May 19, 2006

<div class='quotetop'>QUOTE(priusguy04 @ May 19 2006, 03:14 PM) [snapback]258188[/snapback]</div>

You know here in the suburbs of Orlando land is at a preimium, we still have county & state protected wet-lands & forrests around the state.. Just 30 miles north of Orlando is Volusia County with land availible.. We have a town there called Deltona this town was mainly retirees until 1997 then people mostly cuban, purtorican, mexican families started moving in now due to cheap homes starting in the 40's, the locals now call it Del-Rico the town has tripled in size since then. the new people moving to Florida need to research the new home location they may buy, I have seen developers put whole neighborhoods on 100 yr flood planes and flood prone areas leaving the new owners surprized when they get flooded during hurricanes.

Did you know Approximately 800 people are moving to the state each and every day!
Making Florida one of the four fastest growing states in the US.....

More information:
http://www.florida-relocation.com/stateinfo.htm
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You don't work for the Florida Chamber of Commerce, by any chance?

eyeguy13 · May 19, 2006

<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 12:35 PM) [snapback]258135[/snapback]</div>

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.

Fourth, I did not know Krugman had a Ph.D. in economics.
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Yes, Paul Krugman does have a PhD in economics from MIT. Received it in 1977 and has taught at MIT, Yale, Stanford and now is at Princeton. Between 1982-1983, he worked at the White House Council of Economic Advisors.

"Fair and Balanced". Did you watch Fox News today??? I've heard that they report and we decide.

Pro-Bush statement------he's a cyclist. There, see a lefty can compliment the President. If he ever came to my base, I would ride with him.

dsunman · May 19, 2006

<div class='quotetop'>QUOTE(dbermanmd @ May 19 2006, 01:35 PM) [snapback]258135[/snapback]</div>

Second, the market volitility is directly related to the inflation worry. You shoud read the lead editorial...
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Economics has gotten so rigorous we've all got rigor mortis. :lol:

Rancid13 · May 19, 2006

Home prices don't appear to be going down at all here in the OC. Some portions of the market (ie: the $4+million) appear to be stabilizing, but everything else is going up. The OC median price is now $628K and the market overall is up 10% from this time last year. Main reasons for the prices to keep going up (though not at the frantic pace they were rising 1-2 years ago) is because of the growing job market here and the lack of available land to build on. OC is bounded by the Pacific Ocean, San Diego Cty, Riverside Cty, San Bernardino Cty, and LA Cty. There's only so much land here, and as it's getting built out there's no place for prices to go but up.

dsunman · May 19, 2006

<div class='quotetop'>QUOTE(eyeguy13 @ May 19 2006, 05:50 PM) [snapback]258272[/snapback]</div>

Yes, Paul Krugman does have a PhD in economics from MIT. Received it in 1977 and has taught at MIT, Yale, Stanford and now is at Princeton. Between 1982-1983, he worked at the White House Council of Economic Advisors.

"Fair and Balanced". Did you watch Fox News today??? I've heard that they report and we decide.

Pro-Bush statement------he's a cyclist. There, see a lefty can compliment the President. If he ever came to my base, I would ride with him.
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Hi eyeguy 13,

You forgot to prefix THE ONLY 'fair and balanced' :lol:

you posts rock, btw

DaveinOlyWA · May 19, 2006

just saw a story last week that the West Bellevue neighborhood medium home prices have exceeded 1 million. most of the houses in the area are WAAAY over that figure including bill gates house... so not sure how the medium price got down that far.

Godiva · May 19, 2006

The two aren't really related.

Yes, my disposable income is going down. In fact....I'll have to quit my masters program because the classes just went from $645 to $1,027 per class and I just don't have enough discretionary income to continue the program. But that's because the cost of living goes up and my salary does not. (I'm one of those incompetent, lazy teachers making way too much money as it is.)

Gas goes up and even though I drive Prius it still goes up. And so the cost of food goes up. And utilities. And everything else.

The only thing not going up is my mortgage so I don't see how the market value of my home relates to discretionary income.

I bought my home in 1987 for $80,000. I've refinanced several times since then (new roof, new plumbing, landscaping) I cashed out and then put the money back into the house, thereby increasing it's value. The last time my home was assessed at $465,000. It's probably not gone down much from that. I've made sure I never owe more than 80% of my home's assessed value when I've cashed out. That way I made sure I'd never owe more than my home was worth even if property values dropped. No way they would drop that much. Not in So. Cal housing market.

My current mortgage is at 5.65% 30 year fixed so I won't be refinancing ever again. Hence the problem with the masters program. I'm not going to refinance to pay for the last three classes. And with the car payments going another three years I don't have the extra money. They announced it last week so it's way too late to try for any grants. I don't qualify for most grants because I'm not a minority, I'm not poor and I'm not specializing in any special kind of library work. This last class will complete my Library Media Teacher credential and that's what I needed. I already have one masters degree and am at the top of the salary schedule so I don't "need" the second masters degree. I just wanted it in case after I retire I wanted to continue to work in a library in the private sector or at a public library. You need an MLIS for that. My only alternative is to take cash advances on my credit card to pay for the three remaining classes. I can't really justify that.

Is your disposable income going down?

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