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United States43598 Posts
On December 29 2013 14:54 Housemd wrote:
I honestly don't know where to post this but I thought this thread would be the best:
It's a very random question from someone who is trying to understand basic economics.
Suppose you buy a house during a boom for x dollars. However, you sell the house later on for y dollars during a recession. Assuming that the value of the dollar remains somewhat consistent and that y < x, can you say with guarantee that you have lost money.
I would say yes, but someone recently told me you can't accurately say that since the value has fluctuated. I'm genuinely curious.
Your question doesn't make sense. The reason the house is not worth as many dollars is because the disposable income of people, the amount of liquidity people have, the access to cheap loans and the priorities of people have changed due to the recession. This means that the value of a liquid dollar has, in effect, increased. The house is still as big as it was, it doesn't fluctuate in houseness as the economy grows and contracts, rather what people can pay for it changes.
You sell it for fewer dollars but the value of the house, as measured in houseness, remains constant. Rather the number of dollars people are willing to pay for that amount of house changes which is a function of the value of the dollar, not of the house. As long as you don't keep the dollars in dollars when the economy recovers you have not taken a loss.
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On December 29 2013 21:03 KwarK wrote:Show nested quote +On December 29 2013 14:54 Housemd wrote:
I honestly don't know where to post this but I thought this thread would be the best:
It's a very random question from someone who is trying to understand basic economics.
Suppose you buy a house during a boom for x dollars. However, you sell the house later on for y dollars during a recession. Assuming that the value of the dollar remains somewhat consistent and that y < x, can you say with guarantee that you have lost money.
I would say yes, but someone recently told me you can't accurately say that since the value has fluctuated. I'm genuinely curious. Your question doesn't make sense. The reason the house is not worth as many dollars is because the disposable income of people, the amount of liquidity people have, the access to cheap loans and the priorities of people have changed due to the recession. This means that the value of a liquid dollar has, in effect, increased. The house is still as big as it was, it doesn't fluctuate in houseness as the economy grows and contracts, rather what people can pay for it changes. You sell it for fewer dollars but the value of the house, as measured in houseness, remains constant. Rather the number of dollars people are willing to pay for that amount of house changes which is a function of the value of the dollar, not of the house. As long as you don't keep the dollars in dollars when the economy recovers you have not taken a loss.
The problem states that x > y and that the house is bought and sold at time x and time y respectively. You can only avoid a loss if the level of deflation is equal to or exceeds the change in value of the house.
I'm not sure why the dollar value is mentioned.The problem implies a constant dollar value, which in turn theoretically implies that the price level changes the same way as in non-dollar nations. You can only avoid a loss if there is deflation in the US, and because the price level in the US changes proportionately to the change in price level elsewhere, this means there is also deflation elsewhere. (ceteris paribus, correct me if I'm wrong). If instead he meant that the price level is unchanged, you are guaranteed a loss.
I don't understand your comments about houseness, if people now value houseness less than other qualities you have incurred a loss compared to the initial situation. Your wealth declines because your houseness buys less of other qualities than before. If we are to assume that price level is constant and the house will reach its x value again at some time after time y, then there is not a capital loss, if the house isn't sold at time y (though there is a loss of liquidity), but this isn't close to the original problem.
Also note that it is possible that the price of this specific house has declined, while general price level of housing has not changed, because there was damage to the house between time x and y, or the value of the house was incorrectly valued at time x. In this case a capital loss is guaranteed. But I'm thinking that because a recssion is mentioned, this is not the case, and instead the loss in value is due to a greater preference for liquidity.
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On December 29 2013 21:03 KwarK wrote:Show nested quote +On December 29 2013 14:54 Housemd wrote:
I honestly don't know where to post this but I thought this thread would be the best:
It's a very random question from someone who is trying to understand basic economics.
Suppose you buy a house during a boom for x dollars. However, you sell the house later on for y dollars during a recession. Assuming that the value of the dollar remains somewhat consistent and that y < x, can you say with guarantee that you have lost money.
I would say yes, but someone recently told me you can't accurately say that since the value has fluctuated. I'm genuinely curious. Your question doesn't make sense. The reason the house is not worth as many dollars is because the disposable income of people, the amount of liquidity people have, the access to cheap loans and the priorities of people have changed due to the recession. This means that the value of a liquid dollar has, in effect, increased. The house is still as big as it was, it doesn't fluctuate in houseness as the economy grows and contracts, rather what people can pay for it changes. You sell it for fewer dollars but the value of the house, as measured in houseness, remains constant. Rather the number of dollars people are willing to pay for that amount of house changes which is a function of the value of the dollar, not of the house. As long as you don't keep the dollars in dollars when the economy recovers you have not taken a loss.
Price are relative informations. It's not about the "houseness", it's about how much goods and services you can buy with that house (the money is just an intermediary). If the housing market has fallen (because of the crisis) but that overall the offer and demand for goods and services are remaining stable, you will indeed lose money.
You are over complicating the exemple by the way.
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United States43598 Posts
What I'm getting at is that when the value of a property drops in a recession it is not because the property has gotten any worse but rather because people have less disposable income, less access to loans and so forth and therefore are not able to bid as much for it against each other. The house remains as sturdy as ever, it is the access to dollars and therefore the relative value of each dollar that has changed.
Saying "have you lost money assuming the value of the dollar hasn't changed" is a silly question, of course you have, you previously had X, now you have <X. But the value of the dollar has changed, as liquidity and disposable income goes down the purchasing power of each unit of disposable currency goes up.
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On December 29 2013 21:43 KwarK wrote:
What I'm getting at is that when the value of a property drops in a recession it is not because the property has gotten any worse but rather because people have less disposable income, less access to loans and so forth and therefore are not able to bid as much for it against each other. The house remains as sturdy as ever, it is the access to dollars and therefore the relative value of each dollar that has changed.
Saying "have you lost money assuming the value of the dollar hasn't changed" is a silly question, of course you have, you previously had X, now you have <X. But the value of the dollar has changed, as liquidity and disposable income goes down the purchasing power of each unit of disposable currency goes up.
Yes but the crisis is not always followed by a deflation (a global decrease in the general price level of goods and services) it can touch only specific markets (like the housing market). If so, then you would indeed lose money. Or to say it in another way, it is possible that the housing market is going down while the relative value of the dollar stays the same or even go down (there was still a small inflation during 2007 subprime crisis).
In fact deflation has disappeared (almost) from our radar since the second world war (prior to that, every crisis were followed by a deflation).
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United States43598 Posts
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation.
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On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation.
I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money.
If the money stock stay the same and the overall demand for goods and services increase, you will see an increase in general level of price which correspond to inflation, and a loss in the value of money (you buy less with the same amount).
If the money stock stay the same but the overall demand for goods and services decrease, you will see a decrease in the general level of price which correspond to deflation and a gain in the value of money (you can buy more with the same amount of money).
So we are exactly saying the same thing, if there is a deflation, it is possible that Y (in real value) > or = X (in real value).
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United States43598 Posts
On December 29 2013 21:57 WhiteDog wrote:Show nested quote +On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money.
I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money.
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On December 29 2013 22:01 KwarK wrote:Show nested quote +On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money.
That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same, and X in real value = X in nominal value).
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United States43598 Posts
On December 29 2013 22:03 WhiteDog wrote:Show nested quote +On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same).
Only if he takes all the money he got from the house and buys beans with it.
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On December 29 2013 22:03 KwarK wrote:Show nested quote +On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it.
You mean if he spares it for later, and wait for a deflation to come ? 
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United States43598 Posts
On December 29 2013 22:05 WhiteDog wrote:Show nested quote +On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ?
I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market?
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On December 29 2013 22:07 KwarK wrote:Show nested quote +On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market?
Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right.
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United States43598 Posts
On December 29 2013 22:09 WhiteDog wrote:Show nested quote +On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right.
Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available.
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On December 29 2013 22:13 KwarK wrote:Show nested quote +On December 29 2013 22:09 WhiteDog wrote:On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right. Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available.
I don't even understand you. He already sold the house and the monetary gain Y he had from the sold out is less than the money he had put on it in the first place. You can discuss all you want about his possibilities and whatnot, he still has less $, and the only way to actually know if it is really a loss is to evaluate the global purchasing power of his Y$ compared to the purchasing power of his X$ and to do that he must take into consideration inflation and deflation.
Starting a business or do any number of other things ? If the global purchasing power he had is lower now, then it will be harder today than tomorrow, there is nothing to add to that. I don't even understand why you are complicating the shit out of such little exemple. There is no need to talk about interest rate, and there is no reasons to believe that the interest rate are indeed higher...
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On December 29 2013 14:54 Housemd wrote:
I honestly don't know where to post this but I thought this thread would be the best:
It's a very random question from someone who is trying to understand basic economics.
Suppose you buy a house during a boom for x dollars. However, you sell the house later on for y dollars during a recession. Assuming that the value of the dollar remains somewhat consistent and that y < x, can you say with guarantee that you have lost money.
I would say yes, but someone recently told me you can't accurately say that since the value has fluctuated. I'm genuinely curious.
Yes, you have lost money both in economic and accounting terms. Value fluctuating doesn't impede your ability to discern profit and loss.
On a side note, "the value of the dollar remains somewhat consistent" can mean that inflation is zero, that international purchasing power of the dollar has remained constant (aka exchange rate changes reflect only relative inflation between currencies) or both. I would assume you mean both, but you could make that clearer.
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United States43598 Posts
On December 29 2013 22:21 WhiteDog wrote:Show nested quote +On December 29 2013 22:13 KwarK wrote:On December 29 2013 22:09 WhiteDog wrote:On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:On December 29 2013 21:52 KwarK wrote:
There doesn't have to be deflation for the purchasing power of a dollar to change. People spend dollars more readily if they anticipate a general increase in future dollars from economic growth, during a recession they get more frugal and save more. Likewise banks are more hesitant to make loans at low interest rates. If you're trying to sell an illiquid asset it will go down in dollar value simply in response to factors like this. You don't need widespread deflation. I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right. Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available. I don't even understand you. He already sold the house and the monetary gain Y he had from the sold out is less than the money he had put on it in the first place. You can discuss all you want about his possibilities and whatnot, he still has less $, and the only way to actually know if it is really a loss is to evaluate the global purchasing power of his Y$ compared to the purchasing power of his X$ and to do that he must take into consideration inflation and deflation. Starting a business or do any number of other things ? If the global purchasing power he had is lower now, then it will be harder today than tomorrow, there is nothing to add to that. I don't even understand why you are complicating the shit out of such little exemple. There is no need to talk about interest rate, and there is no reasons to believe that the interest rate are indeed higher...
You are looking at the loss of house value as if it is an event in a vacuum with no wider economic implications. It is not, it is an impact of an economic change which changes the value of liquid capital.
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On December 29 2013 22:47 KwarK wrote:Show nested quote +On December 29 2013 22:21 WhiteDog wrote:On December 29 2013 22:13 KwarK wrote:On December 29 2013 22:09 WhiteDog wrote:On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:On December 29 2013 21:57 WhiteDog wrote:
[quote]
I don't think you understands well what inflation and deflation is. Inflation is strictly speaking the way to measure the loss of the value of money, and deflation is the how we measure the increase of the value of the money. I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right. Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available. I don't even understand you. He already sold the house and the monetary gain Y he had from the sold out is less than the money he had put on it in the first place. You can discuss all you want about his possibilities and whatnot, he still has less $, and the only way to actually know if it is really a loss is to evaluate the global purchasing power of his Y$ compared to the purchasing power of his X$ and to do that he must take into consideration inflation and deflation. Starting a business or do any number of other things ? If the global purchasing power he had is lower now, then it will be harder today than tomorrow, there is nothing to add to that. I don't even understand why you are complicating the shit out of such little exemple. There is no need to talk about interest rate, and there is no reasons to believe that the interest rate are indeed higher... You are looking at the loss of house value as if it is an event in a vacuum with no wider economic implications. It is not, it is an impact of an economic change which changes the value of liquid capital.
And you measure that through inflation...
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United States43598 Posts
On December 29 2013 22:49 WhiteDog wrote:Show nested quote +On December 29 2013 22:47 KwarK wrote:On December 29 2013 22:21 WhiteDog wrote:On December 29 2013 22:13 KwarK wrote:On December 29 2013 22:09 WhiteDog wrote:On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:On December 29 2013 22:01 KwarK wrote:
[quote]
I don't think you appreciate that the price of a tin of beans could remain constant while the price of a house can drop because they suffer from very different influences within the same economy. Deflation is a general term for the overall value of money. That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right. Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available. I don't even understand you. He already sold the house and the monetary gain Y he had from the sold out is less than the money he had put on it in the first place. You can discuss all you want about his possibilities and whatnot, he still has less $, and the only way to actually know if it is really a loss is to evaluate the global purchasing power of his Y$ compared to the purchasing power of his X$ and to do that he must take into consideration inflation and deflation. Starting a business or do any number of other things ? If the global purchasing power he had is lower now, then it will be harder today than tomorrow, there is nothing to add to that. I don't even understand why you are complicating the shit out of such little exemple. There is no need to talk about interest rate, and there is no reasons to believe that the interest rate are indeed higher... You are looking at the loss of house value as if it is an event in a vacuum with no wider economic implications. It is not, it is an impact of an economic change which changes the value of liquid capital. And you measure that through inflation...
Only if you assume that a tin of beans inflates and deflates in the same way as a house.
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On December 29 2013 23:04 KwarK wrote:Show nested quote +On December 29 2013 22:49 WhiteDog wrote:On December 29 2013 22:47 KwarK wrote:On December 29 2013 22:21 WhiteDog wrote:On December 29 2013 22:13 KwarK wrote:On December 29 2013 22:09 WhiteDog wrote:On December 29 2013 22:07 KwarK wrote:On December 29 2013 22:05 WhiteDog wrote:On December 29 2013 22:03 KwarK wrote:On December 29 2013 22:03 WhiteDog wrote:
[quote]
That's exactly the point, if it only touch the housing market, then it's not a deflation, and the guy would have loss money (since the value of the money stays the same). Only if he takes all the money he got from the house and buys beans with it. You mean if he spares it for later, and wait for a deflation to come ? I'm saying that we agree that the house is getting fewer dollars because a big chunk of dollars in the form of a loan or whatever is harder to get and therefore more valuable than it would otherwise have been. Given that he now has one of these big chunks of dollars why would we not assume that he is going to benefit from its new scarcity over the rest of the market? Ho yes I see, you mean he will be able to buy a house cheaper, since the housing market is falling. You are absolutly right. Or start a business or do any number of other things that the market has placed a higher rate of return on because it is unwilling to do them. The house is still the same house, what has happened is that raising a house sized chunk of capital has gotten harder and fewer people are willing to do it which means a house sized chunk of capital is more valuable than it would otherwise have been. He could loan it to someone wanting to buy a house for example and, due to the lack of available credit in the market, gain a higher interest rate than would normally be available. I don't even understand you. He already sold the house and the monetary gain Y he had from the sold out is less than the money he had put on it in the first place. You can discuss all you want about his possibilities and whatnot, he still has less $, and the only way to actually know if it is really a loss is to evaluate the global purchasing power of his Y$ compared to the purchasing power of his X$ and to do that he must take into consideration inflation and deflation. Starting a business or do any number of other things ? If the global purchasing power he had is lower now, then it will be harder today than tomorrow, there is nothing to add to that. I don't even understand why you are complicating the shit out of such little exemple. There is no need to talk about interest rate, and there is no reasons to believe that the interest rate are indeed higher... You are looking at the loss of house value as if it is an event in a vacuum with no wider economic implications. It is not, it is an impact of an economic change which changes the value of liquid capital. And you measure that through inflation... Only if you assume that a tin of beans inflates and deflates in the same way as a house.
Inflation is a composite indicator made with a various number of goods (approx 250 today). It is not about "tin of beans" but it also take into consideration housing and a lot of other kind of goods and services.
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EPT
