Friday, December 13, 2013

Economic Growth is INFLATION

Economic Growth is INFLATION

Postby nameta9 » Fri Dec 13, 2013 11:52 pm
Economic Growth is INFLATION

I was noticing a pattern that repeats in economies that are developed: after the inital growth period when going from poor to middle class like the EU or JAPAN went from in the 1950s to 1970s, inflation kicks in as a stimulus to growth, forces growth by giving an incentive for buying now instead of later, since prices will be higher later, and so forth, and so this happened especially in Real Estate prices and home prices and rents, etc.

JAPAN had a huge real estate prices inflation from 1980 to 1992, and then the party ended and could not use inflation as a means to grow anymore: also inflation disguises the real value of an economy by making it seem as if it is always getting richer and richer if only through its nominal monetary values, wages increase, but mostly due to inflation, but it looks like growth, it looks like a country is getting richer and there is a heated economic activity since people buy now and buy more and more because "tomorrow prices will be higher", and especially in homes and real estate, a real frenzy kicks in, the prices go up, people buy "now" because the prices will be higher in the future, developers build more homes since it is all profit (a great "investment", the values of homes can only go up), but mostly profit from inflation and this hysterical feedback loop of ever increasing prices and "get yours before it is too late" and so forth.

Overheated economies, more demand than supply, people must buy their house, the prices go up and people will follow the prices anywhere, and the prices of everything else goes up, and "salaries are increasing too, wages are increasing", we are all getting richer and richer, the economy is GROWING.

A very elegant way to create a gigantic make believe, to make everyone feel richer, to make them feel as if they are getting richer and richer: but then, the music stops, the party ends and you end up having 20 years of stagnation like in JAPAN and ITALY. You end up having a huge hangover - headache of high real estate prices crystallized forever after the party is over. But especially, you end up having hugely inflated real estate prices that no longer correspond to what the economy is, but the prices remain high forever, stick to high level while everything else starts to decay. So renting a home becomes impossible for normal salaries, renting office space or stores becomes impossible for normal activities and so forth, and the banks all have their values and wealth tied into real estate, locked forever in that safe, that safe that will kill off the economy.

This is especially true in JAPAN and ITALY, but also Spain and eventually China, India, you name it, even in the USA, although the USA is the most flexible and reactive economy and can still modify real estate prices compared to all the other very rigid economies: because those static economies like JAPAN and ITALY have huge debts, public debts and can only base the eventual payoff of those debts on the now fake real estate values they have (although the values were always fake, there is no way that a home can be valued at more than 100,000 dollars, ten times the value of a car in a normal world, but in these countries homes are valued 300,000 dollars for puny 50 square meter shit holes, go figure, but it felt great for everyone when their home values kept on going higher and higher, they were all getting richer (only to then never think of how their kids would ever manage to rent or buy a home in the future at such prices, now their kids will pay the bill staying in mom's basement until they retire (if they even can work?))): they are forced to keep those prices forever high or else their entire economy finally reveals their real value: ZERO, Detroit on steroids, failed bankrupt states, etc.

An 80 square meter home in Rome, ITALY tripled in value every ten years for 4 decades: it cost 5,000 dollars in 1966, 15,000 in 1976, 50,000 in 1986, 150,000 in 1996 and finally 400,000 in 2006: sounds familiar ? there are parts of the USA where this happened (NYC, San Francisco), London is even worse, Tokyo I think was just as bad if not even worse, Canada is now doing the same idiotic thing, the same party, etc.

And while these prices grow,their "economies are growing" and "doing well", the FED states that they hope that home prices start to go up again: are they crazy or what ? how is an economy where a basic good (also like health care in the USA) keeps on climbing "growing" or "doing well" ? beats me...

Anyways, I think that most growth that occurred in the 2nd half of the 20th century in Europe, JAPAN and other places was mostly growth through inflation, through price inflation, making believe normal things are much more valuable than what they are and by doing so stimulating growth and buying since "buying is better now than tomorrow when prices will be even higher". Also this inflation made the GDP numbers huge, hugely higher than what the real economies are: there is no way that the GDP of ITALY is 1 trillion dollars, the place is poor and cannot possible have a GDP corresponding to such values, but the inflation of costs and values masks how poor an economy is and makes it seem as if they are all so rich (and the same thing applies to many other economies, the GDP numbers are a farce).

Now most of the developed world finds itself in stagnation or deflation which is good: but they will now keep the burden of absurdly high real estate prices and these prices will kill the economies in the end since no one and nothing can make them crash as they deserve to go, they should crash baby crash, go down like crazy, but too many people want to fool themselves that they are rich: they will starve to death but their homes will always be worth a huge amount of money...ITALY take notice unless you want to become a Detroit on Steroids...

So CHINA, this is your future, keep on building apartments, keep those prices high, much higher than the puny salaries you give your slob workers, same for you India, and have fun when the party ends...

tardy ted
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