Sunday, May 29, 2005
Housing Bubble, Pseudo-Recovery, & Cheap Labor Lobby
I found this on democraticunderground. This is a fellow blogger discussing the economy, jobs, and the housing market. He's a physician by training and has become an economist....you kind of have to in order to understand CuckooBananas' economy. Enjoy!!!!
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=203&topic_id=373491#
unlawflcombatnt (25 posts)
Sat May-28-05 06:43 PMOriginal message
Housing Bubble, Pseudo-Recovery, & Cheap Labor Lobby
THE HOUSING BUBBLE, PSEUDO-RECOVERY, & CHEAP LABOR LOBBY
The consumer income and demand that provided the "recovery" from the recession came from increased consumer borrowing, not increased income. This was the direct product of the Greenspan-induced housing bubble. By decreasing the prime rate, he increased the dollar-value of a home that could be purchased with the same amount of money. More money could be spent on the actual selling price of the home, if less was spent on financing charges. Again, this increased the price of homes that buyers could purchase, as well as the number of buyers who could purchase homes. In turn, this increased the DEMAND for homes, which further increased the overall price of homes. This demand increase also increased assessed home values, increasing home equity value. Thus, there was an overall increase in aggregate, nationwide home equity value. This increased the amount of money available for home equity loans. This increase in money available for loans also increased money available to spend. Thus, consumers were able to increase spending, while incomes decreased.
This increase in spendable consumer wealth provided the demand necessary to keep American industry from completely collapsing. Consumers were able to spend more, in spite of declining wages. Had more attention been paid to increasing wages, and less to stimulating unnecessary investment, consumer income might have recovered. It might have recovered enough to offset the huge reduction in demand that will occur when the housing bubble bursts. Unfortunately, corporate profits and inflated equity values were the emphasis of the Bush administration, not consumer income. The inflation-adjusted wage decline has continued unabated under Bush.
Bush's labor-cost reduction policies have actually worsened the consumer income loss.The "cheap labor lobby" has succeeded in greatly reducing aggregate consumer income. They have taken advantage of simple supply-and-demand laws regarding labor. By increasing labor supply, they reduce the price of labor. By reducing labor demand, they further reduce the price of labor. Reduced "price" of labor means reduction in wages for American workers.
The "cheap labor lobby" has reduced American wages by increasing the supply of available workers and reducing the creation of jobs. This has been done by 2 general methods. The 1st method is the encouragement of unrestricted inflow of impoverished workers into the U.S. This increases the labor supply, decreasing labor cost. (There are simply more workers competing for the same number of jobs, driving wages downward.) This decreases average individual wages, as well as aggregate labor and consumer income.
The 2nd method has been OUTSOURCING. The effect of outsourcing is to open up the American labor market to competition with impoverished 3rd-world workers. American workers must now compete globally for wages with semi-slave labor in impoverished foreign countries. American labor has already lost many jobs to foreign competition. Thus, the DEMAND for American labor has also been reduced, due to the shipment of jobs out of the country. (Decreased demand for labor decreases the "price" of labor, which means American wages.) The effect of outsourcing is to decrease the number of jobs, as well as the average wage of those who have jobs. This results in decreased aggregate consumer income, causing decreased demand for American goods, and decreased demand for workers to produce goods.
The "cheap labor lobby" has thus decreased aggregate consumer income by increasing immigration and outsourcing. They have reduced labor demand, and increased labor supply. They have opened up the American labor market to competition with foreign workers. There is NO long-term benefit to ANYONE from such policy. It does not help American industry in the long-run, nor does it help American workers. Corporate America is taking short-term profit gains at the expense of a long-term consumer market decline.
This does not help foreign workers in the long-run, either. Their minuscule wage gains do not make up for the massive American wage losses. This trade-off results in an aggregate reduction in global consumer income, and global demand for production. This, in turn, results in a global reduction in labor demand. The end result is a REDUCTION in global wages, not an increase.
American labor income is not only essential to American domestic consumer demand, it is essential to global consumer demand. Many foreign economies will be hurt if their ability to export to the US declines. And this ability WILL decline if American income is insufficient to purchase their products.
The American consumer market is THE major consumer market of the world. Declining aggregate American income will reduce this market. It will reduce both the American consumer market, and the global consumer market. Bush's "cheap labor" policies are accelerating this reduction. When the "borrowing" bubble collapses, so will the consumer market. It's only a matter of time.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
http://www.unlawflcombatnt.blogspot.com/ / Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=203&topic_id=373491#
unlawflcombatnt (25 posts)
Sat May-28-05 06:43 PMOriginal message
Housing Bubble, Pseudo-Recovery, & Cheap Labor Lobby
THE HOUSING BUBBLE, PSEUDO-RECOVERY, & CHEAP LABOR LOBBY
The consumer income and demand that provided the "recovery" from the recession came from increased consumer borrowing, not increased income. This was the direct product of the Greenspan-induced housing bubble. By decreasing the prime rate, he increased the dollar-value of a home that could be purchased with the same amount of money. More money could be spent on the actual selling price of the home, if less was spent on financing charges. Again, this increased the price of homes that buyers could purchase, as well as the number of buyers who could purchase homes. In turn, this increased the DEMAND for homes, which further increased the overall price of homes. This demand increase also increased assessed home values, increasing home equity value. Thus, there was an overall increase in aggregate, nationwide home equity value. This increased the amount of money available for home equity loans. This increase in money available for loans also increased money available to spend. Thus, consumers were able to increase spending, while incomes decreased.
This increase in spendable consumer wealth provided the demand necessary to keep American industry from completely collapsing. Consumers were able to spend more, in spite of declining wages. Had more attention been paid to increasing wages, and less to stimulating unnecessary investment, consumer income might have recovered. It might have recovered enough to offset the huge reduction in demand that will occur when the housing bubble bursts. Unfortunately, corporate profits and inflated equity values were the emphasis of the Bush administration, not consumer income. The inflation-adjusted wage decline has continued unabated under Bush.
Bush's labor-cost reduction policies have actually worsened the consumer income loss.The "cheap labor lobby" has succeeded in greatly reducing aggregate consumer income. They have taken advantage of simple supply-and-demand laws regarding labor. By increasing labor supply, they reduce the price of labor. By reducing labor demand, they further reduce the price of labor. Reduced "price" of labor means reduction in wages for American workers.
The "cheap labor lobby" has reduced American wages by increasing the supply of available workers and reducing the creation of jobs. This has been done by 2 general methods. The 1st method is the encouragement of unrestricted inflow of impoverished workers into the U.S. This increases the labor supply, decreasing labor cost. (There are simply more workers competing for the same number of jobs, driving wages downward.) This decreases average individual wages, as well as aggregate labor and consumer income.
The 2nd method has been OUTSOURCING. The effect of outsourcing is to open up the American labor market to competition with impoverished 3rd-world workers. American workers must now compete globally for wages with semi-slave labor in impoverished foreign countries. American labor has already lost many jobs to foreign competition. Thus, the DEMAND for American labor has also been reduced, due to the shipment of jobs out of the country. (Decreased demand for labor decreases the "price" of labor, which means American wages.) The effect of outsourcing is to decrease the number of jobs, as well as the average wage of those who have jobs. This results in decreased aggregate consumer income, causing decreased demand for American goods, and decreased demand for workers to produce goods.
The "cheap labor lobby" has thus decreased aggregate consumer income by increasing immigration and outsourcing. They have reduced labor demand, and increased labor supply. They have opened up the American labor market to competition with foreign workers. There is NO long-term benefit to ANYONE from such policy. It does not help American industry in the long-run, nor does it help American workers. Corporate America is taking short-term profit gains at the expense of a long-term consumer market decline.
This does not help foreign workers in the long-run, either. Their minuscule wage gains do not make up for the massive American wage losses. This trade-off results in an aggregate reduction in global consumer income, and global demand for production. This, in turn, results in a global reduction in labor demand. The end result is a REDUCTION in global wages, not an increase.
American labor income is not only essential to American domestic consumer demand, it is essential to global consumer demand. Many foreign economies will be hurt if their ability to export to the US declines. And this ability WILL decline if American income is insufficient to purchase their products.
The American consumer market is THE major consumer market of the world. Declining aggregate American income will reduce this market. It will reduce both the American consumer market, and the global consumer market. Bush's "cheap labor" policies are accelerating this reduction. When the "borrowing" bubble collapses, so will the consumer market. It's only a matter of time.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
http://www.unlawflcombatnt.blogspot.com/ / Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
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Thanks for the compliment. I'm happy to see that people liked my post. And I hope others will re-post it everywhere possible. Here is another post you might find interesting:
WAGE DECLINE & CORPORATE SELF-DESTRUCTION
Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country. The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand? If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales?
Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products. There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed.
Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. There are 2 economic principles that are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. They also ignore the fact that consumer spending is the biggest part of the GDP equation. (GDP=Consumer_spending+investment+government_spending+trade_balance) In reality, investment spending will be self-limited if consumer spending isn't maintained. Production facilities will not be built if no one buys products. In addition, government spending is financed by taxes on consumer income. Thus, it is also very dependent on consumer income. Exports depend on foreign labor income, which creates foreign consumer markets. Since average foreign worker income is miniscule, this will never be a very large number. Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by "free" trade/slave labor agreements. Since consumer spending is strongly related to labor/consumer income, a reduction in consumer income will also reduce GDP. We're not "growing" our economy by reducing labor costs. We're shrinking it.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
WAGE DECLINE & CORPORATE SELF-DESTRUCTION
Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country. The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand? If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales?
Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products. There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed.
Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. There are 2 economic principles that are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. They also ignore the fact that consumer spending is the biggest part of the GDP equation. (GDP=Consumer_spending+investment+government_spending+trade_balance) In reality, investment spending will be self-limited if consumer spending isn't maintained. Production facilities will not be built if no one buys products. In addition, government spending is financed by taxes on consumer income. Thus, it is also very dependent on consumer income. Exports depend on foreign labor income, which creates foreign consumer markets. Since average foreign worker income is miniscule, this will never be a very large number. Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by "free" trade/slave labor agreements. Since consumer spending is strongly related to labor/consumer income, a reduction in consumer income will also reduce GDP. We're not "growing" our economy by reducing labor costs. We're shrinking it.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
THE HOUSING BUBBLE
Introduction:
In a post I made at another site, my comments on the "housing bubble" were challenged by a responder. Later, the same responder claimed my posting was "unacceptable." Upon reviewing the Email in his profile, I discovered he worked for the WILLIAM PITT real estate agency in Connecticut. It's clear his comments were motivate by his own self-interest in keeping the public unaware of the impending real estate crash. I urge readers not to do busines with WILLIAM PITT real estate, since they employ such devious techniques. Attempts to put a "spin" on public information should not be rewarded with our patronage. We shouldn't reward those who cruise the blogoshere, trying to counter any posts that do not further their own special interests.
___________
Housing prices have increased by an artificial increase in demand caused by reduction in interest rates. Less money spent on financing allows more money to be spent on the home value itself. Add to this the further increase in demand created by home speculation, as well as the decrease in supply created by such speculation. A San Diego real estate executive states that 3/4 of all homes sold in San Diego are to home speculators. Here is the link for that article:
http://news.yahoo.com/news?tmpl=story&u=/sddt/20050505/lo_sddt/majorityofcaliforniansmakelesstha nhalftheincomenee
All of this causes an artificial alteration of supply & demand forces. It's artificial in that speculators cannot continue to buy up homes, unless they find someone to sell them to. In other words, they can't continue contributing to this housing DEMAND increase, without reselling their homes to someone. (They can't continue to increase their "inventory" or "warehouse supply" of homes. Ultimately, goods in a warehouse must be sold. Surplus inventories don't create profits. Sales do.)
Ultimately homes must be sold to residential homebuyers, many of whom can't afford homes now. (In California, only 17% of families can afford a median-priced home.) Considering that inflation adjusted-wages declined 1% from April 2004 to April 2005, consumers' ability to buy homes is tenuous. Though mortgage rates have not increased since the Fed started increasing rates, eventually rates WILL increase. This will make homes even less affordable to residential buyers.
Foreign purchase of long-term treasuries is waning. This will result in a necessary increase in long-term interest rates, in order to attract purchase of our increasing national debt. When the long-term rate does increase, financial experts believe mortgage rates will also increase. This will cause a decline in money sellers receive for their homes, because financing charges will use up a larger amount of the buyer's money. This will reduce home equity assessment.
When speculators become aware of this impending decline in home equity growth, many will put their homes on the market. This will increase the SUPPLY of homes on the market, driving prices downward. Furthermore, speculators won't be able to buy as many homes, because interest rate increases make them more costly. In addition, the resultant decrease in home equity values will decrease the "equity" speculators can borrow off of, since many "investment" homes are purchased with home equity loans (from previously-owned homes of the speculators). In other words, speculation money will decrease. This, along with the previously-mentioned decrease in "residential" buyer demand, will further decrease prices.
Thus, market forces will eventually slow the rate of increase in real estate prices. Prices may even decline. The supply will increase, due to more homes being put up for sale.( New home construction may decrease, but probably not until market changes becomes obvious.) Demand will decrease due to decreased affordability & decreased speculation.
Again, all these factors will cause a decline in home price increases eventually. When this will happen, and how rapid the change will be, is uncertain. Maybe a better way to state this uncertainty is: Will the "bubble" slowly deflate, or suddenly burst? No one knows at present.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
_____
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
Post a Comment
Introduction:
In a post I made at another site, my comments on the "housing bubble" were challenged by a responder. Later, the same responder claimed my posting was "unacceptable." Upon reviewing the Email in his profile, I discovered he worked for the WILLIAM PITT real estate agency in Connecticut. It's clear his comments were motivate by his own self-interest in keeping the public unaware of the impending real estate crash. I urge readers not to do busines with WILLIAM PITT real estate, since they employ such devious techniques. Attempts to put a "spin" on public information should not be rewarded with our patronage. We shouldn't reward those who cruise the blogoshere, trying to counter any posts that do not further their own special interests.
___________
Housing prices have increased by an artificial increase in demand caused by reduction in interest rates. Less money spent on financing allows more money to be spent on the home value itself. Add to this the further increase in demand created by home speculation, as well as the decrease in supply created by such speculation. A San Diego real estate executive states that 3/4 of all homes sold in San Diego are to home speculators. Here is the link for that article:
http://news.yahoo.com/news?tmpl=story&u=/sddt/20050505/lo_sddt/majorityofcaliforniansmakelesstha nhalftheincomenee
All of this causes an artificial alteration of supply & demand forces. It's artificial in that speculators cannot continue to buy up homes, unless they find someone to sell them to. In other words, they can't continue contributing to this housing DEMAND increase, without reselling their homes to someone. (They can't continue to increase their "inventory" or "warehouse supply" of homes. Ultimately, goods in a warehouse must be sold. Surplus inventories don't create profits. Sales do.)
Ultimately homes must be sold to residential homebuyers, many of whom can't afford homes now. (In California, only 17% of families can afford a median-priced home.) Considering that inflation adjusted-wages declined 1% from April 2004 to April 2005, consumers' ability to buy homes is tenuous. Though mortgage rates have not increased since the Fed started increasing rates, eventually rates WILL increase. This will make homes even less affordable to residential buyers.
Foreign purchase of long-term treasuries is waning. This will result in a necessary increase in long-term interest rates, in order to attract purchase of our increasing national debt. When the long-term rate does increase, financial experts believe mortgage rates will also increase. This will cause a decline in money sellers receive for their homes, because financing charges will use up a larger amount of the buyer's money. This will reduce home equity assessment.
When speculators become aware of this impending decline in home equity growth, many will put their homes on the market. This will increase the SUPPLY of homes on the market, driving prices downward. Furthermore, speculators won't be able to buy as many homes, because interest rate increases make them more costly. In addition, the resultant decrease in home equity values will decrease the "equity" speculators can borrow off of, since many "investment" homes are purchased with home equity loans (from previously-owned homes of the speculators). In other words, speculation money will decrease. This, along with the previously-mentioned decrease in "residential" buyer demand, will further decrease prices.
Thus, market forces will eventually slow the rate of increase in real estate prices. Prices may even decline. The supply will increase, due to more homes being put up for sale.( New home construction may decrease, but probably not until market changes becomes obvious.) Demand will decrease due to decreased affordability & decreased speculation.
Again, all these factors will cause a decline in home price increases eventually. When this will happen, and how rapid the change will be, is uncertain. Maybe a better way to state this uncertainty is: Will the "bubble" slowly deflate, or suddenly burst? No one knows at present.
unlawflcombatnt
EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
_____
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.
Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.
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