Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

31 responses to “Poll: Which is most likely on the US economic horizon for the next 5-10 years?”

  1. DavidB

    If you think there’s going to be hyper or high inflation than you should consider buying a home now because maybe home prices have hit bottom. Even if they haven’t hit absolute bottom it may be a great time to buy a home if that’s what you believe since you’ll be repaying your mortgage with dollars that are worth less.

    Personally, I don’t think we’ll see hyper inflation as long as unemployment remains so high. People are taking jobs that they’re overqualified for just so they have a job and they’re making less money. The only reason we’re still not technically in a recession is because of all the government stimulus which isn’t sustainable. When the stimulus ends I suspect we’ll see another dip into recession.

    I voted for stagnation.

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  2. Lamont

    I voted for stagnation.

    As fiscal and monetary stimulus causes inflation to rise, the economy will run into deflationary headwinds as rising oil and gas create a tax on the economy. There is also the deflationary unwinding of multiple asset bubbles going on right now which create a deflationary bias to the overall economy. However, as deflationary forces rear their heads then the government will increase stimulus and spending.

    Overall I expect that in real terms we deflate, but in nominal terms that we stagnate, with occasional forays into inflationary spikes.

    My only qualification would be, if the teabaggers succeed in eliminating any government financial and monetary stimulus, then we’ll unwind in a deflationary spiral.

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  3. Scotsman

    RE: The Tim @ 3

    Beat me to it. Thanks.

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  4. ivan

    RE: The Tim @ 3 – What do you call them?

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  5. Scotsman

    I voted for slightly deflationary, the proverbial “soft landing’ that still ends up killing us in the end. Unwinding asset bubbles, high unemployment, low real productivity, no real savings, and too much debt for current income are on one side with the fed, etc. and currency devaluations on the other. A quick look at the relative size of each side’s arsenal shows that while TPTB aren’t exactly farting into the wind, the don’t have what it takes to permanently change the reality. A real contraction is needed to restore a sustainable balance.

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  6. Ray Pepper

    RE: The Tim @ 3

    tea baggers? where do you guys learn this stuff? Everything new/derogatory I learn comes from my favorite show……

    http://www.youtube.com/watch?v=oqolwZoj8RA&feature=PlayList&p=6B47F00AE78C7093&index=0&playnext=1

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  7. softwarengineer

    RE: DavidB @ 1

    I Agree

    I can’t predict the next 5-10 years [no one can], but a worst case scenario is we’d better all start learning how to be farmers….they were the rich elite during the Great Depression.

    Thank God I was raised on a farm when I was younger….those skills may come in handy later.

    Perhaps our high schools and colleges should be teaching farming as a class subject…LOL

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  8. AMS

    RE: softwarengineer @ 9 – Ever consider turning Amish?

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  9. softwarengineer

    The Stimulus Debt House of Cards

    Its not just America, when China and Europe unplug their massive stimulus debt soon; like America…..granny bar the door, the global Green River dam just burst.

    Were all on the world economy Titantic together, no one is immune.

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  10. softwarengineer

    RE: AMS @ 10
    LOL

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  11. EconE

    Tim…Are you talking about Mish’s definition or is this question posed more with prices in general in mind?

    With Mish’s definition, I’d put my guess between stagnant and very low inflation, due to future stimulus and credit expansion being negated by future writedowns (government subsidized of course) making it a bit of a wash for the time being.

    High inflation wipes out Insurance companies, and now that the banks have written a huge chunk of people into sub 5% 30 year fixed mortgages, as much as the borrowers hope that inflation hits (their incomes in particular) in order to pay off their debt in “worthless” dollars, I doubt that the banks really want this.

    Who’s gonna win? The bankers and insurers or the consumer?

    If you’re talking price inflation will be a mix IMO, but not for big ticket items purchased on credit which I feel will decline slightly for years.

    Perhaps it would be most prudent to stock up on toilet paper?

    Just my 2c.

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  12. Jonnny

    you can have a slow deflationary spiral.

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  13. Lake Hills Renter

    Ah, the inflation/deflation argument. It’s the Seattle Bubble version of Mac/PC, Unix/Windows, Ford/Chevy… =P

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  14. Ross Jordan

    By EconE @ 13:

    High inflation wipes out Insurance companies, and now that the banks have written a huge chunk of people into sub 5% 30 year fixed mortgages, as much as the borrowers hope that inflation hits (their incomes in particular) in order to pay off their debt in “worthless” dollars, I doubt that the banks really want this.

    Who’s gonna win? The bankers and insurers or the consumer?

    Banks, for the most part, just resell their 30-year mortgages to the Fed (who bought some 1 Trillion in mortgage backed securities over the last year. Few financial institutions are actually putting up their own money these days to fund mortgage loans (the exception being some community banks — who tend to do very strong diligence these days).

    That said, banks do fund other types of loans with their own money, and inflation will hurt them somewhat (at least when the interest rate is fixed).

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  15. Jonnny

    RE: Lake Hills Renter @ 15 – right where inflation is a mac and a pc is a depressing deflationary spiral.

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  16. EconE

    RE: Ross Jordan @ 16

    Will the FED want to be paid back in “worthless” dollars?

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  17. WestSideBilly

    By The Tim @ 3:
    Off topic, but it’s my blog, so I don’t care.

    Regardless of what one thinks of their political philosophy (or lack thereof), the usage of the term “teabaggers” by various commentators is IMO really disgusting. Would anyone tolerate it if people started calling the members of a liberal political movement “dicksuckers”? I really doubt it. The “teabaggers” term is just as foul and intentionally derogatory, and IMO is incredibly counter-productive to a reasoned political discourse.

    My unsolicited 2¢

    A lot of political discussions, here and elsewhere, involve Democrats/liberals/progressives being labeled Communists or Socialists. While it’s not nearly as offensive (or laden with innuendo), the reference is intentionally derogatory as well. Everybody “knows” Communism is bad, so by labeling someone as such, their ideas lose merit.

    IMO referring to tea-partiers as tea-baggers is a juvenile response to an equally juvenile political movement – lots of anger and few practical ideas.

    My also unsolicited 1.977 cents.

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  18. patient

    Very difficult question. In a more normal and sane political environment I would say very low salary inflation due to continued unemployment and low general price inflation coupled with moderate price inflation on certain imported products and commodities due to a weakening dollar. But I predict a lot of political panicing to come and with that comes absurd. short-term decisions that can dump everything normal and sane out the window for a pretty long time before laws of nature and sanity prevails. I see it very likely though that whatever happens with general inflation housing will become a lot cheaper relative to income.

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  19. Ross Jordan

    By EconE @ 18:

    RE: Ross Jordan @ 16

    Will the FED want to be paid back in “worthless” dollars?

    To the FED, the value of a dollar is just its cost to print it =)

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  20. Jonness

    By Lamont @ 2:

    My only qualification would be, if the teabaggers succeed in eliminating any government financial and monetary stimulus, then we’ll unwind in a deflationary spiral.

    That’s great for those who lived within their means and saved during the fat times. For others, that might not turn out so well.

    Not to worry though; democracy dictates that the people who lost touch with reality and lived beyond their means get to spend the wealth of those who saved. And if that’s not good enough, they get to spend up their children’s future earnings as well.

    It’s a great time in history to drinking beer instead of tea. Now gimme some more free money. I deserve it because I’m me!

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  21. Sniglet

    I will take up the severe deflationary stance in outlook. I believe that all the stimulus being pumped into the global economies is hugely deflationary since it is largely being financed by debt.

    Everywhere I look I still see asset bubbles just waiting to pop. Stocks have run up to levels that simply can’t be justified by earnings, investors and first-time home-buyers are rushing into real-estate to get “deals”, traders are stock-piling crude oil on HUNDREDS of oil tankers, and China is throwing up even more skyscrapers that no one is living or working in.

    Policy maker hands are tied. If they really try to inflate through currency debasement, interest rates will shoot through the roof making it impossible to not only service the national debt, but for business and consumers to survive.

    I still stand by my long standing prediction that Seattle real-estate prices will fall more than 80% from peak prices (on average) by the time we hit bottom. These days I am thinking we might be seeing a price drop closer to 90%.

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  22. Ross

    By Sniglet @ 23:

    I will take up the severe deflationary stance in outlook. I believe that all the stimulus being pumped into the global economies is hugely deflationary since it is largely being financed by debt.

    How is new money in the system deflationary? The only argument I think you could make that its deflationary is that sometime down the road, when the government attempts to pay it back, they’ll be taking money out of the system. But that’s a long time in the future, if ever. And it assumes the government doesn’t start printing money to pay the debt.

    The evidence is that new debt leads to higher interest rates:
    http://www.federalreserve.gov/PUBS/FEDS/2003/200312/200312pap.pdf

    Their conclusion that a 1% increase in debt/GDP ratio leads to a .25% increase in future interest rates. By resisting the need to raise rates, the Fed will cause inflation.

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  23. what goes up must come down

    RE: The Tim @ 3 – Isn’t this why you made the change concerning SB because you wanted political discussion related to RE or do you only want discussion that you agree with? If you want to look at old posts and see some really offensive statements how about starting with some that dealt with our President?

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  24. David McManus

    RE: what goes up must come down @ 25 – Read the first line of his reply. It’s his blog.

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  25. Sniglet

    How is new money in the system deflationary? The only argument I think you could make that its deflationary is that sometime down the road, when the government attempts to pay it back, they’ll be taking money out of the system.

    The money the governments are putting into the system is being extracted from the economy in the form of debt (i.e. someone has to use cash to buy sovereign debt). Thus, every dollar of government stimulus is coming at the expense of money that was already in the system. There is a point at which additional debt doesn’t add to economic activity anymore. The amount of benefit per dollar of debt has been declining for a long time, and has long since reached the point where it doesn’t help.

    Further, the perceived need to provide stimulus itself is itself deflationary since it prevents the government from currency debasement to ensure it can still raise money through debt sales.

    Just look at Japan. The government there has been increasing it’s stimulus, and borrowing, for 20 years, yet deflation has only gotten deeper. Japan now has a larger debt to GDP ratio than even the Unitied States! If stimulus spending hasn’t worked in Japan (i.e. to preent deflation), I fail to see why it will miraculously start to work in the US.

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  26. David Losh

    RE: Ross @ 24

    Over the sample 1976-2003, this growth rate averaged about 8 percent per
    year, implying that the coefficient on the deficit-to-GDP ratio ought to be 13.5 times as
    large as the coefficient on the debt-to-GDP ratio.

    The paper was published in 2003. A lot has happened since then, and a lot that has happened looks deflationary,

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  27. Flying Ape

    10 year outlook is too long a horizon. It depends on which political party is in control and how much the Fed is politicized. I expect moderate inflation/deflation depending on Dem/GOP power but if i must vote I will lean towards stagnation. PCE will probably be slightly higher of that range.

    I do however think near term inflation fears are overblown. The idea is being peddled mainly by libertarians who want nothing but the destruction of the Fed by criticizing it AND investors who made an early bet on gold whom will benefit handsomely if gold skyrockets. The inflation bogey man is right around the corner and will maul your personal savings! Go out and buy gold and houses before you are priced out!! IMHO near term inflation fears are a red herring.

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  28. Ross Jordan

    By Sniglet @ 27:

    How is new money in the system deflationary? The only argument I think you could make that its deflationary is that sometime down the road, when the government attempts to pay it back, they’ll be taking money out of the system.

    The money the governments are putting into the system is being extracted from the economy in the form of debt (i.e. someone has to use cash to buy sovereign debt). Thus, every dollar of government stimulus is coming at the expense of money that was already in the system. There is a point at which additional debt doesn’t add to economic activity anymore. The amount of benefit per dollar of debt has been declining for a long time, and has long since reached the point where it doesn’t help.

    But the government is immediately spending the money its borrowing, so no money is being removed. In fact, some of the money being lent, would probably otherwise have been stored under the investor’s mattress, and would not been used until the sunshine returns. So this is not deflationary, at least in the short term.

    Further, the perceived need to provide stimulus itself is itself deflationary since it prevents the government from currency debasement to ensure it can still raise money through debt sales.

    Huh? preventing currency debasement is not deflationary. At best, its not inflationary (or less inflationary than it otherwise would have been). To be deflationary, the government needs to reduce money supply. That is not happening by any government actions (see expansion of Fed’s balance sheet). The only reduction in money supply we’ve experienced is due to de-leveraging in the private sector.

    Just look at Japan. The government there has been increasing it’s stimulus, and borrowing, for 20 years, yet deflation has only gotten deeper. Japan now has a larger debt to GDP ratio than even the Unitied States! If stimulus spending hasn’t worked in Japan (i.e. to preent deflation), I fail to see why it will miraculously start to work in the US

    There’s some similarities between Japan’s situation and ours. There is also a lot of differences. To compare them as equal is conflating a ton of complicated issues.

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  29. what goes up must come down

    RE: David McManus @ 26 – Does that mean anything goes without a response?

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