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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: shades who wrote (59020)	4/21/2006 5:04:03 PM
From: bond_bubble	Read Replies (3) of 110194

I thought most of the food today couldn't be so plentiful if it weren't for oil - have we found a way around making all the food we eat today without oil? why do you want to always blame oil for the high cost of food making? what if the land prices were lower, what if the interest rate (cost of borrowing to do farming) was lower, what if farmers were allowed to stay close to lake/consumer and farm (so that they spend less on energy) - as opposed to today, where $1M homes are built in these areas costing more for farmers to irrigate, transport etc. All these efficiencies have been distorted by the credit bubble - the farmer is told to do with costly land (competing with the house builders), far from markets etc. Now, farmers cost has ingrained to be so high (transporting from far away land, high labor cost because of credit inflation) - you are hoping oil prices will solve his problem. No way. the distortion by credit has to be unwound...So that house builder realizes he can not compete with farm land profit, financial jobs pay less than farm jobs - that is when you can have food at less price even if oil price stays high. That my friend is what deflation does.... I earlier posted a quote from Schumpeter's book that urban real estate crashed in 1929. It did not say 80% crash for residential houses but for farm lands. Farm lands created lot of bad loans for banks. I dont have the %age for residential properties crash. However, if predepression to postdepression house price depreciation was 30% and housing cost had 40% weightage in CPI, that computes to 12% fall in CPI. That is still the significant part of negative CPI in 1929... Do you think 30% is still to too much a fall. Schumpeter talks about credit purchases in RE as well. Today China has lot of savings (in UST). If there is a banking crises in China, their saving would save the banks. Now, if they revalue yuan, Chinese savings value (in yuan) falls!! So Chinese will have less saving to stave off the bank problem. I think this is what Japanese are referring to. Had Japanese not revalued, they could have pushed some of their bank burdens to Americans!! That is why Chinese are refusing to devalue (I think) and instead asking the US to bear the full cost by asking Fed to raise rates.

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