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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (24649)	10/19/2004 3:28:19 PM
From: gpowell	Respond to of 306849

What you have just described here is a definition of communism not socialism. No. Communism appears only after the capitalist system has evolved to a point where resources are used with absolute efficiency. Some major characteristics being the rate of profit is zero, all possible human wants and needs are satisfied within the constraints of limited knowledge and resources, and the class structure has collapsed to a single class. In this context, socialism is an evolutionary step from capitalism towards communism, since collectivization of the means of production and distribution is more efficient than in a pure capitalist system - which is ruled by the inefficiency of fragmented knowledge dispersed among individuals. Well, at least that was the thought. There are countries like Sweden where means of production are privately owned however those countries are considered socialist because of very high tax rates ( up to 90%), significant welfare programs and government controlled health care and education. Production is simply combining land, labor, and capital to produce the means of subsistence. Thus, any state ownership of activities that satisfy wants and needs is socialist, by definition. Moreover, since no country has 100% private ownership of all production, all countries are, in part, socialist. Some would prefer to call those economies where the state ownership of production is limited to certain sectors of the economy as a Mixed Economy in order to distinguish between a “pure” socialist state and a partial one. Some people even would go as far as to call France a socialist country. Given that the socialist party in France controlled the government after the elections of 1981, and that, by 1982, seven of the largest twenty industrial conglomerate companies and another five industrial companies, and most of the financial industry had been nationalized, I’d say the label is justified. Thus socialist state is a welfare state with a minority of means of production owned by the state ( power plants for example)high tax rates and transfer of wealth from rich to the poor. As I have already indicated above, most would call these mixed economies - the US for example. Communism is a centrally planned system where majority of means of production are owned by the government. Again, this is the definition of a socialist state. The west labeled the USSR (Union of Soviet Socialist Republics) a communist state, but they considered themselves socialists. I think this is the source of most of the confusion. Interestingly many socialists deny the USSR was a socialist state since there was nothing “collective” about it, i.e. the majority of its citizens had no control over the decisions of the state. A more accurate description of the USSR’s economic system may be Industrial Feudalism. Money market and 3 month and 6 month certificates of deposit yields are similar to t-bill yields which are very dependent and not that far from fed funds rate and fed funds is not a free market interest rate. The rate of money creation is consistent with GDP growth and the Fed’s inherent inflationary bias, which indicates the Fed Funds rate has mostly followed the market rate down. If i am a first time homebuyer i would rather pay 200 K for a house at 8% interest rate with 40 K downpayment than pay 500 K for the same house with 100 K downpayment and 5% rate. What’s the rate of inflation? What is your expected return on other investment opportunities? What is the cost of renting? The fact is a lower cost of borrowing does not inevitably lead to higher home prices. The recent home price appreciation is mostly attributed to portfolio adjustments, demographics, and rising incomes coupled with restrictions on supply. Thus it is not a homebuyer that benefits from low interest rates, it is the seller who is getting an extra 300 K. You are making a mistake in thinking that low interest rates cause home price appreciation. Further, you are neglecting that this transfer involves no net transfer of wealth – only liquidity. The seller already theoretically has an “extra” 300k of equity in the home. The only possible conclusion is that the home price appreciation is a function of real wealth gains, changing preferences in the form individuals prefer to hold their wealth, and changes in the ratio of investments in capital assets to durable consumption goods.