Your analysis focuses on the effects of money flows & not the cause of the FED’s mismanagement, whose policies are primarily responsible for this inflationary bubble – housing, et al. & their policies will largely be responsible for the turnaround in our economy.

Bernanke is very smart, but he and his colleagues don’t understand money and central banking (& in that, he is universally vacuous).

Conspiracy has accompanied the evolution of commercial banking (I am not likening it to the Jekel Island crew, hard money advocates, etc.) but literally to the Webster dictionary interpretation.

I don’t discriminate, but I will stop my posts on your blog, and will no longer rail on your defenseless positions.

Thus, the Baby boomers *had* a big impact on real estate in the 80s & 90s, but their sale of it won’t be as big. As for there being more debt on the younger generation, that may be true, but they save more. The Baby boomers are notorious for their profligacy.

One other set of changes — people are staying in their homes longer, and household sizes are getting smaller. I don’t see demographics as a big effect here.

The $99 trillion is not correct — it is more like $40 trillion. It is still bad, and no one really considers it, but it will begin to weigh on us 10 years from now.

I found your summary of a bottom in real estate, as well as savings and boomers, posted/reposted in recent days very thoughtful. One issue not often focused on (at least it has not been picked up to any large degree by commentators yet) is the demographic impact cited below:

(This quote is copied from an reader’s comment on the Fullermoney.com site, posted 9-4-08):.

……Plus, boomer children have 72% more debt than their parents did at the same age so they can’t afford to buy homes in any case especially now proper underwriting will be done. Boomers start retiring over the next few years. In their 50′s there is one buyer for every seller and by age 70, there are 3 sellers for every buyer and it is 9 to 1 by 80, a perfect storm indeed for continuing housing problems. There are demographic issues that are equally problematic for housing and looming Medicare and Social Security shortfalls. Between 1980 and 2000, there was a 20% increase in the native-born, English speaking, college-educated 25-54 year old group that was part of the fuel in the housing bubble. Between 2000 and 2020, there is no increase in this 25-54 age group with the same demographics so who will pay for the $99 Trillion unfunded liabilities. That is Pete Peterson’s number. That gets us back to why M-3 was done away with, but that is another story……. (end of quote)

I’d appreciate any thoughts/further details you have on this that you might be able to weave into your blog when you speak of real estate in the future. Thank you very much and best regards,
A.S.

I’m not objecting to your comments here, except that they don’t fit with my subject, seemingly.

Monetary flows (MVt) peaked Oct. 1974 (the stock market bottom)
Monetary flows (MVt) peaked Oct. 1982 (1 month after the stock market bottom).
(MVt)’s lag for long-term rates peaked Sept. 1981 (this century’s peak in long-term interest rates).
Monetary flows (MVt) peaked in Jun 1984 (the stock market bottom). 1 option trade beat Prechter’s trading championship record with his 200+ trades
The stock market bottom of 1982 was identifiable a year and ½, earlier

Go, presently inquire, and so will I, where money is. — THE MERCHANT OF Venice

1938-1940 roc’s in “free” legal reserves pulled us out of the depression.
1951 (Korean War) had the highest roc’s in inflation & in “free” legal reserves since WWII.
1973 had the highest roc’s in inflation & the highest roc’s of “free” legal reserves ever.
1979-1980 had the highest rates of inflation & the highest roc’s of “free” legal reserves ever.
“Black Monday” Oct. 19, 1987, coincided with the sharpest and fastest peak-to-trough decline in the roc for real GDP since 1915.
The stock market’s 1QTR top in 2000 coincided with a +3.24 (roc) in Dec. 1999, which reversed to -.32 in Feb 2000. An historic reversal.
Feb 27 coincided with the sharpest decline in 1) the absolute level of “free” legal reserves, & 2) & an historically large peak-to-trough reversal of roc’s for proxies on real GDP & the deflator.

The policy rule is ex-post. (e.g, Taylor Rule).

Bank debits & “free/gratis” legal reserves are ex-ante.
Some people think Feb 27, 2007 started across the ocean In fact, it was home grown.

http://fraser.stlouisfed.org/docs/MeltzerPDFs/bogsub020538.pdf Member Bank Reserve Requirements; Feb, 5, 1938. “In 1931 this committee recommended a radical change in the method of computing reserve requirements, the most important features of which were…”(2) uniform percentage requirements against the volume of deposits of both types and in all classes of cities; and (3) requirements against debits to deposits.”

(1) Ben S. Bernanke
Chairman and a member of the Board of Governors of the Federal Reserve System. Chairman of the Federal Open Market Committee, the System’s principal monetary policymaking body.

At the same time, because economic forecasting is far from a precise science, we have no choice but to regard all our forecasts as provisional and subject to revision as the facts demand. Thus, policy must be flexible and ready to adjust to changes in economic projections.

2) European Central Bank (ECB) Central Bank for the EURO

The transmission mechanism is characterised by long, variable and uncertain time lags. Thus it is difficult to predict the precise effect of monetary policy actions on the economy and price level…

3) Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco

You will note that I am casting my statements about the stance of policy and the outlook in very conditional terms. I do this because of the great uncertainty that surrounds these issues. Frankly, all approaches to assessing the stance of policy are inherently imprecise. Just as imprecise is our understanding of how long the lags will be between our policy actions and their impacts on the economy and inflation. This uncertainty argues, then, for policy to be responsive to the data as it emerges, especially as we get within range of the especially as we get within range of the desired policy setting.

(4) Thomas M. Hoenig
President of Federal Reserve Bank of Kansas City

Monetary policy must be forward-looking because policy influences inflation with long lags. Generally speaking a change in the Federal funds rate may take an estimated 12-18 months to affect inflation measures….But the course of monetary policy is not entirely certain. & will depend on how the economy evolves in the coming months.

(5) William Poole*
President, Federal Reserve Bank of St. Louis

However inflation is measured, economists agree that monetary policy has at most a minimal influence on the rate of change in the price level over relatively short time periods—months, quarters or perhaps even a year. Central banks are responsible for medium- and long-term inflation—such inflation, as Milton Friedman wrote, is a monetary phenomenon that depends on past, current and expected future monetary policy. As a practical matter, the medium- to long-term likely is a period of two to five years.

(6) Robert W. Fischer – President Dallas Federal Reserve Bank

November 2, 2006:
“In retrospect [because of faulty data] the real funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been. In this case, poor data led to policy action that amplified speculative activity in housing and other markets. The point is that we need to continue to develop and work with better data.”

(7) Governor Donald L. Kohn

I think a third lesson is humility–we should always keep in mind how little we know about the economy. Monetary policy operates in an environment of pervasive uncertainty–about the nature of the shocks hitting the economy, about the economy’s structure, and about agents’ reactions. The 1970s provide a sobering lesson in the difficulty of estimating the level and rate of change of potential output; these are quantities we can never observe directly but can only infer from the behavior of other variables.

————————————————–First, there is no ambiguity in forecasts. In contradistinction to Bernanke (and using his terminology), forecasts are mmathematically “precise” (1) nominal GDP is measured by monetary flows (MVt); (2) Income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits, demand deposit turnover) that matters; (3) “money” is the measure of liquidity; & (4) the rates-of-change (roc’s) used by the Fed are specious (always at an annualized rate; which never coincides with an economic lag). The Fed’s technical staff, et al., has learned their catechisms;

Friedman became famous using only half the equation (the means-of-payment money supply), leaving his believers with the labor of Sisyphus.

The lags for monetary flows (MVt), i.e. proxies for real GDP and the deflator are exact, unvarying, respectively. Roc’s in (MVt) are always measured with the same length of time as the economic lag (as its influence approaches its maximum impact; as demonstrated by a scatter plot diagram).

Not surprisingly, adjusted member commercial bank “free/gratis” legal reserves (their roc’s) corroborate/mirror, both lags for monetary flows (MVt) –– their lengths are identical — (like Max Planck’s constant in physics (a scale of energy X time)

The lags for both monetary flows (MVt) & “free/gratis” legal reserves are indistinguishable. Consequently it has been mathematically impossible to miss an economic forecast (bubble). There are no inaccuracies, just some non-conforming & unavailable data (e.g., revisions have been overlaid & lost, flawed deposit classification). This is the “Holy Grail” & it is inviolate & sacrosanct.

The BEA uses quarterly accounting periods for real GDP and deflator. The accounting periods for GDP should correspond to the economic lag, not quarterly.

Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real GDP. Note: roc’s in nominal GDP can serve as a proxy figure for roc’s in all transactions. Roc’s in real GDP have to be used, of course, as a policy standard.

Because of monopoly elements and other structural defects which raise costs and prices unnecessarily and inhibit downward price flexibility in our markets, it is probably advisable to follow a monetary policy which will permit the roc in monetary flows to exceed the roc in real GDP by c. 2 percentage points. In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels.

Some people prefer the devil theory of inflation: “It’s all Peak Oil’s fault.” This approach ignores the fact that the evidence of inflation is represented by “actual” prices in the marketplace. The “administered” prices of the world’s oil producing countries would not be the “asked” prices were they not “validated” by (MVt), i.e., validated by the world’s Central Banks.