Audit the Fed? What would that accomplish?

[The_Animus]

Ah, I see. I'm supposed to name all the things that can go up in value without improvements, except for those things that don't fit the point you're trying to make.

You backpedaled and provided a different scenario. Unless you are telling me you cannot understand the difference between a standard house of which millions like it are available, and a rare historical house built by a former president of the united states.

 

[The Central Scrutinizer]

If I take a small normal rock and convince someone to buy it from me for $1000 because I tell them it's a rare meteorite, it is not worth $1000. The person was only willing to buy it based upon lies of inflated worth. This is generally constituted as fraud. This is the same with housing prices. There is no increased value to them ten years after they were made but all across the country home worth was inflated based upon nothing. As a result what is considered fair market value is artificially raised and that is why people are willing to pay it.

100% incorrect. Where was the fraud in housing? Was the seller of every house sold telling the buyer that George Washington once owned it?

I asked what makes the home worth $100,000 more after ten years. You said because someone is willing to pay it. But as the rock example shows above, someone willing to pay it doesn't make it actually worth that.

Then what is it worth?

If you'd like I can rephrase the question again. What value has been added to the home such that a person is willing to pay $100.000 more for it?

Again, you would have to ask the buyer.

 

[The Central Scrutinizer]

You backpedaled and provided a different scenario. Unless you are telling me you cannot understand the difference between a standard house of which millions like it are available, and a rare historical house built by a former president of the united states.

This makes no sense.

 

[Dunstan]

In a free market a company does not profit for years upon years on end. If there was profit and no barriers to entry then competition would join the market until profit reached zero or nearly zero. Free market tends to work the way communism does, practice seems to always deviate from theory. But I'm not really interested in debating the 'free market'.

You're equivocating in your use of "profit." When economists say that long-run profits in a competitive market are zero, they're referring to economic profit, not accounting profit. Economic profit factors in a return on capital, adjusted for risk. So if it takes a million dollars in capital to operate a particular business, that business may very well be showing annual profits on its income statement of, say, 50-100K, and it won't faze an economist one bit.

If I take a small normal rock and convince someone to buy it from me for $1000 because I tell them it's a rare meteorite, it is not worth $1000. The person was only willing to buy it based upon lies of inflated worth. This is generally constituted as fraud.

Yes, because you're misrepresenting the factual properties of the rock. This is a poor analogy to housing.

This is the same with housing prices. There is no increased value to them ten years after they were made but all across the country home worth was inflated based upon nothing. As a result what is considered fair market value is artificially raised and that is why people are willing to pay it.

I asked what makes the home worth $100,000 more after ten years. You said because someone is willing to pay it. But as the rock example shows above, someone willing to pay it doesn't make it actually worth that.

So who decides what something is worth? You? How? And what are you going to do about it? Ban anyone from paying more than what you think the house is worth?

If you'd like I can rephrase the question again. What value has been added to the home such that a person is willing to pay $100.000 more for it?

If you're insisting that "value" can only mean the intrinsic properties of the home, as opposed to how other people value it and what they're willing and able to pay for it, then none. But so what? Market price is not based solely on the intrinsic properties of a good. It's affected by tastes, the income and wealth of interested purchasers, the prices of substitute and complementary goods, and many other things.

 

[Tippit]

I'm well aware that the scenario you suggested happened. The point was that the increased value estimates are complete BS. What logically follows from this understanding is that if an institution takes your $100,000 house and declares a fabricated value of $200,000 the obvious answer would be to have the FED force the institution pulling $100,000 of value out of it's ass to stop that practice.

The Fed isn't in the business of setting real estate prices, it's in the business of perpetually debasing our currency via the inflation tax. Sometimes this results in asset inflation, like in real estate, sometimes this results in higher consumer prices. Sometimes the inflation gets exported. Most of the time they debase the currency just enough to offset economic growth plus a couple of points, so that the average sheeple can't figure out how he's being scammed.

The market value of a property is the intersection of the bid and ask. The price a seller is willing to accept depends upon a lot of things, in your example it is mostly the debasement of the currency that the property is quoted in.

So the correct and obvious answer to TCS's moronic question, is that the Fed should simply stop debasing our money to prevent the asset bubbles from happening in the first place.

 

[Tippit]

You're equivocating in your use of "profit." When economists say that long-run profits in a competitive market are zero, they're referring to economic profit, not accounting profit. Economic profit factors in a return on capital, adjusted for risk. So if it takes a million dollars in capital to operate a particular business, that business may very well be showing annual profits on its income statement of, say, 50-100K, and it won't faze an economist one bit.

This is why the market values companies with similar earnings at different multiples. It's why a semiconductor manufacturer is valued much less than a software firm, the former is highly capital intensive. It's all about the free cash flow, not earnings.

Yes, because you're misrepresenting the factual properties of the rock. This is a poor analogy to housing.

It's a poor analogy because of the absolute loss of value in the currency used to bid upon the property. While the rock is being misrepresented, the property isn't. It's the buyer who has lost real purchasing power over time, thanks to the Fed. Hopefully the buyer has other assets for which the nominal value has been similarly inflated, to offset this. Those who don't have lots of assets, namely the proportionately cash oriented poor, get screwed. If they want to purchase such assets to participate in the shell game, they must take on even more debt, with more onerous terms.

So who decides what something is worth? You? How? And what are you going to do about it? Ban anyone from paying more than what you think the house is worth?

Clearly, he's confused. The legitimate course of action, is to understand who is manipulating the value of our money and take action.

If you're insisting that "value" can only mean the intrinsic properties of the home, as opposed to how other people value it and what they're willing and able to pay for it, then none. But so what? Market price is not based solely on the intrinsic properties of a good. It's affected by tastes, the income and wealth of interested purchasers, the prices of substitute and complementary goods, and many other things.

Yes, but during the housing bubble the high market prices were the direct result of the vastly increased supply of the monetary unit that composed the numerators of the prices in question. This, courtesy of the Fed.

 

[The Central Scrutinizer]

The Fed isn't in the business of setting real estate prices, it's in the business of perpetually debasing our currency via the inflation tax.

This is correct.

Most of the time they debase the currency just enough to offset economic growth plus a couple of points, so that the average sheeple can't figure out how he's being scammed.

I really wish I was as smart as you. One question though - how come I'm so much more successful than you?

 

[MikeMangum]

This is correct.



I really wish I was as smart as you. One question though - how come I'm so much more successful than you?

To be fair, success doesn't necessarily correlate with intelligence. I submit exhibit A

 

[The_Animus]

Again, you would have to ask the buyer.

I don't see how you could since this is a hypothetical situation and you can't buy a hypothetical house. So how about you give a hypothetical answer and quit avoiding the question?

 

[The Central Scrutinizer]

I don't see how you could since this is a hypothetical situation and you can't buy a hypothetical house. So how about you give a hypothetical answer and quit avoiding the question?

So you're asking me what makes a hypothetical house worth $200K? Ummmm.....oooo....kay.

 

[CORed]

Translation: this person once tried to use Charlie Sheen as an expert source for something not related to drugs or hookers and got burned for it. Also they probably misspelled a common pronoun.

Or maybe it was a noun, since they obviously don't know the difference between a pronoun and a noun.

 

[MikeMangum]

So you're asking me what makes a hypothetical house worth $200K? Ummmm.....oooo....kay.

Actually, that's simple. A good or service, whether real or hypothetical, is worth whatever someone is willing to pay for it. If someone is hypothetically willing to pay $200k for a hypothetical house, that's what it is worth...hypothetically.

 

[drkitten]

Actually, that's simple. A good or service, whether real or hypothetical, is worth whatever someone is willing to pay for it. If someone is hypothetically willing to pay $200k for a hypothetical house, that's what it is worth...hypothetically.

Yes, but The_Animus evidently knows better. He "knows" that the house that someone is willing to pay $200,000 for is "really" only worth $100,000.

Your statement was regarding a normal $100,000 house that after 10 years is now priced at $200,000. Do not change the situation.

I'll ask again. What reason is there that the house should now be worth $200,000? What is it exactly that gives the house, not the land, this added $100,000 of worth?

Evidently, he doesn't accept that "someone is willing to pay an extra $100,000" gives it an added $100,000 of worth.

 

[Rikeln]

A friend is all up in arms about auditing the fed, ron paul...etc What the heck does that even mean, and what if anything would that accomplish?

Just curious. Please help me get my smart on.

From listening to Alan Grayson and Ron Paul it would force some more transparency on the Fed's part in telling us who gets money from us for bailouts and stuff like that.

The bill that recently passed though was stripped down to a one-time audit to find out who got the bailout money I think. The Fed won't tell us as it stands now.

 

[stilicho]

So the correct and obvious answer to TCS's moronic question, is that the Fed should simply stop debasing our money to prevent the asset bubbles from happening in the first place.

Why not just outlaw the banking industry? That would do it a lot quicker. I guarantee you that substituting our modern technological and industrial society with, say, feudalism and a barter economy would accomplish your goals more directly. And you could add a death penalty for merchants found clipping coins.

 

[The Central Scrutinizer]

Why not just outlaw the banking industry? That would do it a lot quicker. I guarantee you that substituting our modern technological and industrial society with, say, feudalism and a barter economy would accomplish your goals more directly. And you could add a death penalty for merchants found clipping coins.

Good point. And he could have Jews burned at the stake.

 

[drkitten]

From listening to Alan Grayson and Ron Paul it would force some more transparency on the Fed's part in telling us who gets money from us for bailouts and stuff like that.

Well, right there is a very bad thing.

The easiest way to make sure that a bank fails is to let everyone know that it's worried about failing. If you know that First Federal Bank and Trust needed a bailout, but First National Savings and Loan didn't, where are you going to going to bank? Telling everyone that FFB&T needed a bailout will force a run on that particular bank.

The Fed won't tell us as it stands now.

Good. Right there you can tell that the Fed is smarter and more correct than Grayson and Paul.

 

[The Central Scrutinizer]

Well, right there is a very bad thing.

The easiest way to make sure that a bank fails is to let everyone know that it's worried about failing. If you know that First Federal Bank and Trust needed a bailout, but First National Savings and Loan didn't, where are you going to going to bank? Telling everyone that FFB&T needed a bailout will force a run on that particular bank.




Good. Right there you can tell that the Fed is smarter and more correct than Grayson and Paul.

I used to work for the Federal Reserve. This information was tightly controlled, for the reasons you state.

 

[drkitten]

I used to work for the Federal Reserve. This information was tightly controlled, for the reasons you state.

Gosh. That must mean that I'm almost as smart as the guys at the Fed.

... which still puts me one up on Paul and Grayson.

 

[dudalb]

Why not just outlaw the banking industry? That would do it a lot quicker. I guarantee you that substituting our modern technological and industrial society with, say, feudalism and a barter economy would accomplish your goals more directly. And you could add a death penalty for merchants found clipping coins.

That is what amuses me about so many of these right wing conspiracy wackjobs. They claim to love the Free Market system, but have no freaking idea of how it operates.