Sounds like the difference between Newtonian Physics and Quantum Mechanics but I'm no Physicist. I only read what they say about it.
Ray ----- Original Message ----- From: "Ed Weick" <[EMAIL PROTECTED]> To: "Brad McCormick, Ed.D." <[EMAIL PROTECTED]>; "Harry Pollard" <[EMAIL PROTECTED]> Cc: "Karen Watters Cole" <[EMAIL PROTECTED]>; "Keith Hudson" <[EMAIL PROTECTED]>; <[EMAIL PROTECTED]> Sent: Friday, November 22, 2002 10:06 AM Subject: Re: Or poorer -- clarification please! > Harry, I don't think either of us can convince the other of our respective > points of view. You, schooled in the theoretical framework of Henry George, > like to trace all economic phenomena back to the value of land. Bad > investments by Japanese or Asian Tiger banks were investments in land, no > matter what they thought they were investing in. You also believe that > currency should be backed by something of immutable value, as it was in the > days of the gold standard. Well, perhaps you are right on both accounts, > but if I've stated your position accurately, I don't really agree. To me, > the world, including the economic world, is in a continuous state of flux. > Values continually change as people want more of one thing and less of > another, or as governments favour one option over others. Investments are > not made on the basis of some final, all-underlying reality such as the > value of land, but on the basis of what people expect to happen, and they > can be very, very wrong. And events such as 9/11 can kick a lot of props > out from under what people assume to be stable. > > Ed > > Ed Weick > 577 Melbourne Ave. > Ottawa, ON, K2A 1W7 > Canada > Phone (613) 728 4630 > Fax (613) 728 9382 > > > > Ed, > > > > A couple of points: > > > > An old car isn't as valuable as a new car. My old sofa isn't as valuable > as > > when it was new. An old house isn't worth as much as when it was new. > > > > It's that volatile value that attaches to land that bubbles higher and > > higher. I would argue that this isn't a price mechanism increase, but a > > "collectible market" increase. > > > > You hold on to a collectible in the expectation of a price increase. The > > holding on keeps the collectible from the market place raising the price > > still more, which . . . . . > > > > And so it continues. The land component of a current house seems to be > > between 50% and 70% of the total. > > > > We've had some land crashes in recent history. Japan's land prices crashed > > and its economy died and hasn't recovered. Land prices are still very high > > there - too high. So, they search for a solution when it is under their > > noses. In Asia, the "bank and currency failures" all began with investment > > in the rising collectible values of land. When the bubbles burst, the > banks > > and currencies sagged and it became bank and currency failures - once > again > > with economists missing the cause as they chase after the effects. > > > > Of course, our S & L's followed collectible land speculation up and up to > a > > point where it killed them. Without the FDIC millions of Americans would > > have lost large amounts of savings. Regular banks lost too, having > > forgotten the old-time prudent banking maxim - never lend on land. > > > > Bank of America sold its $2 billion real estate portfolio for $1 billion, > > but then it's the Bank of America and perhaps can afford a $1 billion > bath. > > I imagine a number of smaller banks must have suffered. > > > > So, when we hear that housing prices are up, or real estate prices have > > soared - we know this is long-hand for land. > > > > Pushing more money into the economy raises prices. Inflation is not really > > an economic term. It's a physical term meaning an increase in volume. So > > "pushing more money into the economy", that is "increasing the volume" is > > properly inflation. Somehow, the term inflation has affixed itself to the > > rise in prices, which makes it pretty useless, as other things can raise > > prices. > > > > Thus we have an "oil shortage inflation" and such like, thus obscuring the > > problem of governments playing about with money supply. > > > > As with you and Keith, I don't think inflation is intended to defraud - > > though it does, to a point. > > > > If a government is likely to inflate, the economy adjusts - for example, > by > > real lenders raising interest rates to offset the drop in dollar value. > > > > However, any discussion of money must separate the so-called two functions > > of money - its role as a measure of value, and it's role as a purchasing > > medium. The same money cannot effectively perform both roles. > > > > But who cares? Let's get straight to disintermediation. > > > > Harry > > ---------------------------------------------------------- > > > > Ed wrote: > > > > >Brad, the value of your mortgage is fixed to whatever amount you had to > > >borrow to buy your house. However, the interest you pay is reset every > so > > >often - e.g. every couple of years. During periods of inflation, > interest > > >rates, like all prices, tend to rise. What matters is whether or not > your > > >income rises commensurately. To neither gain nor lose, your income would > > >have to rise at a rate equivalent to the rise in the rate of interest. > > >Considering only your housing costs, if your income rose more rapidly > than > > >the rate of interest, you would gain. If it rose less rapidly, you would > > >lose. > > > > > >However, you might also gain or lose through changing property values. > > >During periods of inflation, you are more likely to gain than lose. That > > >can happen even during relatively non-inflationary periods. In my > > >neighborhood, the value of housing has risen much more rapidly than the > rate > > >of inflation. It's considered a good neighborhood, with good nearby > > >schools, close to the centre of the city, excellent public transit, etc. > > > > > >Whether or not inflation poses a serious problem depends not only on the > > >rate of inflation, but on the flexibility or fixity of incomes. If your > > >income can rise as rapidly as the rate of increase in prices (rate of > > >inflation), you should not have a problem. If it can't, you may very > well > > >have a problem. Collective agreements often contain "COLA" (cost of > living > > >allowance) clauses to compensate workers for increasing prices during the > > >period in which the agreements apply. > > > > > >Very rapid inflation can be very unsettling. When I was in Russia a few > > >years ago, prices had soared far more rapidly than incomes, many of which > > >were fixed. This caused tremendous hardship. > > > > > >Personally, I don't buy the notion that, in advanced countries with good > > >central banks, inflation is caused by the issuers of money trying to > defraud > > >people of their wealth. It happens for a variety of reasons, and is > usually > > >associated with increases in economic activity and rising demand. > However, > > >there are some notorious examples of governments devaluing currency, > hence > > >raising prices, simply because they didn't know what they were doing or > felt > > >they had no other recourse. Germany experience "hyperinflation" > following > > >World War One, and Russia experienced something like it during the 1990s. > > > > > >Anyhow, that's enough. As my wife would say, you asked me the time and I > > >built you the clock! > > > > > >Regards, Ed > > > > > > > > ****************************** > > Harry Pollard > > Henry George School of LA > > Box 655 > > Tujunga CA 91042 > > [EMAIL PROTECTED] > > Tel: (818) 352-4141 > > Fax: (818) 353-2242 > > ******************************* > > > > > > > -------------------------------------------------------------------------- -- > ---- > > > > > > --- > > Outgoing mail is certified Virus Free. > > Checked by AVG anti-virus system (http://www.grisoft.com). > > Version: 6.0.416 / Virus Database: 232 - Release Date: 11/6/2002 > > >
