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Confounded

62 Year Correlation Between Gdp And Housing Broken.

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I have long believed that the bursting of the credit bubble in 2007 was the unwinding of 60 years of credit, primarily driven by housing.

The US data conclusively shows the housing/GDP growth correlation has severely broken down.

http://www.zerohedge.com/article/us-negative-gdp-and-full-blown-deflation

By Thermidor

Many of you have seen this chart before but I thought given today's housing starts data it's was worth rolling out again. Its housing starts in red vs. US GDP YoY in green and as you can see the relationship is very solid over the last 62 years!

image001_0.jpg

What the chart clearly shows is that EVERY GDP rebound in US has been led or at least accompanied by a rebound in housing starts. The one exception was the period 1963-66 (highlighted in blue), which occurred under Lyndon B. Johnson's presidency. Then as now the divergence in GDP from housing was heavily driven by government spending under the "Great Society" legislation, which included Medicare and Medicaid as well as significant spending on Vietnam (sound familiar). Ultimately, the binge was unsustainable and growth collapsed starting in 1966 as bond the vigilantes started to growl and inflation picked up.

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Or, perhaps US GDP growth is almost entirely down to money printing and government spending...

A good 60 year round trip - continued to build up an industrial base and then destroy it - not a single fab facility in California now. This is what the chart doesn;t tell you - the country ins unable to generate income, so now it is just throwing money at extinguishing the problem by continuing it.

What is going on in the UK is even worse.

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Or, perhaps US GDP growth is almost entirely down to money printing and government spending...

I think that is the point. Normal recessions bounce hard off pent up demand and some government stimulus and grow into a full recovery. Because so many people were sucked into the final stages of this credit bubble there is no one left to step in and cause the bounce with renewed borrowing.

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yeah,fishers paradox hits nightmare proportions.

I did not post all the linked article (below) because so many people are anti deflation and believe the government can beat all, but the author is seeing this as a hugely deflationary event (which it clearly is) and with the government having already spent so heavily to fight deflation last year there will be little public appetite for more.

This is the reason why I am in the deflationary camp until proven otherwise. Socially I believe there will be as much opposition for more debt/bailouts (given this last cycle has show the masses who benefit the most from these government handouts) than there will be for austerity. I am getting the feeling the politicians already understand this which is why we are starting to see austerity measures.

Interesting times as we approach crunch time rapidly.

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http://www.zerohedge.com/article/us-negative-gdp-and-full-blown-deflation

This is the scenario I believe we are facing and I think that growth will erode significantly into the end of the year as the economy falters possibly dragging growth to -3% YoY by Q1 of 2011. Further fiscal spending will be impossible as the public mood is turning against spending and political gridlock will tighten ahead of this autumn's elections. The big difference between the 60's and now is that we aren't looking at inflation but full blown deflation.

Indeed, I expect tomorrow's YoY CPI to reinforce that risk as energy costs start to roll out of the calculations over the next few months and the headline number collapses. Just how far that series could fall is suggested by the second chart, which shows the NFIB Pricing question vs. CPI YoY and leaves me to believe we are heading towards - 0.75%.

image002_0.jpg

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Or, perhaps US GDP growth is almost entirely down to money printing and government spending...

Or I think more precisely, the inflation absorbing capacity of housing has been exhausted.

What is it going to be next?

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This is the reason why I am in the deflationary camp until proven otherwise.

:) How does that play with you?

19.gif

Socially I believe there will be as much opposition for more debt/bailouts (given this last cycle has show the masses who benefit the most from these government handouts) than there will be for austerity.

I think the voice of the minority being raped by TPTB is getting louder but it still is a minority. The majority is made up of debtors and includes those in government and their sponsors. What makes you think they would oppose their own bailout? It's worth pointing out that although it is coming out slowly, it is becoming clear the austerity programs are not what they seem.

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so virtually all price inflation that's occuring is related to forex considerations rather than a more traditional wage/price spiral.

That's what the graph contradicts. Sterling's fall stopped at end of 07. That generated inflation that I think shows up to end of 08.

The inflation we are seeing since May 09 does not seem to be forex related.

If not, where else does it originate? The only answer that seems to fit is the BOE QE program.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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