Wednesday, January 13, 2010

When optimism overwhelms intelligence

America and the Danger of Positive Thinking

A critical review of the book - "Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America" by journalist Barbara Ehrenreich. "It’s in the spirit of optimism that a person blithely builds up credit card debt on optional expenditures, takes out a second mortgage, or agrees to a mortgage with an interest rate that will escalate over time. And the ideology of positive thinking eagerly fanned this optimism and the sense of entitlement that went with it."

Posted by mountain goat @ 09:57 AM (2559 views)
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48 thoughts on “When optimism overwhelms intelligence

  • Great post, thanks MG. There was also a review of the book in the Observer on Sunday:

    Observer: Smile or Die: How Positive Thinking Fooled America and the World by Barbara Ehrenreich
    None was more susceptible to the lure of this philosophy than those self-styled “masters of the universe”, the Wall Street bankers. Those of us raised to believe that saving up, having a deposit and living within one’s means were the way to proceed and who wondered how on earth the credit crunch and the subprime disasters could have happened need look no further than the culture that argued that positive thinking would enable anyone to realise their desires. (Or as one of Ehrenreich’s chapter headings has it, “God wants you to be rich”.)
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  • Mountaingoat: This article does not justify pessimism. Have you read Aristotle’s Nicomachean Ethics? To paraphrase…”Virtue can be found by achieving a balance between two extremes. A pessimistic state or an optimistic state therefore represents a state of imbalance and foolishness”.

    I am neither pessimistic nor optimistic because in my opinion it is better to keep your eyes open and to roll with the punches. Adopting a fixed pessimistic or optomistic stance will cause you to be blindsided by the punches (to that extent, I agree with the article). My current take on our situation probably represents a state of balance, in that it is neither optimistic nor pessimistic: I think that house prices will fall and that unemployment will prove sticky. I balance that with: I believe that a financial crisis has been narrowly averted and that faltering growth has been established.

    I hope you don’t mind me saying that many on this site tend towards excessive pessimism which according to Aristotle is every bit as bad as optimism. Of course a small number of people desperately hope for (and believe in), an economic crash. These people can therefore be considered optimists

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  • Not sure I agree entirely though. There is some evidence that optimists live longer & healthier:

    Guardian: Always look on the bright side of life
    Plenty of self-help guides claim that positive thinking can improve wellbeing, but is there any scientific evidence for this? A huge new study of 97,253 people in the US found that optimists were less likely than pessimists to develop coronary heart disease (CHD) and less likely to die of any cause over the course of the eight-year trial.

    The article explains that the study was very thorough, but also that it could simply be that good heath causes happiness.

    I’m still not sure that it relates to the financial crisis. America has had an annoying positive-thinking self-help culture for decades – the original How to Win Friends and Influence People was published in 1936! A culture of positive thinking certainly didn’t help matters, but by itself it wasn’t enough to cause the financial crisis.

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  • “2. flashman said… I hope you don’t mind me saying that many on this site tend towards excessive pessimism….”

    Maybe they’re pessimistic because they still can’t afford a house? 😉

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  • “2. flashman said… I hope you don’t mind me saying that many on this site tend towards excessive pessimism….”

    Is that not a pessimistic view of the people on this site?

    For example, I see recessions as a positive thing, an opportunity. Moreover, they are the cure to the overspending, debt and lack of productivity; one might call them, the move to a better balance. Pessimism is a state of mind in which things are perceived as bad, but the people on this site see a HPC as a great opportunity.

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  • I think the html on this page is buggered.

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  • “2. flashman said… I hope you don’t mind me saying that many on this site tend towards excessive pessimism….”

    Is that not a pessimistic view of the people on this site?

    For example, I see recessions as a positive thing, an opportunity. Moreover, they are the cure to the overspending, debt and lack of productivity; one might call them, the move to a better balance. Pessimism is a state of mind in which things are perceived as bad, but the people on this site see a HPC as a great opportunity.

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  • Sorry, my bad

    If you read the full original article, they do actually say that Ehrenreich is mistaken:

    It seems, then, that Ehrenreich likely has things backward, and the popularity of positive thinking did not create the conditions for the current crisis, but was the result of them. An entire class on the road to financial ruin, after all, is inevitably going to try and find ways to convince itself that everything is fine.
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  • “Is that not a pessimistic view of the people on this site?”

    No, it’s quite realistic. I was really talking about the folks who variously believe in Armageddon, hyperinflation, riots, population spirals, fuel and food shortages, and irredeemable debt spirals etc.

    I believe that lower house prices will be good for society. That’s why I’m here.

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  • Psychologists do say that pessimistic people tend to be more realistic than optimists in their assessments of future prospects. I abhor the “positive thinking” management-philosophy, which to me represents the inanity of certain aspects of American culture, and is just another way of oppressing people who, according to the positivists, are being “negative” (ie who disagree with them).

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  • I do think there is a difference between blind optimism and realism. I kinda agree with what Hpwatcher is saying. To back your judgement by saying you think there will be a fall in HPs or a recession doesnt make you pessimistic.

    People often have the wrong impression of bears. Personally i am not a bear all of the time – anyone that has noted some of my market based posts and calls will note that i have called for short term bullish moves more than bearish moves. As Flash says roll with the punches and dont be dogmatic in your opinions.

    Infact i do subscribe to the general school of thought that once we have the shake-out we will have the most prosperous time, But before that we have to go through some sh1t first. IMO we have a lot more sh1t to go through.

    However as i discussed with b/weather IMO the best strategy is to lower risk and only go with high probability moves. Keep most of your powder dry for the new and great bull market. Identifying when that will start is the challenge.

    Perhaps i am wrong and it already has!! If thats true, then yes i will be willing to be optimistic that the market will continue up rather than – as now – optimistic that it will go down.

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  • No, it’s quite realistic. I was really talking about the folks who variously believe in Armageddon, hyperinflation, riots, population spirals, fuel and food shortages, and irredeemable debt spirals etc.

    You have mixed up a lot of things there, for example, hyperinflation is hardly the same as Armageddon – which is the end of the world…..

    You raise the point because you feel that being bearish is a bad thing. But I don’t see a recession as a bad thing, I am optimistic about it.

    Pessimism is a state of mind and isn’t necessarily linked to whether something is inherently bad or good.

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  • mountain goat says:

    I posted a critical review because I am not convinced yet, but this opinion merits some thought alongside the other views to explain the credit and house price bubble: home-ownerism, financial naivety, BIS elite conspiracies, bankster greed etc . How else do we understand intelligent humans acting like locusts and lemmings, gorging like tomorrow doesn’t matter?

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  • Mine just crossed with LTFs. I agree with his sentiment. Although i wouldn’t restrict it necessarily to a corporate or personal level.

    Of course its been right to have positive thinking over the last few decades because since the end of WW2 we have seen increased prosperity, albeit punctuated with relatively short periods of contraction.

    The true art of business though is knowing your market and when to expand and consolidate and/or contract. The real danger is being over-optimistic and over-pessimistic when you shouldn’t be. Knowing when “tha time” is – can be pretty difficult, especially when you have spent your whole adult life in an upswing and not knowing any different (better).

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  • lethemfall: A quick google search shows that psychologists say far more negative things about pessimists than they do about optimists. Most of the negatives about pessimism seem to centre on mental and physical ill health and social competence.

    I side with Aristotle in that balance is best but if I had to choose, I’d far rather be an optimist that a pessimist

    Mind you I worked in America for many years and I am painfully aware of the maniacal positive attitude that many people affect. However, I’m not sure that’s anything to do with optimism. It’s more to do with conformity, which is more or less mandatory in many American work places. It causes stress rather than optimism

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  • I put myself in the realist camp and I put my own money where my mouth is. I am bearish when it is time to be bearish and bullish when it is time to be bullish. Ignore politicians, economists and analysts and instead put faith and money on your **own** figuring.

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  • But isnt the question of a chicken and egg type analysis?

    Does positive thinking create a state which fosters prosperity or does prosperity foster positive thinking, where the cycle becomes self reinforcing…. up to a point. At that point of extreme over-optimism the thing works in reverse and no amount of positive thinking will outweigh the general pessimism (identified by most as a contraction or recession / depression)

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  • hpwatcher: “You have mixed up a lot of things there, for example, hyperinflation is hardly the same as Armageddon ”

    No I haven’t.

    That’s why I said ‘folks who VARIOUSLY believe in”

    You say: ” But I don’t see a recession as a bad thing, I am optimistic about it.”

    That’s why I said

    “Of course a small number of people desperately hope for (and believe in), an economic crash. These people can therefore be considered optimists”

    hpwatcher, you really should properly read and consider a post before you jump in

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  • A quick google search shows that psychologists say far more negative things about pessimists than they do about optimists. Most of the negatives about pessimism seem to centre on mental and physical ill health and social competence.

    As I keep on saying……a pessimist perceives something to be bad, whatever it may be.

    No-one on this site sees a HPC as a bad thing, and personally, I don’t ever see a currency crisis as a bad thing – as it would mean that a return to some form of monetary stability would be a step closer – which is what everybody wants.

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  • estrader: “I put myself in the realist camp and I put my own money where my mouth is. I am bearish when it is time to be bearish and bullish when it is time to be bullish. Ignore politicians, economists and analysts and instead put faith and money on your **own** figuring.”

    That is what I would call a balanced view.

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  • hpwatcher: “You have mixed up a lot of things there, for example, hyperinflation is hardly the same as Armageddon ”

    No I haven’t.

    That’s why I said ‘folks who VARIOUSLY believe in”

    Well that’s the way you wrote them.

    hpwatcher, you really should properly read and consider a post before you jump in

    Thansk for the advice.

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  • Flash as chief debunker of the HPC debunkers I’m often not sure what you think. Like you I suspect I don’t care about “homeownerism” and don’t care if people have made money on property, or are priced out or are withdrawing equity from their property and all articles and comemnts on such things leave me cold. Which begs the question why I post here. I guess the main reason is that I’m certain to an unwavering extent that houses are grossly overpriced and I’m astonished that this this self evident truth is not, well self evident to everyone. I’m aslo astonished at the extent that most in our culture look to underplay debt.

    I do see the fanatisism in this, but it is the fanatisism that 2 + 2 = 4 and not 5 and therefore kind of justified, although I guess evereyone choses to see their fanatisism that way.

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  • mountain goat says:

    Flashman I agree with your Aristotle view ”Virtue can be found by achieving a balance between two extremes. A pessimistic state or an optimistic state therefore represents a state of imbalance and foolishness”. I haven’t replied directly to your point about pessimism on this site because I feel we had this discussion a few days ago and you said you were not interested in the direction I took the discussion. That is I believe we cannot “grow out of our problems” forever. At some point we need to think more about sustainable living since human populations can’t increase exponentially forever. The same holds for debt. Taking on debt because you believe economic growth will take care of it is wishful thinking in my view. This is a world view I hold and if it is depressing and pessimistic to some then I can’t help that. I don’t think I am pessimistic in general, I can’t afford to be since my wife is expecting our first child soon. But as this article and others here have mentioned it can be easy to dismiss an argument as pessimistic simply because one doesn’t agree with it.

    Also since I am not English I still need to get used to the English way of complaining and criticizing many things that other people just accept. For example a man on the TV yesterday caught in the snow saying “we heard about this snow when we were in Spain, why didn’t the authorities”. This because the road was not being plowed and gritted in the snow storm, but his pre-warning didn’t stop him trying to drive over the pass anyway. So this seems to be the “English way” rather than pessimism. As a result the complaining does keep people on their toes more than say countries where people are more accepting that sh1t happens, and where services are inferior.

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  • Another i-am-balanced post? Becoming Crunchy, youtube like.
    Pessimism? I see no pessimism, only the following of evidence to a less falsely affluent, possibly more chaotic, but not worse, situation. Define worse, worse for who? What’s wrong with a riot? Yes there may be damage, but that’s missing the bigger picture that there’s a reason behind it which a group are seriously opposed to – balance. Calling people pessimistic or optimistic is calling them deluded, and the long-time visitors to this site have been less deluded than others, evidently. Coming to the conclusion that armageddon is upon us is not necessarily pessimistic, quite possibly a logical conclusion. Just because it sounds nasty doesn’t make it pessimistic, it suggests you’re fearful.

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  • Just as optimism is not necessarily delusion, so pessimism is not necessarily mental illness. One can be pessimistic about some things and optimistic about others. Personally I think there is quite a lot to be pessimistic about, not least with growing economic inequality and nations’ inability to agree on how to tackle global warming. One consequence of the Americanisation of our country is implicit criticism of anyone who challenges the status quo: to do so is called “negative”, really a meaningless word, intended to connote a depressive’s distorted viewpoint, but really attempting to crush an opposite view. Needless to say, the most frequent users of that word are those in privileged positions who want to hold on to them.

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  • bellwether: My sympathies and allegiances sometimes shift. I’m sure we have all had deep-seated prejudices that have come unstuck upon hearing an individual’s plight or being faced with the ramifications of our prejudice. I am sometimes deeply moved by the circumstances that people find themselves in and sometimes I feel like telling people to pull their finger out. My views sometimes appear to change because I like to stimulate debate and very occasionally because I am suspicious that a view might be routed in nothing more than envy or spite. I also think that people should be made to work for their ‘bearishness’.

    Seeing as you asked (and seeing as its you), I will tell you what I think and why I think it:

    1. House prices are ludicrously over the top. Back of the envelope calculations tell me that they should be circa 60% lower. It does not affect me financially one way or another but back in the day, I actively campaigned against Thatcher’s ‘housing and service industry revolution’. It was the subject of my thesis and I kind of feel propriatorial about the subject and of course vindicated. A young Thatcherite lecturer gave me a C grade, which I argued. It was passed on and I got given an A from his borderline Trotskyite boss. I tell you that tale, to illustrate that I have been involved in the housing argument for a very long time

    2. Debt is indeed a terrible problem. I first acknowledged this 20 years ago, which might be why I am more blasé about it than some. In the early 90s I secured my financial future on the back of distressed assets. Other people’s excessive debt and subsequent bubble bursting has improved my financial well being to such an extent that I can’t help seeing it as some sort of benevolent force. I hadn’t really thought about that before you asked. I think that debt will slow our progress for almost a decade but we will get over it and some lessons will be learned (until the next generation). In the meantime its ‘fill your boots’ time if asset prices crash again.

    3. Nimbyism protects my assets. I have been steadily buying development land and of course I have owned many houses that have appreciated in the past. I am however against it because it is such an unsophisticated philosophy and the people who promote it tend to be on the stupid side. I suppose you could say that I have an intellectual contempt for NIMBYs. I might have to take a long hard look at myself because it would appear that I would be happy to take a few financial blows just to see some blindly smug people suffer. I don’t suppose that’s particularly admirable.

    4. I really don’t care how people get or got rich. We are all products of our age and I sometimes think that most criticism is really just a form of regret or jealousy. Most of us would have aspired to slave-owning once upon a time.

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  • Another i-am-balanced post? Becoming Crunchy, youtube like

    You’d know all about that

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  • “27. flashman said…
    Another i-am-balanced post? Becoming Crunchy, youtube like
    You’d know all about that

    Feel free to bark up that tree, but without any evidence perhaps you could discuss it with someone other than me.

    “I also think that people should be made to work for their ‘bearishness’. ”
    Balanced?

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  • mountain goat: Congrats on the impending birth of your new child. I have two infants and it really is brilliant in every way. I actually think that some of your views are very realistic. I do not necessarily disagree with your population growth concerns. I suppose I try not to think about grave things that I have no control over, or indeed might not happen. I am very English in that I think we will muddle on regardless. Coming in, a valiant second, is perfectly OK in my book

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  • Thanks Flash. Pretty much consistent with mine, and for that matter most of the other reasonable posters on here.

    Agree that pessimism can become, as you put it, off pat, but what really surprises me is the extent to which as a culture we are geared towards optimism as opposed to realism. It is common to criticize someone’s views as pessimistic or negative, and everyone readily understands that as if it is some sort of truth, but views are rarely criticised as optimistic unless they border on being quite obviosuly mad. I think this bias is at root related to a fear and denial of death, but that’s another topic altogether.

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  • Also while this site drips in envy and angst to an irritating extent, equally it wouldn’t exist without these forces at work, as who would else but the envious and angsty would post regularly enough to keeo the momentum going. A couple of days of no new articles and the site starts to wither. Its about like what keeps football going at the scale on which it operates

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  • ” I think this bias is at root related to a fear and denial of death”

    That makes me uncomfortable because I suspect you are right. The fear of mortality tends to intrude on or soon after a persons 30’th birthday. It is an emotion that is best kept buttoned up and out of sight.

    “Also while this site drips in envy and angst to an irritating extent, equally it wouldn’t exist without these forces at work, as who would else but the envious and angsty would post regularly enough to keeo the momentum going. A couple of days of no new articles and the site starts to wither. Its about like what keeps football going at the scale on which it operates”

    Spot on. To a lesser extent, I think the site would also wither without the presentation of a few opposing views.

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  • mountain goat says:

    Thanks Flashman, I am excited to meet the little guy/gal but anxious too that everything goes ok.
    Ironic that I am raising concerns of population growth, when I am doing my part!

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  • To be honest, I don’t really see much value in trying to assess the mood of a site or the people on it. In my experience people tend to be very different from their online selves, which inevitably only ever show a narrow aspect of their personality, which may be exaggerated or even fabricated.
    There is also a myriad of reasons why people post and I suppose one man’s optimist is another’s pessimist – are house prices going up a good thing or bad? Until recently (the public mood seems to be changing?), anyone saying that house prices will fall, no matter what the reason, would be labelled a pessimist. However that’s only one opinion in the thousands that each of us have.
    I personally have had a very good couple of years but I see much injustice in the world around me – I don’t see pointing that out as being pessimistic (although others might) because it is my view of now, not the future. As for the future I don’t think that we as a society are headed in the right direction, but sometimes I’m optimistic that that can change and sometimes pessimistic that it will not – I guess that’s called being unsure.
    I guess in a nutshell it all depends on people’s values – left wing optimism is the right wing’s worst nightmare and vice versa, as sad as that is. As it is I appreciate the diversity of opinion on here but I think trying to figure people out on the internet is a hiding to nothing.

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  • “I think the site would also wither without the presentation of a few opposing views”
    We’ve not only saved the world…. There have been long stretches without opposing views.

    MG, congrats. There’s no population growth ’til you’ve provided it with a couple of siblings! Triplets?

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  • Flash, clearly all emotions should be buttoned up and kept absolutely out of sight !!

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  • MG well done on the new arrival !

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  • MG
    ”For example a man on the TV yesterday caught in the snow saying “we heard about this snow when we were in Spain, why didn’t the authorities”. This because the road was not being plowed and gritted in the snow storm, but his pre-warning didn’t stop him trying to drive over the pass anyway.”
    And I thought it was just me who noticed that.

    Hi Flash
    I didn’t think you thought houses were as much as 60% overvalued (or should that be 150% overvalued) assuming you meant to say they should be 60% lower.
    How much of his over valuation do you see being corrected over the next 2-3 years ?

    Good thread all BTW.

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  • mountain goat says:

    Rumble thanks. Only one, unless the nurse operating the scanner didn’t know what she was doing! Will try my best to adopt my own one-child-policy. But I may have more luck resisting the purchase of an over-priced house..

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  • bellwether,
    “Flash, clearly all emotions should be buttoned up and kept absolutely out of sight !!”
    “this site drips in envy and angst to an irritating extent,”

    Ah, that must be the balanced view?

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  • shippy its interesting what you say. I wonder what people are really like too. If we protest that we are not pessimistic then we are in danger of being labelled as “defensive” , because one person’s ideas of pessimism is, as you rightly say, at variance with another. Then, they will argue, we are justifying our position when its not in line with reality ergo defensiveness. Because of that very fact doesn’t that make the whole argument erm a bit pointless?

    MG – congrats.

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  • rumble “this site drips in envy and angst to an irritating extent,”

    That was bellwether.

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  • There are a few here who have met each other in real life, are there not? Perhaps they would like to contrast the online personality with the living animal, if it wouldn’t be indiscreet.

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  • “rumble “this site drips in envy and angst to an irritating extent,”
    That was bellwether.”
    –Yip, I didn’t say it was you.

    “Rumble I’m sure you are not as stupid as some of your posts suggest”
    bellwether, thanks for the vote of confidence, I’ll agree due to lack of contradictory clarification.

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  • Hi str 2007. I hope you are well. I based my ‘circa 60% overvalued’ comment on population, supply and income. I think this will unwind over a very long time frame. Anything overvalued comes down eventually but we might even see some rises along the way and maybe some of us will not be around to see it.

    As you know, I base my short-term HPC predictions on unemployment and to a much smaller extent, interest rates. The latest forecasts for unemployment almost exactly match my 2.8 million tipping point number, so things are finely balanced.

    I imagine they will come off by between 5% and 9% this year.

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  • str 2007: Sorry I didn’t explain the 60%. I mean that if the average house costs 170K now, it will eventually be worth (in today’s money) 68K. Of course we are never likely to see that actual number because of inflation, especially if it takes 20 years to unwind. If there were long-term deflation (not a believer but anything’s possible) then of course, the number would be even lower.

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  • mountain goat says:

    TM – thanks

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  • Flashman

    Cheers for coming back, sorry I got dragged away from the laptop.

    Project still taking shape ?

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