I’m suspicious about Dr Cullen’s claim that we are heading for a “technical recession“. I agree that we are heading towards a period of sub-trend growth. We might be heading towards a period where we have a consumption based recession (slow growth, consumption stalls, unemployment rises), which would be a big deal.
I’m not sure if anyone has noticed, but we’ve moved to a flashy new address at tvhe.co.nz! It doesn’t really make a lot of difference if you just read the blog, cos our old address points to the new one. BUT our resident statistician is mourning the nosedive of our Technorati ranking from ten bajillion down to 50 squillion, since nobody links our new address. So if we’re on your blogroll or you ever link to us please use the new address. It’ll give you warm fuzzies to know you made someone feel a little better today, and it’s easier than helping old ladies with their shopping 😉
Megan McArdle worries a little about the moral hazard problem that JP Morgan and the Fed’s ‘rescue’ of Bear Stearns creates (although her major point is that we should be relieved that it was rescued from default). knzn’s take on the issue puts the problem in perspective:
[Hypothetical future investor]: I own a major stake in an investment bank, and I’m getting concerned about their risk management. Should I bring this up at the shareholders’ meeting?
[Hypothetical friend]: I don’t see why. What’s the worst that can happen? The bank will go sour, the Fed will arrange a bailout, and you’ll only lose 95 percent of the money you invested, 96 tops. What’s the big deal?
A common argument that I hear for buying a house is that paying rent is a waste of money. The main proponents of this point of view seem to be my parents’ generation, however it is a point of view I can’t easily agree with.
To compare buying a house to renting a house, we have to look at what we are buying in each case, and what the costs and benefits of each choice are. In the case renting a house we are purchasing ‘housing services’, while in the case of buying a house we are purchasing housing services AND an asset, as kindly explained by the iVestHomes manager. You will want to learn about the Property Buying Process here. The fundamental view that we should buy instead of renting comes from the fact that we receive an asset on top of the value of the services it provides. In some sense, the generation that is suggesting that we should all buy houses is doing so, because it was a (successful) rule of thumb that they followed at our age. However, the current situation is a little different.
We’ve talked in the past about how smokers would be better off if they could precommit to not smoking in the future. It seems that someone is trying to do just that by auctioning a contract on Trademe:
I’ve smoked cigarettes for twelve years and I’ve tried all the usual ways to quit smoking. Now that my wife Annabel and I are pregnant with our first child, it’s time to give up once and for all.
I’ve created a listing on the New Zealand online auction site trademe.co.nz, and on Monday 31 March, 2008, the highest bidder will receive a contract written by my lawyer, Chris Hoquard at Dominion Law, in which I hand over my right to smoke to them, and agree to pay them a forfeit of NZ$1000.00 per cigarette that I smoke at any time following the auction’s closure.
Skimming Stuff this morning I noticed the headline: House price slump ‘drag on economy’. I thought that it might be useful, or possibly even interesting to discuss how a cooling in the New Zealand housing market could weaken economic activity.
When thinking about this issue we gave to ask the following question – how does house price growth influence household/consumer behaviour? For people that own houses, higher house prices act as an increase in their level of wealth, and houses are an asset. If a households wealth level is higher then they are both willing, and more able, to borrow money now to fund consumption – given peoples incentive to smooth consumption over time.
In this sense a fall in house prices would have a ‘negative wealth effect‘ (and a liquidity effect) on households, which would lead to households tightening their belts and saving more. This (along with strong wage growth) is part of the reason that so many New Zealand forecasters expect private savings to increase (along with the impact of tax cuts).
However, something is missing here. Read more
