Super-Luxury Homes Hit by Reversing “Wealth Effect”

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Wall Street’s “Smart Money” with impeccable timing.

This had to happen. Now we’re getting reports that in the Hamptons, on Long Island’s east end, where Wall Street’s richest hobnob over the summer, home prices at the very top, after a phenomenal boom, are getting crushed.

What’s getting blamed? The crummy performance of the markets last year.

The average price in 2015 of the ten most expensive homes sold in the area has crashed 20% from a year earlier – to a measly $35.5 million.

After soaring a mind-bending 180% in five years, from $15.9 million in 2009, the average price of the top ten homes had reached $44.6 million in 2014, according to a report by Town & Country Real Estate in East Hampton, cited by Reuters.

The year 2009 was when the Fed’s “wealth effect” strategy was kicking in. It was precisely what Bernanke wanted to accomplish. He spelled it out in an editorial. The Fed’s “strong and creative measures” would inflate asset prices, which would lead those benefiting the most from it, including those on Wall Street that extract fees and get paid big bonuses, to feel wealthier and spend a little more, which would crank up the economy. And this is what happened in the Hamptons.

Soaring stock prices, a renewed boom in collateralized loan obligations and subprime auto-loan-backed securities, mountains of new issuance of  bonds and leveraged loans to fund a historic boom in mergers and acquisitions, the fracking miracle, share buybacks, special dividends back to PE firms, and what not…. It was all there, and it performed as Bernanke had planned. Except it didn’t crank up the economy.

Then 2015 came along, with turmoil, volatility, defaults, and bankruptcies. The S&P 500 peaked in May 2015, propped up by a dozen large-cap stocks, but it was rough sledding for the rest of the year, and many smaller stocks were taken out the back and shot.

After ballooning for years, the average bonus at Wall Street banks “was likely 5% to 10% lower in 2015 than the previous year,” according to Reuters. It was the first decline since 2011. And the good times dried up in hedge-fund land, according to the Barclay Hedge Fund Index: after a derisively small return of 2.9% in 2014, hedge funds outdid themselves in 2015 with a nearly invisible return of 0.04%, a mere rounding error.

And this sort of disappointment shows, in the Hamptons.

For prices at these elevations to set new records, the stock market must be booming for years, explained Town & Country CEO Judi Desiderio. It boils down to a simple fact: real estate in the Hamptons moves up and down in cycles, as Reuters put it, “in lockstep with Wall Street’s fortunes.”

And the record average price of 2014?

“We won’t see this again until 2021 as it seems to run in seven-year cycles,” she said.

OK, those 10 homes were the most extravagant tippy-top of the market in the area. But a similar trend emerged in a broader survey of luxury homes. Real estate brokerage Corcoran Group reported that the median price of the most expensive 10% of the homes that sold in Q4 in the Hamptons – 57 homes – dropped 4% from a year earlier to $7.6 million.

Anthony DeVivio, managing director of Halstead Property, a brokerage in the Hamptons, confirmed that the performance of the markets, and particularly the bonuses, which help finance these homes, are linked. But he hasn’t given up hope. It was just a dip, a correction.

“It’s not something that’s going to kill the market,” he said.

But some very smart folks are selling. In January, the New York Post “learned” that Scott Bommer, who’d shut down his hedge fund SAB Capital a month earlier, signed a contract to sell his ocean-front pad in East Hampton to an unknown buyer for $110 million. Was he timing the market?

Oh no, not a hedge fund guy! Especially not since he made about $16 million on the home in less than two years, after having bought it in 2014 for $93.4 million.

In February, Page Six “exclusively learned” that the buyer was Michael Smith, CEO of Freeport LNG. It owns an LNG import terminal in Texas that no one needs since the US has been drowning in natural gas since 2008. And with that project having failed, the company is building an LNG export terminal to sell US natural gas to customers around the world, just when the price for LNG has collapsed in the global markets.

Impeccable timing?

If the deal closes, it will be the second most expensive price tag ever in the Hamptons, and the fifth most expensive in the US. The most expensive? In the spring of 2014, following a year when the S&P 500 had surged over 30% and only the sky was the limit, hedge fund manager Barry Rosenstein paid $147 million for a place in East Hampton.

Even as the hot air is hissing out of the very top, the overall market is still hanging in there, if barely. In Q4, according to Corcoran’s data, the median sale price of all homes in the area rose 3% year over year, to $1.12 million.

“There are two markets right now,” said Halstead Property’s DeVivio. “On the low end it’s clearly still a seller’s market, and on the high end it’s clearly a buyer’s market.”

So the prime beneficiaries of the Fed’s “wealth effect” are losing their appetite for splurging in this stupendous manner on second or third or fifth homes. All hopes had been based on the theory that this money would somehow trickle down to the layers beneath them and boost the economy. But as commenter “Ptb” said so eloquently, money is different; “Money trickles up, not down.”

Now all hopes rest on buyers with an unquenchable thirst for US assets. And they’re buying under the motto, the bigger the price, the better. Read…  Panicked Chinese Suddenly Buy US Assets in Monster Deals at Peak of Seven-Year Boom



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  54 comments for “Super-Luxury Homes Hit by Reversing “Wealth Effect”

  1. Paulo
    March 17, 2016 at 9:03 pm

    I am looking out over the river after just finishing a supper of roasted basil-pesto salmon, roasted fingerling potatoes, and stir-fried carrots in garlic and onions. The fish we caught out front and the vegetables/spuds we grew. With my renovations and materials, (labour free from me), I might have $175,000 cdn in our place. To be honest, I wouldn’t trade it straight across for any of the mentioned properties, and we would not sell it for any price. Any. I suppose our place would fit into a bathroom and bedroom suite in one of the Hamptons monstrosities, but you have to live there. When I see such ostentatious consumerism all I can think is that these people have no sense of self worth. It makes me sick, to be honest.

    The old question, “How thick does your steak have to be”?

    What a sad illustration of our Society and values, or lack, thereof. Think of what good that money now spent on impressing others could do? Depressing.

    • Mary
      March 17, 2016 at 10:51 pm

      Good for you. I respect your taste.
      But I don’t like your lifestyle, and would not want to live your life even if you give me your home and your salmon meal for free. And definitely, I would not want to labour to build my home or catch my fish, when I can use the time in more productive and enjoyable manner.
      But if my choices make you sick, you may consult a doctor. And enjoy your Salmon without assuming some moral superiority or questioning my values just because it does not match yours.

      • CrazyCooter
        March 17, 2016 at 11:37 pm

        That was kind of harsh.

        The character of an individual is evident in his/her family first, his/her labor second, and his/her kindness last. I will leave it to other readers to measure your post accordingly.

        On that note, I happen to also enjoy a simple life style, with access to traditional means to “bread the table” as I enjoy the satisfaction of having a direct relationship with my food. In fact, much to the chagrin of others, I have this penchant of eating with my hands (chopsticks are second).

        While I have had pesto salmon (pretty yummy!), I find a blackened style seasoning in a cast iron is my all time favorite (served over the longest grain black rice you can find – with my special blend of rice spices and homemade bone stock – with a smear of prik pao on the bottom of the plate and sliced avocado on the side). I also like smaller salmon (silver/coho) with thinner, smaller, fattier fillets than the monster kings they catch up here (just as good and half the price if you have to buy it).

        But, if I must confess, a 12 inch dolly vardon pan-fried and served as fish tacos (we do make homemade tortillas and salsas, but unfortunately can’t grow much in the way of a garden despite my deep love for summer beefsteak tomatoes and vidalia onions) is my all time favorite fish meal. They get gamey if they get bigger, but 8 to 12 inches are just incredible.

        Eating well is living well and the secret to the best food is that it is convivial – invite someone over!

        Regards,

        Cooter

        • Julie K.
          March 18, 2016 at 3:40 pm

          Love the sentiment and lifestyle reflected in your statement;

          “…direct relationship with my food”.

          A goal I am currently working towards full time!

      • Jay
        March 18, 2016 at 1:01 am

        To live well is the best revenge . . .

        • March 22, 2016 at 6:51 pm

          Actually, to eat your enemy is the best revenge. ;)

        • March 22, 2016 at 7:04 pm

          ….with basiil-pesto sauce and a fine cayahntay…

      • Si
        March 18, 2016 at 2:24 am

        Mary Mary quite contrary. How does your garden grow?

        I think I would rather dine with Paulo.

        The soul grows by what we feed it.

        • Kratoklastes
          March 22, 2016 at 6:50 pm

          “The soul grows by what we feed it”

          And if we feed it the muscle tissue of dead animals, it hasn’t got a hope.

          This has been the dominant reasoning of many of the greatest minds in human history (including, but not limited to, Pythagoras, Plato, Socrates, Plutarch, Theophrastus, Porphyry, Seneca, Confucius, Franklin, da Vinci, Byron, Shelley, Einstein, Ramanujan, Tesla… not all of whom were vegetarian their whole lives).

          (That’s assuming ‘the soul’ exists, which it probably doesn’t: but substituting ‘soul’ for ‘mind’, it seems clear that the mind is not made better by failing to extend your circle of empathy to harmless innocent animals).

      • Thomas Malthus
        March 18, 2016 at 12:01 pm

        Imagine the impact on your ego of living in a sub-2000 square foot home!

    • phil m
      March 18, 2016 at 8:48 am

      Leo Tolstoy touched on this 100 years ago in his short story, How Much Land Does a Man Need http://www.online-literature.com/tolstoy/2738/

      • Thomas Malthus
        March 18, 2016 at 12:03 pm

        Mary won’t understand that. There is never enough.

    • chris hauser
      March 18, 2016 at 9:32 am

      who is veblen? is the answer to the jeopardy question.

      conspicuous consumption can become discretionary.

    • Mark
      March 18, 2016 at 1:14 pm

      Hi Paulo
      They might call you names but I rather have dinner with you, using my fingers, than dine with Mary in most expensive New York restaurant.
      Eat well, live well, my friend.
      Bon appetite.
      Cheers.

    • Julie K.
      March 18, 2016 at 3:37 pm

      Amen, brother! Sounds heavenly!

      I appreciate your choice of lifestyle & POV in general. Simple living is so underrated in Western society. Begs the question though, if we all lived like you (and me!) what would happen to Western economies?

      Unfortunately, the US/CDN/EURO economy was built for and dependant on all the world striving to be just like “Mary”.

    • Keith
      March 19, 2016 at 3:55 am

      Was McDonald’s closed?

    • Keith
      March 19, 2016 at 5:21 am

      What is going on over there?

      The nation that bought the hot dog and hamburger to international cuisine.

      Cheap meat in a cheap bun with minimal labour overhead in preparation.

      This is the food of Capitalists, it maximises profit.

      “supper of roasted basil-pesto salmon, …… “ the labour overheads are horrendous, it sounds like the food of Marxists.

      What ever happened to the economically productive American that just has time to head to the nearest burger joint before returning to work?

      Things ain’t what they used to be (sigh).

  2. Chicken
    March 17, 2016 at 11:27 pm

    All hopes had been based on the theory that this money would somehow trickle down to the layers beneath them and boost the economy.

    Surplies!

    • night-train
      March 18, 2016 at 2:22 am

      That’s been the operating theory since 1980. It has yet to work. It will never work, because, it simply doesn’t work. What it has done is pump a lot of coin into the hands of the already wealthy, while the middle class has been pushed further toward extinction. Will Rogers said that gold was the only solid that didn’t slide downhill. Put a bag of gold at the deepest point in Death Valley on Monday and by Friday it would be at home in Mr. Morgan’s bank in NYC. Mr. Rogers was no fool.

      • Mark
        March 18, 2016 at 2:39 am

        I’ve always wanted to amend the Republican motto ofL “A rising tide lifts all boats-except those with leaks or have no boat at all”

  3. CrazyCooter
    March 17, 2016 at 11:49 pm

    Anyone with any sense knows what is coming. What no one can know is when it happens. I expected this to roll over years ago. These days I just exterminate debt, invest in marketable job skills, and try to stay they hell out from the path of the train that is coming.

    And now you have a Trump with a potential path to the nomination flat out stating, potentially libelously, that Clinton is crooked. And he is sweeping primaries/caucuses.

    Do understand that if they do not shoot him between now and election day, and he continues on his trajectory, he may very well choose someone like Bill Black as the AG, let him set up office in MO, and just starting taking a sledge hammer to stuff in a target rich environment. Folks can say whatever they want, but when he starts perp walking Wall Street, he will be politically *indestructible* for a while, even if the Fed blows the economy’s brains out – and you know the Fed is coming after him if he wins. Trump has way outsmarted the Republican party the entire time and I am not sure anyone is putting any thought into what he might really do come January next year if he is sworn in.

    If I had really deep pockets right now, I would be much more worried about that.

    Regards,

    Cooter

    P.S. If anyone really cares, I can check back tomorrow and post recipe details – felt doing so upfront was overboard since this isn’t exactly Food Network (and doing so brings out the other foodies). :-)

    • LG
      March 18, 2016 at 12:11 am

      @Cooter
      I worked for three man in my life that were very much like Trump.
      One of them was my uncle. Hard working very smart and a cocky business man. He got what he wanted one way or another!
      He always found loopholes in the law!
      Yet he had the biggest heart. I feel that many of the “angry” voices out there had my experience at one time in their lifes.

    • david
      March 18, 2016 at 1:43 am

      Bet Christie is the AG. Shame they won’t let the business cycle do what it is supposed to. Everything just must go straight up forever.

      • rich
        March 18, 2016 at 6:14 am

        You nailed it. It will be Wall Street owned Christie. Trump has already stated that he wants to make supreme corporate pirate, Carl Icahn, his Secretary of the Treasury.

        Trump made his money by creating corporations, borrowing hundreds of millions of dollars through those corporations, paying himself, personally, millions of dollars to manage those corporations, and then throwing those corporations into bankruptcy (while keeping the borrowed millions). Trump is the Deadbeat Don, and the most overt narcissist, liar and name caller to ever seek the country’s highest office.

        He has flipflopped on almost every one of his positions, and I expect that, although he stated he would be a neutral broker in order to bring peace to the Israelis and the Palestinians, he will, instead, morph into the neocon’s neocon war monger as he panders to AIPAC next week.

        Cooter, Trump is a zero sum guy, and, if he gets the chance, he will do his best to leave the American people even more divided and conquered and tribal than they are today. Listen to what he has actually said, get yourself deprogrammed, and then exit the cult.

        And please don’t tell me about the Clintons, because I already know. They led the big bank occupation of America by making the CEO of Goldman Sachs the US Secretary of the Treasury, by signing the Riegal Neal Act, the Gramm Leach Bliley Act and the Commodities Futures Modernization Act of 2000. As usual, Americans will be faced with another Presidential Hobson’s Choice.

        • shepherd parker
          March 18, 2016 at 9:35 am

          il donno. i claim copyright.

        • Faithful Reader
          March 18, 2016 at 4:26 pm

          The answer: Don’t vote. Stay away from all polls.
          Hard. but the real answer to bad “choices.” I agree on Trump being a narcissistic fake. Americans have watched too many movies & too much TV to had real values now. The elites know this. BUT, those of us who actually do something are not playing the game now. And they do notice that. The Chinese will recalibrate the US economy, thank God. They own 60% and more of NYC. They won’t let it be destroyed completely. All they have to do say: Pay for your merchandise in gold, America. Game over.
          This is all good, since our politicians actually have very little power left. The people are broke. Not much more to steal. No factories left for a Trump -Hitler to create a war out of—we don’t even make the uniforms here!

    • Mark
      March 18, 2016 at 2:42 am

      Clinton is crooked-evidence-Dick Cheney endorsed her over Trump
      Hillary is now a NeoConservative hiding in liberal clothing;

      Im voting Bernie or Trump….never for that walking warmonger Hillary

    • FellowTraveller
      March 23, 2016 at 12:16 pm

      Your belief in Donald Trump’s future political actions are similar to mine.

      That said, if not murdered A La Kennedy, should Trump survive up to and after Inaugural Day, the number of failed murder attempts will be a large screen history of how many of the “establishent” is actually being targeted, indicted, prosecuted then shut down.

      here in my beloved country, America, way to few own/rule way too much. and that is simple fact.

      last note from me. Corporatism is NOT capitalism.

      no matter how many Neo-Con shills, so called “Moderate” Socialist/Marxists Collectivists, or Progressives, or what has one, says to the contrary.

      here it is once again.

      CORPORATISM AIN’T CAPITALISM. no. not by a long shot.

      every time I read an inter shill, or listen to a TV Propagandist write/speak that word,

      “capitalism”, I get a headache and want to vomit.

      ever so slowly general ordinary people seem to be discovering that simple fact.

      “nuf said

      • Thomas Malthus
        March 23, 2016 at 2:09 pm

        Nah.

        The establishment (owners of the Fed) are putting forward their anti-establishment candidate —- it’s all theatre….

        They make it appear as if finally there is someone who will right the ship — and the ship is foundering because of the ‘establishment’

        So you get your anti-establishment president – and Joe Six Pack is happy — until he elects Trump and finds out nothing has changed.

        Remember the last time this happened? It was the liberal types who were down in the dumps – they didn’t like the endless wars…

        So the establishment delivered exactly what was required – Mr Hope and Change…

        And the liberals elected him — and they were happy — even though they got even more of the same.

        You are all being played — like idiots.

  4. Salemone
    March 17, 2016 at 11:55 pm

    Trying to recognize a top in real estate (or any market) is at best, a guess you make with the info you have at the moment.
    I think the decisions to buy or sell are based on a comfort point and a desire for what you want. In each market, there is a buyer and a seller.
    Do I think we are at a top in real estate? Not yet. I think we are still on an upward curve…that is probably going to start flattening toward mid summer.

    Personally, I think most of us do the best we can, with what we have, and if we’re lucky, we get to live the lifestyle we want.

  5. LG
    March 17, 2016 at 11:58 pm

    Now you know where QE ends up.

  6. John Doyle
    March 18, 2016 at 12:45 am

    It’s just astounding the level of incompetence economists show. Bernanke should have understood the aim of the rich is to “widen the Gap” between the haves and the 99%, so why would they spend into the economy if they knew it would benefit the hoi polloi?
    We can see full well they didn’t. They found excuses to not lend QE money.
    Even Ben himself complained he couldn’t get a mortgage.
    But he certainly got the Asset inflation, with knobs on.
    We are all going to pay dearly for this economic mismanagement as it accelerates the collapse we cannot now avoid.

    • Si
      March 18, 2016 at 2:30 am

      Student “does economics and the wealth effect work?”

      Bernanke “see that big car over there, the one behind the gates to that huge house. All that is mine. Of course it works, and of course the wealth effect is real”

      • night-train
        March 18, 2016 at 2:34 am

        Si, History isn’t going to be kind to Ol’ Benny.

        • Si
          March 18, 2016 at 4:22 am

          I think you are right. Rather he gets what is coming while I can still appreciate watching though.

          His hospital pass to ole Yeller seemed a bit obvious.

    • night-train
      March 18, 2016 at 2:32 am

      Ben is a knob. Or a tool. Of course, he doesn’t need a big house in the Hamptons, Palm Beach or Aspen. He has friends who do. It’s like what’s better than owning a boat? Having a friend who owns a boat. Especially if you have done this friend a lot of favors.

  7. Ptb
    March 18, 2016 at 9:13 am

    Real estate is local. I know plenty of places where there’s still foreclosure sales going on.

  8. Petunia
    March 18, 2016 at 9:23 am

    Just a thought, since it looks like Trump will be the next president. They will be exiting the Hamptons and heading for Palm Beach to be closer to the second WH. The Wall St. guys will be trading the Hamptons, Boca Raton, and Miami, for Palm Beach. Watch for it.

  9. ERG
    March 18, 2016 at 9:45 am

    From your lips to God’s ear, Petunia!

    rich, while most of what you said about Trump may be true, most of it is utterly irrelevant. If he keeps his word and builds a wall on the southern border he will be president for 8 years. If he doesn’t, then all we’ve done is change the color of the stick that’s hitting us.

  10. Nicko
    March 18, 2016 at 10:10 am

    You guys are way too depressing for a Friday afternoon. Trump is never getting into the WH, it’s just not happening.

    • Petunia
      March 18, 2016 at 10:31 am

      FYI, being a New Yorker I have watched Trump since the beginning. He always made for good headlines. The one thing I learned from watching him, is that he always does what he says, even when everybody thinks its crazy or impossible.

      Way back in the 80’s he proposed a project to NYC, building an entire neighborhood above the train yards on the west side of Manhattan by the river. He was dismissed and even ridiculed. It is hard enough to build one thing in NYC never mind an entire neighborhood. Well, guess what, it is well underway. I still can’t believe he actually did it.

      • Rex Bevans
        March 18, 2016 at 12:07 pm

        Trump didn’t do it, having been forced out in 2001. In 2005 he sold all remaining interest in that property and today, development moves forward without a dime of Trump funding. This is but one item in the long list of Donald Trump biting off more than he could chew.

        “If you could buy Donald Trump for what he is worth and sell him for what he thinks he is worth, you’d make a pile of money”

        • rich
          March 18, 2016 at 2:03 pm

          Rex, +1000

    • ERG
      March 18, 2016 at 11:11 am

      All he has to do is continue with the SAME success rate he’s had so far, and he’s the nominee. NJ will put him at/over 1,237 in June. What a coincidence that Chris Christie endorsed him, eh? – NOT!

      http://www.zerohedge.com/news/2016-03-18/here-math-trump-almost-certain-win-republican-nomination-convention

      Then, we don’t get an election, we get a street fight.

  11. Colin
    March 18, 2016 at 10:22 am

    To be fair fracking did create many jobs. It shouldn’t be put with some of the others. In general I get the feeling the leaders of the Fed don’t care much for our economy or any person who doesn’t have a lot of money.

    • Petunia
      March 18, 2016 at 10:36 am

      I hate to be put in the position of defending the fed, but I would like to remind all of you, that the fed is owned and works for the member banks. The fed’s job is to protect the banking system not the economy. I think they have done that very well!

  12. Keith
    March 18, 2016 at 12:12 pm

    Trickledown!

    The trickle up (raging torrent) of Capitalism:

    a) Those with excess capital invest it and collect interest, dividends and rent.

    b) Those with insufficient capital borrow money and pay interest and rent.

    All this was much easier to see in Capitalism’s earlier days.

    Malthus and Ricardo never saw those at the bottom rising out of a bare subsistence living. This was the way it had always been and always would be, the benefits of the system only accrue to those at the top.

    It was very obvious to Adam Smith:

    “The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    Like most classical economists he differentiated between “earned” and “unearned” wealth and noted how the wealthy maintained themselves in idleness and luxury via “unearned”, rentier income from their land and capital.

    We can no longer see the difference between the productive side of the economy and the unproductive, parasitic, rentier side. This is probably why inequality is rising so fast, the mechanisms by which the system looks after those at the top are now hidden from us.

    In the 19th Century things were still very obvious.

    1) Those at the top were very wealthy
    2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
    3) Slavery
    4) Child Labour

    Immense wealth at the top with nothing trickling down, just like today.

    This is what Capitalism maximized for profit looks like.

    Labour costs are reduced to the absolute minimum to maximise profit.

    The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour.

    The majority only got a larger slice of the pie through organised Labour movements.

  13. ERG
    March 18, 2016 at 3:32 pm
    • Keith
      March 18, 2016 at 4:44 pm

      The US has always worshipped the private sector and denigrated the public sector.

      Private luxury and public squalor.

      John Kenneth Galbraith captures the 1950s American Dream in “The Affluent Society”

      “The family which takes its mauve an cerise, air-conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, lighted buildings, billboards and posts for wires that should long since have been put underground. They pass on into countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?”

      The UK consumer, bamboozled by yet more advertising and marketing campaigns, gets home with their new products to find there is no room for it in their house.

      They have to clear out some old stuff and put it into storage to make room.

      The nation is now covered in storage units housing the surplus products from the private sector.

      Perhaps it is time to start spending more on the NHS, schools, GP surgeries, public spaces, public services, the disabled, the under priveledged, etc ……. rather than covering the nation with storage units to house the surplus output of the private sector that we cannot fit within our homes.

      An efficient use of the world’s resources?
      I think not.

    • Keith
      March 18, 2016 at 5:34 pm

      Set up the initial conditions and let it play out …..

      1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), globalisation phase

      1929/2008 – Wall Street crash

      1930s/2010s – Global recession, currency wars, rising nationalism and extremism

      It’s Keynes time.

      We’ve done Neo-Keynesian stimulus.

      After eight years of pumping trillions into the top of the economic pyramid, banks, and waiting for it to trickle down.

      It didn’t work, hardly anything trickled down.

      The powers that be are now for Keynesian stimulus.

      Carry out infrastructure projects that create jobs and wages which will be spent into the economy and trickle up (pumping money into the bottom of the economic pyramid).

      They know its Keynes time.

  14. ERG
    March 18, 2016 at 7:05 pm

    “In the long run, we’re all dead.”

    It’s more like: “Keynes is dead, and now we all have to live in his ‘long run’.”

  15. ML
    March 19, 2016 at 2:35 am

    Amongst my favourite quotations is “when the meek inherit the earth, it will be fun to watch how long they’ll be allowed to keep it”.

    Mind you, the best way to help the poor is not to be ine of them.

    We live and eat well but i’d like a bigger home – we’ve only about 16 rooms excluding cupboards.

  16. ERG
    March 19, 2016 at 11:48 pm

    “Everywhere government spending is presented as a panacea for all our economic ills. An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other. Here we examine the mother fallacy that has given birth to this progeny, the main stem of the network.

    Everything we get must in some way be paid for and all government expenditures must eventually be paid out of the proceeds of taxation. Every dollar of government spending must be raised through a dollar of taxation either immediately or ultimately. Once we look at the matter in this way, the supposed miracles of government spending will appear in another light.

    A bridge is built by the government primarily “to provide employment.” Two arguments are put forward for the bridge, one of which is heard before it is built, the other of which is heard after it has been completed. The first argument is that the construction of the bridge will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

    This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

    Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.

    We can see the bridge. But if we have taught ourselves to look for indirect as well as direct consequences we can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. We can see the unbuilt homes, the unmade cars and radios, the unmade dresses and coats, perhaps the unsold and ungrown foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.”

    – Henry Hazlitt.

    • Keith
      March 21, 2016 at 4:23 am

      The private sector might be efficient if it didn’t use advertising and marketing. It would then produce things people wanted rather than manufacturing demand for things people don’t really want.

      By the 1920s, mass production techniques had improved to such an extent that relatively wealthy consumers were required to purchase all the output the system could produce and extensive advertising was required to manufacture demand for the chronic over-supply the Capitalist system could produce.

      By the 1920s Capitalisd has become inefficient and just manufactures demand for products that people don’t really want with advertising.

      The UK consumer, bamboozled by yet more advertising and marketing campaigns, gets home with their new products to find there is no room for it in their house.

      They have to clear out some old stuff and put it into storage to make room.

      The nation is now covered in storage units housing the surplus products from the private sector.

      Perhaps it is time to start spending more on the NHS, schools, GP surgeries, public spaces, public services, the disabled, the under priveledged, etc ……. rather than covering the nation with storage units to house the surplus output of the private sector that we cannot fit within our homes.

      An efficient use of the world’s resources?
      I think not.

      Private luxury and public squalor.

      John Kenneth Galbraith captures the 1950s American Dream in “The Affluent Society”

      “The family which takes its mauve an cerise, air-conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, lighted buildings, billboards and posts for wires that should long since have been put underground. They pass on into countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?”

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