News: Real Estate, Risk, Economics. Jul. 5-7, 2014

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Table of Contents
(Click to sections below.)

1) Jokowi to Ease Foreign-Ownership Ban on Indonesia Apartments – Businessweek

2) Daniel Alpert looks at US Growth & John Aziz talks UK Austerity – YouTube

3) Eswar Prasad on US Dollar as Reserve Currency & Alex Daley on Growth in Mobile – YouTube

4) 'Boom'-erang at point of no return? Australian economic boom ending – RT Op-Edge

5) By the time Hillary Clinton leaves the White House, China's economy could be 50 percent larger than the US economy | CEPR Blog

6) Andrew Sheng and Xiao Geng apply to China Thomas Piketty's framework for understanding the country's rising income inequality. – Project Syndicate

7) American Homes Acquires Rival in Buy-to-Rent Business – NYTimes dot com

8) Banks Warned to Prepare for Wave of HELOC Defaults | Realtor Magazine

9) Downsizing home size, but not home value – Amy Hoak's Home Economics – MarketWatch

10) [Recommended] Germany and the future of the euro | vox

11) Experts Talk: An Interview with Dr. Mark Thoma | INOMICS blog

12) Jobs Report, First Impressions: A Strong June for the Job Market | Jared Bernstein | On the Economy

13) The Next Financial Crisis Is Brewing Right Now, and Regulators Are Missing It | The Fiscal Times

14) Thomas Palley – Blog Archive – Milton Friedman's economics and political economy: an old Keynesian critique

15) Yellen Versus the Inflation Hawks – Bloomberg View

16) CONVERSABLE ECONOMIST: Janet Yellen Takes Macroprudential Policy Mainstream

17) Investors Are Pushing Starter-Home Prices Up – NYTimes dot com

18) [Issues: Rebating; ethics] AgentPair, LessThan6Percent and UpNest look to bring auction-style lead generation into the mainstream | Inman News

  1.    Jokowi to Ease Foreign-Ownership Ban on Indonesia Apartments – Businessweek

    Indonesian presidential hopeful Joko Widodo plans to allow foreign investment in apartments to boost tax revenue, a move that could spur demand for property in the country's luxury market.

    Foreign investors would be able to purchase apartments worth at least 2.5 billion rupiah ($210,000) in the capital, other main cities and Bali island, Setyo Maharso, a member of his campaign team, said in an interview yesterday. Foreigners are barred from directly buying Indonesian property, leading to illegal transactions via proxies, so allowing them will enable a luxury tax to be imposed on sales, he said in Jakarta.

    Add your comment.


  2.    [153] Daniel Alpert looks at US Growth & John Aziz talks UK Austerity – YouTube

    [At 5:30] Erin sits down with Daniel Alpert, the author [of] The Age of Oversupply, to get an insight on the future of the US economy.

    Add your comment.


  3.    [154] Eswar Prasad on US Dollar as Reserve Currency & Alex Daley on Growth in Mobile – YouTube

    [At 3:55] Erin sits down with Eswar Prasad, the author of the Dollar Trap, to get his take on the future of the US dollar as the international reserve currency.

    Add your comment.


  4.    'Boom'-erang at point of no return? Australian economic boom ending — RT Op-Edge

    Right now, the Australian banking system resembles the European and US equivalents just before the 'Great Financial Crash' of 2008, and it's clear that the Australian government has been managing a bubble, not an economy for the last six years. Scarily, the balance sheets of two of Australia's four pillar-banks have cash-to-asset ratios that are lower than what Lehman Brothers held in the US 15 months before its collapse. Worse again, the asset sheets of each of the 'big four' financial institutions represent close to half of Australia's total GDP — Lehman's was just five per cent of the American whole, so it's obvious that this is contrived to end extremely badly.

    Now to China. The reason it's cozying up to Russia is that Beijing realizes that it must urgently diversify its economy — it simply cannot continue to build more and more iron ore-intensive residential dwellings as there are already almost enough to house the entire population with extra stock left over. For Australia's current economic trajectory to continue, China would need to build a new apartment for every man, woman and child in the country in the next decade, and this isn't going to happen. Meaning that the land 'Down Under' is a busted flush.

    We agree.

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  5.    By the time Hillary Clinton leaves the White House, China's economy could be 50 percent larger than the US economy | CEPR Blog

    In principle, GDP based on PPP is assessing GDP if all goods and services sold for the same prices in all countries.

    What is perhaps most striking is not that the Chinese economy is now larger than the U.S. economy but that it is projected to be hugely larger in the not distant future.

    Provided it doesn't crash.

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  6.    Andrew Sheng and Xiao Geng apply to China Thomas Piketty's framework for understanding the country's rising income inequality. – Project Syndicate

    … China's top 1% income earners are accumulating wealth significantly faster than their counterparts in the rest of the world — and far faster than the average Chinese.

    The government is now attempting to mitigate the risks that investors and local governments have assumed by allowing more interest- and exchange-rate flexibility. But the transition must be handled carefully to ensure that property prices do not plummet, which would increase the ratio of non-performing loans — and possibly even trigger a major financial crisis.

    China had it easy once the US decided to give up so much of its manufacturing sector. The Chinese property boom is slowing. The former rate of growth in real estate values was unsustainable. The easy pickings are gone. The easy growth is over. Future mistakes will become ever less forgiving. China has to let the growth slow way down or face an even larger correction, even a huge bust. It has to let it slow down so much that it will look like a bust. In fact, it will be.

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  7.    American Homes Acquires Rival in Buy-to-Rent Business – NYTimes.com

    As we had predicted consolidations:

    In what could be the start of a wave of consolidation in the business of buying single-family homes to rent them out, American Homes 4 Rent, one of the largest institutional investors in foreclosed homes, said on Tuesday that it was buying a smaller competitor.

    Predicting this isn't much.

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  8.    Banks Warned to Prepare for Wave of HELOC Defaults | Realtor Magazine

    Federal regulators are warning banks that home equity lines of credit taken during the housing bubble will come due in the next several years, which could cause a surge of defaulters. The regulators are pressing banks to be proactive in helping clients avoid defaults, or banks may risk losing hundreds of billions of dollars.

    More than $221 billion HELOCs at the nation's largest banks are reaching the 10-year mark within the next four years. At that point, borrowers must start paying down the principal loan as well as the interest. The number of borrowers who miss payments can double in the eleventh year, according to data from Equifax, a consumer credit agency.

    Add your comment.


  9.    Downsizing home size, but not home value – Amy Hoak's Home Economics – MarketWatch

    "Baby boomers will sell their very large home that they raised their family in for a property that has more amenities and suits their lifestyle today, but is downsized considerably," said Sherry Chris, chief executive for Better Homes and Gardens Real Estate. Seventy percent of those surveyed by the company said that the home they retire in will be the best home in which they have ever lived.

    Granted, not everyone has the luxury of buying the perfect home for retirement. They may need to sell their home just to help fund retirement living expenses.

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  10.    [Recommended] Germany and the future of the euro | vox

    The Eurozone crisis put an end to the euro honeymoon, bringing to the fore the key importance of Germany's economic and political decisions in determining the Eurozone's viability and future.6 The challenges associated with managing the growing fragility of the euro may induce a reluctant Germany to face an upcoming stark tradeoff — the vibrant growth of Germany, while running large current account surpluses under a pegged exchange rate with the other Eurozone countries, may come to an abrupt end if the Eurozone unravels.

    … The short history of the ECB reveals a strong deflationary bias, which probably reflects the well-known German aversion to moderate inflation.8 So far, we have not seen the willingness of the ECB to follow symmetric inflation targeting. Observers have noted that the ECB's revealed inflation targeting is closer to targeting Germany's inflation rather than targeting inflation of the entire Eurozone. While this may not be a surprise considering the bargaining clout of Germany, the resultant low Eurozone inflation — approaching 0.5% as the time of writing — puts further drag on the adjustment of the GIIPS countries. The net outcome is the continuation of accelerated debt deflation, which pushes the Eurozone toward the prospect of a Japanese-style lost decade ….

    Add your comment.


  11.    Experts Talk: An Interview with Dr. Mark Thoma | INOMICS blog

    Mark Thoma:

    It would be nice if economic history was emphasized more as a result of the Great Recession, but the amount that students have to learn to be competent at DSGE modeling, microeconomic models that provide the foundation of modern macro, econometric tests of those models, and all the math that goes along with it leave little room for economic history. The lack of knowledge about economic history was costly in the most recent economic crisis, and it will probably be similarly costly when the next one comes along, as it surely will.

    Unfortunately, Mark Thoma might be right about that.

    Add your comment.


  12.    Jobs Report, First Impressions: A Strong June for the Job Market | Jared Bernstein | On the Economy

    Jared Bernstein:

    Consider, just as a thought experiment, the 7.5 million involuntary part-timers. Let's say they're working 25 hours per week on average (that's about the average weekly hours worked for part-timers) when they'd rather work full-time (40 hours). That['s] over 110 million hours, or almost three million 40-hour weeks that are gone missing from the labor supply. That's a lot of earnings and output "left on the table."

    So, while this is a strong and welcomed report, we're far from mopping up all the residual damage from the Great Recession that ended over five years ago. Today's [July 3, 2014] report provides good news that we're mopping faster, but we're not done and there are still perfectly good reasons for monetary and fiscal policy to remain in supportive modes.

    That's pretty in line with what we posted on July 3rd.

    Add your comment.


  13.    The Next Financial Crisis Is Brewing Right Now, and Regulators Are Missing It | The Fiscal Times

    David Dayen:

    You may not see it on the front pages of your newspaper, but close examination will reveal an extreme unease from banking regulators about the current trajectory on Wall Street.

    The Office of the Comptroller of the Currency (OCC), not typically seen as a strident regulator, is warning about risky lending as low interest rates drive a reach for higher yields. Both the OCC and the Federal Reserve have decried the slippage in underwriting standards on particular loan products. Fed Chair Janet Yellen cited "pockets of increased risk-taking" in a speech yesterday. And the Bank for International Settlements (BIS), a consortium of the world's central banks, cautioned this week about asset bubbles forming throughout the global economy.

    Add your comment.


  14.    Thomas Palley – Blog Archive – Milton Friedman's economics and political economy: an old Keynesian critique

    Thomas I. Palley:

    Laissez-faire economies do not automatically produce Pareto-optimal or near Pareto-optimal outcomes. They can also have serious negative consequences for freedom which undermines the claim that laissez-faire is the best way to promote freedom.

    First, unfettered markets can produce high unemployment and great income inequality which results in economic deprivation that hollows and caricature freedom by removing the means to enjoy freedom. In the language of Amartya Sen (1999, p.xii), unemployment and economic deprivation are forms of "unfreedom".

    Second, income and wealth inequality can have profound political consequences because they tilt political power in favor of the rich. Since part of democratic freedom is the enjoyment of political freedom through the democratic system, this shift in power to the rich implicitly reduces the freedom of the rest. To paraphrase George Orwell, it creates a world in which some are freer than others — a form of political unfreedom.

    Third, the proclivity of laissez-faire economies to generate high unemployment and income inequality also directly threatens political freedom and stability by producing alienation. This is the foundation of the critique of neoliberalism articulated by Karl Polyani (1944) in his analysis of the failings of 19th century capitalism that led to early-20th century fascism. A political economic system that does not value people may work in times of prosperity, but it risks breakdown in times of prolonged economic hardship and insecurity. Under such conditions, there can easily be a turn away from the democratic process and a turn to suppression of freedom in the form of politics of intolerance that scapegoat particular ethnic and racial groups, or even a turn to authoritarian politics that attacks the freedom of all. By assuming away the economic probl em, Friedman's political economy is blinded to the issues of unfreedom and the need for an economic system that generates politically sustainable outcomes.

    Thomas I. Palley also explains how Post-Keynesian economics renders Milton Friedman's Mark II monetarism completely unsupportable.

    Lastly, mark II monetarism suffers from the same Post-Keynesian critique of its theory of the money supply as did mark I monetarism. Both forms of monetarism take the money supply as subject to tight exogenous control by the monetary authority, when in fact it has significant endogenous elements related to bank lending.

    Friedman apparently didn't put much stock in hoarding, which hinders the velocity of money and helps reduce or stop price inflation altogether.

    We are convinced that he was wrong about the fiscal side of the equation and government, per se, versus the private sector.

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  15.    Yellen Versus the Inflation Hawks – Bloomberg View

    Yellen will also have to wade into the debate over whether long-term unemployment (about 2.1 million people have been out of work for a year or more) helps to keep wages in check. If it doesn't — if it's only short-term joblessness that keeps labor costs down — there's more reason to worry about rising prices.

    A recent study by Alan Krueger, the former chairman of President Barack Obama's Council of Economic Advisers, suggests that the long-term jobless are so disconnected from the labor market that, once job openings pick up, they aren't enticed back to work. If the long-term unemployed don't suppress wage inflation, the jobless rate, for anti-inflation purposes, is really only 4 percent. Wages could start rising sooner than expected.

    We think Alan Krueger is only very partly correct. There are many, many people who will be enticed back into the labor market if things really start to pick up and especially if wages start to rise.

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  16.    CONVERSABLE ECONOMIST: Janet Yellen Takes Macroprudential Policy Mainstream

    Timothy Taylor:

    What is macroprudential policy? In the past, financial regulation typically focused on whether individual financial institutions were fundamentally healthy. It considered at one financial institution at a time. The "macro" in macroprudential policy is meant to suggest that regulatory policies and standards should be adjusted with macroeconomic concerns in mind. Thus, if there is a concern over housing prices rising in a way that leads to a risk of a bubble, government can raise the standards that affect conditions under which banks make loans–leading to smaller loan sizes relative to income or higher down payments. If there is a concern that many financial and nonfinancial institutions are taking on too much debt, in a way that raises the risk of a financial crisis, regulatory standards can be used to require that the institutions hold higher reserves. If there is concern that certain financial instruments are not transparent, or that the risks of such instruments are not being taken into account, regulatory policy can require additional disclosure and require that financial institutions find ways to ameliorate the additional risks.

    Yellen is in effect suggesting a division of labor. Conventional monetary policy, like raising and lowering interest rates, would continue to be the main method for addressing recession and inflation. But macroprudential policies would be the way of reducing the chance that a financial crisis would happen. As she says: "In my assessment, macroprudential policies, such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods to address these [financial stability] vulnerabilities."

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  17.    Investors Are Pushing Starter-Home Prices Up – NYTimes.com

    "When we look at our data, it's clear that the home price recovery has been largely driven by investors and other cash buyers," he added. "As those investors and cash buyers slow down their purchases, the big question becomes, will demand from owner-occupant buyers be enough to keep the sales and prices moving higher?"

    Add your comment.


  18.    [Issues: Rebating; ethics] AgentPair, LessThan6Percent and UpNest look to bring auction-style lead generation into the mainstream | Inman News

    Paul Hagey:

    Real estate startup AgentPair has joined a vanguard of companies that allow buyer's agents across the U.S. to compete for clients based on rebates they offer on their commissions.

    We tweeted (https://twitter.com/InmanNews/status/48 5208689284890624) @InmanNews @KevinismyBroker with the following:

    We aren't allowed to rebate in the insurance industry. What are the ethical differences for real estate?

    Clarification: Rebating in insurance by agents and brokers has been allowed in Florida.

    Add your comment.


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