Ask an Economist (Post #1005 and counting)

[Theige]

Unfortunately, fresh fruit and vegetables have a high likelihood of spoilage for the person living alone unless it's convenient to buy just a couple of things every few days. Large bags of frozen veggies on the other hand are very easy to use. Just place the amount you want for that meal in a microwave dish with a bit of water or 3 minutes or so in the nuker and it comes out fine.

I have also read that frozen veggies have a bad rep for no reason at all, a study was done that showed they were always the same or more nutritious, than "fresh" veggies.

 

[JerichoHill]

Frozen stuff, if improperly frozen, gets freezer burn

 

[scy12]

I hope i get an answer here. How possible and with which effect , is a house bubble In a market where house and land prices are lower than most of the rest European countries and the income per person is a bit over the Eu average ?

 

[EdwardTking]

I hope i get an answer here. How possible and with which effect , is a house bubble In a market where house and land prices are lower than most of the rest European countries and the income per person is a bit over the Eu average ?

I am not sure which country you are referring to, but consider the fllowing concepts;

(i) confidence,
(ii) crowd behaviour
(iii) international money flows
(iv) salesmen
(v) supply and demand
(vi) uncertainty principles


If there is confidence, then in a deregulated economy global capital markets result in international money flows switching money into the country and the amount of money available to lend to people to buy houses drastically increases.

Hot money can flow in much faster than construction can increase.

Overall house prices are determined by the transaction prices for houses sold which reflect supply and demand. Now most houses are not sold this or in any year. So it is the impact of an increase in the money for loans supply against the houses for sale in loan companies' accounting period (e.g. month/quarter/year).

To put it simply, if the amount of capital on offer for loans doubles; then house prices will rise and nearly double. They won't exactly double because new construction will absorb some capital, and house finance from savings won't double inline with external capital inflows.

Now once house prices rise, confidence encourages investment and salesmen who very naturally switch to a lucractive market because people respond to social pressure like crowd behaviour and want to buy before it gets more expensive and many hope to make money by buying for investment.

The more intelligent or experienced know the bubble will burst, but many get over confident carried away and fall into the logical fallacy trap of believing that they will be able to identify the downturn and get out leaving it to the next fool to purchase into a declining market.

However it is impossible for the peak moment and level to be reliably anticipated and understood by the market, because any such advance understanding would result in a change of participants behaviour that would mean that the peak does would not occur or reach the level where it was previously understood to occur and reach.

This is a bit like Heisenburg's uncertainty principle.

Land prices and income levels are not the prime consideration.

It is the excess capital bidding up the traded stock that creates the bubble.

 

[scy12]

I am not sure which country you are referring to, but consider the fllowing concepts;

(i) confidence,
(ii) crowd behaviour
(iii) international money flows
(iv) salesmen
(v) supply and demand
(vi) uncertainty principles


If there is confidence, then in a deregulated economy global capital markets result in international money flows switching money into the country and the amount of money available to lend to people to buy houses drastically increases.

Hot money can flow in much faster than construction can increase.

Overall house prices are determined by the transaction prices for houses sold which reflect supply and demand. Now most houses are not sold this or in any year. So it is the impact of an increase in the money for loans supply against the houses for sale in loan companies' accounting period (e.g. month/quarter/year).

To put it simply, if the amount of capital on offer for loans doubles; then house prices will rise and nearly double. They won't exactly double because new construction will absorb some capital, and house finance from savings won't double inline with external capital inflows.

Now once house prices rise, confidence encourages investment and salesmen who very naturally switch to a lucractive market because people respond to social pressure like crowd behaviour and want to buy before it gets more expensive and many hope to make money by buying for investment.

The more intelligent or experienced know the bubble will burst, but many get over confident carried away and fall into the logical fallacy trap of believing that they will be able to identify the downturn and get out leaving it to the next fool to purchase into a declining market.

However it is impossible for the peak moment and level to be reliably anticipated and understood by the market, because any such advance understanding would result in a change of participants behaviour that would mean that the peak does would not occur or reach the level where it was previously understood to occur and reach.

This is a bit like Heisenburg's uncertainty principle.

Land prices and income levels are not the prime consideration.

It is the excess capital bidding up the traded stock that creates the bubble.

I am going to be frank here. I have difficulty understanding what you have written. In a basic level i understand that if more money flows into an economy available loans will increase and so the house prices. People will then rush to buy and be at a disadbvantage when the prices fall again. But i have difficulty relating this and understanding what happens in Cyprus. From my understanding prices have been steadily going up but are cheaper than most other European markets . The other costs of life are increasing too which would make people more hesitant to buy property rather than overdoing it. Or like you say it may force people to buy now before it get's more expensive.

Ahem you make a point regarding supply and demand but i think the current prices of land,houses play a big role at deciding regarding how supply and demand works. Can you help me regarding how likely is in the economic climate , Houses prices to sky rocket ?

Also i want to understand this time not how the buble is created but how it is busted. From what i think the capital that was introduced to a country's economy can not sustain the rate of the economy and is shrinked. Or people keep on buying more expensive houses which they can't pay and the banks can't collect their earnings.

 

[JerichoHill]

Well,honestly, just look at America's market for the last few years.

and btw, supply and demand determine price,not the other way around

 

[scy12]

Well,honestly, just look at America's market for the last few years.

and btw, supply and demand determine price,not the other way around

Come on i would rather a more complicated answer if one is willing to offer me such.

and btw, supply and demand determine price,not the other way around

I am talking on how would supply and demand change in relations to the economy. If the prices are at A level then that means that supply and demand is also an that level.

What determines supply and demand then ? You would say supply is the amount of goods in a given time and demand the current need of the population buying such goods. If the prices where low and ones asks how to predict future supply and demand he will consider the past supply and demand situation where the prices where low. The fact that the prices are low may give us a hint about what is causing them.

But i have no problem being proven wrong in fact i expect to . though i find many disagreements with experts are misunderstandings because they do sometimes do not give others the benefit of doubt and allow some mistakes from inexperienced ones . I find the ability to pass on knowledge to others as important as possessing it.

 

[Cutlass]

I don't know that there's a fixed answer on what bursts the bubble. There have been a lot of financial bubbles, and all collapse eventually. But the "trigger" for them are different. So you would look for what they have in common. But that would not necessarily tell you what will be the trigger for the next bubble burst.

If the capital available for the loans goes elsewhere or becomes much more expensive, a general downturn in personal incomes, the construction of new homes in excess of what the demand is at current prices, these things could possibly be the trigger for bursting a housing price bubble.

You need to follow the local conditions and watch for indicators.

 

[Cutlass]

should anyone care......

Could It Be Cheaper To Eat Dinner Out?

JOEL STEIN
April 23, 2008

There are experiments — Galileo's falling bodies, Einstein's elevator, NBC's "The Age of Love" — that radically change the way human beings conceptualize the world around them. But little celebrated are the vast majority of experiments that prove the obvious. This is one of those experiments.

With grocery prices spiking — 2007 had the worst food inflation in 17 years — it became more important than ever to find out which was more expensive: eating at home or going to a restaurant.

I've eaten too many dishes like chorizo-crusted Chatham cod with white coco bean puree and harissa oil and wondered: How could I possibly buy all these ingredients for $30? I've marveled at the existence of $1 double cheeseburgers. Is it possible, I've fantasized, that bulk ordering and efficient use of raw goods actually makes eating out more economical? Just as we no longer each do our own farming, have we advanced to a point of specialization where it is inefficient to cook? Can the world be that wonderful?

The answer, after a week's worth of careful tallying and computation, is: not even close.

I set strict rules for the experiment. I counted only dinners — because breakfast and lunch are obviously cheap to make. No alcohol; the restaurant markup would skew everything. No fast food: No way my home cooking could be cheaper than a $1 double cheeseburger, unless I looked the other way when I bought the meat, grilled 500 of them and then tricked all 499 of my friends into slipping me $1.25 for a soda.

I also wasn't dining out at any steakhouses because, while maybe I can't get hold of all their quality cuts, I know I can get a New York strip and grill it for one-third of the price. No appetizers, no desserts, no coffee. And although I wouldn't deduct for leftovers or unused portions of ingredients at home, I also wouldn't count condiments, oils, seasonings, the cost of running the dishwasher or the labor of cooking and cleaning.

It also should be noted that my results were skewed by the fact that because all meals were for two, my wife was involved in some ordering and food shopping, and she was very, very eager to make sure that eating out seemed like a bargain. Imagine how Sir Alexander Fleming would have fared if his lab assistant could eat better for the rest of her life if she killed all his penicillin fungus. Cassandra, when I wasn't looking, somehow bought ground beef for our tacos that cost $15.49. Our salad had $6 worth of lettuce. If Damien Hirst made diamond-encrusted pasta, she'd have put that on our home menu.

Still, restaurants got spanked.

Pasta was almost twice as much, despite the fact we spent $8 on Parmesan that we used only a sliver of. A restaurant's pizza with a salad cost nearly twice as much as the seared, sesame-crusted wild albacore accompanied by "haricot verts" with shiitake mushrooms and toasted almonds and a side of organic yams that I prepared at home. Burgers and a side dish at a famous stand in San Francisco cost $4 more than mine using Whole Foods organic ground beef.

The only meal whose price I couldn't beat were the vastly superior carne asada tacos we bought out of a Taco Zone truck near downtown L.A. — and that would have been true even if I hadn't bought $15 worth of magic cow. The lesson is that when immigrants who don't have to pay rent on their kitchen make an excellent meal, don't bother turning on your stove.

The total for a week's worth of restaurant dinners for two was $257.08; home cooking: $148.14. Removing the outliers, a mid-range L.A. dinner was $40 for two, while shopping for insanely high-end ingredients at a snotty supermarket ran $18.

Sure, at home Cassandra and I each ate the same dish instead of ordering our own meals, and my dinners were often simpler. But sometimes we got to watch TV and not wear pants. If someone opens a restaurant like that, I'll rerun the experiment and drop fistfuls of saffron in everything.

Joel Stein is a columnist for the Los Angeles Times, where this first appeared.

http://www.courant.com/news/opinion/editorials/hc-stein0423.artapr23,0,6948251.story

 

[JerichoHill]

Scy,

Supply and Demand influence price,not vice versa. And there isn't one answer about housing bubbles, its a confluence of events. Try going to HousingBubbleBlog and reading there.

 

[scy12]

Scy,

Supply and Demand influence price,not vice versa. And there isn't one answer about housing bubbles, its a confluence of events. Try going to HousingBubbleBlog and reading there.

Supply and Demand influence price,not vice versa.

Ofcourse. That is what i said :

The fact that the prices are low may give us a hint about what is causing them.

If you consider that to be wrong you should address that statement. The problem is because one thing causes the other it doesn't mean we can't make a backwards relation. If the prices are now at an A level while before they where at a different one what does that say to you about supply and demand ? It doesn't say to you " Stop saying that prices influence supply and demand".

Try going to HousingBubbleBlog and reading there

I will but i must say that i prefer the exchange of an ideas in a forum where different ideas are introduced ,discussed can be put into a test since there is a more direct relation into the one who is receiving ideas and the object from which he receives the ideas.

The Housing bubble blog is a huge blog of information and interviews . It is basically a news site regarding the housing bubble and it's effect on people. I would characterize it as extremely inadequate at being an example of clear information analysis regarding the Housing bubble. It is a good site for those experienced on the subject where simple news are sufficient at expanding their knowledge. Though the interviews are annoying. On my count i find it useless.

 

[Martacus]

should anyone care......

http://www.courant.com/news/opinion/editorials/hc-stein0423.artapr23,0,6948251.story

Funny, that Joel Stein article ran in our local newspaper on Saturday. Very timely, considering the recent talk about food. Just think, if they managed to only spend roughly $150/month on food in LA of all places, how much better could I do out here in eastern Indiana, partly growing my own food?

 

[The Yankee]

Perhaps it's just that it's late and staring at a computer for 11 hours is really straining my eyes and brain, but the long position in an interest rate swap (fixed for floating) is where you get the floating rate or the fixed?

I should just put the papers down for the night....

Thanks in advance!

 

[Whomp]

Perhaps it's just that it's late and staring at a computer for 11 hours is really straining my eyes and brain, but the long position in an interest rate swap (fixed for floating) is where you get the floating rate or the fixed?

I should just put the papers down for the night....

Thanks in advance!

It really depends on what you're trying to do in the swap. It usually benefits both parties so....

It's a transaction where two groups exchange income streams. Usually, they'll do it where they're trying to lower a cost that another can provide so they can manage or limit a particular direction of rates. Clear as mud, yes?

 

[The Yankee]

Yeah, I've got that...I'm just trying to figure out what the heck my professor means:

What is the time 0 value of a long position in a 1-year, 6%, plain vanilla semi-annual fixed-for-floating interest rate swap with $100 notional par amount?

Since that's part A of the question, that's the context of it. There's no option here, so it shouldn't have anything to do with the previous question except for the prices, since the par, the interest, and the time to maturity are the same as a previous question about adding calls and puts on a bond.

*Put down the papers, Yankee. You're driving yourself bonkers.*

Edit: I think there was an assumption about it in the notes. No wonder it wasn't making sense. Off to look...thanks anyway, Whomp!

 

[JerichoHill]

@@scy12;6769853]
That is what i said : If you consider that to be wrong you should address that statement. The problem is because one thing causes the other it doesn't mean we can't make a backwards relation.
Causality is directional. Especially so in this case. Supply and Demand determine price, basic economic theory. There is no backwards causality. Price is completely dependent on supply and demand in traditional economic models. This point isn't up for debate.


If the prices are now at an A level while before they where at a different one what does that say to you about supply and demand ?
That Supply, demand, or both changed.




I will but i must say that i prefer the exchange of an ideas in a forum where different ideas are introduced ,discussed can be put into a test since there is a more direct relation into the one who is receiving ideas and the object from which he receives the ideas.
That's all well and good when we delve into opinions, but you're asking a question that relates to a widely held tenet of economics. That's a simple answer.

The housing bubble blog was meant to read and learn the story. The short version of the story is:


1) Cheap borrowing costs (interest rates, loan products) drive up demand (people feel like they can afford more). Prices rise.

2) Builders respond to the price rise by building more. Supply increases.

3) This fuels the notion of a boom in housing. Cheap borrowing fuels more demand. Prices rise.

....

Then something happens to break the Ponzi scheme as price race up to a high artificial level. Borrowing costs rise. Something. Then its all over.

There is a wiki entry on this.
http://en.wikipedia.org/wiki/United_States_housing_bubble

 

[Theige]

Would it be possible to make speculative investing in things such as oil illegal?

 

[JerichoHill]

I dont think so, because defining speculative is an incredibly slippery slope.

 

[lovett]

Hey.
Im curious, considering that the figures on US growth (0.6%) are about a fifth of inflation (3.1%) what affect does this kind of thing have on real income?

Does income still rise? Can it be easily calculated?

 

[JerichoHill]

Lovett,

The released figures are for Real GDP growth, which is supposed to be adjusted for inflation.