Friday, September 12, 2008

The Almost Daily 2¢ - A Picture Says Over 300 Billion Words

Here’s an interesting tidbit from today’s release of the Federal Reserve’s “Flow of Funds Accounts of the United States”.

The chart above shows gross unrealized capital gains and losses of the entire residential real estate market plotted since 1952.

As you can see, the Federal Reserve is estimating that in Q1 2008, households (and nonprofit organizations) lost over $300 billion in net worth associated to real estate.

5 comments:

  1. Anonymous5:14 AM

    This a the clearest demonstration of the downward phase of a Kondratiev Wave that I have EVER seen. With our vulnerabilites (due to: 1)Zero Saving Rate, 2) external energy dependence, 3) unfunded federal & state liabilites, etc), We are in for very serious conditions.

    Doug Walden
    Asbury Park, NJ
    tammjenanalytics@live.com

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  2. The chart is not very clear. Does each point show the change over the previous quarter?

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  3. anon,

    I love reading about the Kondratiev Waves and there is no doubt that long economic waves are a real phenomena.

    Recently my local used book store was giving away some books one of which was titled "Konratiev" and it was and interesting take in which the author, writing in the late 60s early 70s, created a first-hand account of what would be experienced in the early-80s.

    In some ways the authors description was very right, high unemployment etc... but clearly the real long wave phenomena did not occur.

    The other book they were giving away was called "Depression 1990" by Ravi Batra which, although wrongly predicting a global depression and not being very well written, does hit many of the key points one could make about today's potential for a long wave meltdown....

    It will be interesting to see if today's meltdown is the "big one" or is simply another step pushing us even closer to systemic collapse.

    velorution,

    Yes each point shows quarter over quarter change in dollars.

    I've built another chart with the same data but I adjusted the dollar amount for inflation and you still have essentially the same "curve" ... probably is better expressed as a bar chart though.

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  4. Anonymous4:57 AM

    Kondratiev Wave cycles can be modified/mutated by monetary & fiscal policies for certain periods of time. Hence the additons of "liquidity" by the Federal Reserve after: the 1987 debt-sale induced stock market crash, S&L crisis, 1997-98 Asian-Russian financial/L.T.C.M. crisis, 2000 Dot-Com Bust, 9/11 attacks all provided a sybolic financial cocaine-like boost to the economy's metabolism. Unfortunately, the level of debt-toxicity is great now than what existed prior to the 1930. Look at overall Debt-to-GNP Ratios from 1900 to Present fopr more insight.

    Also, you must remember, that like large waves on the ocean, Kondratiev wave also have shorter period cycles (3-to-7 year invesntory adjustment cycles, Kuznets, etc) "riding" on then that alter the period/shape of the wave.

    Doug Walden

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  5. Here's a very interesting quote that supports the notion that monetary policy can delay the onset of the Kondratiev winter:

    "My deceased friend, Teddy Butler-Henderson, met Alan Greenspan in the 1960’s. They apparently discussed the Kondratieff Cycle. According to Teddy, Alan Greenspan confided that he hoped he could be Federal Reserve Chairman at the onset of a Kondratieff winter, because he felt he could defeat winter by substantially increasing the money supply and reducing interest rates to near zero. He had his wish and effected those actions following the 2000 stock market peak.

    "This effectively put winter on hold but massively compounded already excessive credit to the extent that people who should never have had access to loans were willingly given them. Now the credit bubble that Alan Greenspan initiated is beginning to unwind. The process will be horrific and cannot be reversed. Incidentally, Mr. Greenspan told Teddy during that same conversation that if he failed to thwart the Kondratieff winter, it would make what followed 1929 look like a ‘Sunday school picnic.’ This is what we have to expect."

    Source: This Is It! (http://www.thelongwaveanalyst.ca/pdf/07_12_04_News.pdf)

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