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Economist opines on root causes of today's problems

Uploaded: Dec 6, 2022
Chris Thornberg, the founding principal of Beacon Economics, is a familiar face to those of us who pay attention to the East Bay economy.
His firm prepared the economic forecast for the East Bay Economic Alliance for Business for many years. Typically, he is outspoken and you don’t have to guess at his opinions. He pulled no punches in his latest newsletter.
In Thornberg’s view, the Great Recession and the current economic mess with inflation and soaring interest rates both can be tied directly to ill-advised government actions.
He wrote, “ Little doubt that most people over the age of 30 are suffering from some level of PTSD, remembering the economic carnage that came after the last collapse of the real estate market in 2007-08.
“This real estate cycle and the last have similar roots — they were both created by bad policy on the part of the Federal government. The one bit of good news is that the underlying malfeasance in each cycle was completely different.”
He goes on to point out that the recession was caused by government inaction, while the doldrums hitting the real estate market now have the opposite cause—too much action. Prices have been falling as interest rates have more than doubled in less than a year—yes, rates were in the 3% range in January that now are 6.5-7% with another rate hike by the Federal Reserve looming this month.
“The real estate cycle that generated the ‘Great Recession’ started with one of the greatest snake oil inventions ever dreamed up by Wall Street: the subprime mortgage-backed security. Regulators, believing in the economic myths of efficient markets and rational investors, sat idly by as trillions of dollars flowed into the housing market without any basic underwriting standards.”
” The Covid pandemic was a tragic human event but was never the existential economic crisis it was made out to be by too many economists and pundits. The result was one of the most preposterous overuses of stimulus ever experienced — in two short years the nation saw an enormous increase in Federal outlays funded by $6.5 trillion in fiscal borrowing. This was, in turn, funded by $5 trillion in new money delivered by the Fed in the form of quantitative easing despite the fact that the pandemic did not create any major financial problems. As a result, all this stimulus went straight into the money supply, and M2 ended up increasing by 50% in two years, faster than we’ve ever seen before.”
Thus, no surprise inflation soars and contrary to the fed and Biden Administration pronouncements, there was nothing transitory about it. Once the Fed woke up to reality, it jacked up interest rates. That immediately slowed the housing market as interest rates soared, purchasing power fell and buyers grew cautious so prices fell.
Long term real estate in desirable markets such as the Tri-Valley will do fine, but we’re in for a short term bump thanks to terrible federal policy from both the Federal Reserve and the Biden Administration pushed along by Democratic majorities in Congress.
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Comments

Posted by Gary Petris, a resident of Blackhawk,
on Dec 6, 2022 at 10:57 am

Gary Petris is a registered user.

As stated... "Long term real estate in desirable markets such as the Tri-Valley will do fine, but we're in for a short term bump thanks to terrible federal policy from both the Federal Reserve and the Biden Administration pushed along by Democratic majorities in Congress."

^ That said, there is no reason for folks residing in the nicer parts of the Tri-Valley (or Silicon Valley) to stress over inflation, just capital gains tax upon the eventual sale of the property.

Wealthy Democrats should always endorse and support any/all government measures designed to assist the less fortunate including food stamps, rental assistance, transportation assistance lest they be wrongfully viewed as or mistaken for cold-hearted Republicans.

President Obama understood this reality and his Obamacare program and Obama-phone distribution helped ease the burden on the poorer populations.

Inflation is just a number that fluctuates with the market. By pumping more federal money into circulation, we ensure a more humanitarian American society.


Posted by Rich Buckley, a resident of Jensen Tract,
on Dec 6, 2022 at 11:28 am

Rich Buckley is a registered user.

Well known economic pundits such as Thornberg, have been preaching for decades. But, what was true this morning will likely not be true this afternoon. The flying carpet from which economic prognostications are offered, even by Thornberg, is not flown under his control. He's along for the same ride as the rest of us, so is the Federal Reserve which has already failed just as their war in Ukraine has failed. Many will be thinking Russia for revealing what has really been going on and the vast corruption in Ukraine supported by idiots in Congress, elected officials serving lobbyists not the people, and an academia that rubber stands approvals on the entire corrupt process. Namaste...


Posted by Rich Buckley, a resident of Jensen Tract,
on Dec 6, 2022 at 11:32 am

Rich Buckley is a registered user.

"Many will be thinking Russia" typo "Many will be thanking Russia"


Posted by Rich Buckley, a resident of Jensen Tract,
on Dec 6, 2022 at 11:37 am

Rich Buckley is a registered user.

"and an academia that rubber stands approvals" typo "and an academia that rubber stamps approvals"


Posted by Jake Waters, a resident of Birdland,
on Dec 6, 2022 at 2:18 pm

Jake Waters is a registered user.

Many times I have found the ‘comments' to an article more revealing than the article itself. For example: “ Wealthy Democrats should always endorse and support any/all government measures designed to assist the less fortunate including food stamps, rental assistance, transportation assistance lest they be wrongfully viewed as or mistaken for cold-hearted Republicans." This is typical groupthink of the Elite Corporate sponsored Left, aerated with the stench of Saul Alinsky's ‘Rules For Radicals' dogma: ‘Label and define your opposition of that which you are guilty yourself.' Obama, a devote follower of Alinsky, knew the tactic well, and used it abundantly during his two terms. The commenter's quote would lead you to believe that their opinion is- Republicans have no interest in the less fortunate. I'm an Independent and would not come to that conclusion. Part of the problem with Social Justice Warriors are they pick and/or create a victim, and then use Taxpayer funds to throw at it. Not a very good economic policy.


Posted by Taiwan Jensen, a resident of another community,
on Dec 7, 2022 at 8:23 am

Taiwan Jensen is a registered user.

• Republicans have no interest in the less fortunate...Not a very good economic policy.

The Republicans tend to look the other way when it comes to assisting the poor because in their opinion this is not good economic policy. Aditional tax cuts for the wealthy are their prime objectives.

The Democrats tend to promote more taxation in order to fund their charitable objectives which is essentially a cloud cover to procure more votes from the disenfranchised.

Both parties are represented and led by self-serving CROOKS.


Posted by Rich Buckley, a resident of Jensen Tract,
on Dec 7, 2022 at 11:34 am

Rich Buckley is a registered user.

Republican Leader Mitch McConnell does not represent the Trump element of the Republican Party. McConnell appears to me to be compromised in some nefarious level with the elite Democratic status quo rich. Trump is the mortal enemy of Democratic status quo. Trump's populism appeals to both disaffected Democrats fed up with the big lie, and Trump appeals to disaffected Republicans fed up with Mitch McConnell.


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