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One of the basic problems when discussing wealth is to define what it actually is. Right now US housing is being described as having risen "too high". This implies that there is a real worth and then there is the additional cost of the bubble.

What people fail to appreciate is that things are "worth" whatever other people are willing to pay. A perfect example can be seen in yesterday's announcement that the IMF is going to sell off about 10% of their gold reserves. Obviously they think that the current price in gold represents yet another bubble and the time to unload is when the suckers start to pile in.

They claim that they will use the money to fund future projects, but also invest it in areas which will yield a higher return. In other words they expect gold to decline. So what is gold "worth"?

Much of the wealth inequality seen over the past few decades is of the same nature. Financial instruments were bid up and the paper wealth of those holding them increased dramatically. Now that the air is leaking out of some of these balloons this wealth will decrease and inequality will moderate (from the top, the poor will still be poor). This will be used as an argument against making changes in the tax rates and regulatory structure: "there were excesses, but the market has corrected itself." Enough people will believe this bunk so that we can expect real reform to be minimal.

When the British forced the landed gentry to pay high taxes it was discovered that many of the most expensive estates had no buyers. Only the wealthy can afford items sold by other wealthy individuals. The result was than many of these estates ended up as part of the National Trust. Will we see a similar trend this time?

If a billionaire needs to sell his 500 foot yacht who will be able to buy it?

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Tue Apr 8th, 2008 at 11:04:46 AM EST
... the direct benefit I receive from using it ... living in the house, gardening in the backyard.

Its when the primary focus of real estate shifts from its use value to its value as a fictitious commodity that we start to get into trouble.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 8th, 2008 at 12:19:04 PM EST
[ Parent ]
Increasing house prices are not even on paper wealth.

The video
"The Coming Collapse of the Middle Class" under the url
youtube.com/watch?v=akVL7QY0S8A

is lengthy but it is described, that the median US household's main increase in expenses in the last 30 years was housing (next to health care), even when the median size of the houses went only up less than one room. The house price boom has become the biggest danger for the middle class in the US in the last years. The point is, that in a sense houses are consumer goods not financial assets, you usually live in them. If you sell the house in which you live, you likely will buy another one. So increasing house prices are inflation.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Apr 8th, 2008 at 01:58:16 PM EST
[ Parent ]
What people fail to appreciate is that things are "worth" whatever other people are willing to pay.

Possibly the most incorrect statement possible for any human to say.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Wed Apr 9th, 2008 at 04:03:36 AM EST
[ Parent ]
We are looking at the distinction between Value and Price, and Wilde's definition:

A cynic is a man who knows the price of everything but the value of nothing


"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Apr 9th, 2008 at 05:25:03 AM EST
[ Parent ]
In Spain we say sólo el necio confunde valor y precio (only the dunce confuses value and price).

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Carrie (migeru at eurotrib dot com) on Wed Apr 9th, 2008 at 06:05:35 AM EST
[ Parent ]

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