Tag Archives: Sustainable Prosperity

The Importance Of Asset Bubbles

“When you live in a bubble, everyone is delusional…” –

-Nouriel Roubini, May 11 2010 Charlie Rose interview

Many people fail to see any asset bubbles in our current economic environment.  Others see isolated asset bubbles.  As I have previously stated in the April 8 post,  “Our societal inability to spot and prevent asset bubbles is problematical.”

I have written extensively about the existence of asset bubbles.  The topic is of critical importance as their widespread existence precludes the possibility of Sustainable Prosperity.

A Special Note concerning our economic situation is found here

SPX at 1109.55 as this post is written

ECRI On Frequency Of Recessions

I recently came across a notable excerpt in ECRI’s “U.S. Cyclical Outlook” of December 2009 (pdf):

“The bottom line is that long expansions are needed after severe recessions to undo the damage.  After the 1932-33 depression, not even four years of expansion were quite enough, despite 10% annual GNP growth.  This time trend growth is likely to be far lower, and the danger of frequent recessions accordingly higher.”

my comment:

I find the above excerpt interesting and notable.   While I don’t necessarily agree with ECRI’s current forecast or economic interpretations, the concept of Sustainable Prosperity is one that I have frequently written of, and it is imperative that we, as a nation, should consider our longer-term economic plight as we seek to improve our current economic  condition.

America’s Economic Future – A Comment

Those familiar with this blog know that I believe (based off of my overall analysis) that our current purported economic recovery is not sustainable.

As I have indicated in previous writings, we as a nation need to be more “strategic” in nature if we are to attain true Sustainable Prosperity.

One critical question that we should be asking, from a strategic standpoint, is what is the value of a recovery if it is not sustainable?  The answer is that there is very little if any value to such a recovery.  In fact, a very strong case can be made that there will be strong negative repercussions stemming from such an unsustainable recovery.

Another issue, from a strategic standpoint, is one of opportunity cost.  The opportunity cost of attaining a recovery that subsequently fails vs. a true sustainable recovery is enormous.  This is especially true in our current economic environment where many factors such as the national debt are at truly ominous levels.

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SPX at 1165.42 as this post is written

America’s Economic Future

As a follow-up to yesterday’s post, here is a passage from Larry Summers’ March 13, 2009 speech that speaks of the importance of economic strength in achieving broader societal goals:

“Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it’s predecessors, is fundamentally sound and not driven by financial excess.
This is essential. Without robust and sustained economic expansion, we will not achieve any other national goal. We will not be able to project strength globally or reduce poverty locally. We will not be able to expand access to higher education or affordable health care. We will not be able to raise incomes for middle class families or create opportunities for new small businesses to thrive.”


Our national goal to achieve a sustainable recovery (or what I frequently refer to as “Sustainable Prosperity”) has been and will continue to be a challenge, given various underlying fundamentals.

In order to achieve “Sustainable Prosperity” we will need to have a solid focus on planning our economic future and its dynamics.  Toward this end, I wrote an article in May of last year titled “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” which can be found listed along the right-hand side of the home page.  That article, as well as others I have written, explores some of what I believe are pivotal issues that lack recognition with regard to our economic future.

All of my articles are also listed and summarized at this link:


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The Global Economic Situation

On this blog, I have maintained a focus on the U.S. economy.  I have done so for a variety of reasons, many of which are explained in this June 21 2009 post:


Additionally, from a practical perspective, from a time standpoint it would be prohibitive to attempt to comment on all global economic affairs that I consider relevant.

Although I focus on the U.S. economic condition, this is not meant to imply that the U.S. is the only country that faces an array of difficult economic challenges.  Much to the contrary – many countries currently face economic issues that are exceedingly problematical. 

It is very troubling that so many countries, especially those with large economies, are concurrently experiencing such difficulties.  Such a common and unified adverse condition will not bode well assuming severe economic weakness reappears.

Attaining Sustainable Prosperity is a global challenge.

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SPX at 1140.78 as this post is written

Characteristics Of The Housing Bubble

Given the incredibly outsized intervention efforts in the residential real estate market, I think it is important to examine some dynamics of the real estate bubble.

Here is a chart from the 12/15/09 Contrary Investor commentary that I believe is interesting, as it depicts some underlying residential real estate fundamentals.  It shows the equity and mortgage debt situation.  The underlying data is from the Federal Reserve Flow of Funds:


As far as real estate prices are concerned, I would like to show two charts, both from the CalculatedRisk blog:


The first chart was posted on 12/21/09 and is the LoanPerformance Price Index from 1976:

Next, a chart posted on 12/29/09 showing the LoanPerformance Index as well as Case-Shiller, from January 2000:

As others have commented, it appears as if the overall intervention efforts are aimed at reflating (or to re-inflate) the housing bubble.  Conventional (investment) wisdom has held that reflating a burst bubble is impossible.

However, I think given the tremendously outsized intervention efforts in housing, we are truly in a unique situation.  I don’t believe there has ever been such a large intervention effort in our country, at least in the last 150 years.  Depending upon how one would measure such intervention efforts, it might even be among the largest interventions in world economic history.

A casual observer might assume that such an outsized effort would be destined to be successful.  However, (economic) life is not that simple.

From an “all things considered” standpoint, I don’t believe the residential real estate bubble has actually burst.  It appears to me that it has somewhat deflated.  I base this view on a variety of fundamental and technical factors. 

Assuming this view is correct – that the residential real estate hasn’t popped – the implications are immense.   I think it is likely that one of two possibilities will occur from here, and each could happen in a relatively rapid fashion.  The first possibility is a “successful” reflation of the residential real estate market, with accompanying economic activity.  The second possibility is a collapse of the residential real estate market with accompanying economic repercussions.  As to the path real estate will travel from here – my previous writings on interventions, bubbles and real estate indicate my thoughts on the subject.

If a “successful” relation occurs, one is led to wonder as to the characteristics of such a “successful” reflation of the real estate bubble.  Among other critical questions is how long would such a reflation last?

I think it very important to note the quality and durability of the economic activity that occurred in the first phase of the bubble, which peaked in 2006.  Can one hope for any better outcome during a subsequent reflation?

These issues are critical to the concept of Sustainable Prosperity, of which I have previously frequently commented.

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Sustainable Prosperity

One of the terms that I frequently mention is “Sustainable Prosperity.”  I think the term and its meaning have tremendous significance to our economic future at this juncture.

Providing an exact definition for the term is difficult due to the complexity of the underlying concepts.

“Sustainable” can be defined in terms of time, as well as continuity.  If a posititive economic trend exists for a few years, can it be termed ‘sustainable’?  Case in point was the housing bubble.  Most would say it lasted between 5 to 10 years.  The economy certainly benefitted from it.  However, the benefit was not sustainable.  In fact, in its wake, it has caused an immense amount of damage and poses a tremendous ongoing threat.

From a continuity standpoint, in order for growth to be sustainable it has to be resistant to severe economic setbacks.  Of course, history has shown that recessions, panics, and the occasional depressions are inherent in the economic cycle.  However, if economic growth is sustainable in nature it should over the course of time be able to recover “lost ground” and attain new highs.

The concept of “Prosperity” is somewhat difficult to define as well.  I like to think of it as being multifaceted and having deep “breadth.”  Of particular concern should be enrichment that is narrowly achieved, i.e. a large amount of the nation’s prosperity concentrated in the hands of a few.  This is a concern from both a societal and economic standpoint.  Strong, vibrant, and sustainable economies have widespread prosperity.

Other aspects of “Prosperity” is the amount and composition of such.  If median household income is growing at a rate greater than inflation, can that be termed prosperity?  Can prosperity be defined in GDP growth?  Or is prosperity a more general term that encompasses such concepts as standard of living, the ability for the masses to have affordable access to healthcare, higher education, etc.?

As aforementioned, I believe that the concept of Sustainable Prosperity is more important now than ever before.  If one assumes, as per the current economic consensus, that we are experiencing economic recovery, I think it would behoove us to constantly assess whether we are experiencing true “Sustainable Prosperity” or something that might only resemble such.

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SPX at 1123.89 as this post is written

Larry Summers On Growth – March 13 2009 Speech

Here is one more excerpt from Larry Summers’ speech of March 13.  I find this excerpt to be of particular significance with regard to the concept of Sustainable Prosperity:


“Of fundamental importance is ensuring that we do not exchange a painful recession for another unsustainable expansion. That would not only be irresponsible – it would be counterproductive. We have seen what happens when we pursue policies that produce short-term, instead of durable and sustainable growth.”

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SPX at 1127.78 as this post is written

Larry Summers On Bubbles – March 13 2009 Speech

As I, as well as others, have been frequently mentioning bubbles, I thought it would be interesting to post a few comments (excerpts) that Larry Summers made concerning their effects during his March 13, 2009 speech.  I found these comments to be very interesting, especially in light of our current economic condition and prospects for Sustainable Prosperity.

Here is a link to that speech, which was made to The Brookings Institution:



“Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it’s predecessors, is fundamentally sound and not driven by financial excess.
This is essential. Without robust and sustained economic expansion, we will not achieve any other national goal. We will not be able to project strength globally or reduce poverty locally. We will not be able to expand access to higher education or affordable health care. We will not be able to raise incomes for middle class families or create opportunities for new small businesses to thrive.”
“We have seen housing prices reach unsustainably high levels and credit spreads reach unsustainably low levels in the middle of this decade. And we saw bubbles in technology in the late 1990s.
Bubble driven economic growth is problematic because of disruption and dislocation – affecting those who took part in the bubble’s excesses and those who did not. And, it is not entirely healthy even while it lasts.” 
“If growth in the coming years is not to be driven by asset price inflation-induced consumption, other engines of growth must be identified. These forms of growth should be sustainable and shared by the majority of American households.” 
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