This is a part of a longer discussion on a blog site called Seattle Bubble at http://seattlebubble.com/blog/2010/05/21/weekend-open-thread-2010-05-21/#comment-101662
This is really simple. You have a real economy, and a paper economy. The real economy is housing, food, health, and energy. From that you get transportation, hygiene, and sustainable resources, like monitoring the fishing industry.
It’s simple. The are no complicated formulas of theory. You can talk about going to the moon, or astronomy, but the reality is we have people to feed, shelter, and make sure we keep a killer plague from wiping out the human race.
When you mention Japan, the economy there was decimated by the price of property. http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
A broader reference http://en.wikipedia.org/wiki/Real_estate_bubble
Look at property when you want to talk economy. There is farm land, Industrial, manufacturing, warehousing, commercial, retail, and housing. The economy goes up, pricing goes up, the cost of goods goes up. On the way down the price of goods goes down, but the debt service on the properties remains the same.
In Japan the people continued to pay mortgages on over priced housing units. You’ll notice that, in the reference, they refer to asset pricing. It’s all across the board. The people of Japan are paying mortgages on farm land, industrial, commercial, retain, and housing units. The money these savers have in the bank then goes outside of the country to make investments. Guess, just guess what the investments are.
In theory, when you invest in the stock market you are investing on a package of assets, commerce, and blue sky. Microsoft shifted that because the biggest asset they have is intellectual property. That opened a lot of doors to paper trading as if that paper was an asset. The paper was only as good as the asset it represented. Now those asset, based on Real Property, are worth less, much less, globally.
The best part in this thread is where there is a debate about the price of farm land in France. We don’t know the price of farm land in France, but it is a matter of speculation. Mexico’s closer so let me use an example from there. A walled hectare in Mexico was built with the hacienda for $225K. It went up in value, based on written offers to purchase to $900K. It’s now worth about $275K, maybe $325K based on an appraisal by the University of Washington.
People were willing to buy for $900K in 2006 by taking American equity into Mexico. What’s that like in Europe? What’s that like with the value of the Euro going up in value? I’ll speculate that it’s 10 times worse there, than it is in the United States. I’ll bet the value of the Euro, based on asset values, will decline sharply.
You see, it’s simple like that.
