And why it’s not about to get any less unaffordable
The best lies have a kernel of truth. Housing is unaffordable because of zoning. It’s because the cost of materials and labor have gone up. It’s because of high interest rates, It’s because of inflation.
These get more true with each iteration. But they aren’t really the big picture answer that gives us insight as to where housing affordability may go in the future or what might be done about it. Let’s get out our macroscopes and take a high level view.
That answer is remarkably simple, even if it involves a bit of abstraction, but has virtually never been articulated in any media analysis of the housing crisis.
Every unit of purchasing power the government spends comes from somewhere. It is either taken in direct taxes, higher interest rates, inflation, or all of the above. If the government spends more than it taxes, it’s just taking though other means. Tax cuts without spending cuts just hide costs behind the curtain of interest rates and inflation.
A little thoughtful reflection should render this self evident. Where would any excess of what the government spends over what takes in in taxes come from? It’s manna from heaven? If the government spends more than it takes in tomorrow, there are no new goods and services created. No new acres of wheat appear, no more hours of plumber’s time appear, no new homes materialize. The global body of goods and services available for purchase remains the same. With government increasing its claims on it, there is less to go around for everyone else.
But we can open the hood and look a little closer the gears and pulleys of how this works. If the government borrows more dollars, all else being equal, the number of dollars available for everyone else to borrow goes down. Competition between borrowers for a finite pool of dollars means that interest rates rise.
Of course not all else is equal, because the banking system can create more dollars. If the Fed holds interest rates constant, the number of dollars available to be borrowed can increase. But this merely transfers loss in purchasing power from debt to currency. The currency decreases in value, which is inflation. There is more currency, but still the same amount of stuff to buy with it, so the loss in purchasing power appears in higher prices.
It’s economic whack-a-mole. The government takes more purchasing power, and tries to hide it by taking less in taxes, only to have the loss of purchasing power pop up somewhere else.
It pops up everywhere, in higher prices for groceries, gasoline, utilities, etc. But why is it so prominently noticeable in housing? Housing is getting hit both ways. Higher interest rates and higher inflation. Probably not one would-be home buyer in a thousand realizes why the American Dream seems to be receding into the distance, why his home purchasing power is disappearing. But the answer is simple. It’s being taken by the government.
Dollar capital is unlimited.
Real capital isn’t.
Econo-pundits are fond of warning that debt and deficits will one day come back to bite and that the next generation will have to pay for today’s government largess. That may be, but it’s not a just a future loss. We’re paying now.
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Gold hit another all time high of $3578.21 today.
How high can gold go?
Let’s calculate it.
PG = Price of Gold
VG = Value of Gold
VD = Value of Dollar
PG = VG/VD
As VD->O, PG->♾️.
I personally think a corrective move is due now with daily, weekly and monthly charts showing overbought. Let’s see what this new week brings.
How long is a piece of string?………..thats how much Gold can go
It has been awhile since I visited here. I’m not sure why. I visited the itulip forum too, where nobody has posted in months.
I have been wondering about gold and where it is going to go, given that its IRR has been over 30% since the beginning of 2024. And so I went to synthetic systems, only to see that Finster is forecasting continued gains in gold for as long as the chart goes, relative to other assets. I have been thinking about rebalancing despite the fact that I am unenthused about just about any other asset but gold. But now I am thinking it probably makes sense to just keep holding on for the next few years.
Welcome back, kbird!
Far as gold goes, at least we aren’t forced to make an all-or-nothing decision. It’s always been sensible to have at least a little, advisors have long recommended a timeless 5%. You don’t really even need a reason to own it … I look at it as the default asset … what you own when you don’t have a reason to own something else.
Every asset allocation decision is personal, but the unattractiveness of the alternatives alone can justify more than the basic 5%. For most of the past four decades Treasury bonds have been a strong performer and diversifier to stocks. That ended in 2020. Since then I’ve reduced treasuries in favor of more gold. We never know the future before it gets here. but I suspect this will hold for at least the rest of the decade. This has been an ongoing subject of discussion here and will continue to be. Stay tuned…
What happened to the FDI index? Did you stop tracking it for some reason Finster?
Guess the FDI isn’t very easy to find here … go to the site menu, select Synthetic Systems, and scroll down. I haven’t updated it in a while because there haven’t been many comments about it, but duh … if readers don’t find it … I’ll get an update out soon…
Yo Kbird
https://www.telegraph.co.uk/business/2025/09/04/lloyds-of-london-reverses-net-zero-ban/
Bit by Bit
Establishment media continue to flog their Fed independence propaganda. Yammering on about preserving Fed independence without ever bearing the burden of showing that the Fed is independent in the first place. So yes, propaganda is exactly the right word, since it implants an idea not by facts or logic but by assumption and innuendo.
It’s as if the media ran nonstop coverage about whether the Air Force should stop intercepting alien flying saucers over Arizona. Bypassing any inconvenient debate about whether there even are any alien flying saucers over Arizona!
R.I.P. American journalism.
One “expert” on CNBC had the audacity to compare Trump’s firing of a Fed governor for apparent financial fraud to firing someone because he didn’t like their tie. With a straight face.
The Federal Reserve is the 1%’s most powerful organ of wealth and power. Anything that might get in the way is a target.
Establishment media bias against Trump was on full display again just today when a CNBC guest referred to a Trump announcement as characteristic of a dealmaking strategy that starts out with an extreme position and negotiates from there. The anchor, evidently unsatisfied with a neutral framing of the facts, instantly stepped in to correct him by exclaiming “The TACO trade!”, which of course features the disparaging acronym “Trump Always Chickens Out”.
Needless to say, this will not help:
Bessent: “We May Declare A National Housing Emergency In Fall”
Signs the US Treasury’s appetite for capital is about to decrease are conspicuous by their absence. Even if the government did find some intervention to ease the housing affordability crisis, unless it goes on a strict diet, it would only be at the expense of something else becoming more unaffordable.
Economic whack-a-mole.
Jobs numbers were not good………….
We have a tentative rate cut endorsement from the bond market. On today’s weak non-farm-payrolls report, which has led to increased speculation on Fed rate cuts, the bond market rallied, implementing rate cuts of its own. This is significant, since last year when the Fed inappropriately cut rates, the bond market hiked.
Mega’s Dispatch from England:- The battle begins
Today here in deal old Blighty we had are 1st major political resigning of this Labour government. The deputy prime minster was forced to go when it was “Discovered” that she had bought an apartment & falsely claimed it was her main resonance.
This little “Slip up” saved her $50,000 in taxes it also led to it being discovered that she effectively raided her disabled son trust fund to buy her new pad a VERY long way from her home town of Salford (Manchester).
This also points to the fact that she had done something known in British political circles as a “Chicken run”. In short she was preping to dump her “seat” in Salford that she had no chance of hanging on to for this new area full of middle class lib types who would vote for her.
Anyway, she was caught, got sacked & will now have to sit down with UK TAX man & make good the $50,000+fine.
Mega’s Dispatch from England:- The battle begins
Anyways the Prime minster took the opperturatly to have a reshuffle/clear out. He sacked off a lot of left & hard left types & kept or promoted “Fabian” types. For those whom don’t know the Fabian society:-
https://en.wikipedia.org/wiki/Fabian_Society
Please note the “Wolf in sheep clothing” logo!…….i think Malcom X spoke of this in his “Wolf & the Fox” speach.
The latest is that war crimo Tony Blair si once again trying to force on us the “Digital i.d card”. I still can’t fathom if its just an IT project to screw more money from the long suffering tax payer or something more “1984”.
Mega’s Dispatch from England:- The battle begins
The Prime minster has also let it be known that he will broke no more disobedience from his party. He now full intends to return a bill cutting welfare & this time he expects it to go though!
If not then he call a election & most mps will lose their seats.
The HARD left is now licking its wounds, they are likely to fight back & Starmer is no leader…….i full expect an early election in May of next year….
What is it with this “primary residence” epidemic? Just across the pond we had a Fed governor resign last month over a(n apparently innocent) conflict between records of a residence as “primary”, and of course the more recent and much more highly sensationalized firing of another.
https://www.cnbc.com/2025/09/05/trump-fed-kugler-resignation-powell.html
https://www.motor1.com/news/771340/jaecoo7-temu-range-rover-better/
Mega right again
Not as easy as arresting middle aged women in their own homes for a naughty post on a bb…
https://www.youtube.com/watch?v=dyY64d4UnmI
Every time I visit your website, I’m greeted with thought-provoking content and impeccable writing. You truly have a gift for articulating complex ideas in a clear and engaging manner.
The kind of thinking that got us where we are:
A Fed Housing Fix That’s Hiding in Plain Sight
The suggestion is for the Fed to pump more money into MBS to push rates down and make housing more affordable. It overlooks the effect that mortgage rates have on house prices. In particular, it fails to acknowledge the role of the Fed’s last printing spree in driving up prices and making housing as unaffordable as it is now.