Video: Robert Shiller on Why Housing Has Not Bottomed

Barry Eichengreen on What Could Replace the U.S. Dollar

Professor Eichengreen explains the current state of the world's reserve currencies and makes the argument for GDP-indexed bonds here.

Video: Professors Shiller and Siegel Debate Current Stock Market Valuation

The Buck Stops Here: Housing Price Trends and the Economic Outlook

Is the time finally right to get back into the residential real estate game? And what are the broader implications of trends in housing on the overall economy and financial markets? Let's take a look at the arguments and data.

The Case for Investing in Housing

Mortgage interest rates have come up some recently but are still near historic lows and appear attractive.

U.S. 30-Year Mortgage Interest Rates

Note: chart data only runs through early 2010; if updated through 2011
 the chart would show a recent increase in interest rates to around 5%.

We're also entering the comparatively slow home buying season and prices, after a post-bubble popping uptick, have been retreating recently.  There may be some sweet deals to be had over the next several months.

And perhaps most importantly are the following two considerations: a) the overall economy is showing increasing signs of life and b) the risk of deflation appears to be subsiding as commodity (e.g., oil) and food price inflation is taking off globally. Real estate has historically been considered one of the best ways to protect oneself against broad inflation.

Add it all up and it would appear that housing could in fact be a prudent investment right now. What would be reasons for holding off?

Continue reading the full article published on SeekingAlpha here.

Economic Newspeak: Has Yale's Robert Shiller Seen the Light?

"To me...part of the process of pursuing the inexact aspects of economics is speaking honestly to the broader public, looking them in the eye...and then searching one’s soul to decide whether one’s favored theory is really close to the truth."

-Robert Shiller, Project Syndicate Op-ed January 20, 2011 

Yale Professor Robert Shiller

The above words come from the same Professor Shiller who just a few months ago brazenly argued that our government, when engaging the broader voting public on the "complexities" of 'necessary' bailouts, should employ economic propaganda.

Yves Smith over at Naked Capitalism also took exception when Shiller's November op-ed came out, characterizing the Yale Professor's argument as a justification for Orwellian newspeak.

Shiller previously argued that terms like 'bailout' should be recast as ‘orderly resolutions’ so as to make sure the voting public 'gets it'.

From Shiller's November piece:

When life is smooth, people tend to remain complacent, reflecting confidence in the economy. In times of crisis, such confidence is also vital, even if government can’t absolutely guarantee that it’s justified. 

...well-thought-out framing packages can work. They can help sell crucial intervention packages to people who don’t fully understand the financial system’s complexities.

As I noted in my response to Shiller:

In other words, Shiller is making the argument that it's not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller's recommendation even work?

To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed's actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilites is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke's comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence. 

What made Shiller's November words all the more disheartening is that they came from from one of America's most respected and credible academic economists. Professor Shiller hails from Yale University, and he is both a widely read author and creator of the influential Case-Shiller Home Price Index. While Shiller was not one of the academic economists skewered by Charles Ferguson in his excellent documentary film Inside Job, his November remarks certainly made him a deserving target of popular criticism.

Here's to hoping Shiller's more recent reflections indicate an about face in his thinking along with a commitment to speaking clearly and truthfully on economic matters, like taxpayer funded bailouts, with the general public.

Is Economic Propaganda Ethical?

Ever wondered why government officials use fancy sounding terms like 'quantitative easing' instead of the much easier to understand 'printing money' when they both effectively mean the same thing?

Yale Professor Rober Shiller, who correctly predicted the housing market crash, weighs in on this topic with a piece in this weekend's NY Times. In the article he describes how to handle the inevitable next financial crisis.

His rather surprising answer?  By using the right vocab.

In what so far as I can tell is a first by an esteemed member of the academic community, Schiller goes on public record rationalizing the use of propaganda by government officials.

Shiller states:

"in times of crisis...confidence (expressed by the government) is also vital, even if government can’t absolutely guarantee that it’s justified...for people who don’t fully understand the financial system’s complexities "

In other words, Shiller is making the argument that it's not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller's recommendation even work?

To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed's actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilites is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke's comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence.

Are 'bailouts' and 'printing money' hopelessly beyond the general public's understanding, as Shiller believes? And instead of coming up with the proper vocab, shouldn't officials and financial experts be working on how to prevent the next financial crisis?