Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by SanjanaSingh


    Hero, I somehow find your posts to be irrationally exuberant about global economies and it seems this hyper-exuberance is blissfully ignorant of ground realities. Economies grow when demand is created from grassroots, not by handful of people supposedly earning 50 lakhs PA and buying their third flat and fourth car.

    Reading your posts, one could be mislead into believing that all economies are surging, incomes are surging, Indian RE is surging, and people are surging to buy flats, cars, and other consumables. I find your posts to be far removed from the economic realities that confront the majority.


    Well then check out how the boom shale oil and gas is changing the US economy. Cheap energy is a major boon for the world economy. Just one innovation has caused the US to cuts its oil imports by 5 mbpd in the last 5-6 yrs.

    All the talk about world going into a depression and non-sense. People innovate and grow and there is so much excess capacity in the world right now that prices have to fall which will stimulate demand.

    Not all economies are surging but taking one incident like US fed reducing QE and saying everything is going crash is rather naive. When the euro crisis was going on similar projections were made.

    Just looking at central bank actions without taking into account real innovation and inventions taking place in the world can cause people to become unreasonable. US Fed cutting back on QE has to be taken into account with BOJ's action and ECBs support for Euro banks.

    Measuring economic performance based on daily or monthly stock price movements is also incorrect.

    Hoping for Indian RE to crash without understanding the powers in play and the vested interest behind its growth is wishful thinking.

    I dont believe that money printing is the right long term solution but that dosent mean there arent short term - 5/6 yr - benefits from that action. We would need a much bigger discussion on how I see the world system and why I know that we are not entering a period of low or -ve growth.
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  • Originally Posted by SanjanaSingh
    Economies grow when demand is created from grassroots, not by handful of people supposedly earning 50 lakhs PA and buying their third flat and fourth car.


    Believe what you want but facts dont change just because you have a -ve view of the world economy.

    There are many people who I know who earn awesome amount of money. There are a lot of intelligent people in India who are making a career and doing a good job at it. The world is their oyster and they dont care if GDP is 4% or 10% or if car sales are down 10% or gold has crashed or oil is down.
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  • Originally Posted by SanjanaSingh

    Falling INR does not automatically guarantee industrial turnaround. There should also be demand. We are already in the early stages of a depression. If depreciating currency alone caused economic prosperity via export competitiveness, Zimbabwe would be an economic powerhouse by now !


    Again looking at the data in isolation. The example I gave was that falling oil and gold prices due to strong dollar will mean lower rupee. Now if dollar is strong then will it make sense for Americans to import from rest of the world or export? Wont energy supply from shale have an effect on the value of the dollar? Wont manufacturing moving to US due to low energy prices affect imports? Wont falling US deficit affect the need to print new money? Wont Euro see a temporary bounce from 2-3 yrs of -ve growth? Wont India reap the benefits of lower oil and gas prices?

    This is normal economics isnt it?

    So taking an extreme example like Zimbabwe and comparing it with India serves no purpose. Are Zimbabwe and India similar?

    Just because we had the credit crisis of 2008 which was an extreme event dosent mean we will have one such extreme event every 5 yrs. People need to stop turning all bad news into 2008.

    Maybe thats the basic difference between your way of looking at things at my way of looking at things. I dont believe we are in a 2008 like situation today. The next big bubble is still yrs away and that next bubble may well be the Indian RE bubble but at the moment we are not seeing a bursting of the RE bubble.
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  • Originally Posted by SanjanaSingh


    A liquidity shrinkage globally and moreso in India will have NO effect on Indian RE ?


    Werent you just harping in some other post about how BoJ is pumping trillions (even though its yen and not $$) into the world markets? And US fed is slowing down QE not stopping it.

    Indian RE is not just backed by global liquidity. It is also backed by a strong builder-politician nexus and the lack of other "safe" and trusted investment avenue for Indians. Land laws further complicate the problem and a young population provide a nice cushion.

    Dont take my support for high RE prices as a statement of my belief in the Indian system. I have said it many time in this forum that when the Indian RE bubble bursts (and it will burst) it will be chaos but that time is not right now. That moment is still some yrs away. Similarly the way the US fed and BoJ and ECB and BoE are handling the world economy is going to cause problems but even that event it ahead in the future.

    Just because a few know the road to nirvana - free trade, less govt, gold back currency, strong property rights, liberty and freedom - dosent mean the majority is going to stop playing the current game and join in.
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  • Originally Posted by herohiralal
    All the talk about world going into a depression and non-sense. People innovate and grow and there is so much excess capacity in the world right now that prices have to fall which will stimulate demand.


    Its not talk ... we're already in the early stages of a depression.

    Not all economies are surging but taking one incident like US fed reducing QE and saying everything is going crash is rather naive. When the euro crisis was going on similar projections were made.


    Never said that everything was going to crash because the Fed is considering pulling liquidity. What I'm implying is that CBs have their limitations and we're in the midst of a deflationary supercycle. From recent utterances by various Fed members, it seems they are realizing that QE has served to create asset bubbles -- and has done nothing for improving the economy. That the Fed will stop QE is a given. And you are being naive if you think this will not accelerate the deflationary forces.

    Just looking at central bank actions without taking into account real innovation and inventions taking place in the world can cause people to become unreasonable. US Fed cutting back on QE has to be taken into account with BOJ's action and ECBs support for Euro banks.


    Ah yes, the BOJ. A good example of my point above that CBs have limitations, are at the limits of their market manipulation and are losing the battles against deflation / depression. BOJ pumping trillions on a daily basis in bonds and stocks, and yet bond yields are rising ????

    That alone should be the warning sign for the future of interest rates and, by inference, the world economies.

    Measuring economic performance based on daily or monthly stock price movements is also incorrect.


    I don't do it. Do you ?

    Hoping for Indian RE to crash without understanding the powers in play and the vested interest behind its growth is wishful thinking.


    I have no concern with Indian RE in particular -- but at this phase in Indian RE, its similarities with RE in pre-crash US or many parts of Europe is striking. All the vested interests cannot prevent an all-encompassing liquidity shrinkage from adversely impacting Indian RE

    Do you think the vested interests in Indian RE are more powerful than BOJ or the Fed ?

    I dont believe that money printing is the right long term solution but that dosent mean there arent short term - 5/6 yr - benefits from that action. We would need a much bigger discussion on how I see the world system and why I know that we are not entering a period of low or -ve growth.


    The benefit from money printing has been only to the banks and speculators.

    Your last statement reflects your ignorance. You know that we are not entering a period of low or negative growth ? Sorry to wake you up, but the most of the world is already in low-to-very-low growth territory. If you subtract inflation, almost every economy is in recession.
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  • Originally Posted by herohiralal
    Werent you just harping in some other post about how BoJ is pumping trillions (even though its yen and not $$) into the world markets? And US fed is slowing down QE not stopping it.


    BOJ is pumping trillions into the Japanese bond and stock markets -- not world markets -- big difference. And despite those trillions, both those markets are performing exactly opposite to the BOJs expectations. Doesn't that tell you anything ?

    Indian RE is not just backed by global liquidity. It is also backed by a strong builder-politician nexus and the lack of other "safe" and trusted investment avenue for Indians. Land laws further complicate the problem and a young population provide a nice cushion.

    Dont take my support for high RE prices as a statement of my belief in the Indian system. I have said it many time in this forum that when the Indian RE bubble bursts (and it will burst) it will be chaos but that time is not right now. That moment is still some yrs away. Similarly the way the US fed and BoJ and ECB and BoE are handling the world economy is going to cause problems but even that event it ahead in the future.



    Ah, so we agree that everything is not rosy with the world economies ? That would be a change away from your 'surging' posts and indicate atleast an acknowledgement of ground realities.

    So we differ only on the timing aspect ? Well, I stand by my assessments and forecasts made here and on the stock advice thread. My timelines have worked out pretty well so far. I'm not shy of pointing out when I'm proved correct -- humbleness is not one of my virtues :D

    Ah, so we agree that everything is not rosy with the world economies ? That would be a change away from your 'surging' posts and indicate atleast an acknowledgement of ground realities.

    So we differ only on the timing aspect ? Well, I stand by my assessments and forecasts made here and on the stock advice thread. My timelines have worked out pretty well so far. I'm not shy of pointing out when I'm proved correct -- humbleness is not one of my virtues :D
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  • Originally Posted by herohiralal
    There are many people who I know who earn awesome amount of money. There are a lot of intelligent people in India who are making a career and doing a good job at it. The world is their oyster and they dont care if GDP is 4% or 10% or if car sales are down 10% or gold has crashed or oil is down.


    The world is their oyster ? You mean they live in cocoons.

    Are you one of them ?

    Like I said, economies grow when demand comes form grassroot levels -- not from handful of people consuming luxuries and 'investing' money at market tops.

    It depends whether you view the world from inside the cocoon or exposed to the elements. From inside the cocoon, of course, the world would appear to be a safe, cosy place. And one could not be further away from the truth.
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  • Originally Posted by SanjanaSingh


    Your last statement reflects your ignorance. You know that we are not entering a period of low or negative growth ? Sorry to wake you up, but the most of the world is already in low-to-very-low growth territory. If you subtract inflation, almost every economy is in recession.


    My ignorance or yours. GDP reported in the media is real (constant price) GDP and not nominal (current price) GDP. Real GDP is without inflation so if you are basing us analysis on real GDP - inflation then best of luck :)

    Maybe now it clear to you why my analysis differs to yours. You are double counting something.

    Refer this link for US GDP - nominal and real News Release: Gross Domestic Product

    Similarly Indian GDP data - real and nominal - is available at http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/00HB130912LF.pdf
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  • Originally Posted by SanjanaSingh
    The world is their oyster ? You mean they live in cocoons.


    Sanjana i am teaching you english and economics now for free.

    The phrase "World is their oyster" means "they have the ability and the freedom to do anything or go anywhere"

    The phrase "living in a cocoon" means "you are in an environment in which you feel protected and safe, and sometimes isolated from everyday life."

    So what are you trying to exactly say?


    Like I said, economies grow when demand comes form grassroot levels -- not from handful of people consuming luxuries and 'investing' money at market tops.

    It depends whether you view the world from inside the cocoon or exposed to the elements. From inside the cocoon, of course, the world would appear to be a safe, cosy place. And one could not be further away from the truth.



    Growth comes from many areas. There isnt just one area from where demand can be generated from. In todays flawed world demand is being generated by govt borrowing and low interest rate and falling energy prices. Not everytime does growth come only from the grassroot.
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  • Originally Posted by SanjanaSingh
    Originally Posted by herohiralal


    Its not talk ... we're already in the early stages of a depression.


    Data pls and dont remove inflation from real GDP to show economies are in depression :)



    Never said that everything was going to crash because the Fed is considering pulling liquidity. What I'm implying is that CBs have their limitations and we're in the midst of a deflationary supercycle. From recent utterances by various Fed members, it seems they are realizing that QE has served to create asset bubbles -- and has done nothing for improving the economy. That the Fed will stop QE is a given. And you are being naive if you think this will not accelerate the deflationary forces.



    US Fed might reduce QE but BoJ will continue to print money. ECB will reduce interest rate. China hasnt even entered the game yet of pumping money. So there are still many forces out there who can prop up the bubble. While all this happens in the CB land real innovation and invention on ground will give the strong economies - US and UK - time to correct their economic imbalances.



    Ah yes, the BOJ. A good example of my point above that CBs have limitations, are at the limits of their market manipulation and are losing the battles against deflation / depression. BOJ pumping trillions on a daily basis in bonds and stocks, and yet bond yields are rising ????

    That alone should be the warning sign for the future of interest rates and, by inference, the world economies.



    Surely BoJ is making a mess out of it. World has lived with 2 decades of deflation in Japan and the recent experiment will choas chaotic movements in some asset classes but lets not think that there wont be similar moves from China or India which will help keep up the bubble.



    I have no concern with Indian RE in particular -- but at this phase in Indian RE, its similarities with RE in pre-crash US or many parts of Europe is striking. All the vested interests cannot prevent an all-encompassing liquidity shrinkage from adversely impacting Indian RE

    Do you think the vested interests in Indian RE are more powerful than BOJ or the Fed ?



    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.

    Indian RE bubble is at an early stage and US Fed, BoJ and still to come chinese central bank actions along with continues support from ECB will keep the bubble going. As I have previously stated Indian RE has many supporting hands and over time they will become weak but not now.
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  • So we have people out here in this forum, giving detailed explanations of why the economy of the world is on the brink of collapse, gold is going to touch $10,000 etc, when they dont even know how GDP growth reported in mainstream media is calculated ?! Wow. An internet alias gives a lot of freedom to individuals to hide behind a computer and give their sermons, but sooner or later your ignorance will be out in the open.


    Edit : And that is a classic example of how "the bubble has burst" around your prophecies, ladies and gentlemen.
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  • Originally Posted by herohiralal
    My ignorance or yours. GDP reported in the media is real (constant price) GDP and not nominal (current price) GDP. Real GDP is without inflation so if you are basing us analysis on real GDP - inflation then best of luck :)

    Maybe now it clear to you why my analysis differs to yours. You are double counting something.

    Refer this link for US GDP - nominal and real News Release: Gross Domestic Product

    Similarly Indian GDP data - real and nominal - is available at http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/00HB130912LF.pdf


    Hero, I'm now teaching you how to read between the lines -- for free.

    Subtracting inflation from GDP means accounting for real inflation. In US, for instance, CPI does not account for food and energy price rises. In India, there is huge mismatch between reported CPI and price increases at retail level. About data coming out of China, the less said the better.

    In every country, the govt has a vested interest in fudging GDP data to the upside and fudging inflation data to the downside. Even if we assume for the sake of argument that the reported real GDP is authentic, then it should be arrived at by subtracting real inflation -- so if you are basing your analysis by looking only at GDP data without accounting for real inflation, well good luck.

    Try this for starters :

    Shadow Government Statistics - Home Page

    Now do your own math and let me know if world economies are in recession or 'surging'

    Anyways, the ground realities are already confirming the looming depression in several swathes of several countries. Just as a bull market is almost unrecognizable in its early stage, so it is with a bear market. Inflection points are only clear in hindsight.

    In the meanwhile, let the unbridled bullishness continue. After all, the builders need such people to offload their inventory to :D or 'surging'

    Anyways, the ground realities are already confirming the looming depression in several swathes of several countries. Just as a bull market is almost unrecognizable in its early stage, so it is with a bear market. Inflection points are only clear in hindsight.

    In the meanwhile, let the unbridled bullishness continue. After all, the builders need such people to offload their inventory to :D
    CommentQuote
  • Originally Posted by SanjanaSingh
    Hero, I'm now teaching you how to read between the lines -- for free.

    Subtracting inflation from GDP means accounting for real inflation. In US, for instance, CPI does not account for food and energy price rises. In India, there is huge mismatch between reported CPI and price increases at retail level. About data coming out of China, the less said the better.

    In every country, the govt has a vested interest in fudging GDP data to the upside and fudging inflation data to the downside. Even if we assume for the sake of argument that the reported real GDP is authentic, then it should be arrived at by subtracting real inflation -- so if you are basing your analysis by looking only at GDP data without accounting for real inflation, well good luck.

    Try this for starters :

    Shadow Government Statistics - Home Page

    Now do your own math and let me know if world economies are in recession or 'surging'

    Anyways, the ground realities are already confirming the looming depression in several swathes of several countries. Just as a bull market is almost unrecognizable in its early stage, so it is with a bear market. Inflection points are only clear in hindsight.

    In the meanwhile, let the unbridled bullishness continue. After all, the builders need such people to offload their inventory to :D

    Last free lesson :)

    Real GDP does not care about inflation. Real GDP is based on constant prices. In case of US the base is 2005. So assume the price in 2005 was 100. Now assume the quantity of all goods and service net of foreign trade produced in US in 2005 as 50 and so the GDP is 100 * 50 = 5000.

    Now to find out the real GDP for 2012 keep the price as 100 and only take the 2012 amount of goods and services net of foreign trade produced in the country in 2012. Lets assume its 70. So the 2012 real GDP is 7000. So real GDP has grown from 5000 to 7000.

    Now to get the nominal 2012 GDP take the current prices which will more than 100 due to inflation. So assume they are 200. So nominal GDP in 2012 is 14000.

    So whether you trust govt provided inflation data is irrelevant when using Real GDP figures and when you use real GDP dont subtract inflation from it cause it not a variable used to calculate real GDP.

    I cant believe we are discussing such basic stuff!!

    Last free lesson :)

    Real GDP does not care about inflation. Real GDP is based on constant prices. In case of US the base is 2005. So assume the price in 2005 was 100. Now assume the quantity of all goods and service net of foreign trade produced in US in 2005 as 50 and so the GDP is 100 * 50 = 5000.

    Now to find out the real GDP for 2012 keep the price as 100 and only take the 2012 amount of goods and services net of foreign trade produced in the country in 2012. Lets assume its 70. So the 2012 real GDP is 7000. So real GDP has grown from 5000 to 7000.

    Now to get the nominal 2012 GDP take the current prices which will more than 100 due to inflation. So assume they are 200. So nominal GDP in 2012 is 14000.

    So whether you trust govt provided inflation data is irrelevant when using Real GDP figures and when you use real GDP dont subtract inflation from it cause it not a variable used to calculate real GDP.

    I cant believe we are discussing such basic stuff!!

    Last free lesson :)

    Real GDP does not care about inflation. Real GDP is based on constant prices. In case of US the base is 2005. So assume the price in 2005 was 100. Now assume the quantity of all goods and service net of foreign trade produced in US in 2005 as 50 and so the GDP is 100 * 50 = 5000.

    Now to find out the real GDP for 2012 keep the price as 100 and only take the 2012 amount of goods and services net of foreign trade produced in the country in 2012. Lets assume its 70. So the 2012 real GDP is 7000. So real GDP has grown from 5000 to 7000.

    Now to get the nominal 2012 GDP take the current prices which will more than 100 due to inflation. So assume they are 200. So nominal GDP in 2012 is 14000.

    So whether you trust govt provided inflation data is irrelevant when using Real GDP figures and when you use real GDP dont subtract inflation from it cause it not a variable used to calculate real GDP.

    I cant believe we are discussing such basic stuff!!

    Last free lesson :)

    Real GDP does not care about inflation. Real GDP is based on constant prices. In case of US the base is 2005. So assume the price in 2005 was 100. Now assume the quantity of all goods and service net of foreign trade produced in US in 2005 as 50 and so the GDP is 100 * 50 = 5000.

    Now to find out the real GDP for 2012 keep the price as 100 and only take the 2012 amount of goods and services net of foreign trade produced in the country in 2012. Lets assume its 70. So the 2012 real GDP is 7000. So real GDP has grown from 5000 to 7000.

    Now to get the nominal 2012 GDP take the current prices which will more than 100 due to inflation. So assume they are 200. So nominal GDP in 2012 is 14000.

    So whether you trust govt provided inflation data is irrelevant when using Real GDP figures and when you use real GDP dont subtract inflation from it cause it not a variable used to calculate real GDP.

    I cant believe we are discussing such basic stuff!!
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  • Gr8...now we are getting free lessons. I needed it most. Thanks, really appreciate the effort folks.
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  • Originally Posted by tushart
    5cents - may be you can answer my 5cents question.

    My family is educated. But somehow criteria for voting for everyone is different though.
    1. My grand mother - not into much of TV watching and don't understand about corruption much. My grand father was closely associated with congress - had a photo of vasant dada patil in his house. Can not say surely but normally my grand mother goes with same.
    2. My mother will normally go with most educated and civilized lady candidate. if not most educated and most civilized male candidate.
    3. My father - based on his experience goes with person who is best suited for development of the ward we stay in. Not much preference to party.
    4. I read too many things and discuss too many things and end up voting looking at prime minister or chief minister candidate of a party. After all their vision makes a difference - like MM Singh's decision to open up markets. I change sides frequently. I may get emotional and vote for Aam aadami party this time - never know. This is what my father has done during his youth before realizing that it does not make much of a difference. He wants me to follow him.
    5. My wife is normally influenced by me - not intentional guys.

    But here is the interesting part. Last election, after the voting when we were discussing - surprisingly we voted for 5 different candidates. We are all educated but there is no common reason or objective which unites us even if we stay together. Now if same thing is going to repeat and we are just going to nullify each other votes - do we really take all the pain and go out for voting?
    If you read between the lines - what I am saying is educated middle class votes nullify each other since there is no single influencing factor. And you are very well aware of which factor I am talking about which is used by political parties. btw - do you really think party A or B or C is elected - things will change?
    If you think so - please explain to us how things will change if a particular party is selected(start with your choice of party). We will come back after 5 years to validate what you say.





    I jus got one word for u HOPE !!!
    :bab (59):


    M not saying tht u conspire and vote for the same person.
    If tht was the case..... it'll strt with ur room, then ur house, then ur building.... then ur work mates... then ur company..... then ur colony then ur city..................


    thts not the idea of a democracy.
    Its jus giving u hope for a better tomorrow.
    nd one thing u cant do is take the hope away!

    So go there and vote

    :D
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