Talk about getting it wrong! Read this from Power Line: That Hissing Sound Is Krugman and you'll note that the author couldn't be more wrong about the housing bubble. I guess he has egg on his face!!!

It must be depressing to be Paul Krugman. No matter how well the economy performs, Krugman's bitter vendetta against the Bush administration requires him to hunt for the black lining in a sky full of silvery clouds. With the economy now booming, what can Krugman possibly have to complain about? In today's column, titled That Hissing Sound, Krugman says there is a housing bubble, and it's about to burst:

Meanwhile, the U.S. economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero?

Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone - not just those who own Zoned Zone real estate - should be worried.

Well, if we believed anything Krugman writes, we'd be worried all the time. Or at least until we have a Democratic administration, when everything will be rosy again. Krugman's description of the housing bubble is amusing for what it reveals about how Krugman views the country:

When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns [Ed.: Huh? I don't think Krugman gets out here much.], just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

I don't doubt that some people in places like San Francisco and San Diego have paid too much for their houses. But it isn't clear, and Krugman doesn't even try to explain, why that constitutes a bubble or why level or declining home prices in selected areas around the country will somehow imperil the economy. Here are Krugman's reasons for claiming that a housing bubble exists:

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

There are, of course, obvious differences between houses and stocks. Most people own only one house at a time, and transaction costs make it impractical to buy and sell houses the way you buy and sell stocks. Krugman thinks the fact that James Glassman doesn't buy the bubble theory is evidence in its favor, but if you read Glassman's article on the subject, you'll see that he actually makes some of the same points that Krugman does. But he argues, persuasively in my view, that there is little reason to fear a catastrophic collapse in home prices.

Krugman will have to come up with something much better, I think, to cause many others to share his pessimism.

I'd say these guys should be eating crow about now, don't you, though none of us really have the energy to gloat on this. I wish Powerline were wrong. We'd all be better off.

Read this -- Banking Crises Around The World -- for a prescription that's worked before when dealing with banking crises.

Welcome to the October 1, 2008 edition of Kids and Money. This is a short one, but it's filled with thought-provoking posts.

Jason presents I Was Wrong: Scrapping the Child Chore Chart for a New Allowance System posted at The Frugal Dad.
This seems to elaborate for me, but Jason has undoubtedly thought this through and has come up with a great plan.

Initially, they will be paid each week on Saturday (chore day) because I want the reward of receiving payment to happen soon after the bulk of the work is performed.  As they get older, we will likely increase this to a biweekly payment plan, and then possible monthly, as they improve their budgeting skills.

What a great idea! Positive reinforcement of ANY desired behavior is the best way to instill the value of the behavior! I also like Jason's attempt at mimicking how the "real world" works. Bravo!!

Our kids being between the ages of 1 and 3, my wife and I have yet to put together a plan. But we're clearly in need to do something, since our 3 year old is always saying, "I wish I could buy a [blank] like that!"

Ugh.

Livingalmostlarge presents More money, More kids? posted at LivingAlmostLarge, saying, "Is money the deciding factor in the number of children you have?"
I'm in this boat!

It got me thinking is that how people really decide how many children they have?  They put a price tag on it and say they cannot afford more children because of cost?  But then I heard from others the exact opposite.  That children are only as expensive as you make them.

We have two boys, 1 and 3 years old. We want another (child, not necessarily boy, but that would save us some money!). I'll have to find a way to make a lot more money because for us, 2 is right at the tipping point, financially. If my wife goes to back to work, daycare skyrockets.

Silicon Valley Blogger presents Water Fun Activities To Cool You Off This Summer posted at The Digerati Life, saying, "Squeezing the last bit of fun out of summer."
Great ideas! We live in the land of the sun (often times over 100, most of the summer in the 90s) and we burn/melt...we went to the community pool quite a bit this summer.

KCLau presents Credit Counseling and Debt Management Agency: FREE Financial Education for Malaysian posted at KCLau's Money Tips, saying, "A success story one how one avoided bankruptcy as well as features of AKPK and how u can benefit from the agency."


Joe Manausa presents Bailing Out The Banks? Actually Bailing Out America! posted at Tallahassee Real Estate Blog, saying, "While mainstream media refers to this as the "fat cat" bailout for Wall Street, you might be surprised who really needs this bailout to occur. What would happen to your job if the credit market stopped for even 1 week?"
This market mess and devaluation of real estate and all securities related to it was made by the same type of folks who ran Enron, it would seem! Off balance sheet, backroom deals, and ignoring generally accepted accounting practices...all led to our economy's demise. The question we face now is, What do we do about it?

Michael. presents Consumer Debt Worst Offenders: Banks, Advertisers, and Advisors posted at Michael Emilio, saying, "This is a blog post about how our culture is a consumer-based culture - focused on spend, spend, spend. Unfortunately, our kids feel this impact through the barrage of commercials encouraging them to buy more and more."
Debt is clearly the scourge on our economy. Individually and collectively, we are on the hook for trillions. It will NEVER be paid back. However, we can whittle away at it and make it a smaller percentage of our "income" (GDP or individual income).

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