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Does GDP Understate Depth of the Recession?: Justin Lahart, Real Time Economics.

Money and Happiness – Rank of Income, Not Income, Affects Life Satisfaction: Boyce, Brown, and Moore, Psychological Science.

The Contrarian Trade of the Decade – The US Dollar: Charles Hugh Smith, Of Two Minds.com.

Trans-Pacific Carriers Predict Strong Volume: Bill Monguelluzzo, The Journal of Commerce.

More On Existing Home Sales and Inventory: Calculated Risk.

California City Expedition Update: Jeff Manaugh, BLDG BLOG.

Deepening Deficits in the Developed World: Catherine Rampell, Economix Blog.

-Gregor

Photo: Quintessential Copenhagen, from Copenhagen Cycle Chic.

Hardly any observer of the economy was fooled into thinking that the Cash for Clunkers program represented a sustainable recovery in the automobile sector. So it has been a surprise to me this Autumn that so many composed for themselves a broader housing recovery narrative from the acute, artificial effects of FHA, Fannie Mae, and Tax Credit programs. (not to mention the FED’s operations in the MBS aftermarket). I’ve been watching 4-6 American cities for over 10 years now, starting from the time I moved back to the US from London. I have seen the entire cycle. But more important to note is that curating your own database or data sources on any subject is now quite possible for just about anyone with an internet connection, and some research skills. Thus, as we got into late October, I could see that house prices were once again coming down. More importantly, and unsurprisingly, it’s the upper end of the housing market–that sits above government infusions–that’s starting to turn downward.

My view is as follows: the American house has reliably acted as an inflation hedge for most of its history but during economic expansions a house becomes a more volatile call option on future wage growth. Given the structural changes to the US economy, and how those changes were papered over by the credit bubble, it’s now unlikely that a US house will act as a high-beta, upwardly tending call option on future wage growth–in the aggregate–because we still have a lot of heavy lifting to do before we get to the other side of this crisis. Accordingly, I now have to question whether many American houses can be priced above…(this article continues for subscribers through the membership gateway, on the right side of this page)

One wonders that 80.00 dollar oil was indeed the breaking point, to a US economy struggling with collapse, depression, and 17% unemployment. There appears to have been a confluence of events and indicators in October that suggest reflationary policy finally kicked energy prices high enough, to then trigger the next bout of deflation. The question remains, however: how will the US currency behave in each successive round of deflation, as we slide down the descending wedge of the burst credit bubble?

In last week’s MacroTwits show and also in last week’s Macro Note, I allowed myself a rare bit of certitude: I stated unequivocally that US residential housing…(this article continues for subscribers through the membership gateway, on the right side of this page)

Excuse me but I’ll need to check your bag

The second group are the brittle deflationists, who see 60% of our current, sorry situation with ice-cold clarity but refuse even now to acknowledge the country’s currency as the governor to our ultimate outcome. In my own work I actually read a great deal of the analysis of many of these deflationists, because their articulation of the problem is so correct, so spot-on, so finely crenelated, if you will, that to ignore them would be a great error. And then, having paid their fine work the respect it deserves, I then move on to the other 40% of the problem to see the full picture. I don’t mind at all they they cherry-pick year-over-year inflation data from July of 2008 to July 2009, knowing full well they will silently ignore that same data series when the January 2008 – January 2009 data is published. That’s OK. Their long form treatment of dead shopping malls, permanent unemployment, and grands sweeps of history are well worth my time.

I have many questions for both these groups of people, but, as we head into next week’s gargantuan debt auctions, the most pressing one is this: what are you going to do about your Treasuries? And then further to this, what are you going to do with all your other assets should Treasuries start to run into trouble? You may not have noticed this week, but the recoiling in global equities did very little to improve the position of either Treasuries, or the US Dollar. It is wise to note such action. For a number of years I have gladly joined others in the dark joke of the Four Horsemen: Equities down, Treasuries down, Dollar down, Gold up. Did we see hints of the Four Horsemen this week? (this article continues for subscribers through the membership gateway, on the right side of this page.)

Drive-By Economics: Hawaii Edition, Paul Kedrosky, Infectious Greed.

Don’t Blame China: Simon Johnson and James Kwak, The Washington Post.

High Speed Rail: A No-Brainer: Chris Nelder, Get Realist.

Tin Squeeze Tests Regulator’s Mettle in U.K.: John Kemp, Reuters Blogs.

Apartment Vacancy Rate at 23 Year High: Calculated Risk.

Prosperity Rests on Human and Social Capital: Michael Milken, The Financial Times.

-Gregor

Image: Australian Gold Kangaroo

Where High Speed Rail Makes the Most Sense: An America 2050 Report, as covered by The Infrastructurist.

Russia throws another currency on the barbie: Izabella Kaminska , FT Alphaville.

Historical Home Sale Volume Measured in Dollars: Rich Toscano, Professor Piggington’s Econo-Almanac for the Landed Poor.

The Crossroads of Sustainability and Suicide: Chris Nelder, Get Realist.

China’s Mr. Wu Keeps Talking: David Barboza, The New York Times.

Sanctions or no sanctions, Iran is still getting its gasoline: Platt’s, The Barrel.

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-Gregor

Photo: The Niger Delta

Jett Rink’s Speedboat: gregor.us

China Alarmed by US Money Printing: Ambrose Evans-Pritchard for the Telegraph (UK).

Mexico’s Fading Oil Output Crimps Exports: David Luhnow for the Wall Street Journal.

Real Estate – The 800,000 Pound Deflationary Gorilla: Adam Brochert via Safehaven.com

Candidate in a State of Dystopia: George Will for the Washington Post