Like William Jefferson Clinton’s dialectic on “is”, the meaning of real depends on your choice of reality. Government reports tend to operate in a Platonic sphere, that resembles but is an idealization of the real world, rather like Lake Wobegon. In the BEA reality, fourth quarter real GDP, that is annualized nominal GDP adjusted for inflation, was +3.1% after an 0.4% deflator.  But, even in the BLS reality, inflation was much higher than that, so that:

The price indexes used for this revision were only modestly changed from the previous report. Again the overall price “deflater” reflected an annualized 0.4% inflation rate. The importance of this low deflater cannot be over emphasized: if the average monthly CPI-U for the fourth quarter is annualized and used as an alternate deflater, the growth reported for the fourth quarter simply vanishes.

I think, even as a long-term deflationista, I would assess that the inflation that I see for my family – my personal reality – is much higher than either. But it is clear to see that the much-vaunted “real” GDP does not refer to anyplace in the known universe – only in a Platonic abstraction of some kind could it possibly be true.

We’re in the midst of moving across the country, from California to Florida. Indeed, as I write, the truck with our goods and chattels is somewhere in Arizona, headed east. We are moving from one rental to another. Of course, whenever we tell any our friends about our decision, we get The Question: “Have you bought a place?” The answer is no. Not now, anyway. Not because it is cheaper – rent vs buy is roughly equivalent, cash on cash, in the area where we are now living. The problem is that property values are continuing to fall. This is a nationwide situation, although of course Florida and California are both falling faster than the national averages. The problem is that misguided government efforts to hold prices up are preventing market clearing. Huge inventories of housing units are sitting vacant because they cannot be sold to new end users at prices they are willing and able to pay. In Florida, in particular, 18% of housing units are vacant. And of course many other units are in various stages of foreclosure or are just for sale for ordinary reasons.

So I can’t see actually buying anything until I see the market beginning to clear – that is, inventories beginning to move towards normal levels. This will occur, but before it does, the necessary fall in prices will put even more owners underwater, aggravating the problem (which I why the government, knowing this, wants to keep prices up). Learned people are talking about another 10% down. Personally, I don’t think so, my best guess is back to 1997 pricing or thereabouts, which is about 40% down from here. Mr Bernanke and the administration are laboring mightily (pun 100% intentional) to keep wages and asset prices up, at least for the benefit of their principal client groups, the wealthy and organized labor. This effort will fail, just as it did in the 1930s Depression, but it won’t be over until The Question becomes: “You bought a place? I mean, why on earth would you, of all people, do that?” Such is the life of a contrarian.

Slowly but surely, despite the best efforts of the RIAA, the traditional industry business model which sees the vast majority of the revenues from the sale of creative works going to the publisher, not the artist/creator/author, is going away. And good riddance – if only other content gateways and toll collectors, such as universities in particular, could be shaken loose from their monopolies as easily.

Barry: All signs that publishers are aware of the potential for digital disintermediation, but that they don’t understand what it really means.

Joe: Because they still believe they’re essential to the process.

Barry: I would phrase it a little differently. They recognize they’re becoming non-essential, and are trying to keep themselves essential–but are going about it in the wrong way.

Joe: You and I and our peers are essential. We’re the writers. We provide the content that is printed and distributed. For hundreds of years, writers couldn’t reach readers without publishers. We needed them.

Now, suddenly, we don’t. But publishers don’t seem to be taking this Very Important Fact into account.

The slow death of what I might describe as the “hard copy” media industry – books, CDs, DVDs and so forth – is starting to show real casualties – for example, Borders the bookstore chain which filed for bankruptcy in February of this year. Others will doubtless follow. I go to my local Barnes and Noble fairly frequently and have said to my wife that the only explanation I can see for its staying open, in the absence of shoppers or any apparent effort to sell books, is that it must be a front for some other enterprise, like the Indian restaurant we used to go to in Toronto that also had a gambling den in the basement. (Hey – good cheap food, and it was quiet except for the gamblers going in and out). The interesting question is, who is holding the paper on these huge cavernous “big box” bookstores? There are a lot of them in malls around the country.

Now it is Portugal and markets rejoice. Soon Spain. Then Italy. Then… who knows? It is like being at a massive fire. As the fire jumps from rooftop to rooftop and each new building erupts into flames, the crowd cheers, apparently rooting for the fire to consume the whole city. Completely insane.

Meantime, home sales are collapsing, durable goods orders are down, unemployment is high and intractable as the labor force shrinks. The madman at the Fed pumps more and more gasoline on the fire every day,  shrinking real spending power and slowly destroying the capital base of the economy. Fraud and corruption are everywhere as the plutocracy mocks the  few critics who dare to point out their flagrant violations of law and morality.

But their time will come:

And when the last law was down, and the Devil turned round on you—where would you hide, Roper, the laws all being flat? (He leaves him) This country’s planted thick with laws from coast to coast—man’s laws, not God’s—and if you cut them down—and you’re just the man to do it—d’you really think you could stand upright in the winds that would blow then? — A Man For All Seasons, Act 1 Scene 7

There is little to be done about the ongoing disaster in Japan other than watch and hope (and hug your kids). However, as it unfolds, it is necessary to think about the consequential financial risks. First of all, Japanese insurance companies will have to liquidate investments around the world in order to fund claims payments. This liquidation in and of itself can precipitate further financial stress as assets are forcibly marked to market, particularly in Europe, where Japanese banks and insurers have extended property loans in quantity. Secondly, the Japanese government, which heretofore has relied on selling its debt essentially only to domestic investors, will probably have to look overseas for new financing as domestic savings and profits will fall short. This new credit will not come at current extremely low yields, probably precipitating a fiscal and monetary crisis as government debt is now over 200% of GDP and it will not take much of a rise for interest payments to overwhelm government revenues.