Captives To The Monster They Have Created
A weekend topic starting with the Denver Post. “Good news for buyers: Denver’s perpetually tight real estate market loosened up in June, according to a market trends report by the Denver Metro Association of Realtors. Residential inventory in the Denver metro area increased nearly 20 percent in June compared with May. ‘The rate of (price) growth is slowing,’ said Steve Danyliw, chairman of the Denver Metro Association of Realtor’s market trends committee. ‘It’s not unexpected. The reality is that having double-digit growth is unsustainable.’”
“However, Danyliw said he and other experts in the field are not worried about a housing bubble. He said other economic indicators — such as distressed home sales and job growth — indicate the market is strong and that homeowners are financially stable. And, leading up to the housing market crash in 2008, it was a buyer’s market, not a seller’s. ‘For something to really depress the housing market it would have to be something that we cannot predict, something that would be a shock to the whole economic system,’ Danyliw said of his forecasts. ‘The underlying fundamentals are very strong.’”
From CNBC. “The U.S. housing finance system continues to put taxpayers at risk in a market dominated by government-backed agencies, Federal Reserve Governor Jerome Powell said on Thursday, calling for further reform of an ‘unsustainable’ situation. A decade after doubts about the creditworthiness of mortgage-backed securities helped trigger the worst financial crisis since the Great Depression, systemic risk remains given the concentration of mortgages in Fannie Mae and Freddie Mac, he said.”
“‘We’re almost at a now-or-never moment,’ Powell told a conference in Washington, arguing that the window for political action on an overhaul of housing finance may not stay open for long. U.S. housing prices may have recovered since the crisis, with credit flowing under tighter underwriting standards that have made the system somewhat safer, Powell said, but while ‘the status quo may feel comfortable today … it is also unsustainable.’”
From ABC News. “First, it was a gaggle of billionaires. Now, the global financial puppeteers are getting queasy. There was the US Federal Reserve’s Stanley Fischer expressing concerns about debt and risks in the system before his boss, Janet Yellen, dropped this clanger during a keynote speech in London: ‘Asset valuations are somewhat rich if you use some traditional metrics, like price earnings ratios,’ she said.”
“The problem for Ms Yellen, as it is for other central bankers like Europe’s Super Mario Draghi and Japan’s Haruhiko Kuroda is that the bubbles they have formed — in property, stock and bond markets — are entirely of their own making. To a large extent, they have become captives to the monster they have created.”
“Killing the beast will be nigh on impossible. Taming it could wreak havoc. They’re trying, by slowly raising interest rates. But at the rate they’re going, it’ll take years. The real problem for the Australian economy, courtesy of the deluge of cheap cash flooding the globe, has been in real estate.”
“Money is no longer real. It’s a theoretical concept. Around 90 per cent of the world’s cash is electronic. And since 2008, when the financial crisis was threatening to destroy capitalism, central banks have been manufacturing it by the petabyte (or whatever measurement is appropriate). To start with, they used it to soak up the debt created by investment banks that created the problems in the first place.”
“Then, they figured they’d keep going, that if they could just inject enough cash into the system, everything would eventually return to ‘normal.’ When we entered the new millennium, the world’s biggest central banks held debt worth under 2 per cent of global GDP. Now, it’s grown to just shy of 40 per cent. The problem is, most of that created cash has been used — not for productive purposes, but for speculation.”
“That’s why Wall Street has boomed right through the worst economic downturn since the Great Depression. It’s why housing has become an unattainable dream for our youth. And it underpins the growing disparity in wealth permeating the developed world and the political instability that has created.”
