‘Will The Fed Regret Being Kinder And Gentler?’
Readers suggested recent Federal Reserve actions as a topic. “Will the Fed eventually regret being kinder and gentler than under Volcker?”
One replied, “Maybe things will be OK. Real estate will stabilize and household debts will be manageable with falling rates, oil and energy costs will decrease, savings will increase as will employment and wages, and peace will break out. Inflation will roll along at 8-10%, but nobody will notice for another 5 or 10 years. Got patience?”
And another said, “IMHO the fed should have raised rates by 0.500% in August and the Fed Fund rate should be 6.000% by year end. The Fed is currently reporting inflation of 4.3%, if inflation were calculated today in the same method as in the Papa Bush’s tenure it is currently running in excess of 7.2%.”
“If inflation is calculated by disallowing hedonic inflation it is currently running ~10%. These inflation rates will continue to accelerate as companies and individuals are intuitively aware ‘borrow today payback with cheaper dollars tomorrow.’”
The North County Times, “After more than two years of nonstop interest rate hikes, the Federal Reserve last week finally decided to take a break. The moderation, claims the Fed, is ‘partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.’”
“The Fed is almost giddy about the ‘cooling of the housing market.’ Have home prices escalated at a rapid rate in recent years? Of course they have. Have homeowners benefited from this appreciation? Of course they have. Is it time to punish them for making the sacrifices necessary to own the home where they raise their families? According to the Fed, yes it is.”
“Let’s punish all of those homeowners who used adjustable-rate loans. Maybe if the Fed goes back to raising rates, it can put a few more families out of their houses.”
“The only thing that disappoints the Fed is the ‘lagged effects of increases in interest rates.’ It would have preferred housing activity to slow a couple of years ago rather than just recently.”
“Granted, higher rates are good news for people seeking income from their investments. CD rates have moved higher on the back of the Fed rate hikes.”
“It is time for the Federal Reserve to get out of the way and let this economy do its thing. Take the rest of the year off and then quit. We don’t need a bunch of Beltway insiders deciding the financial future of American families and businesses. I’m tired of watching the housing and stock markets wince every time the Fed issues a statement.”
“And, while you’re at it, how about coming out from behind the curtain and answering some questions about what the heck you are doing? After all, Americans pay your salaries. Why not drop the double talk and try some straight talk?”
“Let’s punish all of those homeowners who used adjustable-rate loans. Maybe if the Fed goes back to raising rates, it can put a few more families out of their houses.”
Too late. They are already candidates for a website that rhymes with “a brother trucked flyer.”
he fed didn’t use hedonistic adjustments in the 1980’s ?
watch bls switch to home prices next year,wow that would totally erase inflation
this is in the pipeline in Europe as well; they are just waiting for house prices to start declining, so not yet.
I see a problem with that. Does the CPI measure anything that is considered a long-term asset? I’d think not, but could be wrong. If they wanted to use home prices in lieu of rents, they’d need to factor out the “investment” value (whether it is likely to increase or decrease is irrelevant) and deal with the “expense” portion.
I think that to believe house purchase cost will become part of CPI is roughly equal to believing that GAAP will combine assets and expenses into a single category. Which is precisely the reason they have to use rents, IMO — they are measuring only dynamic costs.
Chip,
You must have missed it when one of the senators (or congressmen, I can’t remember which meeting) at the last meeting with Bernanke asked why rents are used instead of housing prices. Actually brought up the whole “problem” of rising rents which would cause interest rates to rise, causing housing prices to slow, etc… Seriously, I think this is their next move. There are definitely a lot of powerful people trying to get this accomplished right now. Didn’t we call it on this blog about a year ago?
I guess it is easy to calculate some kind of ‘rental equivalent’ based on the home valuation, maybe assuming some fixed mortgage rate. If you start from the bubble values of today this ‘equivalent rent’ could decline for many years to come which would be nice to balance all the other stuff that goes up at 10-15% yoy. I don’t know the details but I’m 100% sure it is being studied by both Eurostat (the EU agency that calculates the CPI) and the Dutch statistics agency. No doubt they will find a way to put further downward pressure on the official CPI (which in Europe is even more distached from reality than in the US).
“One replied, “Maybe things will be OK. Real estate will stabilize and household debts will be manageable with falling rates, oil and energy costs will decrease, savings will increase as will employment and wages, and peace will break out. Inflation will roll along at 8-10%, but nobody will notice for another 5 or 10 years. Got patience?”
What? Oil and energy costs will decrease? Where’s that endless supply of oil coming from? The Ghawar fields in Saudi Arabia? Emerging economies with populations several times that of the United States now want cars, including SUVs, and they are stepping up to the gasoline pump, bidding up prices. No one will notice inflation? I guess if they don’t look at the price of food from the grocer. Starbucks prices increased several percent this year too! We’re in for higher rates. Don’t let Ben Bernanke and gang fool you. This is a pause and the rate hikes will be renewed, at times slower intervals per gain and other times higher increases (50 basis points at once). World competition and emerging middle classes are driving prices up. American white people are producing fewer children, but there are more people from south of the border, the population in the Middle East is booming. Resources are finite and all you have to do is apply the micro-economic supply / demand curve with the cost line thrown in. Voila! Higher prices for all! So I am happy with 3 month T-Bills, platinum, and gold, as well as international value stocks (DODFX) and large company multi-national stocks with higher yields and low P/Es.
You got it right, Bill. Energy costs and the probably effects on home ownership are the one thing that I notice gets underreported on this blog. Housing phases a tough road ahead, even without our energy problems, but basically, we’re facing a nightmare scenario of all the world’s major oil fields, from which we get the lion’s share of our oil, going into near simultaneous catastrophic decline. The decline rates indicate serious structural problems with fields like Ghawar, Burgan, Cantarell, etc.
Peak oil has gone from lunatic fringe to serious consideration in about one year. When Joe Public realizes that it is real and economic growth is over for all intents and purposes, I don’t think you will be able to sell a suburban house at that point. So much of the price of suburban real estate is the built-in assumption of continued economic growth in the future. Can’t have growth without growing the grid.
Bubbleviewer, If you are correct on being past peak oil, then
the cities will not be able to sustain people. Our civilization will look more like Cuba, where everyone has gardens and/or
sustenance farming.
Well, now we are getting somewhere in this understanding of the future!
I think Americans will learn to live simpler and humbler lives. Although I think oil will go for $100 to $200 per barrel and prices will skyrocket in everything (but real estate), we won’t go back to the stone age. Competing energy production will become competitive at some point. People who have smaller families or no children will adjust pretty quick, as will renters. Pollution may be less of a problem in the future. I would also think higher quality longer lasting electric cars with good range will finally become mass produced. For ten or twenty years, life will become harder, but if we start getting serious and allow private companies to build alternative energy power plants (including nuclear) near all the big cities, America will flourish again, and Saudi Arabia will return to its pre-oil third world status of getting most of its income by charging Muslim pllgrims for visiting Mecca.
What about the oil sands in Canada? I realize that we aren’t going to see $20/barrell oil again, but I also don’t expect $200/barrell oil either.
The discussions that I’ve seen over at the oil drum blog (i.e., http://www.theoildrum.com ) indicate that processing Canadian oil sands is itself energy intensive. As the cost of oil goes up, so too does the extraction of oil from tar sands.
A similar situation prevails in extracting ethanol from corn. Large-scale cultivation of corn requires oil-intensive fertilizers, and thus knocks back any actual energy gains.
Might be nice to see George W. and his motley crew actually spend some money for alternative fuel research.
By the way, a visit to the oil drum blog requires a strong stomach…one recent post (with numerous comments) was how to preserve human knowledge in the era of peak oil.
The tar sands requires huge amounts of natural gas, the best source of pure heat, and fresh water to produce steam to get low-quality oil. Matthew Simmons calls it “Turning gold into lead.”
Same problems are faced with ethanol, biofuels, etc. You just don’t get that much more energy than what you put in (and possibly even less). From what I can see, we’re driving right over the cliff at 90 miles an hour. And just a word about theoildrum.com, many of the people who post there are the best of the best in the petroleum industry. The problem is the data on the world’s major oil fields is really bad, but it’s safe to say there’s no way there’s enough energy for us and for 2.1 billion Chinese and Indians. I don’t think many people have a good understanding of the huge quantities of oil we use each and every day, and the energy you get from oil (plus it’s unique attributes of being portable, stable, etc.)
It is beyond amazing to me that the leadership is this country is doing virtually NOTHING to prepare for the coming oil supply related disaster. NOTHING!
Bush said we’re addicted to oil in his January state of the union message…and then followed up with…NOTHING! Couldn’t he have at least said 2 words: ‘PLEASE CONSERVE’ ?
This country has become a ship of fools with a clown at the helm, headed for a huge iceberg. And, present company excepted, most people seem uninformed and unworried.
“Bush said we’re addicted to oil in his January state of the union message…and then followed up with…NOTHING! Couldn’t he have at least said 2 words: ‘PLEASE CONSERVE’ ?”
Well Chevron Corporation recognizes the oncoming shortage and has been doing public educational advertisments to “please conserve.” You may want to ask yourself why someone in the business of selling you widget X wants you to not buy many of widget X’s, even though the more you buy, the more profitable they will be?
IRANIAN OIL EXPERT BAHKTIARI DISCUSSES OIL SANDS HAVING BEEN PROJECTED TO BE PROFITABLE AT $200/BB, BUT THE CURRENT PROCESS REQUIRES MASSIVE QUANTITIES OF NATURAL GAS - ALSO DIMINISHING - THUS THE SANDS MIGHT NOT BE PROFITABLE TILL OIL APPROACHES $600/BBL… OR SOMEWHERE IN THE BALLPARK OF $25/GAL
…SORRY …. SHOULD HAVE READ DOWN FURTHER ON THE THREAD BEFORE TOSSING IN THE (DUPLICATING) COMMENT
we are facing $3.00+ gallon #2 this winter.
I was paying $0.97/gal 2 years ago. To fill up my tank will be a check for $600+. You all tell me Joe Schmoe’s $50,000 a year pays THAT, a mortgage (I don’t care what the financing was) and a car loan - not to mention diapers, etc. if you have kids.
Sorry all, but if we have a harsh winter, some ppl are truly screwed.
With due respect given to the diverse views about oil expressed on the blog, I believe that the problem is not at all about being near a physical peak in oil/natural fuel production, but it IS a problem that we are near a politically-induced peak. We have managed to, and continue to, totally or partially piss off most of the major producers at the same time as our politicians NIMBY their way out of local and Alaskan exploration, not to mention getting into the ground with nuclear plants. The only real breather I see is that, once Fidel croaks (which I believe will be within 90-120 days), and if Raul is contained or eliminated and the new government befriended, we might find that, Holy Smoke!, there is a huge amount of oil under the seabed directly between Florida and Cuba, just waiting to warm up Granny’s soup.
Also note that Canadians are quietly having a new housing boom in the areas that now can produce oil at prices per barrel that were unprofitable before.
Alone or not, I believe that Mother Earth has more than enough energy to provide for our needs and wants, but politicians screw it up, directly or indirectly, in their thirst for power, empire and the tons of campaign contributions that flow in from some mighty interesting sources.
The top 13 companies in proven reserves are national oil companies of wonderful places such as: Venezuela, Russa, Saudi Arabia, Kuwait, China, etc.
14 is Exxon Mobil.
The Economist had a great article on National Oil Companies and the problems that a formerly well run National Oil Company (Venezuela’s) shot themselves in the foot and lost production capacity.
I think that peal oil is a reality but we will have 1 or 2 more boom/busts for the oil business before we really start seeing peak oil.
Oil use will drop rather dramatically as the chickens come home to roost from the housing bubble. However, I would regard $50-60/bbl as a floor for the near term.
I am in the energy business.
SunsetBeachGuy — no argument with the facts you noted, but do you agree that the term “peak oil” is ambiguous? If, for example, you mean it to say that we are nearing the limit of our capacity to extract from the earth increasing amounts (albeit at smaller or more expensive marginal increases) natural fuel material with which to produce energy, while observing the need for and likelihood of additional nuclear generation (total potential capacity of which currently is totally undefined but awesomely high), then I’d disagree with your premise.
There is, in fact, serious debate about the concept of “fossil” fuel versus natural fuel that is, to some extent replenishable. Anyway, I too have been in the energy business and maintain strong personal contacts within the biggest Mideast company. I stick with my contention that if we re-adopted the noninterventionist policies outlined in the Federalist Papers (my Libertarian streak) and if we got off our duffs and began constructing nuclear plants in non-earthquake-prone zones, then we will have plenty of energy for as long as we can imagine.
The down side: what I see as possible will not happen, but it will not happen solely because politicians are preventing it and because so many voters will not get rid of them.
Now, back to $50 a barrel, which might have been your main point — I personally see no reason why we (our economy) cannot adapt to $50 oil as a norm for the long haul. It would generate many worthwhile efficiencies. The point on which you and I agree, at least, is that at $50, people who bought too much house on too much credit are screwed, because utility bills are not going down to what they used to be for a long, long time, if ever and those are just another straw to add to the pile of financial woes facing those unfortunate folks.
I think very shortly we will look back on $100 or $200 a barrel oil as the good old days. One percent of the world’s fields produce 50% of the oil. If these giants are declining at 8% per year, there is simply no way to make that up in new production. It’s like trying to hold back an avalance.
I know this isn’t an oil blog, but I truly believe energy prices will play a big role in future housing prices in places like Las Vegas, Phoenix, Tuscon, Bakersfield, on and on. And can you imagine having all of your wealth tied up in a hi-rise condo if the grid goes down for an extended period of time?
Bubbleviewer, oil has a lot to do with this topic, and that is about the interest rates. Mish (Friday August 11 post on http://globaleconomicanalysis.blogspot.com/ ) has an interesting take on oil and inflation rates. It’s worth pondering. Just because oil is scarce, does not mean wages will also go up. He made a good point that inflation is “too much money chasing too few goods” - i.e. the printing press. If the fed constrains the money supply while oil goes up, it will be very disasterous, obviously. Mish thinks the next decision will be a rate cut. You can bet gold will go through the roof if interest rates are cut.
Bubbleviewer.
I would like to ask why you think Bakersfield, in particular, is going to have house prices affected? Unlike the other areas you named, B-field has a large and active oil industry base. While at present most (if not all) of our gas is imported,we do have a refinery in town. I agree that rising energy costs will alter our heating and cooling bills, (I got 650.00 for my last PG&E) I think that unlike the other places you named,B-field can weather most “Energy” related troubles. Of course, since all of the troubles are inter-linked, I can see troubles spreading from place to place.
Every place will have its share of problems. I didn’t mean to slam B-field or anything. I just wonder how much food can be grown in the immediate area if there are no fossil fuel inputs (fertilizers, pesticides, tractors), including pumps to deliver water and what population can be supported.
Thanks.
B-field has had farming before Oil,although oil defintely adds to our success. I think B-field retains enough capacity(at a guess) to be at least self supporting. But probably no oil to export,even to the rest of California.
I am a big fan of DODFX as well. It is a good starter fund for people looking to get international exposure.
Oliver
Long-time lurker, first time poster. I am simply astounded at the hubris and arrogance of the editorial writer in the second article (North County Times). Quoted:
“‘Economic growth has moderated from its quite strong pace earlier this year,’ reads the Fed statement. The way that is worded leads me to believe that growth is a bad thing.” When growth is based upon access to and use of easy credit, it IS a bad thing! If rates are the foundation that support this economy, then it is a foundation like unto sand.
“Have home prices escalated at a rapid rate in recent years? Of course they have. Have homeowners benefited from this appreciation? Of course they have. Is it time to punish them for making the sacrifices necessary to own the home where they raise their families? According to the Fed, yes it is.” I don’t even have words for this idiocy.
“It is time for the Federal Reserve to get out of the way and let this economy do its thing. Take the rest of the year off and then quit. We don’t need a bunch of Beltway insiders deciding the financial future of American families and businesses.” Gack!!
I know there are MANY intelligent readers of this blog who are far more capable than I of creating a cogent response to this editorial. His email is listed below his article, why not fill him in?
I tried posting a comment but I have no idea where it went, their site is prehistoric and that guy is a total tool.
Where was this guy when I was earning .5% in my savings account? The Fed artificially depressed interest rates so that they took returns from me and gave them to some home borrower or bank. 5% is reversion to the low side of the mean. How about 8% to encourage savings again so that we can kill this bubble and crank the economy up anew based on savings.
Dropping interest rates to 1% means that folks on savings have to go into gambling to make enough to live on.
In 2001 Series I savings bond fixed rates were 3% while the inflation rate was lower. You could have bought some of those instead of store money in passbook savings. Municipal bonds were also doing well. The frugal non-greedy investor is grateful to earn anything above the inflation rate. To expect 10% all the time is like expecting an entitlement.
Well, then call me entitled! LOL.
Oh, sorry, I misread “to expect 10%” as “to want 10%”…
Bay area renter, when I read the article all I could think was - this is a guy who is underwater on his Interest only loan and can’t resist seething all over the written page…this is personal. When trying to make sense out of statements that make no sense always consider the source.
George Chamberlin has absolutely no credibilty. I heard him this morning on KGO AM and he was practically begging his guest to say that the Fed will cut interest rates in September. His guest said that is almost impossible. It was pretty funny to hear Chamber HEADs (as in empty head) get noticeably flustered about that on air.
Does he really think that stratospheric housing prices is good for the economy?? It’s not good for first time buyers (and those new the area) and if first time buyers are not active then there is no market.
Yes, some folk think it is perfectly reasonable that generations of Americans will pay ridiculous amounts of their earnings so that those who happened to own a home in the last few years can keep their bubble loot.
Yes, that really is his position when you distill out the subterfuge of punishing the economy and capital markets. Ben, you should have him this morning on the radio…he was practically begging his guest from Chicago to say that the Fed will lower the interest rates…it was pretty funny. His guest flat out stated that that was probably next to impossible given the current macro economic situation right now.
in most of Europe it is perfectly clear that defending (even more) homeowner equity is the sure way to get (re)elected for any politicians. In most countries the majority of the people are homeowners, especially among wealthy and influential people (who usually have loads of investment properties as well).
Unfortunately for the politicians and their masters, they are running out of greater fools at the bottom of the pyramid because even starter homes are getting way to expensive in old Europe. The only way to keep the game going now is to spread the housing bubble to ever more countries, and the ECB is extremely good at that. That will probably buy them a few years of additional time if they are lucky - and then it’s game over for good.
““Let’s punish all of those homeowners who used adjustable-rate loans. Maybe if the Fed goes back to raising rates, it can put a few more families out of their houses.”
This kind of myopic reasoning really pisses me off. I wrote a scathing comment on his blog — bet it doesn’t get published.
He’s completely insulated himself in the SD fantasyland real world basically. I don’t know how the guy can claim he is a financial expert given the position he holds on housing prices. It’s just too obvious now. the WSJ has been pounding the drums about the housing problem for several weeks now. The local media pundits are soon going to be forced to pull their heads of their collective asses and admit what’s going on because it won’t be hidden anymore.
This guy is considered a financial expert?
From his rantings I thought this was a letter to the editor from some old crank.
What a solipsistic attitude: “I DESERVE ever-rising house prices, and any falling prices are the nasty government unjustifiably PUNISHING ME”
Amen. I heard Chamberlin a bit this morning myself, hes a total asshole and shill for not just RE, but massive inflation - prop up stocks, prop up everything. He should read the book the penniless billionaires, the title is enough. The NC times is run by a bunch of complete stoners with 3rd grade educations. They censor anything critical out of responses to their articles that points out cold hard facts and wouldnt know the news if it bit them in the ass. Let’s hope their out of business soon.
“They censor anything critical out of responses to their articles that points out cold hard facts and wouldnt know the news if it bit them in the ass. Let’s hope their out of business soon.”
The more I read about the reach of blogs and the depth of experience and wisdom among the bloggers within many of them, I think that MSM opinion-writing will be toast pretty quickly — certaily for virtually all those who do not buy the paper relics. The turning point, I’ve read, will have been the Duke alleged-rape case where, without the persistent investigation and posting of bloggers, those boys would have been bludgeoned into plea bargains and on their way to jail by now. A case can be made for exposure of the Lewinsky case as the watershed, but blogging then had been in use and well-known by so relatively few users that the Duke case gets my nod for the Turning Point.
The flip side is that government represents — it ONLYrepresents — control, regulation and coercion. People who value control, regulation and coercion tend not to value totally free, unregulated speech. Hopefully, those who are clever enough to have made blogging possible will be clever enough to keep it uncontrolled.
I tell people reading the MSM, you get what the powers that be WANT you to know and think. Here on blogs you have to sift through a lot of opinions but the truth of a situation can be reached more quickly. I call it “tapping the hive”. Getting opinions from other cites, states and countries also helped me solidify my belief in the bubble and its dire aftermath. The big problem we have in this country is a political duopoly that is not interested in solving anything, just villifying their opponents or some issue to distract us from their ineffectiveness and corruption. A blog like this could, e.g., formulate a better energy policy for the next 5 years then anything coming out of the beltway, because the corporations have bought their puppets and the current stasis is exactly what they want.
Back to Chamberlin; listeners know he has investment property and his daughter bought using some crazy financing in the past year or two. His reputation as an advisor to primarily older people is in question for refusing to discuss the other side of the bubble issue. His unchallenged claims in the media could cause an ill informed person to make a huge mistake IMO. He is, like many, so corrupted by the system that the system cannot be called into question, for fear of the consequences. Deep inside, he is afraid that we are right but he must try to suppress our voices and broadcast ours. No matter. The economic gravity of this is too strong.
I figured he must have some incentive to sound so desparate on his radio show this morning.
The Fed isn’t as important as people think. If “Helicoper Ben” is too soft, then it will cause the dollar to tank and for long term interest rates to rise. If he continues to be soft after that, he’ll be looking down the barrel of Volkier-era inflation if he doesn’t raise rates.
The US can’t run a 7% current account deficit forever… regardless of what the Fed does with interest rates. In the long run, economics and fundamentals always win.
“… he’ll be looking down the barrel of Volkier-era inflation if he doesn’t raise rates.”
Slight refinement to your point: I would call it “pre-Volcker-era inflation,” as Volcker was the man who was reluctantly appointed by lame-duck-liberal Jimmy Carter put an end to it, after it was fueled into a raging inferno by the loose-money policies of Volcker’s dovish predecessors.
Yes, that is correct. I read somewhere years ago that it takes 2 or 3 years for the general economy to react to Fed policy. I was aware that Volker actually stopped inflation by tightening the screws in the late 70s. Juxtaposed to that, Greenspan allowed loose money for far too long and the inflation rate will probably be double digit in a few years. Gold at $623 per ounce is a good deal, but that’s only my opinion.
cause the dollar to tank … against what?
the monetary policy of the ECB is even worse, they have the same actual 8-11% inflation (more than 10% yoy money supply growth) as the US but rates on savings accounts and mortgages rates are far lower. Similar story for the yen, they too have plenty of experience with hyperinflating the currency.
The Euro zone and Japan aren’t running 7% current account deficits.
I believe that the dollar will rise agains the Euro, but it will rise even more against the currencies of southeast Asia. Eventually, they’ll realize that the “Bretton-Woods II” agreement is no longer in their best intrest and stop trying to devalue their own currencies against the dollar.
Unbeknownst to many, Alan Greenspan is actually the super veteran ace helicopter pilot. Unfortunately, all his helicopter acrobatics only lead to asset inflation, not wage inflation. Unlike the 70s increasing prices have found no feedback mechanism into wages (in the 70s wages in the wealth producing manufacturing industries went spiraling upward in a sustainable process). It is the worst possible outcome - increasing prices, vast increases in debt, and no wage increases to compensate. Precisely the scenario the results in a cataclysmic crash at the end.
Currently the Fed is in a real bind. Hyperinflation really isn’t a possiblity anymore with the enthusiasm in the housing market gone (people have to think there’s a light at the end of the tunnel to take on increasing amounts of debt when they’re already buried). And since the inflation we did see wasn’t really making it into wages, it wasn’t a viable out anyhow.
I don’t think cutting rates will do much now since people probably won’t borrow.
That’s what I said in an earlier post: it’s really helicopter Al, not helicopter Ben.
Fundamentals always win but when they are manipulated (IE Fed Fund Rates) it takes a while for the economics of the model to work. This in action by the Fed may delay the inevitable and make the final outcome more painful to some who have assets on the wrong side of the ledger but that is life. $_*t! happens!!
test
great pictures from condomania in miami
http://globaleconomicanalysis.blogspot.com/
from germany
http://www.immobilienblasen.blogspot.com/
test
http://www.immobilienblasen.blogspot.com/
“After all, Americans pay your salaries.”
As the sole entity in the US economic system with the ability to create money,
it is more like the Fed pays their own salaries.
I’m glad you caught that. The Fed does pay their own salaries and from what I understand, the US Treasury Secretary’s as well. Of course, a lot is left to guess since the organization has never been audited.
The Fed is a private bank masquarading as an arm of the government. As such, the bank pays its employees, not the government and hence not us as taxpayers.
“Let’s punish all of those homeowners who used adjustable-rate loans. Maybe if the Fed goes back to raising rates, it can put a few more families out of their houses.”
No, let’s not do that. Instead, let’s punish anyone who is not already an owner by making sure that double-digit rates of real estate inflation continue into the indefinite future so that housing costs can stay asymptotically approach 0% affordability forever. That would be much better for all Americans.
Mr Chamberhead doesn’t seem to understand that as time goes those who are not already an owner eventually outnumber those who do already own. Without those who don’t already own being able to afford the housing prices, then to whom will those who already own unload their high price real estate? It’s all on paper until you sell it…
why don’t we point out that most homeowners these days are merely “loanowners” who get to pay the bank 2-3X what it would cost to rent a similar property and in the cases of our IO freinds don’t even build equity unless prices keep marching up which is of course impossible.
I don’t think it matters much what happens to rates at this point. FB’s are FB’s no matter what the Fed does, though raising rates won’t help, they are still F’d if rates go back down, and in that case the rest of the country is F’d as well.
The only way for the FB to escape their predicament is for housing prices to always increase so they never have to pay back their loans, and that isn’t going to happen.
The pool of GF’s are going to be tapped out soon, again regardless of interest rates. Even with interest rates at 0% there is only so much debt you can pay back.
The fed might be able to fuel the credit bubble expansion a little further, but I don’t think much further, as eventually everyone will have borrowed as much as they can/desire to, and this financial house of cards will collapse regardless.
I’m hoping for a couple more raises, as far as I care the fed can raise rates as much as it wants, but I wouldn’t be shocked if rates drop. And if they do, BB might as well just say “yep, this economy is toast,” and I’ll bet markets will react accordingly.
Saturday’s Wall Street Journal had a very good article on the Fed and the dollar (”The Elephant in the Closet”.) I saw it in the paper edition and don’t have a link but it was excellent - basically making the case that most every problem we know face is a result of Greenspans policies of recent years and how our cheap money is just now producing financial reverberarations throughout the world (the article postulates that it takes about 5 years for our cheap money policy to really have its full effect.) Great comparison of the present times to the inflation period of the early 70’s.
I looked for that, and did not see it. Would you mind citing a section and page number for those of us who are not good at searching?
Sorry for not getting back sooner - and I left my paper at the office. It was the bottom right-hand corner of the editorial page.
>early 70’s.
Who was in charge before Volcker? Whoever that was, that’s Bernanke’s fate - to be known as the guy who led the Fed before a Real Man (or Woman) came and cleaned things up. Same sorta time frame too, I think. And hence gold and oil are the place to be until the new guy is appointed and gets serious. Bernanke’s Bluff is going to get called, and he’s going to be remembered only as the guy “who gave that speech about the printing press and the helicopter”. Although I don’t really know if he gave one about a helicopter…
Boy, that George Chamberlain is a real comedy act. Also, he is a bit too emotional; Feeling a little pain George?; Close to home?; or Home to close?
George, I can explain this whole housing bubble thing to you in one word: “Gotcha!”.
I find some amusement in folks who get all bent out of shape when gas goes up, but seem positively thrilled when house prices go up. They are both inflation. One neither better or worse than the other. For example, holder of oil stocks have done just fine recently.
I will probably labeled Mr Deflation eventually, but prices of things should come down over time unless they are getting scarcer. So fundamentally the last 30 years has been a highly abnormal. The bond markets still seem to be acting like we are on the gold standard and not demanding enough return to compensate them for the loss of purchasing power.
Will the Fed regret its decision? If they can convince the Chinese and Japanese to continue to hold our long term debt at sucker prices, probably not. If the long term bond holders figure out they are being robbed blind, the Fed will regret it; but not as much as us.
Oliver
Chip,
In response to your comment:
“The flip side is that government represents — it ONLYrepresents — control, regulation and coercion. People who value control, regulation and coercion tend not to value totally free, unregulated speech. Hopefully, those who are clever enough to have made blogging possible will be clever enough to keep it uncontrolled.”
I think we are in SERIOUS TROUBLE.
The United Nations has already made attempts to take over the internet in the name of international mind control by third world morons, but i heard a more sinister plan from a friend of mine who uses a website for commercial applications.
He told me that as the web has grown exponentially in sites and users that Big Business already has plans for a tiered system.
Big Companies will be on ‘broadband’ and have rapid access.
Small companies will get second and third tier.
Time of access will be slow and frustrating, like using dial-up at peak hours. This will give the big companies an edge, as customers will not be willing to wait for the slow response to their inquiries. My friend sells information. MSN could control a similar site and either hire someone like him, or overtake his operation.
He tells me this is happening now, but i don’t have time to research it.
I unfortuately believe Weblogs will face a similar fate. I believe we are looking at the golden years of web access, and given Yahoo and Google’s reponses to China, and similar demands to be made throughout the Muslim world, I would expect things will deteriorate from here.
Since I am a pessimist, this is probably slanted more dire than the actual truth………….but perhaps it will be much worse.
I hope I have been misinformed.
The argument is about so-called Net Neutrality. It’s basically an idea that the telcos (and perhaps MSOs, but it started with telcos i think) to charge big internet companies more money. It might actually be a case of killing the goose that lays the golden eggs (it pays my salary!), but I don’t think so. The problem is that these companies pay for access to the Internet already; now the ISPs want to charge for priority of packet-routing. If tangible benefits come with it, well then maybe; however, i don’t think we’re there yet, nor do we need to be.
You’re talking about “net neutrality”. It’s a big issue right now. Here’s a link about what it entails:
http://www.commongroundcommonsense.org/forums/lofiversion/index.php/t58264.html
Sol,
Sorry! Posted before your’s came up. Thanks!
It’s amazing that the world is becoming more government-controlled, even in the free world. I think the EU and US are looking at places like China, a capitalist dictatorship, and see some things about it they like. For example, the Google/Yahoo deal with the Chinese to filter internet content, I can see conservatives and Christian activists akin to such an idea to filter out anti-US content and porn for example (the Big Brother idea of protecting us from ourselves). Before you say this is ludicrous, I will let you know that an office in Homeland Security has been opened up for the FBI to monitor internet pornography and household “use” of it.
Labor costs up. hurt profits.
http://tinyurl.com/eg7ux
Did anybody watch The Donald on CNBC last night complaining about the Fed’s rate increases? “I’m not sure what Ben is doing, but if he keeps raising rates like this, he’s going to ruin the real estate market.” The Donald seemed quite bothered by recent Fed activity.
Good…let that moron (Donald Trump) complain all he wants. Real Estate has been siphoning off capital from real business growth for too long now.