The Housing Bubble

“…who don’t care as much about upkeep and issues that keep values high…”

Isn’t keeping values high the landlord/investor’s problem? Like for instance, our lls spent a good chunk of time yesterday morning figuring out what to do about the rotted out pipes that caused their sprinkler system to leak. At the end of the day, they decided on having the dirt filled in, then having rocks piled on, and mulch put on top, but only after ‘waiting for a while’ to finish the work, as it turns out that Keynesian ditch digging and refilling is mighty expensive around these parts. And they hope the HOA’s architecture committee doesn’t notice the green grass has been replaced by dead red mulch.

How this kind of personal landlord TLC gets doled out from Wall Street investors to Main Street rental properties remains to be seen. But a really good guess is that lots of America will soon resemble some of its worst slums, as it turns out that maintaining rental properties doesn’t pencil out well for the smartest guys in the room.

“anonymous neighbors”

You know how they become un-anonymous? Go introduce yourself. I know it sounds crazy.

And above all else, do not buy a house at current massively inflated prices. Rent for half the monthly cost and buy later after prices crater for 65% less.

I am pumped. I think I will go visit few open houses today.

Thanks Rocky.

You get no respect.

Why don’t you? Because you hang out

with them coconuts on the corner.

You hang around with coconuts,

you get nowhere. They’re lemons!

Hang out with nice people,

you get nice friends.

Hang out with smart people,

you get smart friends.

Hang out with yo-yo people,

you get yo-yo friends.

It’s simple mathematics.

What the hell happened to the Housing Bubble Blog I used to know? Where’s the spirit? Where’s the guts, huh?

Nothing is over until we decide it is! Was it over when the Robo signed victims got to live free for years? Hell no!

And it ain’t over now. ‘Cause when the goin’ gets tough…

[thinks hard of something to say]

The tough get goin’! Who’s with me? Let’s go!

[Puts a low bid on a house; then returns]

Bluto’s Big Speech - Animal House (9/10) Movie CLIP … - YouTube
http://www.youtube.com/watch?v=q7vtWB4owdE - 232k -

Rocky was a wuss.

(And Stallone once splashed gasoline all over my new suede stilettos at the Malibu Shell station and never ever bothered to apologize– like he’d done me a favor or something.)

“The debt level will only take 40 years or so to normalize at this rate, assuming medical cost inflation and baby boomer retirement doesn’t make it grow again.”

Won’t half the Baby Boomers be six feet under 30 years from now, with many of their homes added to shadow inventory?

Japan deflation: June 1993: Toyota (TM) stock price at $28.06. April 26, 2013: Toyota stock price at $115.48.

Average annual gain? Over 7% over 20 years.

Japanese deflation or pre-Hitler inflation?

Debate goes on, but the more you accumulate in several buckets of assets (some hedge against deflation while others hedge against inflation), the more likely you will survive.

Sorry to break the bad news to perma-depressed people who get high on doom!

You have geothermal plants? I didn’t know there were geysers/major hot springs in the silicon valley. Is it something in the water that makes the tech wizards so smart?

“I have oft wondered what would happen to our city budget if we ever got to critical mass in solar power generation…In other words, it would be so inexpensive that it would be foolish not to switch over.”

You’ll never get 100 percent solar. But maybe you’ll get 100 percent of the peak demand increase = solar. That would be good for utilities — less max demand on the grid.

April 24, 2013, 7:01 a.m. EDT
Don’t fixate on gold in your portfolio
By Robert Powell, MarketWatch

Those living in retirement are often told to strike a balance between investing for safety and investing for growth. And when it comes to investing for growth, some pundits are fond of telling investors to put their money in commodities, including gold. Doing so, the experts say, is one surefire way to keep pace with inflation.

It’s also one surefire way to lose money as some retirees and would-be retirees are finding out today: Gold has fallen roughly $400 from its 52-week high of $1,803 to $1,420 and now, some say, might be a good time for retirees to revisit their decision to put their money at risk in commodities and gold.

Take a broad approach to commodities

To be fair, most advisers suggest that retirees and other investors ought to commit some of their funds to commodities. But they suggest doing so only after drafting what’s called an investment policy statement (IPS). And they also recommend against betting the entire portion earmarked for commodities to just gold. Doing that, they say, is pure speculation and folly.

“I think commodities are a great diversifier in portfolios because of their low correlation to stocks and bonds,” said Nathan Erickson, an investment strategy manager with Miller/Russell & Associates. “The data do show that including commodities in a well-diversified portfolio of stocks and bonds can lower overall portfolio risk,” said Erickson.
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Commodities’ price crash: Recovery sign or a new recession?
Swaminathan S Anklesaria Aiyar Apr 21, 2013, 11.51AM IST

The price of gold, oil and many other commodities crashed last week. The stock markets zoomed and economists smiled, suddenly seeing positive consequences in three areas: inflation, the trade deficit and the fiscal deficit.

These three factors had earlier dragged down the economy to its lowest growth rate for a decade, just 4.7 per cent in the last quarter. But the global commodity crash should reduce inflation in India too, cheaper imports should shrink the trade deficit, and the fiscal deficit should shrink because oil and fertiliser subsidies will reduce. This is a triple helping of manna from above. Does it mean that the worst is over, and that the flagging Indian economy will now take off?
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Panos Mourdoukoutas, Contributor
Markets
4/15/2013 @ 10:12PM
Does The Crash In Precious Metals Signal The Beginning of Another Financial Crisis?

For precious metals investors, the last five days have been like 2008-9 all over again, as the end to the sell-off doesn’t seem to be anywhere in the offing.

Is the precious metal crash the beginning of another financial crisis that will touch equities?

Judging from the performance of major equity indexes on Monday, the answer is yes–though it is hard to say whether the decline in stocks will be sustained. What can be said, however, is that the crash in the precious metals provides a taste of the next financial crisis that will be nastier than the 2008-9 crisis.
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Commodities tipped to drop further on demand fears
by: Alex Macdonald
From: Dow Jones
April 29, 2013 12:00AM

MACQUARIE Research has cut its price forecast for several commodities, including copper and gold, due to renewed concerns about future commodities demand as optimism about the global economy erodes.

Macquarie Research, a unit of Macquarie Group, said that despite China’s economic growth, apparent demand for metals remained weak, particularly in the US, Europe and South Korea.

“Certainly, industrial production is stuttering rather than accelerating and metal consumers are maintaining minimum working capital — this situation should improve as lead indicators rise. However this process does not seem aggressive enough to drive commodity prices,” it said.

The bank cut its 2013 copper price forecast by 5.2 per cent compared with its January forecast, to $US7459 a tonne, and cut its 2014 copper price forecast by 14.7 per cent to $US6550 a tonne.

It noted that the rise in copper stocks was forecast to gather pace in the second half of the year as new supply entered the market.
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It also cut price forecasts for 2013 by as much as 5.4 per cent for aluminium and lead and as little as 0.1 per cent for tin.

In the precious metals sector, the bank cut its 2013 gold price forecast by 4.3 per cent to $US1467 a troy ounce and cut its 2014 gold price forecast by 3.1 per cent to $US1385, noting that the changes were moderate because it was already bearish on gold.

It noted that “the short-term outlook for gold is unusually murky — heavy disinvestment from ETF (exchange-traded funds) investors is being offset by strong physical demand in key markets such as India and China, but neither of these is likely to continue indefinitely, and which runs its course first could determine whether the price moves $US100 an ounce higher or lower.” The bank said one of the few areas with potential was the platinum group of metals, even though it cut its price forecast for platinum and palladium in 2013 and 2014.
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Home builders report greater pricing power
April 25, 2013, 2:51 PM

Even as home builders are concerned about costs and scarce skilled labor, they are also enjoying more pricing power thanks to growing demand, recent data show.

With interest rates hovering near record lows and household formation rising, it’s clear that home builders are benefiting. PulteGroup, one of the largest home builders in America, reported Thursday that first-quarter home-sale revenue rose 35% from the same period in the prior year, as closings gained 23% and the average sales price increased $26,000 to $287,000.
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From housing bubble hero to echo bubble housing shill…

THE OUTLOOK
Updated April 7, 2013, 7:31 p.m. ET
Housing Prices Are on a Tear, Thanks to the Fed
By NICK TIMIRAOS

The U.S. housing market has broken out of a deep slump, and prices are shooting up faster than anyone thought possible a year ago. For many homeowners, that is a cause for celebration.

Nick Timiraos explains how the Federal Reserve keeping interest rates low is causing home prices to grow faster than they normally would during a recovery, and that has some experts worried. Photo: Getty Images.

But the speed at which prices are rising is prompting murmurs of concern that the Federal Reserve’s campaign to reduce interest rates could be giving the housing market a sugar high.

Prices of existing homes rose 10% in February nationally from a year ago. They have been rising during the seasonally slow winter months—and they show signs of jumping further as the spring buying season gets under way. What’s going on?

Prices of existing homes rose 10% in February nationally from a year ago. Above, a home in Mariemont, Ohio.

First, inventories of homes available to buy have fallen to 20-year lows. Home builders have added little in the way of new construction since 2008. Banks are selling fewer foreclosures. Investors have scooped up more homes, converting them to rentals.

Many borrowers, meanwhile, aren’t willing or able to sell at prices that are down sharply from their 2006 highs, despite a greater inclination among banks to approve short sales. Tight lending standards mean some owners will hold back from selling because they aren’t sure they would qualify for a mortgage on their next home.

Demand has also revved up, first from investors buying homes below their replacement costs, and later as rising rents and falling interest rates encouraged more first-time buyers to purchase homes that have monthly payments that are less than what it costs to rent.

Improving home-price expectations have also unleashed pent up demand. The U.S. added around 1.3 million households a year for the 10-year period ending in 2007, after which household formation fell to more than half that level. Household formation was lower in the five years following the housing bust than any period since the 1960s, according to Altos Research, an analytics firm in Mountain View, Calif.

But the population never stopped growing. Households simply doubled up. Between 2008 and 2010, the country had around two million households that “couldn’t wait to launch on their own,” says Mike Simonsen, chief executive of Altos Research. Many of those new households have been renters, but more are opting to buy.

The upshot is that, in a reversal from just two years ago, demand is outstripping the available supply. Even though sales volumes could be constrained this year by low inventories, some economists say prices are set to soar. “A lot of folks are realizing, ‘Wow, there is no second wave of foreclosures. Interest rates if anything could head up. Prices are rising. If I’m going to get in I better get in now,’” says Christopher Thornberg, a housing economist with Beacon Economics in Los Angeles.
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It is no longer an international housing bubble. Rather there are a few “mini-bubbles” at risk of price corrections which will only inflict local damage.

Here is a little prediction for you: After the global credit bubble is clearly receding in a few years, with housing prices in steady decline on five continents, guys like Redfin CEO Kelman will claim they called it.

Signs of a new housing bubble
April 25, 2013|Mary Umberger | On Real Estate

Los Angeles is one of four housing markets that are in mini-bubble territory, at risk of price correction. (Allen J. Schaben, Los Angeles Times)

Um, don’t look now, but out there in the real estate trenches, they’re whispering the B word again. That’s B as in “bubble.”

That’s because agents in various parts of the country are using such terms as “overheated” and “buying craze” and “skyrocketing prices” to describe what they’re seeing in their markets, according to a recent trade journal report.

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It isn’t an isolated discussion: Redfin, a real estate brokerage that does business in 20 markets around the country, recently ranked 15 major metros it perceived as most vulnerable, and least vulnerable, to experiencing another housing bubble.

Redfin Chief Executive Glenn Kelman said he doesn’t see housing, as a whole, headed for another fall. But in an edited interview, he explained that although he’s advising clients in some places that now might be the perfect time to dive into buying, in others, he’s suggesting that renting might be a safer move.

Q: Your company’s analysis of potential bubble areas came with a caveat that, even with the relative frenzy in some places, this time is different. I wish I had a dollar for every broker, agent and housing economist who uttered that same phrase to me during the couple of years before the bubble burst. How is it different this time?

A: Though I think there are places that are really vulnerable to some kind of setback, in general, talk of a bubble is just that.
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Real estate is getting a bit frothy over in Yangon, Myanmar.

A new housing bubble
Will the end of EU sanctions pop Myanmar’s real estate bubble?
By Tim Fernholz @timfernholz April 22, 2013

It’s going to be hard to get a room for next year’s water festival in Yangon. AP Photo / Khin Maung Win

Today the European Union lifted economic sanctions against Myanmar, but European businesses still face obstacles to operations there as the troubled Asian country re-enters the international community. Chief among those problems: a real estate bubble.

EU officials joined the US in re-establishing commercial relations with Myanmar after it transitioned to a civillian government and released political prisoners. Their hope is that foreign investment will lead to more effort from the government to address attacks on the country’s Muslim minority and other human rights abuses.

For businesses, there’s an obvious interest in doing business in a country with more people than South Korea or Malaysia. But forget crony capitalism, the immediate problem is simply finding a hotel room, visitors say. Travelers are advised to make reservations for rooms well in advance, thanks to a shortage caused by foreigners who have flocked to the country as the US and EU have relaxed restrictions on trade. There are reportedly only 27,000 hotel rooms in the entire country.

And it’s going to be hard to rectify that situation because land is so expensive. Myanmar, perhaps eager to join the world’s advanced economies, has a housing bubble.

Until recently, there weren’t a lot of options for investment. Sanctions made it difficult to invest outside the country, and there was no domestic stock market to speak of. Investors, then, turned to real estate as a place to stash their cash, which has created high land prices around the commercial center of Yangon, according to Paul Wilson of Myanmar Capital Advisors.

“The real estate prices in Yangon—which is twenty or thirty years behind Thailand—are as high as some places in Bangkok,” Wilson said recently at a conference in Los Angeles. “The country actually has a lot of cash. There’s jade sales: official reports of jade sales are $4 billion a year, the unofficial are like $36 billion worth of jade going to China, so people have tremendous amounts of wealth. There’s a lot of illicit money, through narcotics, that’s still a problem. There’s nowhere to put the money. There’s no stock market, you couldn’t convert the currency, so they put it in land.”
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Are Wall Street Investors Pumping Up The Next Housing Bubble?
By Chris Morran April 22, 2013

Areas like Las Vegas, Phoenix, and Miami — all hit pretty hard by the collapse of the last housing bubble — are now seeing home prices rise at rates above the national average. But rather than this being an indicator that these areas are finally recovering, some worry that it’s just a lot of hot air being pumped into another bubble by Wall Street investors.

The Washington Post reports on the huge amounts of money that institutional investors are putting into single-family homes in some areas hit the hardest in recent years. They are rushing in to buy properties at what is hoped to be well below market rate, with the goal of reselling for a tidy profit as the economy recovers.

According to some in the Florida real estate business, these investors now buy 7-in-10 homes on the market there, and may account for the majority of home sales in other distressed areas over the last two years.
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5 Reasons We’re in a New Housing Bubble
By Rick Munarriz
April 24, 2013

NVR (NYSE: NVR ) reported disappointing quarterly results on Monday. The historically conservative homebuilder posted revenue and earnings growth that fell short of Wall Street expectations. The shares recovered most of Monday’s losses, but the Virginia-based developer still closed 2% lower on the day.

This is going to be a busy week for homebuilders. Pulte and D.R. Horton will join NVR in reporting later this week. Analysts see strong growth at both companies, but investors shouldn’t be surprised if Pulte and D.R. Horton also fall short.

The housing market may be booming right now, but buyers are starting to get cold feet judging by a surprising year-over-year spike in the cancellation rate of new orders at NVR.

The increase in folks backing out of their contracts is just one of the five signs that longtime Fool contributor sees in arguing that we’re in a housing bubble in this video. Agree? Disagree? Check out the video, and then post your thoughts in the comment box below.
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The gray media certainly called this:

Yet Another Bailout: Housing’s Hair of the Dog
by Barry Ritholtz - September 8th, 2009, 11:13am

One of the arguments I keep making is that the folks pushing “Less Bad = Good” are ignoring the impact of Uncle Sam’s largesse.

Let’s look at how much the U.S. government is pushing a housing recovery via a hair of the dog.

As the WSJ reported last week, the number of loans backed by the FHA has soared, and “its market share reached 23% in the second quarter, up from less than 3% in 2006, according to Inside Mortgage Finance.”

Even worse, the FHA is now insuring mortgages with as little as 3.5% down. Add in the $8,000 first time buyer tax credit, and you have all the makings of a government sponsored boomlet.

The downside?

Rising delinquencies, for one thing. The FHA delinquency rate has soared. The Journal noted that “At the end of June, some 7.8% of FHA-backed loans were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, up from 5.4% a year ago.”

Then there is this WSJ article:

Before the boom, the FHA wasn’t a big player in the housing business because it didn’t follow private lenders in loosening its standards. Borrowers had to fully document incomes and insured loans were capped at $362,000. Congress increased those limits last year to as high as $729,750 in the most expensive markets. In August, the FHA and the U.S. Department of Veterans Affairs backed 40% of loans for all home sales.

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I love these articles that start off with a disclaimer about the possibility of another bubble, then rattle off twenty or thirty reasons that bubble conditions continue unabated from the peak mania years.

First Person: I’m Not Worried About Another Housing Bubble
By Laura Quinn | Yahoo! Contributor Network – Wed, Apr 24, 2013 5:58 PM EDT

Some real estate experts are suggesting we are in the midst of another housing bubble. Although it’s true home values have made 16 straight months of gains, most of us are just closing the gap between what our home is worth and what we originally paid. According to a recent article by CNBC, online searches for “real estate listings” are up 256 percent compared to a year ago.

I’ve noticed a lot of people will go to great lengths to twist the facts around so they feel as though they made good real estate deals. Some of the people I know who purchased their current home at the “bottom” still had to sell their other property at the bottom. Some people may have felt like they made money when they sold at the “top” of the bubble, but often purchased at the top as well. I know I personally made some mistakes and did some things right when it came to the last housing bubble. I hope I can share what I learned with my sons as they hunt real estate deals as young adults.

Shaking off the negative equity

According to the CNBC article, many homeowners are now free of negative equity, which means they are more willing to list their homes. Even though we now have positive equity in our home, that doesn’t mean we would actually turn a profit by selling. To the contrary, we bought our home for about $180,000. It could now sell for about $135,000. We would be far better off renting out our home if we wanted to move. We could rent out our home for $1,200 a month. With a mortgage of $900 and $100 fees to a property manager, we’d pocket $200 a month. But the real benefit would be having someone else pay our mortgage for us until housing prices truly recover.

Becoming a renter versus a homeowner

Although my husband and I plan to stay put, we do have two sons who will be eventually buying real estate properties. I’m not worried about another housing bubble. The fact is most of their older peers can’t afford to purchase expensive homes because of their high debt-to-income ratio due to student loan debt. Also, there will be no real shortage of housing inventory as baby boomers move into assisted living facilities and nursing homes. In fact, there will be a surplus of homes. If there is a mini housing boom, I’ll encourage my sons to rent until home prices are more reasonable. Although my son in college considered buying a condo, he ended up finding an apartment with reasonable rent that included utilities.
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*** RADIO SILENCE ***

Only paid to work weekdays? Regular shill jobs where they can hang out on the Internet all day and troll?

All we are is foam in the wind.

Close your eyes and tap your heels together three times.

‘Should the Fed, or any central bank, put more weight on unemployment than price stability?’ he asked the crowd’

The crowd? Why do they bother asking “the crowd” anything? They have no accountability to anyone except their wall street masters.

And price stability? We’ve got bubbles in real estate all over the globe. In some commodities, stocks, bonds. And this clown is talking about price stability?

and not a dime for renters with a perfect record of paying on time……what an idiot i am.

Commentary / World
Zero-interest rates harder to quit than IMF thinks — just ask Japan
by William Pesek
Bloomberg
Apr 29, 2013

Christine Lagarde wants her staff at the International Monetary Fund to examine what might happen to the global economy when central banks begin to raise interest rates. She’s wasting their time.

If Japan has taught us anything, it’s that slashing rates to zero and beyond is a lot easier than returning them to normalcy. Japan is on its sixth central bank governor since its bubble imploded in 1990, and like his predecessors, Haruhiko Kuroda is doubling down on quantitative easing. Why? Politicians, bankers, investors and businesspeople alike get addicted to free money all too easily and clamor for more.

Once central banks start embracing assets such as corporate debt, commercial paper, mortgage-backed securities, exchange-traded funds, real-estate trusts and the like, monetary officials tend to get stuck. That’s especially so in nations carrying large, and growing, debt burdens.

“They simply can’t afford any meaningful increase in interest rates,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “The Japan experience suggests very low rates are going to be around for a long time.”

What Lagarde should ask her staff to do is study how the nature of economics and capitalism will be altered by most Group of Seven nations maintaining zero-rate policies for another decade or more. The “liquidity trap” that deadens the benefits of monetary easing is morphing into a “stimulus trap,” which is much harder to shake.
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April 18, 2013, 9:38 AM
Fed’s Kocherlakota: Very Low Rates Could Persist for a Decade
By Michael S. Derby

A Federal Reserve official said Thursday interest rates are likely to stay very low for years to come, which raised the prospect that chronic financial instability risks will dog the economy for a long time.

“For a considerable period of time, the [Federal Open Market Committee] may only be to achieve its macroeconomic objectives in association with signs of instability in financial markets,” Federal Reserve Bank of Minneapolis President Narayana Kocherlaktoa said.

“For many years to come, the FOMC will have to maintain low real interest rates to achieve its congressionally mandated goals,” the official said. “Unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity,” he said.
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Low Interest Rates Are Hurting, Not Helping, the Economy: Sheila Bair
By Morgan Korn | Daily Ticker – Wed, Apr 17, 2013 8:26 AM EDT

Historically low interest rates have helped the U.S. housing market recover by attracting new buyers into the market and allowing current homeowners to refinance their mortgages at a lower rate and save money. The Federal Reserve has kept short-term overnight lending rates near zero since 2008 to encourage consumer and business spending.

Economic growth has yet to return to its pre-recession levels and the latest GDP report showed that the economy grew at an annual rate of 0.4% in the fourth quarter of last year. The Commerce Department will release its first reading of Q1 GDP on April 26.

Homeowners are not the only group that have benefited from the mortgage-refinancing trend. The nation’s largest banks have seen their mortgage businesses skyrocket as more Americans took advantage of super low interest rates. But recent reports by JPMorgan (JPM) and Wells Fargo (WFC) indicate that the rush to refinance may be slowing and the lucrative profits earned in recent years could be falling.
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MARKETS
April 25, 2013, 8:26 p.m. ET
Fed Zeroes In on Vulnerability to Rate Rise
By VICTORIA MCGRANE

The Federal Reserve is scrutinizing the nation’s biggest banks to ensure they can handle an eventual rise in interest rates, as concern grows among regulators about the risks posed by a long low-interest-rate environment.

On Thursday, a panel of federal regulators charged with identifying market risks warned that a sudden rise in interest rates could have a destabilizing effect on financial markets. The Financial Stability Oversight Council, in its third annual report, cited interest-rate risk as one of seven major vulnerabilities to financial stability.

“A sudden spike in yields and volatilities could trigger a disorderly adjustment, and potentially create outsized risks,” the council said in its report.

Ben Bernanke is part of a panel charged with identifying market risks.

The Fed’s chairman, Ben Bernanke, sits on the FSOC. Using detailed data that the central bank started collecting after the financial crisis, Fed officials are regularly running big banks’ portfolio holdings through models to gauge their exposure to various changes in interest rates, according to Fed officials.

For the first time this year, the Fed asked banks to gauge their ability to withstand a hypothetical inflation and interest-rate shock as part of an annual “stress-testing” exercise.

According to Fed officials, none of the 18 largest U.S. banks saw their capital levels fall below regulatory minimums under the scenario, which featured a mix of moderate recession, rising consumer prices and rapid increases in short-term interest rates, as might occur if oil prices were to shoot sharply higher. The Fed didn’t publicly release results of the scenario.

The Fed found that banks are protected in part because they have increased capital levels and because their net interest income would increase with a rate rise. They also have an inexpensive source of funds in customer deposits, which would insulate them, it found.

The Fed isn’t expected to raise rates any time soon, and the monitoring isn’t a signal that the central bank might shift its position—it has committed to holding rates low for a long time, at least until unemployment falls below 6.5%, as long as inflation remains stable.

The vast majority of the Fed’s 19 policy makers don’t believe the central bank will raise short-term rates until 2015 at the earliest.
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Yellen Backs ‘Lower for Longer’ Fed Rate Policy Amid Risks
By Craig Torres - Apr 16, 2013 2:48 PM PT

Federal Reserve Board Vice Chairman Janet Yellen said she favors holding the benchmark interest rate “lower for longer” while cautioning that some bond-market investors may be paying too much for higher yields.

The Fed vice chairman said the central bank’s low-rate policies are intended “to promote a return to prudent risk- taking” in credit markets. “Obviously, risk-taking can go too far,” Yellen said today at an International Monetary Fund panel discussion on monetary policy in Washington.

The Federal Open Market Committee in December pledged to keep the main interest rate near zero so long as the unemployment rate remains above 6.5 percent and the forecast for inflation doesn’t exceed 2.5 percent over one to two years. Last month the committee said it will continue buying $85 billion in bonds until the labor market “improves substantially.”

“I don’t see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability,” Yellen said. “But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation.”

In response to an audience question, Yellen said she didn’t expect financial stability concerns to grow so acute that they become “the dominant factor that should control our policy.”
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Care to guess?

“…Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.”

Well, it worked for them….

“Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.”

Behold the difference between North Korea and South Korea. Two distinct economic systems. Or of East Germany versus West Germany before the collapse of the Berlin Wall.

Now tell me which side had a higher standard of living?