Comment of the day
There are 3 options:1. Pull the Fed rate subsidy and housing prices WILL fall further, the only question is exactly how high rates will go and exactly how low prices will fall.
2. Keep the Fed rate subsidy program going indefinitely. The price of housing measured in dollars will be higher, but measured in anything else, gold, gallons of gas, gallons of milk, or loaves of bread, it will be lower.
3. Pursue real pro-growth policy that leads to higher wages and allow those higher wages to drive up prices.
One thing the prior decade showed us is that asset appreciation brought about by financial engineering is unsustainable. The supports being offered now are merely financial engineering, be it on a much larger scale than Wall Street.
Do you agree that those are the only options? What do you want the Fed to do (or not do)?
Categories: Comment of the day, Mortgage rates, Mortgages
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Comments
Option 1, without a doubt. Quit the shenanigans. Let the free market rule. Mortage rates should return to historically healthy values, and "creative" financing abolished. 20% down or you are a renter. Period.
Posted by: Darwin Rules | October 14, 2009 10:20 PM
I completely agree that what we are seeing is just financial engineering and it is causing a false sense of hope that we are actually recovering this fast. There is no real sustenance behind this recover, it's almost entirely fake. The Dow may be climbing, but we are still hemorrhaging jobs every month. However, I do not think just waking up one day and dropping everything we are doing is the right answer. We need to stop propping up the economy, but it has to be done slowly and smartly or we will be in a world of hurt. Same thing happened during the Depression, the government pulled out too quickly and we fell even harder. Bernanke is a student of the Depression and is trying to steer us away from following that path.
Good observation by Josh though.
Posted by: M | October 15, 2009 8:10 AM
Overly simplistic. There are more facets to the issue.
Posted by: "Little Debbie" | October 15, 2009 10:37 AM
I think Bernanke is a depressing student. Also, our pretty simplistic Constitution does not even allow for his job to exist.
Posted by: Darwin Rules | October 15, 2009 1:50 PM
Bernanke's basic thesis on the depression is that it was principally exacerbated by a tight money policy. In other words, the fed didn't print enough fast enough to bring the economy out of a tailspin. A little history lesson:
A year by year analysis of unemployment rates and GDP output reveals that the real pain (20-25% unemployment) didn't come until after many of FDR's programs were enacted, specifically the NRA-no not the 2nd Amendment guys, the National Recovery Act which established price floors and would for example put a NYC dry cleaner in jail if he pressed a pair of pants for less than 40 cents. The problem is if you were a NYC dry cleaner on a non prime location and had been compensating for your non prime location with below 40 cent pricing, the NRA just put you out of business, and laid off anyone who worked for you.
Furthermore, in 2006 Edmund Phelps (no relation to Bmore's own) won the Nobel Prize in econ for detailing how MONETARY POLICY HAS NO LONGTERM EFFECT ON GROWTH OR EMPLOYMENT.
Deflation, or falling prices actually helped the unemployed by allowing their money to go further. If you don't have a job it's not as bad when your 10k in savings now has the equivalent purchasing power of 100k in savings.
No civilization in the history of the world, be it Rome (the invented coin clipping, a primary reason modern coins have ridged edges), the Weimar Republic, 1970's-80's Argentina, Zimbabwe, or the US has ever spent or printed its way to prosperity.
Posted by: Josh | October 15, 2009 2:42 PM