March 28, 2006

Anyone else rooting for the Fed to raise rates to the moon?

It's a matter of perspective I guess. All my life I cringed when I read "Fed raises rates again". That meant houses were going to get more expensive (to pay for), credit card bills would get higher, new car loans would be higher, all my stocks would go lower, and I didn't have a savings account, cash or CDs so couldn't care less about higher return there.

Now? Like many of you - the exact opposite. No debt, foreign stocks, cash in 4.75% savings (about to be 5%!), no ARM, no desire to buy a home, no car loan. And a big desire to have the dollar strong (living in Europe and all).

And one heck of a strong desire to get this bubble deflated sooner rather than later.

So to the moon Mr. Ben! 5%! 6%! 7%! 8%! go go go!!!

OK, I'm a sick mutha f*cka. But I guarantee I'm not alone on this one, eh?


panicearly said...

"dollar to get weaker so I could buy more imported crap."

you mean stronger?

Anonymous said...

I say raise 'em Benny !! They won't be up there for long.

blogger said...

oops - the opposite... fixed that one panicearly

the fed raising though will make the dollar stronger, which does mean though that your walmart imports from china will get even cheaper, so the fed may crush the housing bubble, but they'll keep blowing up the trade imbalance bubble won't they?

Anonymous said...

Historic interest rates for mortages have been between 8-10% in the US. As early as the late 1990's, it was about 9%. People have gotten so used to cheap $ that regular % rates seem so expensive now. How perceptions change rapidly when it "benefits" people!

Benvolio Montague said...

I think he'll opt for the hyperinflation route. Let the Chinese pay for everything for a couple more years. Once Asia is loaded up on US treasuries they'll call some kind of conference to help avoid the coming economic meltdown. It'll be something like: OK everybody gets 30 cents on the dollar for all their Tbills and we go back to playing nice. The whole rest of the world needs the US economy in the loop so badly they won't be able to say no.

Great con scam man. I'm just wondering what the Chinese have in store as a counterpunch to the bait and switch scam they're getting right now. Perhaps a surprise massive dumping of the reserves into gold followed by an invasion of Taiwan?

Anonymous said...

let's not get too far beyond the realm of the probable. this blog and its participants love to spin the doomsday scenarios. The actual outcome is likely to be considerably more mundane.

Moderately higher rates, a 10-20% correction in nominal housing prices (higher in bubble markets), a 3- or 4-quarter recession, a round of rate cutting, housing price stagnation for 5-7 years.

Dollar will probably weaken over the next few years, but no Asia '97 style meltdown. Best time to buy a house will be 4-7 years out, when rate are low and real prices have declined 30-40% from the peak.

skytrekker said...

Ben will have to raise rates to at least 5%-but this will basically cause an economic slowdown- if not a recession. If he stops after today's hike- the dollar will slump, gold goes to heaven- and inflation soars. Not many options for him.

Anonymous said...

I want to see all the spendthrifts get punished....all the South Americans that bought $300K apts worth 1.5mil now and borrowed 600K more against them.

Anonymous said...

Maybe the Chineese will stage an invasion as Long Beach?

American's think they are so bullet proof.

China has a billion man standing army.

The US has some illegal aliens that volunteered for a paycheck.

There's a solution: send all the illegal aliens to Iraq in exchange for citizenship.

Anonymous said...

we have the highest rates already vs overseas economies. Why would we "hope they raise themm to the moon"? Keith, get a grip. Things work gradually. I think the best thing to hope for is that the Fed does not overshoot and go too far too fast this time.

Anonymous said...

Rates are already neutral - I'd rather see the fed err on the side of caution and hold off on raising rates for a couple meetings.

Housing is already collapsing under it's own weight. Don't add more fuel to the fire.

Bake McBride said...

I think he stops between 5 - 5.5%

As you said, "housing is already collapsing under it's own weight"...and it will continue.

I thing BB is very sensitive about the possibility of overshoot rates.

Anonymous said...

I'm with you. As we see with our own eyes and read here daily, the real inflation rate is probably in the 6-7% range via the various deliberate tricks, not 2-3%. We've had easy money for far too long.

On a related but selfish note, that will also properly start to take the wind out of the overpriced homebuilder stocks so I can start making some serious short money on them as well. There's NFW any homebuilder in any market anywhere in the country should have a stock price within 10% of its 52-week high.

foobeca said...


There's no reason for the govt or the fed to decide to pay only 30 cents on the dollar for t-bills or t-bonds. You could pay off all the outstanding government debt in the space of a year.

What you would do is simply print up money to pay off the bondholders. You could do this without inflation as well. To prevent the money supply from increasing, the FED could raise reserve ratios accordingly and raise the FED funds rate to Paul Volker-like levels. This would have the effect of freezing any new bank loans, but it would pay off the entire national debt without inflation.

Anonymous said...

Yes, the debts will likely be erased though inflation. That's what governments throughout history have done to get themselves out of jams like the one Bernanke is facing. The problem is so big this time though, I see a far more authoritarian role for the federal government. How about all transactions over $100 must be handled by electronic transfer? Than shiny new red-white-&-blue USA/EFT card will be just the ticket as a means to control black markets and prevent a run on banks. The money supply could even be adjusted daily to keep the dumb-masses spending and happy.

Anonymous said...

My vote is add fuel to the mutha and let it burn.I predict up to 7-8% by 2007

David said...

The Fed is going to a max of 5.5%.

Anonymous said...

Mortgage interest rates will go down not up. There is no way politicians will allow the voting herds to suffer. We could see 0%, 100-year loans before this mess is over.


No lenders will accept negative bond returns for long. Back out the foreign purchasers and rates will be at least 3% above expected inflation rates.

Anonymous said...


jeffolie said...

They will deflate by having the overseas investors taken down while sparing the T-bill market with the "NewBank". In a flight to safety investors will jump on treasuries strengthen the dollar and crashing gold. Searching NewBank, check out
Very funny.
The first US bank to go down will be JP Morgan. Over 800 US banks hold derivatives. Check out: You'll see that the amount of derivatives in "insured" commercial bank portfolios increased by $2.6 trillion in the third quarter of 2005, to a whopping $98.8 trillion. 98% of these are concentrated in 5 banks. Total assets of these top 5 banks is $3.3 trillion if I am reading the chart correctly. Just look at the charts like the year ends 91-2004 chart (Graph 3) and you'll see a chart shooting straight to the moon. Maybe these bankers are smarter then me, but this is a house of cards in my book.

Most of the $570 trillion in derivatives are held by overseas investors. These will collapse from the housing bust causing defaults. The default follow like dominos to mortgage backed securities, then collaterized debt obligations and lastly to derivatives.

Controlled deflation will be the Fed's goal so that the dollar will rise. This will help the US government as investor, institutions and countries buy Treasuries as a safe haven. US Treasuries held as reserves will not be sold off (by China and Japan) avoiding a dollar devaluation. Win -Win for the Feds. Lose-lose for derivatives, MBS (which are explicitly not backed by the US).

Controlled deflation is the Fed best choice among bad choices.

I doubt the deflation can be controlled by lowering Fed rates to zero, but the Fed will try to "mop up".

Anonymous said...

Ha does no matter we have no power in any of this coming collapse.

Anonymous said...

15 in a row! 4.75% and rising. 5% would be juicy..only a few percent below the real inflation rate. Folks have become used to the easy money. They must have forgot Reganomics of the 80's and the resultant high interest rates or the stagflation of the 70's with the guns vs butter debate...or even the "moderate" interest rates of the 90's which were considerable higher than today.

Did we mistake Helicopter Ben as a softy on inflation? I say he can go as high as his little heart desires. Only helps me in the long run...but I think he'll chicken out at 5%. Once he stops, the dollar will fall.

peterbob said...

I'm all for it. Raise rates and deflate the bubble quickly. It will mean the least harm for the economy.

Anonymous said...

Another vote for sending the rates through the roof. 18% on CDs,lower asking prices on house (mortgages you could actually PAY OFF in 10 years).

Bring back the Volker 80's. It would make Americans into savers again. Help them to understand the value of a dollar. We need to learn that lesson REALLY BAD.

Anonymous said...

And to think, Volcker is still around... What would the economies of the 1990s and 2000s have been like, if he'd stayed there until Bernanke?

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