Asian banks stop buying our bonds, which have artificially kept interest rates low. Bond and mortgage rates explode. Housing comes to a screeching halt. The fed raises as fast as they can to prop up the dollar. Housing slows down even faster.
The United States faces a risk that Asian central banks which are still hungry for U.S. assets will one day reach their limit and reinvest at home, Chicago Federal Reserve President Michael Moskow said Thursday.
Moskow's comments on inflation and the dangers of the big U.S. current account deficit roiled stock markets and triggered selling in U.S. Treasury debt markets.
Eventually countries investing in the United States, such as China, Japan, developing East Asian nations and major oil exporters, "will reach their desired allocations of U.S. assets," he said. "They're going to want to bring back and invest in their own countries," Moskow said, adding that the timing and pace of such a trend was hard to estimate.
Traders, who periodically fret about a messy unraveling of the current account gap that might send long-term U.S. interest rates soaring and trigger a steep fall in the dollar, keyed off this remark.
"He said at some point Asians will bring funds home, which wasn't very helpful ... One response may be the Fed having to raise interest rates to keep the dollar from collapsing as a result," said Michael Panzner, head of sales trading at Rabo Securities in New York.
Moskow said a probable slowdown in U.S. housing markets "should be an important factor in bringing growth back to potential" as the Fed has forecast for 2006 and 2007.
But if housing remained solid "this would heighten the risk of above-trend GDP growth" and could be inflationary, he said.
April 07, 2006
Good god. Chicago Fed President Moskow, taken off of Greenspan's leash, opens up his full clip
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84 comments:
Do I hear 5.75 for fed funds?
David
Bubble Meter Blog
So the rock and the hard place?
Must keep rates manageable or will have total housing collapse, but must keep rates high in order to keep attracting invenstors to buy our debt.
This is going to get ugly. How long can we as a country not deal with this?
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If forced to choose between hyperinflation and a housing collapse, the Fed will choose the latter. Better (or less worse) to have falling prices for just one asset type than people running to the bank on payday to deposit their paycheck and buy food/gas before it goes up another 50% by the end of the day.
I'm looking forward to the day when a development full of empty unsellable McMansions gets bulldozed and turned back into a field.
Why not let the dollar collapse until we have a net trade surplus?
Why save the dollar with criplingly high interest rates?
The Fed should LOWER rates to zero until we have a net trade surplus. Sure, inflation would go crazy but that would mean foreign goods would be overpriced and US companies would once again be competitive.
No need to save the dollar with unwanted and unneeded foreign investment (by raising interest rates).
Also, this would give the housing market a new shot in the arm!
ADSF-
We have had negative real interest rates for years and the trade deficit has kept growing. All the low rates did was create a real estate bubble and create demand for Toyota's and Honda's and Chinese HDTV's.
We don't really make much of anything to export to other countries anymore. You could devalue the $ by half and we would still not be competitive with Chindia in terms of labor costs.
Helicopter Ben is just going to drop cash on us to save the economy.
Sadly, I think Heli-Ben and Greenbubble have been doing just that via the RE bubble. It created a couple jobs in the RE industry and a a couple more at Walmart. The RE bubble money is sitting on the large multinationals balace sheets waiting to be redeployed to high grown Chindia.
that's "growth", not "grown"...
All thanks to low rates and an out of control Congress. When will we finally get that Balanced Budget Amendment passed? If not, then just cancel the freaking debt. Brazil has done it twice and they're still intact. We can do it now or do it later, but there is no way we will ever be able to pay off that debt.
Let the South Koreans, Europeans, and Japanese take care of themselves. They have more money than we do. Extract ourselves from the Middle East carefully. Seal the borders. Raise the legal immigration cap if those workers are needed. It is unethical to have third world slave labor working for $3/hr so we can save a few cents on our fruits and veggies. so people can't afford a new car every 3 years and own two houses anymore. Big freaking deal.
Moskow is not a voting member of the Federal Reserve board so his comments hold little weight in Fed policy actions.
That said, he's just stating what many other economists believe will happen unless this crazy debt binge stops. First thing to change - eliminate the federal budget deficit.
The Fed will not prop up the dollar if it declines 'moderately slowly'.
There was a recent research report perhaps by Fed or related academics looking at 'currency disruptions' (i.e. declines in currency) and whether this lead to major inflation and large changes in interest rates.
The answer was that in 3rd world countries it did, but not usually in the major economies.
Whether or not it is the right thing to do, the Fed will use this as motivation to not manage the dollar, and look only at domestic inflation measures. If they do go up, then rates will go up certainly.
Long term rates going back to 7-8% seem like an inevitability. But we lived through that OK.
how do we get out of this one?
Raise rates and the market crashes, lower rates and investors bail.
Cole @ The Boy in the Big Housing Bubble
anyone watching short term rates, pay option arms, etc. people are going to start getting killed.
My plan is to sneak in Mexico and work illegally after the USD collapses, I have already purchased a small home down there.
Capitalism is about to destroy itself, just as Marx predicted so many years ago.
That will be a great day for humanity.
Capitalism is about to destroy itself, just as Marx predicted so many years ago.
That will be a great day for humanity.
Stay down, Rocky! Stay down!
The only socialism we have in this country is socialism for the rich.
It's always been laissez-faire, dog-eat-dog for everyone else.
---
My plan is to sneak in Mexico and work illegally after the USD collapses, I have already purchased a small home down there.
---
Habla espanol ?
I have 30 year old socks in better condition than this economy!
The top 1% pay 34.27% of all income taxes.
Which implies they receive how much of the income?
You seem to be good with stats, go look it up.
Of course, income taxes are not the whole story.
Advocates of the theory that the rich are persecuted in America always neglect to mention Social Security, a highly regressive tax that working people pay on every penny of their income. In fact, most working-class taxpayers pay out a good bit more for SS than for income tax.
And, of course, it is the Social Security surplus that was used, in part, to finance Bush's tax cuts for millionaires. Think about that one: we are taxing people who work at McDonalds so that Bill Gates and Michael Dell can get tax cuts.
That's what I mean by "socialism for the rich." That and things like making taxpayers foot the bill for stadiums where they cannot even afford to go to games, taxpayer subsidized insurance for beach palaces, the coming bailout of the banks that made stupid loans, etc.
When the rich need something, or just want it, Uncle Sam always comes through. All the rest of us get are stern lectures on personal responsibility.
America is the friendliest place for the wealth around...does any other place come closs?
Unfortunately we won't be able to afford to maintain that distinction when our creditors throw in the towel.
Anonymous said . . .
"That's what I mean by "socialism for the rich." That and things like making taxpayers foot the bill for stadiums where they cannot even afford to go to games, taxpayer subsidized insurance for beach palaces, the coming bailout of the banks that made stupid loans, etc.
"When the rich need something, or just want it, Uncle Sam always comes through. All the rest of us get are stern lectures on personal responsibility."
I agree.
There's nothing wrong with people being rich, but it IS wrong to use public funds to make them that way. Wealthy farmers in California and other southwestern states hire illegal immigrants at slave wages, and when these workers require medical attention, send them to local hospitals where they are treated at taxpayers' expense. And these farmers receive millions in federal agricultural subsidies (1) not to grow certain crops, thus artificially propping up prices, and (2) to grow crops that the government wareshouses till they rot, also propping up prices.
I don't think government funds should be used to subsidize ANY business, big or small, and the giving of government grants to individuals is equally appalling.
Of course, when our politicians earmark billions for various forms of corporate welfare, the recipients return millions in "contributions" to the politicians.
Sure there's socialism for the rich. But it pales in comparison to the socialism for the poor.
Have you ever compared the cost of all the various corporate subsidies and sweetheart deals to the cost of AFDC and food stamps?
They're not even close.
And do you know what the nation's most expensive housing program is? It's not public housing or low interest loans or anything like that--it's the mortgage deduction, a benefit that, by definition, goes to the more affluent. Again, working people who have no hope of ever owning a home are taxed to subsidize the McMansion/Hummer set.
How come nobody ever mentions military expenditures?
The 800lb gorillas are socialist stupidity and mediscare.
Most recipients of those are middle class. Quite a few of them are downright rich.
You could argue that the military is in part, a social program as well.
That's definitely the case. National defense is only part of the picture--the defense establishment is also about making jobs, giving government money to favored contractors, protecting the oil business, and dispensing pork.
Bake McBride's story is valuable, but if the wealthiest eating dinner got that way because of government subsidies and handouts (billions of dollars to airline companies?), and grossly overbilling the government (a hundred dollars for a hammer?), then the situation suddenly looks different. How many of the million + millionaires in this country got that way honestly and ethically? Federally subsidized farmers exploiting migrants don't deserve tax breaks; they deserve prison.
Mortgage deduction is a deduction on taxes paid. That is not welfare. Only an idiot would compare a tax deduction to welfare.
When you go to the store and buy something with a $20 bill, and they give you change, is that welfare that you are getting from the store?
Socialism has already destroyed itself in China, North Korea, Cuba, Vietnam, the old Socialist Eastern Europe and anything else it touches. Only an idiot still believes in that failed system.
Mortgage deduction is a deduction on taxes paid. That is not welfare. Only an idiot would compare a tax deduction to welfare.
Wow, you sure do get sensitive when your own "welfare" is threatened.
Do away with the mortgage deduction and you could cut everyone's taxes. It's nothing but a means by which the poorer subsidize the more affluent and everyone subsidizes the "homebuilding" industry.
Socialism has already destroyed itself in China, North Korea, Cuba, Vietnam, the old Socialist Eastern Europe and anything else it touches.
Those nations claimed to be communist, but actually they practiced state capitalism. That's especially true of China now, where most large enterprises are connected to the government, often to the military.
Just imagine: when you shop at WalMart, you are funding the Red Army. Lenin once said that capitalists would sell you the rope to hang them with, but even he could not have imagined this.
Now if you are interested in actual socialism, as opposed to military despotisms that claim to be communist, you would need to look at western Europe. They seem to be doing well enough. We, on the other hand, are going to be in a world of hurt once all those ARMs reset.
So now the socialist morons think that ayone who wants to pay less taxes is advocating welfare. LMAO
So if the Soviet Union and Red China are actually capitalist, then why do the Communists and other leftists honor Lenin and Mao?
Oh what a tangled web we leftists weave when we practice to deceive.
Denial ain't just a river in Egypt, it's the socialist retards of the world unite!!!
"but a means by which the poorer subsidize the more affluent "
The poor are subsidizing me? HAHAHAHAHA
I make $65K a year and the government takes $18K in taxes and refunds me $2K and now I'm on welfare getting subsidized by the poor. Oh man, you should be a comedian.
Do you really think anyone takes you seriously? Your kind are just as bad as Ken Lay and the rest of the smooth-talking thieves and swindlers. You might be able to fool a few highschool and college students, but not anybody who lives in the real world and pays taxes.
OK, can any of the people here who are yammering about socialism and communism actually define those terms?
Here's a little clue: they do not mean "anything that Rush Limbaugh thinks is bad."
Show that you know what you are talking about, and then we can have a discussion. Frankly, I don't think many of you are capable of doing anything more than just regurgitating the talking points you picked up from hate radio.
Western Europe is now socialist? That's news to me. I was just over there and people owned businesses, property, and were selling things for a profit. I saw corporations and all kinds of competition. The businesses hired and fired people. There were rich and poor. I even saw McDonald's and other American corporations over there making a profit. There were rich and poor neighborhoods. Which part of that is socialist?
BMW
Daimler-Chrysler
Alcatel
SAP
London Stock Exchange
Frankfurt Stock Exchange
Yes the list socialist entities goes on and on.
Duh gee, nobuddy heer nowls wut communism or socialism mean sep you, o wise wun. We awl jus be lisnin to Rush. We is awl jus a buncha unedumacated hicks. Iffin we wus be smort we wood awl join de communist porty. uhuh uhuh yup yup
Western Europe is now socialist? That's news to me.
Western European nations generally have mixed economies, with features of both socialism and capitalism. It's the knuckledragging wingnuts in this country who are always hollering about Europe being communist. They don't really know what that means, but they know it must be very bad, since Rush doesn't like it.
We is awl jus a buncha unedumacated hicks.
Yep.
Ya'll stop picking on the retarded socialist.
To the nutty socialist professor,
Since you calim that Communism and Socialism has never been tried before, why don't you and a few of your buddies go form your own little commune and show us what a paradise we're missing out on. I'm sure when everyone sees how wonderful your little experiment is going, they'll all be clamoring to follow your model. So go off to your own little commune and grow your own food, find your own sources of energy, sew your own clothes, build your own homes, clean your own toilets, and make sure to divide the work up evenly. After 5-10 years of success, people will give up their current capitalist ways and join your workers paradise. You'll win.
Where's Professor Noam Chimpsky? I need some more convincing before I join the Communist Party USA. That guy was pretty funny. All the failed Communist countries were actually capitalist? Oh, that makes sense now. ROFLMAO
You can argue all you want about what "communist" and "socialist" mean, but here's one thing that isn't a matter of opinion - if things keep going on the way they are, China is going to end up owning the United States. Mao is going to get the last laugh after all.
A few points for the knuckledraggers:
1. What do you consider WIC, Medicare, Medicaid, Social Security, HUD etc etc? Are those not socialist programs?
Yes, they are, and there's a history behind them. They were designed to take the rough edges off capitalism, which, when totally unregulated, runs in boom and bust cycles. Think of the Great Depression.
If we eliminate those programs, as the current ruling class wants to do, then we are back to boom/bust. Those busts are not very popular, and they tend to make people question the system. That's not good for the social order.
2. I'm not a communist, at least not in the sense that the word actually means. (Yes, yes, I know that for most of you, "communist" just means anything you don't like, but I do not believe in state control of the means of production, the dictatorship of the proletariat, etc.)
The reason that I am not a communist is that communism concentrates too much power in too few hands. That is also what is wrong with the type of corporate feudalism we have in this country today--too much power in too few hands. There's not much difference between being governed by a distant, unaccountable central committee and a distant, unaccountable board of directors.
3. All the failed Communist countries were actually capitalist?
No, they practiced state capitalism. China, Vietnam, and Cuba still do. And speaking of China....
4. if things keep going on the way they are, China is going to end up owning the United States.
They already own us, and it wasn't the liberals who sold America out, or subversive professors, or Hollywood, or any of the other Limbaugh boogeymen: it was the corporations, who were only too happy to sell America to a communist dictatorship if it would increase their profits, and American consumers, who don't care where their junk comes from, as long as it's cheap.
Professor Noam Chimpsky is still spouting his bullcrap to defend Communism/socialism. But, but, but it hasn't been tried yet. It's been tried and it failed miserably. The knuckle-dragging Chimpsky lackeys are just too embarassed to admit it. Go back in your closet and finish reading your Chimpsky reader. You Chimpskyites are too funny
"the corporations, who were only too happy to sell America to a communist dictatorship"
I thought China wasn't Communist? Once again I catch the knuckle-dragging Professor Chimpsky contradicting itself. Like I said, go back and finish your Chimpsky reader so you can better defend Communism.
Professor Noam Chimpsky is still spouting his bullcrap to defend Communism/socialism.
You don't read very well, do you?
Here's what I posted. Maybe putting it in bold will help:
I'm not a communist, at least not in the sense that the word actually means....
The reason that I am not a communist is that communism concentrates too much power in too few hands. That is also what is wrong with the type of corporate feudalism we have in this country today--too much power in too few hands. There's not much difference between being governed by a distant, unaccountable central committee and a distant, unaccountable board of directors.
What I am complaining about here, as you would see if you could actually read, is the country being governed by a corporate aristocracy.
It's probably hard for you to imagine, since Hannity never says anything about it, but there are those of us who would like to return to the day when America was a republic, not a corporate feudalist empire, and her people were citizens, not "consumers."
I thought China wasn't Communist?
It's the knuckledragging rightwingers who are always raving about the ChiComs, all the while filling up their homes with the products of Chinese slave labor.
If you're looking for a contradiction, there's one for you to wrestle with.
And, for what it's worth, Chomsky is a headcase. But, of course, it's a lot easier for you to throw out the strawmen you learned from hate radio than it is to deal with what someone has actually said. You don't have the brains for it, if what you post here is any indication.
You knuckly-dragging Leftards are always raving about how terrible America is, then why do millions of people flock here every year? Yet you Leftard headcases can't find it in your heart to move to Cuba, since you are always salivating and raving about their free healthcare and education. Your Chimpsky reader needs to be revised.
You knuckly-dragging Leftards are always raving about how terrible America is, then why do millions of people flock here every year?
Because respectable Republican businessmen illegally hire them under the table to undermine the pay of American citizens.
A laissez-faire market economy without fractional reserve banking would not have booms and busts.
I'm no fan of the Fed, but weren't there quite a few depressions and financial panics before the Fed was created?
According to the knuckle-dragging Leftards, the middle class is being subsidized by the whinos and crackheads living under the bridge. LMAO
Is Keith on vacation or something?
Missing the daily updates ...
I'm back and I'm pisssed
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