Will the Fed cut interest rates to 0%, in a desperate attempt to stop the housing crash and avoid asset deflation?
Will politicians on the take from the National Association of Realtors, the Mortgage Banking Association and the National Association of Home Builders apply maximum pressure to Bernanke to "do the right thing" and get rates down hasta pronto?
(hint - look to Japan)
February 06, 2007
HousingPANIC Stupid Question of the Day
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Nope. Housing is a significant part of the economy, but not the whole enchilada, and the rest is doing rather well at the moment. Homedebtors of the bubblezones will not be saved by the Fed. Scrod.
(Question): Will the Fed cut interest rates to 0%, in a desperate attempt to stop the housing crash and avoid asset deflation?
(Answer): Absolutely. In fact, Bernanke himself threatened to tax people's savings accounts if need be to get them to stop "hoarding" cash and start spending!!!
(Question): Will politicians on the take from the National Association of Realtors, the Mortgage Banking Association and the National Association of Home Builders apply maximum pressure to Bernanke to "do the right thing" and get rates down hasta pronto?
(Answer): Again, absolutely. They will also pass all manner of laws to allow ho-moaners to stop making debt payments, will create "RTC II The Sequel" to bail out the banks and liquidate the five to ten million homes dumped on the market, will nationalize Fannie and Freddie, and will do everything in their power to stop the housing collapse.
This is the "Mother of all Bubbles" and it is so dangerous, so critical to the U.S. economy, that it will be fought tooth-and-nail by the Fed and federal government.
Time will tell as to whether they will prevail.
Qweeferino,
Why focus on Japan? How about Italy, France, Germany, UK...show how those countries have done real estate wise since 1989.
Japan is the exception. Every other western country's r/e has done very well.
I think we're turning Japanese I think we're turning Japanese I really think so!
And how much Japanese Yen is floating around the world thanks to their interest rate of .25%, cut so low to stimulate their economy? American hedge funds are borrowing like mad from there (because the interest rate is so cheap) and it's called the "Japanese carry trade", fyi.
I look for a 1/2 point drop in the discount rate by the end of 2007 (maybe more). Housing and auto industries are hurting. Credit card minimum payments have doubled (by law) and 10 treasury rates are trending up and will probably go higher as China diversifies its surplus holdings (this will hurt borrowers).
Unfortunately, a lower discount rate will not help borrowers because new lending requirements require stricter income requirements. Nothing the fed can do at this point without killing the economy.
(Answer): Absolutely. In fact, Bernanke himself threatened to tax people's savings accounts if need be to get them to stop "hoarding" cash and start spending!!!
Source? And I mean a real source not some blog or radio show like Hal Turner.
Cool - if they drop the rate down to 0% I'm going shopping.
A couple of new houses
A new car
And some cosmetic surgery
I dont' see how there is any possibility of Fed matching the BofJ's action in the 90's.
Japan had/has a massive current accounts surplus of cash. They could have even given money away in spades, cuz they had it!
(In fact, by default, they actually did when you consider the carry-trade arrangement that has resulted from the near-zero interest rate policies of the Bank of Japan That in itself laying a false foundation under many world economies).
The U.S. is beyond completely flat broke, chalking up 100's of billions of deficent every year which in turn is ushering in the more likely scenerio of hyperinflation.
The rest of the world knows it's only a matter of time before the bottom drops out of the dollar's exhange rate and is increasingly divesting out of the greenback.
In actuality, rates will have no choice but drastically INCREASE to continue funding the Federal budget trainwreck.
In short, stagflation is really the only imaginable outcome of the current situation. It's happened many times before under far less economic distortion than is happening today and I don't think anyone has mastered overturning the law of physics (or) economics yet.
It just *seems* like things aren't horrible because this is more like an ocean liner that's been on a high-speed run of speculation that will ultimately and drastically change course when the current overwhelms this ship of doom.
Follow the obvious not-so-early warning signs of those such as Warren Buffet and get out of the dollar, cuz it's Germany in the 30's all over again...
Land values are in danger of free fall, for example, up to 2 years ago land in my town was approx $10k per acre, it went up to 100k per acre last year. Is that a 1000% percent increase, or is my math wrong?
2nd example, home builders are dumping land, and dumping options on land and loosing millions in the process, the reason is simple, housing is going down for awhile yet.
From the first example, guess who bid up the land prices in my town in the first place? Builders, so when the land prices drop, it will effect housing prices as well.
Tony in WA
Cramer sez invest in CFC with his pal Mozila.
Bunch of wackos here!!!! Everything will just slow to a griding halt/slowdown. Zero growth equals stagnation. Sure beats a slow or quick crash. No more than a point drop by spring to keep status quo.
At zero interest rates, you'll wall paper your house and wipe your rear with dollars. Bye reserve currency. No longer the almighty dollar. Death of the dollar by hyper inflation.
If they do lower rates the dollar falls - so pick your poison.
I don't think they can lower the rates. No one will buy our bonds. I think they are caught between a rock and a hard place.
NO. Everyone forgets the RE bubble is a key piece of the economic plan to avert dot-com/dot-bomb potential severe recession/depression.
Stocks are very fluid in terms of transferability and there is a large amount of speculation in the valuation of the stock.
Housing is not as readily transferable and as an asset class valuation is more empirical and does not have a large speculative component.
Thus stock bubbles burst rapidly & the pain spreads throughout the economy rapidly. RE bubbles deflate very slowly, prices are sticky due to the lack of easy transferability and owner resistance to price drops and market valuation is not too far removed from empirical valuation due to excessive speculation.
Thus to keep the economy going post tech stock bubble burst the FED dropped rates to create the RE bubble with the intent to pop it later and allow the pain to slowly bleed out over a longer time horizon, due to the nature of RE bubbles.
However, the FED did not anticipate the exotic loans, loose lending standards, investor/speculators & the homebuilder ramp-up in capacity. So the initial pain upon popping the bubble reacted in a more rapid manner than anticipated. Hence, they stopped raising rates. (High energy costs also complicated the plan). The pregnant pause just might work, but we are in uncharted waters. The wild cards are how investors will behave and how toxic loans will play out.
'07 will be a very interesting year. If the wild cards do not play out in the most negative way then this may all be much ado about nothing. If however, these two forces combine to have sufficient critical mass to put large volumes of inventory on the market at cut rate prices then price pressure will be significant. Banks & homeowners will incur significant asset impairments that will result in massive, irreparable losses.
On the upside afford-ability will be brought back to an attainable level for those who did not get sucked in and have impaired credit or finances.
Anonymous said...
(Answer): Absolutely. In fact, Bernanke himself threatened to tax people's savings accounts if need be to get them to stop "hoarding" cash and start spending!!!
Source? And I mean a real source not some blog or radio show like Hal Turner.
Wednesday, February 07, 2007 12:11:13 AM
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How about Helicopter Ben's printing press/helicopter speech? Inflating the money supply is the same as taxing savings since each newly created FRN makes the ones in your savings account worth less. I would imagine the speech that earned Bernanke the nickname of Helicopter Ben would be in the realm of "common knowledge" and would not need a citation.
By the way, what's M3 (that they don't report anymore) running these days? 10% or so? Higher?
If/when the official interest rate is lowered to cushion the housing crash, the dollar will take a big hit against other currencies. That will show up as pretty major price inflation in everything that's imported, which is just about everything. $10 gasoline could be a lot closer than you think.
I dislike charts that are not up to date. Is that too much like work, or do they start to dismantle your position ?
If the Feds cut rates to 0% .who are you going to get to give 2% mortgage loans . Investors in the secondary market are not going to tie their money up in a 30 year note at interest rates that low .
Many people who were on 5% fixed rate would refinance in order to get a 2% rate . There would be a run on the loan funds available .
What I see is that the lenders will just start trying to rewrite some of these loan to avoid some defaults .
The Fed cuts to 0% and they kill the dollar once and for all. They really have no good options. I suspect that they will simply let it all collapse so that they can introduce a new system of fiat currency and control. The more I ponder it the more I suspect that this was all engineered. Foreign nations are diversifying away from the dollar. Foreign governments are understandably nervous about having too much exposure to the dollar in thier reserves. China has said they have enough (about 1 trillion worth) and are busy converting it into real assets like mines and minerals all over Africa. Bernanke has no taxing authority himself but I find it curious that he would propose taxing savings accounts. Haven't we been hearing how Americans have a negative savings rate for the last year and a half? No doubt the Government will put on a show of bailing out those who are perceived to have been screwed by thier mortgage lenders. That's called currying favor and buying votes and they are exceptionally good at this. In the end draconian measures will have to be taken to stabilize the nation and perhaps world economy. Whether or not America survives as a constitutional republic remains to be seen.
JAFO
Over one 1.3 million broke-ass scumbag homedebtors were foreclosed on in 2006. HOOT HOOT. Say hello to 29.99% credit cards and payday loans. HAHA SUCKERS
The only thing positive is that 2007 will have more ARM resets and more lowlife indentured servants and be getting NOD's from the bank. Can I get a HOOT HOOT?
Butch wrote:
(Answer): Absolutely. In fact, Bernanke himself threatened to tax people's savings accounts if need be to get them to stop "hoarding" cash and start spending!!!
Anonymous Wednesday, February 07, 2007 12:11:13 AM wrote:
Source? And I mean a real source not some blog or radio show like Hal Turner.
Butch reply:
You want a "source"? And NOT some "doom-and-gloom" Website? Okay, how about this one?:
http://www.dallasfed.org/research/swe/2003/swe0304a.html
Yes, that's right. The Federal Reserve itself. Go to this link, scroll down and read the following quote:
"The strategy for eliminating the zero bound, therefore, is to make money pay a negative nominal interest rate by imposing some type of “carry tax” on currency and deposits. A tax on money holdings of 0.5 percent per month, for example, would mean that money, in effect, pays a negative nominal interest rate of roughly –6 percent. Market interest rates would then be free to fall into negative territory, and the Fed could continue to cut short term rates, with –6 percent as the new lower bound."
(Butch): The context of this is Bernanke discussing how to deal with deflation and people's unwillingness to spend money. One of his (many, insane) ideas is to punish people for trying to hold on to their money. Do you NOW believe what I wrote and how serious the situation can get?
Besides that, Japan's 0% interest rate didn't stop their real estate collapse anyway.
Nope, it's over. As Spock would say, "Pure devastation".
Or something similar....
I don't think this was engineered.
Those at the top are continuing to demonstrate pandemic incompetence.
We're screwed.
"By the way, what's M3 (that they don't report anymore) running these days? 10% or so? Higher?"
M3 is at 11.5% now!
http://www.nowandfutures.com/key_stats.html
The fed won't be able to cut interest rates to 0%, as the dollar is already in trouble. We can only hope they simply allow real estate values to revert to the mean. What would be wrong with a return to sane prices? So what if a few greedy speculators go broke?
Anon
I'm not seeing any slowdown at all in personal spending or the econony. I was out the other night in Virginia Beach and it was crowded, lines out the door waiting for tables, new cars and commercial buildings going up up up. Haven't talked to anyone who is having trouble either. Most folks I talk to are investing and making money. Just my view, no doom yet?
That want affect it much because i will cash out and burry my money in a shoebox i bet they can't find!!!!
I wouldn't say the two are analogous. Japan is steadily loosing population and the US gaining it (who did they think would own that land some day). That isn't to say that the population we're adding is of high quality or well educated or able to afford the land at these prices -- but there will be a continued pressure on space.
Also I don't see that anyone will care about the politics of the US when it comes to making money. Business people like to make money, in my experience they don't care where and how they make it.
If the US sets a better fiscal policy the US will do well globally. If it continues to just print more money -- we're all fucked. Not just the HHs.
The context of this is Bernanke discussing how to deal with deflation and people's unwillingness to spend money. One of his (many, insane) ideas is to punish people for trying to hold on to their money. Do you NOW believe what I wrote and how serious the situation can get?
You cannot be serious friend. Or maybe you are serious in which case you need a new prescription.
Did youknow the US military has a plan to invade Canada?
What you quoted is the same thing. It's an option the Fed has. Probably written up by a FED summer intern. Doesn't mean interest rates are going to -6 just like Toronto is not in any danger of being bombed.
The Fed will not cut interest rates, and will certainly not cut them to zero! This Fed's primary constituency is the moneyed class and not the debtor class. Raising interest rates helps the moneyed class by increasing their return on investment and by providing currency stability to protect their wealth. Lowering interest rates helps the debtor class by lessening their interest rate on new money borrowed. Additionally, lower interest rates trigger inflation, which acts as debt forgiveness to the debtor. It is like taking out a $10,000 loan in the year 2007 and then in 2027 only having to pay back $5,000 in 2007 dollars.
The bursting housing bubble only harms the middle class, not the rich and not the poor. The middle class are screwed anyway and the Fed wouldn't think twice about allowing one more nail in that coffin.
Butch
Wouldn't a negative rate of interest cause cash holdings to flee to other currencies and other countries paying a higher rate of interest?
I think they are caught between a rock and a hard place.
*******
Yea, so are we, stuck between a
Gold rock and Hard Cash place, that is.
iw
ps, rates will go down as the dollar valuation also goes down, this is the plan, imo.
hello Amero.
rates up or down don't matter.
If rates go down, Greedy Sellers will jack the prices go up accordingly.
It's the "beauty" of the Market.
It's going to be an interesting year ahead of us.
>> The more I ponder it the more I suspect that this was all engineered.
OF COURSE IT'S ALL ENGINEERED!!! To think that this is all happening by accident or negligence is sheer and utter stupidity! America's downfall has been in the works since the early 1900's. I used to think all the conspiracy theories about our country, economy, currency, politics, etc. were all utter bullshit. I can see that ordinary citizens are finally, FINALLY, opening their eyes! But alas, it's too late...
raven,
Same thing here in Las Vegas. Car dealerships packed. Impossible to get a table at a decent restaurant on a weekend without calling 3-4 days ahead. Chili's and the like 45 minute waits. Clubs with 2 hr plus waits to get in. Road construction everywhere. Commerical construction everywhere. Housing may have slowed but the rest of the economy is still flying high and commercial construction will probably absorb the laid off housing construction workers.
So I don't know what everyone's talking about with regards to recessions, I'm not seeing any signs of one here.
Same thing here in Las Vegas. Car dealerships packed. Impossible to get a table at a decent restaurant on a weekend without calling 3-4 days ahead. Chili's and the like 45 minute waits. Clubs with 2 hr plus waits to get in. Road construction everywhere. Commerical construction everywhere. Housing may have slowed but the rest of the economy is still flying high and commercial construction will probably absorb the laid off housing construction workers.
So I don't know what everyone's talking about with regards to recessions, I'm not seeing any signs of one here.
>> Sounds like Silcon Valley circa Spring 2000. Hmmmm
http://www.financialsense.com/stormwatch/update.htm
http://www.financialsense.com/fsu/editorials/swagell/2007/0207.html
>> Sounds like Silcon Valley circa Spring 2000. Hmmmm
Can't win with you people. A booming economy is bad. A shitty economy is bad. A housing boom is bad. A housing crash is bad.
Don't you see, no matter what, you people will complain and point to any situation as a sign that something bad is coming. I don't know how anyone can live in such a state of misery but if that's what makes you tick, so be it.
"I don't know how anyone can live in such a state of misery but if that's what makes you tick, so be it."
Exactly what a bubble denier would say....
"By the way, what's M3 (that they don't report anymore) running these days? 10% or so? Higher?"
More like 12%.
http://nowandfutures.com/key_stats.html
Can't win with you people. A booming economy is good. A shitty economy is good. A housing boom is good. A housing crash is good. Oil up - bullish. Oil down - bullish. Dollar up, dollar down, stocks up, stocks down, gold up, gold down, [insert any asset price or economic indicator here] up/down - all bullish.
Don't you see, no matter what, you people will gurgle and point to any situation as bullish. I don't know how anyone can live in such a state of delusion but if that's what makes you tick, so be it.
In the argument regarding whether or not the Fed will intervene to prevent the housing crash, the answer is no. For the following reasons:
- They cannot drop interest rates to extremely low levels again due to the fact that this will cause foreign buying of our treasuries to dwindle, thus making our national debt unservicable.
- Despite the predilection towards believing in a nationwide housing bubble, the true bubble zones are regional. i.e. California, Florida and the greater Boston area. So while those areas will likely experience severe drops, the country as a whole will still be stable.
- The Fed in any situation has to choose the lesser of two evils. Between sacrificing a few sheeble to the great housing ponzi scheme versus crashing the nations economy, naturally the Fed will choose the former.
- Rich people run this country. The rich do not like losing money and will not be happy watching their currency devalued to oblivion. Which means the Fed will at some point need to shore up the dollar to mitigate is devaluation. That will reduce the money supply which will exacerbate the housing downturn further. Yes, a great many rich have real estate as well. But most of that is cash flow positive and they can absorb short term devaluation of their property.
Now its possible that the democrats in office will try every trick in the book to help the little guy. But once the crash begins to unfold further, it will become self fullfilling. No matter what the government or the Fed do, you can't fight fear.
"If the Feds cut rates to 0% .who are you going to get to give 2% mortgage loans . Investors in the secondary market are not going to tie their money up in a 30 year note at interest rates that low."
Which is exactly what happened in the 30s. The banks had finally learned their lesson about lending to losers who would never pay them back. The Fed's suppression of rates merely hardened their belief that there was no point to lending.
"The strategy for eliminating the zero bound, therefore, is to make money pay a negative nominal interest rate by imposing some type of “carry tax” on currency and deposits. A tax on money holdings of 0.5 percent per month, for example, would mean that money, in effect, pays a negative nominal interest rate of roughly –6 percent.
++++++++++++++
If the Fed would start doing this, it would start bank runs all over the country. No person in his/her right mind would keep ANY money in a bank under such circumstances. In order to enforce such a rule, the Feds would have to shut down the banks like Argentina did and dole out little bits of cash on a weekly or monthly basis....
"They cannot drop interest rates to extremely low levels again due to the fact that this will cause foreign buying of our treasuries to dwindle, thus making our national debt unservicable."
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What if the Fed itself buys the Treasury bonds?
"Despite the predilection towards believing in a nationwide housing bubble, the true bubble zones are regional. i.e. California, Florida and the greater Boston area. So while those areas will likely experience severe drops, the country as a whole will still be stable."
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The country as a whole? You mean besides the coastal cities and pretty much the entire West? What does that leave? Not much.
"Rich people run this country. The rich do not like losing money and will not be happy watching their currency devalued to oblivion. Which means the Fed will at some point need to shore up the dollar to mitigate is devaluation. That will reduce the money supply which will exacerbate the housing downturn further. Yes, a great many rich have real estate as well. But most of that is cash flow positive and they can absorb short term devaluation of their property."
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Rich people don't keep their money in a BofA savings account. They have long since diversified out of the dollar.
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