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eagle2
02-05-2012, 09:40 PM
^^^ and besides zero interest rate policy being an ongoing 'stealth' bailout for the big banks, the resulting 'devaluation' of the US dollar helps rich investors / speculators in other ways ... such as increasing the price of gold, oil, and other commodity investments. To some degree the resulting US dollar 'devaluation' also directly translates into rising US stock prices. And the resulting US dollar 'devaluation' also helps the overindebted 'poor', by decreasing the true value of the debts they owe. However, it is arguably not helpful at all for those Americans who have been financially 'responsible' ... i.e. savers and 'value' investors, those who have avoided going heavily into debt, etc.

Low interest rates are helping everyone. Anyone who takes out a loan or buys anything on credit benefits. Anyone who refinances their house benefits. Any business that sells products to people who use credit to make a purchase benefits. The whole basis for your opposition to low interest rates is that it goes against your ideology.

Melonie
02-06-2012, 04:28 AM
You're ignoring the unavoidable side effect of US dollar devaluation that must go along with zero interest rate policy. This results in a situation where 'grandma' sees the interest rate earned on her retirement savings decline to near zero, while the cost of buying groceries and heating her home in the winter increase significantly.

You're ignoring the fact that the US dollar devaluation raises 'input costs' for those businesses making and selling products ... 'input costs' that, in many cases, cannot be successfully passed on to consumers without losing significant sales volumes. This in turn 'squeezes' profit margins for manufacturers and retailers ... which in turn forces them to postpone investments and shed jobs ( or at least avoid hiring ).

You're ignoring the fact that FED funds interest rates have little to do with consumer interest rates ... or, put another way, show me a credit card with an interest rate below 8% on a permanent basis.

In fact, the 'guaranteed' earnings handed to member banks who can borrow from the FED at near zero percent interest to buy US Treasury bonds paying 3% interest thanks to zero interest rate policy is in fact making new loans for businesses and individuals even harder to obtain !!! With the exception of home mortgages and auto loans that are ( de-facto ) backed by the full faith and credit of the US taxpayer, consumer credit interest rates for both 'prime' and 'subprime' borrowers haven't been reduced at all. What HAS increased is the 'spread' ( = potential lender earnings ) between the lender's 'cost' of money and the amount charged to the borrowers.

Eric Stoner
02-06-2012, 08:05 AM
The main problem with our economy is consumers aren't spending enough. You don't seem to be able to understand this. Increasing interest rates will reduce consumer spending more.

After raising interest rates to record highs in the early 80's to fight inflation, the Fed dramatically reduced them after prices stabilized, and the economy grew and unemployment fell without inflation. Thus we don't even have to go back 30 years to disprove your "thousands of years of monetary history". Anyone with even the most basic knowledge of economics knows that if you want to increase economic growth and lower unemployment, you want low interest rates. This is simple, common sense. George H. W. Bush knows this, which is why he criticized the Fed for not lowering interest rates when he was running for re-election. The Republicans in Congress know this, which is why they criticized the Fed for keeping interest rates low and increasing the money supply. They don't want strong economic growth and falling unemployment when Obama is running for re-election. Even the moron Rick Perry knows this, which is why he made threats against the Fed for printing more money, when he decided to run for President. He doesn't want to run against an incumbent with a strong economy.

What you are proposing doesn't make any sense. Before we continue with this conversation, let's see if you have an understanding of even the most simple economic concepts. Please answer these questions:

If you want more people to buy houses, do you:

A. Increase the cost of buying a house
B. Decrease the cost of buying a house

If you want more people to buy automobiles, do you:

A. Increase the cost of buying an automobile
B. Decrease the cost of buying an automobile

Now WHO is making things up ? While successful, Volcker's high interest rates caused a LOT of pain by creating a severe recession. He could have and arguably should have accomplished the same thing by controlling the growth of the money supply. When he did lower rates, they were still a LOT higher than they are now. We also had a strong dollar under Reagan and Volcker. Likewise, the Fed was NOT printing money then at the rate that it is now.

As to your questions, I want people to buy those houses and cars that THEY CAN AFFORD ! With proper down payments and credit histories ; with a serious likelihood that they will be able to pay off the concomitant loans. You are not seriously arguing for the ephemeral "prosperity" that we had under Bush The Dumber, are you ?

I'm not going to take the bait on the rest of your political coments. Naughty ! Go sit in the corner lol.

Eric Stoner
02-06-2012, 12:38 PM
Paul Krugman's column in today's N.Y. Times was hilarious. If he didn't exist, he'd have to be invented. The main focus of his column was that January's employment numbers were good but that it was no reason to sit back. His usual prescriptions : continued easy money from the Fed and increased government spending were funny enough. That's what he ALWAYS says but one thing he wrote was breathtakingly bizarre. Even for "Krugie": " Furthermore, it is not hard to see how this recovery could become self-sustaining. In particular,at this point America is seriously UNDER-HOUSED by historical standards, because we've built very few houses in the six years since the housing bubble popped." What planet does this man live on ????? We only have about 18 million vacant houses in this country with about 300,000 of those being "new construction". In some cities like Cleveland and Detroit, they are tearing down vacant houses by the dozen. He notes that one factor is the glacial pace of household formation which he attributes SOLELY to young adults staying with or moving back in with their parents. True BUT ( in keeping with his usual intellectual dishonesty ) just one piece of a VERY large puzzle. He ignores the explosion of single parent households ( almost all of whom cannot afford a down payment let alone a mortgage ) ; the decline in the marriage rate; the explosion of student debt ( well if you already owe $100,000 in student loans what's another quarter million ? ) and of course the stagnation in middle class earnings and wealth formation which he used to decry on a regular basis.

Nobody is arguing for radical increases in the Fed Funds Rate or Discount Rate. According to the Taylor Rule it should be about 2 % which is still below the rate of inflation. That is part of the problem and what is too reminiscent of Japan in the 90's: The effectively negative interest rates being charged by the Fed.

Zofia
02-06-2012, 08:36 PM
Eric, we agree, Krugie seems to be a necessity for comic relief on the NYT editorial pages. The latest employment numbers mask a lower participation rate than we have seen since the 1980s and that is not a good thing. Of course, this jobless recovery is brought about by Obama's set of policy decisions that find their genesis in Tim Geithner and Larry Summers' belief that government cannot stimulate demand and thus the only role for government to play is propping up the bankers. Geithner, Summers and Obama have played that role, to the hilt. I fear, as I think you do, that the US is entering a "lost decade" akin to the 1990s for Japan.

Z

eagle2
02-06-2012, 11:25 PM
Now WHO is making things up ? While successful, Volcker's high interest rates caused a LOT of pain by creating a severe recession. He could have and arguably should have accomplished the same thing by controlling the growth of the money supply. When he did lower rates, they were still a LOT higher than they are now. We also had a strong dollar under Reagan and Volcker. Likewise, the Fed was NOT printing money then at the rate that it is now.

It wasn't necessary to dramatically increase the money supply or lower interest rates to the levels they are now in the 1980's, because they were much higher to begin with. Interest rates were around 18% at their peak, so there was a lot of room to lower them. When this current economic crisis started, interest rates were much lower, which is why the Fed had to lower them as much as they did.



As to your questions, I want people to buy those houses and cars that THEY CAN AFFORD ! With proper down payments and credit histories ; with a serious likelihood that they will be able to pay off the concomitant loans. You are not seriously arguing for the ephemeral "prosperity" that we had under Bush The Dumber, are you ?

I'm not going to take the bait on the rest of your political coments. Naughty ! Go sit in the corner lol.

I agree that people shouldn't buy homes they can't afford. Lower interest rates makes it possible for more people to afford homes, which is what we want right now. I'm against giving people mortgages for homes they obviously can't afford, but that doesn't mean we shouldn't make it easier for responsible people to be able to buy homes. I'm also against unconventional mortgages, such as "interest only" or A.R.M.s, but for traditional 15, 20, or 30 year mortgages with down-payments, it would be beneficial for the economy right now to keep interest rates as low as possible for these types of loans to increase home sales.

Melonie
02-08-2012, 12:36 AM
I'm against giving people mortgages for homes they obviously can't afford, but that doesn't mean we shouldn't make it easier for responsible people to be able to buy homes

To the extent that it is possible to 'make it easier' for home buyers without negatively impacting other Americans I would agree with you. But, for better or worse, the FED's zero interest rate policy is NOT neutral. For every mortgage lender or would-be home buyer it helps, an American saver or retiree is hurt. As such, FED interest rate policy is in fact picking winners ( banksters, 'rich' investors / speculators, and 'subprime' borrowers ) and losers ( financially responsible Americans ).

mikef
02-08-2012, 07:19 AM
The Fed says it is now targeting inflation at a 2% rate..... Keeping in mind the official rate as calculated is too low..... This is good way to devalue the currency and to pay back the debt with cheaper dollars...... Now if tax receipts would just pick up...... The plan would be working.

Eric Stoner
02-08-2012, 07:49 AM
The Fed says it is now targeting inflation at a 2% rate..... Keeping in mind the official rate as calculated is too low..... This is good way to devalue the currency and to pay back the debt with cheaper dollars...... Now if tax receipts would just pick up...... The plan would be working.

This is exactly what Mel and I have been saying for quite some time.

eagle2
02-08-2012, 04:00 PM
To the extent that it is possible to 'make it easier' for home buyers without negatively impacting other Americans I would agree with you. But, for better or worse, the FED's zero interest rate policy is NOT neutral.

It is neutral. Everyone pays lower interest rates on loans than they would be paying if the Fed increased interest rates.



For every mortgage lender or would-be home buyer it helps, an American saver or retiree is hurt. As such, FED interest rate policy is in fact picking winners ( banksters, 'rich' investors / speculators, and 'subprime' borrowers ) and losers ( financially responsible Americans ).

You're making stuff up again. You don't know how many people rely solely on savings accounts for income. There are alternatives to low-interest savings accounts that don't require you to be rich. There are plenty of stocks that pay 4-5% in dividends that anyone can purchase. Practically everyone benefits from low interest rates. Anyone with a mortgage can benefit by refinancing. Any business, or employee of that business, that sells products on credit, benefits. Anyone who buys anything on credit, benefits. The whole entire basis of your opposition to the Fed's policies is that it goes against your ideology.

eagle2
02-08-2012, 04:10 PM
You're ignoring the unavoidable side effect of US dollar devaluation that must go along with zero interest rate policy. This results in a situation where 'grandma' sees the interest rate earned on her retirement savings decline to near zero, while the cost of buying groceries and heating her home in the winter increase significantly.

You're making stuff up again. As I have stated earlier, the price of natural gas has fallen significantly. We've already gone through this, yet you continue to make up the same stuff. Anyone whose home is heated by natural gas, or electricity from a natural gas plant is paying less for heating.



You're ignoring the fact that the US dollar devaluation raises 'input costs' for those businesses making and selling products ... 'input costs' that, in many cases, cannot be successfully passed on to consumers without losing significant sales volumes. This in turn 'squeezes' profit margins for manufacturers and retailers ... which in turn forces them to postpone investments and shed jobs ( or at least avoid hiring ).

No it doesn't. It reduces labor costs relative to 'input costs'. The facts completely contradict your statement. Domestic auto makers' profits have significantly increased and they have been increasing hiring, not shedding jobs.



You're ignoring the fact that FED funds interest rates have little to do with consumer interest rates ... or, put another way, show me a credit card with an interest rate below 8% on a permanent basis.

I regularly get offers for credits cards with 0% interest for over a year.




In fact, the 'guaranteed' earnings handed to member banks who can borrow from the FED at near zero percent interest to buy US Treasury bonds paying 3% interest thanks to zero interest rate policy is in fact making new loans for businesses and individuals even harder to obtain !!! With the exception of home mortgages and auto loans that are ( de-facto ) backed by the full faith and credit of the US taxpayer, consumer credit interest rates for both 'prime' and 'subprime' borrowers haven't been reduced at all. What HAS increased is the 'spread' ( = potential lender earnings ) between the lender's 'cost' of money and the amount charged to the borrowers.

Anyone with home equity and decent credit can refinance at a lower rate, which benefits a significant number of Americans.

mikef
02-08-2012, 04:26 PM
Forcing people into the stock market...... Sure the're are safe dividend paying stocks (Nothing ever goes wrong with that :O ) is an added benefit...... I'm with you on Nat Gas..... But the rest is wrong..... Every monthly bill (Cable.... Insurance..... Water & Sewer..... Etc) is going up.

eagle2
02-08-2012, 04:45 PM
Many seniors already own dividend stocks to begin with. It's not the job of the Fed to ensure people can get a high rate of return on savings accounts. I haven't seen any noticeable increase in my cable or insurance bills. As I've said many times before, the biggest problems facing our economy are slow economic growth and high unemployment, not the cost of cable, or the interest rates on savings accounts. Increasing interest rates would make both of those problems worse.

Melonie
02-09-2012, 03:27 AM
yes, extraordinary circumstances have led to falling prices for natural gas in the eastern USA ( which is not true elsewhere in the world ), nor for 'transportable' fuels i.e. heating oil and propane. Yes 'prime' borrowers with excellent credit histories and high incomes may receive offers for temporary 0% credit cards ( which transition to 18% after the time limit expires ). Both represent isolated, and conditional exceptions.

And no, zero interest rate policy is NOT neutral because higher earnings based on interest rate spreads, and lower consumer borrowing interest rates, apply to a select few - while higher prices apply to all !

As to the 'differences' of opinion on FED interest rate policy, try this 'professional' commentary ... from

(snip)"Under more normal circumstances Joe would absolutely be correct. Rising consumer credit means more consumption which leads to stronger economic growth. Let me explain. Individuals go to work to produce a good or service for which they are paid a finite amount of money for. With that income they pay taxes which leaves them with discretionary income from which to live on. Pay the rent, utilities, insurance and healthcare, food, clothes and put gas in the car and that pretty much consumes the majority of the paycheck.

Therefore, in the past, if they wanted to expand their consumption beyond the constraint of incomes they turned to credit in order to leverage their consumptive purchasing power. Steadily declining interest rates and lax lending standards put excess credit in the hands of every American. (Seriously, my dog Jake got a Visa in 1999 with a $5000 credit limit) This is why during the 80's and 90's, as the ease of credit permeated its way through the system, the standard of living rose in America even while economic growth rate slowed in America along with incomes.

Therefore, as the gap between the "desired" living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math.

Today, the situation is quite different and a harbinger of potentially bigger problems ahead. The consumer is no longer turning to credit to leverage UP consumption - they are turning to credit to maintain their current living needs.


http://www.streettalklive.com/images/stories/1dailyxchange/debt-consumerdebt-incomes-020812.png


Take a look at the chart of personal consumption expenditures (PCE) versus total consumer credit. Notice in the past year as consumer credit rose you saw an increase in PCE. In the last two months consumer credit has exploded higher but there has been virtually NO increase in PCE levels on a month over month basis. Retail sales during the Christmas shopping season we disappointing and this was even with a large decrease in gasoline prices.

This situation becomes even more apparent when we begin to look at the longer term trends of real disposable incomes, consumer credit and personal saving rates.

Most of the deleveraging process that has been occurring up to this point has NOT been voluntary. Banks have been cutting off excess credit lines, consumers have been defaulting on debt, mortgage foreclosures, and personal bankruptcies. Consumers, on the other hand, are struggling just to make ends meet and are in reality doing very little in terms of voluntary debt reduction. As incomes have decreased over the past two years - the inflationary pressures in food, energy, medical and utilities have consumed more of that declining wage base. This is why today we have 1 out of every 2 Americans on some form of governmental assistance, more than 47 million people on food stamps and transfer receipts making up more than 35% of personal incomes. It is hard to make the claim that the economy is on a fast track to recovery with statistics like that. That is why the recent increases in consumer debt are disturbing. The rise in NOT about increasing consumption by buying more "stuff" it is about just about being able to purchase the same amount of "stuff" to maintain the current standard of living."(snip)


Stating the author's point plainly, lower monthly payments on the purchase of higher priced goods primarily benefits those who are not likely to ever actually pay off the debt in full !!! While not addressed by the author, it also benefits rich speculative investors who are able to profit from rising ( commodity ) prices and rising interest rate 'spreads'. But it clearly penalizes those who primarily consume commodities i.e. gasoline, food etc. ( exception - food stamp / social welfare beneficiaries who don't actually pay for food and energy out of their own pockets ). And it clearly penalizes non-speculative investors who are seeking 'safe' stable ( retirement ) income from CD's or US gov't bonds.

Thus, to repeat my earlier post, current FED policy benefits the 'rich', the 'poor', and the financially IRresponsible - while harming the financially responsible working / middle class.

Eric Stoner
02-09-2012, 08:07 AM
It is neutral. Everyone pays lower interest rates on loans than they would be paying if the Fed increased interest rates.



You're making stuff up again. You don't know how many people rely solely on savings accounts for income. There are alternatives to low-interest savings accounts that don't require you to be rich. There are plenty of stocks that pay 4-5% in dividends that anyone can purchase. Practically everyone benefits from low interest rates. Anyone with a mortgage can benefit by refinancing. Any business, or employee of that business, that sells products on credit, benefits. Anyone who buys anything on credit, benefits. The whole entire basis of your opposition to the Fed's policies is that it goes against your ideology.

You are making the enormous assumption that every borrower pays low rates on their borrowings. The better risks do but not those without higher incomes and sterling credit histories. Exhibit A is the enormous number of homes currently underwater ; B is the high number of delinquent car loans and C are the huge number of student loans that are delinquent or behind.

More importantly, you are deliberately misunderstanding what Mel, I and others are saying about Fed policy in general and low rates in particular. It is not that rates are low. It is that they are TOO LOW ! With nominal inflation running about 2.8 % and REAL inflation well over 3 % , current rates make no sense. We have been arguing for a Fed Funds Rate of 2 % which in and of itself is both historically low and still BELOW current inflation.

Even more importantly, how much borrowing do we really want ? By whom? For what ? For a car or house they can afford ? - O.K. but is it healthy for there to be borrowing to maintain a lifestyle that is beyond the borrower's means ?

Eric Stoner
02-09-2012, 08:17 AM
You're making stuff up again. As I have stated earlier, the price of natural gas has fallen significantly. We've already gone through this, yet you continue to make up the same stuff. Anyone whose home is heated by natural gas, or electricity from a natural gas plant is paying less for heating.


No it doesn't. It reduces labor costs relative to 'input costs'. The facts completely contradict your statement. Domestic auto makers' profits have significantly increased and they have been increasing hiring, not shedding jobs.


I regularly get offers for credits cards with 0% interest for over a year.




Anyone with home equity and decent credit can refinance at a lower rate, which benefits a significant number of Americans.

Here we go again. Except for the paradise known as "Eagleland" , heating costs have gone up, Up , UP ! Especially for those who use home heating oil which is retailing for well over $3 a gallon. And as I have pointed out, despite a decline in the wholesale price, many gas consumers are paying MORE despite using fewer therms. Many utilities have NOT gotten the memo about lower gas prices. And of course, the other kind of gas that we put into our cars is creeping up to $4 a gallon.

Yes, GM is showing a profit. On lower earnings and with a much smaller labor force than before the Bailout. While still owing billions that haven't been paid back yet.

You do read the fine print on those credit card offers don't you ? What is the APR AFTER the 1st year ? 12 % ? ; 15 % ?; 18 % ?

Melonie
02-09-2012, 09:42 AM
^^^ risking a brush with the SW 'politics ban', I will also throw out another point for you to ponder.

Neither the 'rich' bankers writing mortgage loans, nor the 'rich' investors holding mortgage backed securities, nor the low income / subprime homebuyers, actually care if the homebuyer is actually able to repay the loan or not. Why ? Fannie / Freddie have the 'rich' bankers covered, the FED's Maiden Lane has the 'rich' investors covered, and the subprime homebuyer A. can't be quickly or easily foreclosed upon ( meaning mortgage payment free living for months or years ) plus B. can always go bankrupt without repaying. The 'losers' in the deal are of course Americans who actually pay income taxes ... which are in turn used to bail out Fannie / Freddie as they absorb the mortgage loan losses.

Same situation applies to 'subprime' auto lenders and car loans made to 'subprime' buyers. The only major 'subprime' auto lender these days is Ally Bank ( former GMAC ). The 'subprime' loans they are making are funded with TARP money ( which has not been repaid ). Again the 'losers' in the deal are Americans who actually pay income taxes ... which were used to bail out Ally Bank and offset losses from 'subprime' auto loan defaults. And yes other automakers have been 'forced' to underwrite low interest loans to compete with GM / Ally Bank ... as Toyota, Honda etc. can show you via reduced profitability.

Ultimately, when 'risk' of actual loan default is mispriced, i.e. when 'subprime' borrowers are approved for low interest loans with low / no positive collateral as is the case above, sooner or later someone must pick up the tab for the inevitable losses. Lately that 'someone' has been the US taxpayer, instead of the bankers or investors ! This provides an alternate confirmation that FED policy helps the 'rich' and the 'poor', while hurting the working / middle class who actually pay income taxes.

eagle2
02-12-2012, 01:05 PM
You are making the enormous assumption that every borrower pays low rates on their borrowings. The better risks do but not those without higher incomes and sterling credit histories. Exhibit A is the enormous number of homes currently underwater ; B is the high number of delinquent car loans and C are the huge number of student loans that are delinquent or behind.

More importantly, you are deliberately misunderstanding what Mel, I and others are saying about Fed policy in general and low rates in particular. It is not that rates are low. It is that they are TOO LOW ! With nominal inflation running about 2.8 % and REAL inflation well over 3 % , current rates make no sense. We have been arguing for a Fed Funds Rate of 2 % which in and of itself is both historically low and still BELOW current inflation.

Even more importantly, how much borrowing do we really want ? By whom? For what ? For a car or house they can afford ? - O.K. but is it healthy for there to be borrowing to maintain a lifestyle that is beyond the borrower's means ?

The CPI is up 2.4%, which is approximately what the Fed's goal is. Housing is still down over 20% from before the crisis. Raising the interest rate to 2% would hurt the recovery and possibly send us back into recession. I don't think that either you or Melonie have enough understanding of basic economic concepts to understand why your position is wrong. Again, can you please answer my questions:

If you want more people to buy houses, do you:

A. Increase the cost of buying a house
B. Decrease the cost of buying a house

If you want more people to buy automobiles, do you:

A. Increase the cost of buying an automobile
B. Decrease the cost of buying an automobile

mikef
02-12-2012, 02:57 PM
The CPI is up 2.4%, which is approximately what the Fed's goal is. Housing is still down over 20% from before the crisis. Raising the interest rate to 2% would hurt the recovery and possibly send us back into recession. I don't think that either you or Melonie have enough understanding of basic economic concepts to understand why your position is wrong. Again, can you please answer my questions:

If you want more people to buy houses, do you:

A. Increase the cost of buying a house
B. Decrease the cost of buying a house

If you want more people to buy automobiles, do you:

A. Increase the cost of buying an automobile
B. Decrease the cost of buying an automobile


Lol..... You don't really believe that..... The problem today is TOO much interference.... Market should dictate rates..... And 2.4% is a joke.

Melonie
02-12-2012, 03:00 PM
If you want more people to buy houses, do you:

A. Increase the cost of buying a house
B. Decrease the cost of buying a house

If you want more people to buy automobiles, do you:

A. Increase the cost of buying an automobile
B. Decrease the cost of buying an automobile


The answer to your questions, under today's circumstances, doesn't involve prices per-se or interest rates per-se.

In essence, any financially responsible American that NEEDS to buy a house or a car has already done so. While I'm not going to trouble myself to search it out, have a look at historical percentage of home ownership in America. During the late 90's and early 2000's 'bubble' years, it rose 5% above historical norms due to 'subprime' homeowners being allowed to qualify for loans they could not have qualified for in prior decades. Surprise, surprise, since the 'bubble' burst, the percentage of home ownership in America is gradually returning to historical norms.

So if the FED's / gov'ts goal is to expand house and auto sales beyond current levels, it needs to make approved buyers out of financially IRresponsible people - i.e. people who don't have the ability to pony up a substantial down payment, whose credit history is less than sterling, who thus pose a greatly increased risk that the lender will incur a loss !

Lenders will only 'buy into' this plan if they can off-load the greatly increased loss risk onto taxpayers. The mortgage lenders have already done this via FED purchases into Maiden Lane plus 130+ ( maybe a huge plus ) billion in Fannie / Freddie mortgage guarantees that have already gone belly-up, and would need to do even more of it to start another wave of 'subprime' home sales. Ally Bank a.k.a. GMAC has already done this via TARP funded 'subprime' auto loans.

eagle2
02-13-2012, 12:13 AM
During the late 90's and early 2000's 'bubble' years, it rose 5% above historical norms due to 'subprime' homeowners being allowed to qualify for loans they could not have qualified for in prior decades. Surprise, surprise, since the 'bubble' burst, the percentage of home ownership in America is gradually returning to historical norms.


You're making stuff up again. Home ownership is falling to near 50-year lows, not "gradually returning to historical norms".

http://realestate.aol.com/blog/2010/08/02/home-ownership-drops-to-near-50-year-lows/

Melonie
02-13-2012, 03:55 AM
Since you brought it up ... from

http://blog.american.com/wp-content/uploads/2011/07/homeownership1-1024x798.jpg

(snip)"The Census Bureau reported today that the U.S. homeownership rate fell to 65.9 percent in the second quarter of 2011. That’s the lowest homeownership rate in slightly more than 13 years, since the 66.4 percent rate in the fourth quarter of 1997. Compared to the all-time peak of 69.2 percent in 2004, America’s homeownership rate has now fallen by more than 3 percentage points.

The chart above displays quarterly homeownership rates back to 1975 compared to inflation-adjusted house prices, using the Federal Housing Finance Agency (FHFA) house price index. After several decades of relative stability in real home prices (at about 280) and homeownership rates (at 64-65 percent) between 1975 and 1995, both series rose over the next decade to unprecedented record-high levels. By 2004, the homeownership rate had risen to 69.2 percent from 64 percent in 1994, and real home prices appreciated by more than 50 percent between 1996 and 2006. That huge run-up in home prices created an unsustainable real estate bubble that started crashing in 2007, leading to a 22 percent drop in home prices through the first half of this year and bringing real home prices back to their 2001 levels. Likewise, the unsustainable “homeownership bubble” started crashing in 2007 and homeownership rates are below 66 percent for the first time since the late 1990s.

Conclusion: Starting in the mid-1990s, there was a politically driven effort to promote affordable housing, and those efforts resulted in significantly higher homeownership rates and housing prices, but those levels were artificially high and clearly not sustainable in the long run. And what was the driving force behind the unsustainable bubbles in homeownership and home prices?

As AEI fellow Ed Pinto concluded in a recent article, “Government policies forced a systematic industry-wide loosening of underwriting standards in an effort to promote affordable housing, compounded by moral hazard spread by Fannie and Freddie.” In the process of abandoning traditional, conservative underwriting standards to increase homeownership, government policies ended up turning millions of good renters into unqualified homeowners, which then created a housing price bubble that finally crashed, bringing on waves of foreclosures and a financial crisis. (snip)


Thus even after recent declines, in order to return to HISTORICAL norms ... with norm being defined as the percentage of home ownership resulting from 'free market' housing price forces and unsubsidized, non-risk shifted mortgage borrowing costs ... we still have 1.5% of downdraft. This also implies that 'bubble'-ized housing prices still have another 10% downdraft as well to return to historical norms.

I would also point out that your link story stated that home ownership rates COULD fall to 62%. While that is indeed a possibility, in fact it has NOT happened yet. I would also cast doubt on 'self-serving' statistics offered up in your link story by real estate industry funded RealtyTrak, which has a vested interest in promoting a gloomy real estate picture in hopes of receiving more gov't assistance which will produce new real estate commissions from more 'subprime' home-buyers .

Circling back on topic, it can also be pointed out that present FED policies in regard to money printing / US dollar devaluation directly REDUCE the affordability of homes. The reason of course is that a devalued dollar makes global commodity input costs for employers more expensive, translating into zero pay increases for workers. Then from those 'stagnant' paychecks, would-be home buyers must shell out more US dollars for the same amount of food, gasoline etc. leaving less 'discretionary' income left over for mortgage payments. I would also add that other gov't policies have caused significant increases in property taxes, school taxes, insurance costs etc. which also raise the non-mortgage related costs of home ownership. Plus having a large tax deduction for mortgage interest payments does NOT offer any advantage to the 49.5% of income tax filers who aren't required to pay income taxes now !

So yes, home ownership rates COULD fall to 62% for these reasons.

Eric Stoner
02-13-2012, 08:08 AM
You're making stuff up again. Home ownership is falling to near 50-year lows, not "gradually returning to historical norms".

http://realestate.aol.com/blog/2010/08/02/home-ownership-drops-to-near-50-year-lows/

Rather than argue with you, I just ask that you LOOK at the chart Melonie posted. Up until 1995 there was relative stability in both homeownership and home prices. The fluctuations in both from 1975 to 1995 were relatively small. It radically changed in 1995. What happened ? Well a number of things : Greenspan at the Fed ; securitization of mortgage debt ; repeal of Glass Steagall in 1998 ; Cuomo at HUD and Janet Reno the A.G. making various threats to the banks to increase lending ; Fannie and Freddie relaxing their lending and underwriting standards. In a nutshell : Government, government and more government interference in the housing market and banking and mortgage industries. The latest settlement represents more of the same.

Another illuminating thing to do is to compare our rate of homeownership to that of Canada during the same time period.

Eric Stoner
02-13-2012, 08:11 AM
The CPI is up 2.4%, which is approximately what the Fed's goal is. Housing is still down over 20% from before the crisis. Raising the interest rate to 2% would hurt the recovery and possibly send us back into recession. I don't think that either you or Melonie have enough understanding of basic economic concepts to understand why your position is wrong. Again, can you please answer my questions:

If you want more people to buy houses, do you:

A. Increase the cost of buying a house
B. Decrease the cost of buying a house

If you want more people to buy automobiles, do you:

A. Increase the cost of buying an automobile
B. Decrease the cost of buying an automobile

Which is why I posted the "nominal" and the REAL inflation rates. We have rehashed how the government cooks the books on the CPI too many times to count. Please do a search in this forum. The main reason we have not YET experienced runaway inflation is that wages are so depressed.

mikef
02-13-2012, 05:52 PM
Rather than argue with you, I just ask that you LOOK at the chart Melonie posted. Up until 1995 there was relative stability in both homeownership and home prices. The fluctuations in both from 1975 to 1995 were relatively small. It radically changed in 1995. What happened ? Well a number of things : Greenspan at the Fed ; securitization of mortgage debt ; repeal of Glass Steagall in 1998 ; Cuomo at HUD and Janet Reno the A.G. making various threats to the banks to increase lending ; Fannie and Freddie relaxing their lending and underwriting standards. In a nutshell : Government, government and more government interference in the housing market and banking and mortgage industries. The latest settlement represents more of the same.

Another illuminating thing to do is to compare our rate of homeownership to that of Canada during the same time period.

These were the real drivers...... We will never know if someone other than "The Maestro" would have blown a bigger bubble..... Or allowed and codified the looting as much...... I doubt it though.

eagle2
02-13-2012, 08:20 PM
Since you brought it up ... from http://blog.american.com/2011/07/chart-of-the-day-the-unsustainable-homeownership-bubble/

http://blog.american.com/wp-content/uploads/2011/07/homeownership1-1024x798.jpg



The home ownership rate has been gradually increasing for decades, with a temporary drop in the 1980's, due to the dramatic increase in interest rates. Your chart dishonestly selects a short period of time, starting right before the drop in the home ownership rate, to make it look like the home ownership rate is static, rather than the fact that it has been gradually increasing for decades. If you look at the home ownership rates going back to 1960 (http://en.wikipedia.org/wiki/Homeownership_in_the_United_States#Historical), you will see the home ownership rate increased from 62.1% to 65.6% from 1960 - 1980 (20 years). That's not much different than the increase from 1980 - 2004, where it increased from 65.6 - 69% (24 years). The home ownership rate actually increased faster from 1960 - 1980, than it did from 1980 - 2004.



Thus even after recent declines, in order to return to HISTORICAL norms ... with norm being defined as the percentage of home ownership resulting from 'free market' housing price forces and unsubsidized, non-risk shifted mortgage borrowing costs ... we still have 1.5% of downdraft. This also implies that 'bubble'-ized housing prices still have another 10% downdraft as well to return to historical norms.

Your "HISTORICAL norms" is based on dishonest information from your right wing site. Based on the trend from 1960 - 1980, the home ownership rate is approximately where you would expect it to be in 2004. Without the dramatic rise in interest rates in the 1980's, which caused the home ownership rate to fall, and then falling interest rates, which caused the home ownership rate to increase at a faster rate, you would see a steady line from 1960 to 2004, gradually going up.



I would also point out that your link story stated that home ownership rates COULD fall to 62%. While that is indeed a possibility, in fact it has NOT happened yet. I would also cast doubt on 'self-serving' statistics offered up in your link story by real estate industry funded RealtyTrak, which has a vested interest in promoting a gloomy real estate picture in hopes of receiving more gov't assistance which will produce new real estate commissions from more 'subprime' home-buyers .

You're making stuff up again. The information comes from an article in USA Today, which the RealtyTrak article links to.



Circling back on topic, it can also be pointed out that present FED policies in regard to money printing / US dollar devaluation directly REDUCE the affordability of homes. The reason of course is that a devalued dollar makes global commodity input costs for employers more expensive, translating into zero pay increases for workers. Then from those 'stagnant' paychecks, would-be home buyers must shell out more US dollars for the same amount of food, gasoline etc. leaving less 'discretionary' income left over for mortgage payments. I would also add that other gov't policies have caused significant increases in property taxes, school taxes, insurance costs etc. which also raise the non-mortgage related costs of home ownership. Plus having a large tax deduction for mortgage interest payments does NOT offer any advantage to the 49.5% of income tax filers who aren't required to pay income taxes now !

So yes, home ownership rates COULD fall to 62% for these reasons.

And again, you're making stuff up. There is no basis for what you said. Your statement is based 100% on ideology, and zero percent on facts. Your own chart contradicts your statement. The home ownership rate fell dramatically, starting in 1980, when the Fed raised interest rates. The home ownership rate then increased in the 1990's when interest rates were lower. This is very simple concept. Lower interest rates make houses more affordable, and higher interest rates make them less affordable. This is not just some theory made up in some think tank, like all of the stuff you post. This is something where you can actually look at the facts and see it. Look at your chart. Notice how the home ownership rate fell when the Fed raised interest rates. For some reason this very simple concept is too complicated for conservative ideologues to understand.

eagle2
02-13-2012, 08:27 PM
Rather than argue with you, I just ask that you LOOK at the chart Melonie posted. Up until 1995 there was relative stability in both homeownership and home prices. The fluctuations in both from 1975 to 1995 were relatively small.

As I said in my previous post, Melonie's chart dishonestly selects a period right around the time the home ownership rate fell, to make it look relatively static, rather than going back a few decades which would show the home ownership rates gradually increasing over time.



Another illuminating thing to do is to compare our rate of homeownership to that of Canada during the same time period.

From the same article (http://en.wikipedia.org/wiki/Homeownership_in_the_United_States#International_C omparison), Canada's home ownership rate is 67%, not much lower than ours was at its peak.

eagle2
02-13-2012, 08:41 PM
Which is why I posted the "nominal" and the REAL inflation rates. We have rehashed how the government cooks the books on the CPI too many times to count. Please do a search in this forum. The main reason we have not YET experienced runaway inflation is that wages are so depressed.

No, you selective choose a few volatile items and ignore everything else. What you and Melonie are proposing would bring us back into recession.

Melonie
02-14-2012, 04:11 AM
??? bring us BACK into recession ??? Arguably, by any objective measure, the US economy never came out of recession !!!

In fact, the major 'beneficiaries' who have profited from FED / gov't policy have been 'rich' investors in tax free gov't bonds and the stocks of selected companies, unionized workers for the gov't, for gov't contractors, and for 'bailed out' or 'subsidized' industries, etc. Arguably, your average working class / middle class American hasn't participated in any recovery !!!


http://allstarcharts.com/wp-content/uploads/2011/11/11-4-11-percent-job-losses-in-Post-WWII-Recessions1.jpg

Eric Stoner
02-14-2012, 07:42 AM
No, you selective choose a few volatile items and ignore everything else. What you and Melonie are proposing would bring us back into recession.

No. I INCLUDE energy prices which the current CPI excludes.

As Melonie has ponted out, we are still in a recession or more accurately a jobless recovery with anemic growth.

Eric Stoner
02-14-2012, 07:52 AM
The home ownership rate has been gradually increasing for decades, with a temporary drop in the 1980's, due to the dramatic increase in interest rates. Your chart dishonestly selects a short period of time, starting right before the drop in the home ownership rate, to make it look like the home ownership rate is static, rather than the fact that it has been gradually increasing for decades. If you look at the home ownership rates going back to 1960 (http://en.wikipedia.org/wiki/Homeownership_in_the_United_States#Historical), you will see the home ownership rate increased from 62.1% to 65.6% from 1960 - 1980 (20 years). That's not much different than the increase from 1980 - 2004, where it increased from 65.6 - 69% (24 years). The home ownership rate actually increased faster from 1960 - 1980, than it did from 1980 - 2004.


Your "HISTORICAL norms" is based on dishonest information from your right wing site. Based on the trend from 1960 - 1980, the home ownership rate is approximately where you would expect it to be in 2004. Without the dramatic rise in interest rates in the 1980's, which caused the home ownership rate to fall, and then falling interest rates, which caused the home ownership rate to increase at a faster rate, you would see a steady line from 1960 to 2004, gradually going up.


You're making stuff up again. The information comes from an article in USA Today, which the RealtyTrak article links to.



And again, you're making stuff up. There is no basis for what you said. Your statement is based 100% on ideology, and zero percent on facts. Your own chart contradicts your statement. The home ownership rate fell dramatically, starting in 1980, when the Fed raised interest rates. The home ownership rate then increased in the 1990's when interest rates were lower. This is very simple concept. Lower interest rates make houses more affordable, and higher interest rates make them less affordable. This is not just some theory made up in some think tank, like all of the stuff you post. This is something where you can actually look at the facts and see it. Look at your chart. Notice how the home ownership rate fell when the Fed raised interest rates. For some reason this very simple concept is too complicated for conservative ideologues to understand.

Have you ever bought a house ? Ever owned one ? I'll bet you've always been a renter when you weren't living with your parents. I know I'm personalizing but some of what you post just flies in the face of practical reality. Low interest rates are A factor , ONE factor in the rate of home ownership. Not the only factor. More importantly, we have learned the hard way that some people are not cut out to be homeowners. They're not responsible enough. There is not enough stability in their lives; economic and otherwise.
Witness all the "programs" designed to teach people how to be responsible, solvent owners.
How do we have a bubble in real estate without interest rates that are too low ?
Why push for an artifical recovery in real estate ? Just how long do you think that a government created and distorted housing market ought to last ? Do you seriously think that anybody at the Fed or at HUD , Fannie , Freddie or FHA is smart enough to known when to turn down the heat ? Show me one shred of historical evidence that anyone, at any time, was astute and clever enough to do that !

Eric Stoner
02-14-2012, 07:56 AM
These were the real drivers...... We will never know if someone other than "The Maestro" would have blown a bigger bubble..... Or allowed and codified the looting as much...... I doubt it though.

He had a LOT of help: Goldman Sucks , Morgan Stanley, Countrywide , Lehman, Bear Stearns, Barney Fwank , Bush the Dumber etc.etc. The list is long.

eagle2
02-14-2012, 10:18 PM
??? bring us BACK into recession ??? Arguably, by any objective measure, the US economy never came out of recession !!!


If you go by the definition of "recession", the US economy has been out of recession for some time. In early 2009, we were losing 700,000 jobs a month. We're now gaining over 200,000 jobs a month.



In fact, the major 'beneficiaries' who have profited from FED / gov't policy have been 'rich' investors in tax free gov't bonds and the stocks of selected companies, unionized workers for the gov't, for gov't contractors, and for 'bailed out' or 'subsidized' industries, etc. Arguably, your average working class / middle class American hasn't participated in any recovery !!!


Most Americans have benefited from Fed/gov't policy. Just the fact that the economy's downward spiral stopped benefited everyone. Anyone who owns stocks benefited. Anyone who bought or refinanced a house benefited. Anyone who took out a loan to buy a car benefited. The whole entire reasoning for your opposition to Fed/gov't policy is because it goes against your ideology. You're obviously not concerned about middle/working class people. You're same person who complains American workers aren't paid third world wages.

eagle2
02-14-2012, 10:20 PM
No. I INCLUDE energy prices which the current CPI excludes.

and energy prices are much more very volatile. As I mentioned before, the cost of natural gas has fallen significantly.



As Melonie has ponted out, we are still in a recession or more accurately a jobless recovery with anemic growth.

No, the economy is doing way, way better than it was before, in early 2009.

eagle2
02-14-2012, 10:56 PM
Have you ever bought a house ? Ever owned one ? I'll bet you've always been a renter when you weren't living with your parents. I know I'm personalizing but some of what you post just flies in the face of practical reality. Low interest rates are A factor , ONE factor in the rate of home ownership. Not the only factor. More importantly, we have learned the hard way that some people are not cut out to be homeowners. They're not responsible enough. There is not enough stability in their lives; economic and otherwise.

I never said interest rates are the only factor in the home ownership rate, but they are a major factor. Melonie's chart clearly shows a significant drop in the home ownership rate when the Fed dramatically raised interest rates in the 1980's. Do you think this is just a coincidence?

I'm sorry, but it's not for you and Melonie to decide who can and cannot own a home. Anyone who wants to own a home is free to do so, as long as they have the means to pay for it. What caused the financial crisis wasn't too many people owning a home. It was people owning a home that they could not afford. Not everyone has to buy a brand new "McMansion" to be a home owner.



Witness all the "programs" designed to teach people how to be responsible, solvent owners.
How do we have a bubble in real estate without interest rates that are too low ?


We had a bubble because lenders came out with alternative types of mortgages to get around higher interest rates, such as ARMs and interest-only mortgages.




Why push for an artifical recovery in real estate ? Just how long do you think that a government created and distorted housing market ought to last ? Do you seriously think that anybody at the Fed or at HUD , Fannie , Freddie or FHA is smart enough to known when to turn down the heat ? Show me one shred of historical evidence that anyone, at any time, was astute and clever enough to do that !

Lowering interest rates to help the housing market recover is not an "artificial recovery". We had an artificial boom before the financial crisis, as a result of alternative type loans like the ones I mentioned above, and the deregulation of the mortgage market, which made it possible for people to acquire mortgages they had no way of paying over its entire duration. I think you're confusing the two. There is a very big difference between a fixed-rate mortgage with low interest rates, and an alternative type of mortgage where the initial monthly payments are low, but over the life of the mortgage, increase significantly. Providing a fixed-rate mortgage at low interest to a home-buyer, who also makes a down-payment on the home is far less risky than providing an ARM or interest-only mortgage to a home-buyer who puts no money down. The only difference between a low-interest fixed rate mortgage and a fixed rate mortgage with a higher interest rate is, the monthly payments are lower for the lower interest mortgage. It doesn't make them any more risky, but it does make housing more affordable.

Since the Great Depression, we had approximately 75 years of stability in the housing market, and we had low interest rates during much of that time period. It was only after unconventional, no-money down mortgages became widely available that we ran into trouble.

Right now, with housing prices down about 20% from their peak, and a big housing surplus, raising interest rates would not provide a single benefit to the housing market, and would only make things worse.

Melonie
02-15-2012, 04:19 AM
^^^ nice case of 'selective memory' totally forgetting about the 'Savings and Loan' crisis and bailout. So much for your claim of 75 years worth of stability in the real estate / mortgage lending market !

At any rate, I'll let Charles Hughes Smith respond to your position ... from


(snip)"Clearly, the number of people with actual jobs is declining, not rising. All manner of lipstick can be applied to the employment pig--weekly claims are dropping!, etc.--but the only number that actually matters is the number of people with jobs, and more narrowly, those with full-time jobs.

In other words, laying off 10 million full-time workers and hiring back 10.1 million part-time workers with no benefits is a completely deceptive measure of employment income, as total compensation (wages and benefits) fell more or less in half and so did the income available for consumption and investment. Such a precipitous decline in income and resultant economic activity would be completely masked by a studiously coarse measure of employment.

As for forward earnings--I have often described the dominant causal factor in the rise of U.S. corporate profits-- the decline of the U.S. dollar. In a nutshell, here's the story of rising profits: 40% of all U.S.-based corporate revenues are generated overseas, and a majority of profit increases result from these rising sales overseas.

When these profits earned in euros, renminbi, yen, etc. are restated in U.S. dollars, then the profits magically rise. For example, 1 euro earned by a U.S.-based corporation in 2002 yielded about $1 when converted to dollars in the company's financial reports. In 2008, that 1 euro ballooned into $1.60 of profits due to the currency exchange rate of 1 euro=$1.60.

Fully 35% of that profit was a result of dollar depreciation, not an actual increase in profit margins or goods and services produced. The Fed's campaign to destroy the nation's currency generated fabulous (and phantom) "growth" in corporate profits at the expense of every holder of the currency.

Now that the U.S. dollar is in a secular uptrend, the Fed's shadow strategy to boost phantom corporate profits and thus the stock market is in trouble. Now all those phantom gains are threatening to vanish as the dollar strengthens.

As I have noted many times, the vast majority of standard-issue financial pundits (SIFPs) are absolutely convinced that the Fed's $1 trillion expansion of its balance sheet will drive the dollar ever lower in the years ahead. I disagree, on a simple "follow the money" analysis: given that there is around $60 trillion in financial assets sloshing around an increasingly risky world seeking some sort of safe haven, the pressing goal of not losing what I have makes parking assets in U.S. dollar-denominated assets a risk-averse strategy.

Recall that it's difficult to temporarily "park" a rather modest $1 trillion in, say, renminbi, bat guano or gold, because the entire global market for these assets is small or restricted (the RMB is not yet a floating currency that can be bought in virtually unlimited sums). For example, the gold market is around $8 trillion, of which 19% is held by central banks and 52% is in jewelry. It's difficult to locate $1 trillion of gold to buy. In contrast, it is comparatively straightforward to "park" $1 trillion in U.S.-denominated assets such as Treasury bonds, corporate bonds, stock funds, etc., and these assets have the additional benefit of being liquid, i.e. you can unload your position in relatively short order without destroying the global market for the asset. (Try that with bat guano or copper.)

This need to park collateral-impaired financial assets in something that won't crater tomorrow or the next day is a powerful reason for some of that $60 trillion sloshing around to find a temporary home in dollar-denominated assets. Compared to the pool of digital money seeking safe haven, the Fed's $1 trillion expansion is simply not big enough to move global markets when the "risk-off" trade explodes.

Meanwhile, the cargo-culters gathered around the econometrics campfire are staring at the glowing embers, entranced by forward P-Es of 14.6 and a 11K drop in new unemployment claims (now 366,000, soon to be adjusted upward by 12K when nobody's looking) or whatever runes painted on rocks they're looking at this week.(snip)


Please give serious consideration to the possibility that your counterpoints have a fair amount of 'cargo cult' basis.


(snip)"Cargo Cults

Someone once accused me of practicing "cargo cult economics." At the time this just sounded goofy to me, but a commenter clued me into the fact that this comes from a commencement address that Richard Feynman made at Caltech in 1974. In general, it's quite entertaining, though maybe of limited use for economists as he was thinking mostly in terms of experimental science. However, there are some very nice parts. For example, here he is discussing honesty in science:

It's a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty--a kind of leaning over backwards. For example, if you're doing an experiment, you should report everything that you think might make it invalid--not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you've eliminated by some other experiment, and how they worked--to make sure the other fellow can tell they have been eliminated.

The following sounds like Ed Prescott, don't you think?

There is also a more subtle problem. When you have put a lot of ideas together to make an elaborate theory, you want to make sure, when explaining what it fits, that those things it fits are not just the things that gave you the idea for the theory; but that the finished theory makes something else come out right, in addition.

More on honesty:

The first principle is that you must not fool yourself--and you are the easiest person to fool. So you have to be very careful about that. After you've not fooled yourself, it's easy not to fool other scientists. You just have to be honest in a conventional way after that.

And here's one for Paul Krugman:

I would like to add something that's not essential to the science, but something I kind of believe, which is that you should not fool the layman when you're talking as a scientist.

Happy reading. "(snip)

Eric Stoner
02-15-2012, 07:22 AM
and energy prices are much more very volatile. As I mentioned before, the cost of natural gas has fallen significantly.



No, the economy is doing way, way better than it was before, in early 2009.

Most people do not run their cars and trucks on natural gas. Twer it only true. Likewise, as we have repeatedly pointed out, a LOT of people have oil heat. Particularly in the colder parts of the country. Food prices have gone up 28% over the past year.

As for how the economy is doing : Compared to what ? While technically not in recession , it is the weakest recovery we have ever seen.
Compared to the Reagan and Clinton Recoveries it is pathetic. I exclude the Bush the Dumber Recovery because it is fairly clear now that it was illusory and built on a bubble.

Eric Stoner
02-15-2012, 07:37 AM
I never said interest rates are the only factor in the home ownership rate, but they are a major factor. Melonie's chart clearly shows a significant drop in the home ownership rate when the Fed dramatically raised interest rates in the 1980's. Do you think this is just a coincidence?

I'm sorry, but it's not for you and Melonie to decide who can and cannot own a home. Anyone who wants to own a home is free to do so, as long as they have the means to pay for it. What caused the financial crisis wasn't too many people owning a home. It was people owning a home that they could not afford. Not everyone has to buy a brand new "McMansion" to be a home owner.



We had a bubble because lenders came out with alternative types of mortgages to get around higher interest rates, such as ARMs and interest-only mortgages.




Lowering interest rates to help the housing market recover is not an "artificial recovery". We had an artificial boom before the financial crisis, as a result of alternative type loans like the ones I mentioned above, and the deregulation of the mortgage market, which made it possible for people to acquire mortgages they had no way of paying over its entire duration. I think you're confusing the two. There is a very big difference between a fixed-rate mortgage with low interest rates, and an alternative type of mortgage where the initial monthly payments are low, but over the life of the mortgage, increase significantly. Providing a fixed-rate mortgage at low interest to a home-buyer, who also makes a down-payment on the home is far less risky than providing an ARM or interest-only mortgage to a home-buyer who puts no money down. The only difference between a low-interest fixed rate mortgage and a fixed rate mortgage with a higher interest rate is, the monthly payments are lower for the lower interest mortgage. It doesn't make them any more risky, but it does make housing more affordable.

Since the Great Depression, we had approximately 75 years of stability in the housing market, and we had low interest rates during much of that time period. It was only after unconventional, no-money down mortgages became widely available that we ran into trouble.

Right now, with housing prices down about 20% from their peak, and a big housing surplus, raising interest rates would not provide a single benefit to the housing market, and would only make things worse.

They are ? Whatever happened to supply and demand ?

Neither Melonie nor I are trying to determine who gets to own a house. So long as we don't have to subsidize other homeowners. Part of the housing bubble was not just people buying "too much house" but buying a house at all. What do you think No-Doc ; Low Doc, NINJA and LIAR loans were used for ? Just "McMansions" ? A lot of them were used to buy relatively modest homes that the buyers could not afford.

You are trying to have it both ways on housing. If we had an "artifical" boom then we can also have an "artificial" recovery in prices. I want to have a free market in housing without any governmental interference. I want government out of the mortgage business. If lenders want to use ARM's and people are dumb enough to sign up for them instead of fixed rate, so be it. I would prefer a return to sensible underwriting starting with 20% down payments and 20 or 30 year fixed rate mortgages.

Likewise you can't see the forest for the trees. Nobody is advocating drastic increases in interest rates. Housing is only one part of the picture.

Melonie
02-17-2012, 01:19 AM
trying to swing away from the 'trees' ( or, all too often, the 'bark' ) back to an overall view of the 'forest' ... from


(snip)"Where are we?

QE has finally given the economy a bit of a ride, but it appears that it is running its course, otherwise, we would see healthier bank credit expansion, and an increasing MS without Fed money steroids, and that isn't happening yet.

Exports are the other thing to be watched as the EU, China, and the rest of the world slow down. Whatever one thinks of the role of U.S. exports, this is a serious negative factor. Recall that exports are about 10% of our economy and are seen by most analysts as an important driver of our economy.

Based on these data, it is likely that the U.S. will start to see more weakness in the economy during Q2-Q3 2012. The timing is based on the fact that this "recovery" is fragile in the sense that it has been supported more by fiat money stimulus rather than real capital/savings. The data show that as MS declines, the economy, at least as represented by GDP, reacts rather quickly and negatively.

The issue really comes down to whether or not bank credit will take off again. If we consider the present state of deleveraging and liquidation of malinvestments, we are about half-way to the end zone. (This will be the subject of my next article.) Also, while C&I loans are growing, modestly, real estate loans and consumer loans are still weak. The NFIB reports that small business credit demand is still tepid, relatively unchanged for 2011. Small businesses represent about one-half of the U.S. economy. Thus it is unlikely that MS will expand from an orgy of borrowing.

That leaves the Fed with only one effective tool in their proverbial toolbox. That is, of course, QE3.

What other tools do they have? They could pay no interest on excess reserves, or even charge interest on reserves, but I don't think it will force banks to lend because there isn't enough demand to drain reserves. As Michael Pollaro pointed out, it is more likely that banks will run into loan limits because of capital ratio constraints before they tap into excess reserves. As well, while there is some easing of credit terms, it is unlikely that consumers will go on a spending/borrowing binge for the reasons mentioned above. More Operation Twist? Unlikely. Low interest rates aren't the problem, ZIRP has seen to that.

Conclusion

Quantitative easing has only been used once before in U.S. history, and that was during the Great Depression. You might wish to ponder that bit of information. What that is telling us is that we cannot compare what is occurring now to our experience in prior recessions.

With all due respect to Rogoff and Reinhart, this time is different for the U.S., at least in terms of our modern experience. Fed policies employed in previous recessions which were then thought to work, have failed in our current cycle. Those policies were mainly forms of lowering the Fed Funds rate, reducing bank reserve requirements, and discount window operations. We now have ZIRP and that has done nothing to stimulate the economy as the Fed had hoped it would.

This time we have persistent high unemployment, economic stagnation, a "liquidity trap", high civilian and government debt, low savings, flat to declining wages, and substantial asset devaluation. This has been going on since 2008, a full four years. If it all sounds familiar, these same things happened in the 1930s.

This time is far worse than any other modern recession. What we are seeing now is a depression, despite what the NBER would have you believe. If you are still looking for the "Big One" to happen, you are too late. It happened here and it is still happening here and in Europe. They, like us, have tried to paper over most of the effects of the boom-bust business cycle malinvestment, and they have failed and the piper is at their door.

Within that context, let me sum up my thinking:

1. The economic "good news" is largely based on fiat money steroids and will not last without continuous injections of new fiat money into the economy.

2. The last injection of fiat money (QE2) is already wearing out and money supply is most likely declining.

3. A declining money supply will result in further economic weakness (stagnation) and flattening-to-increasing unemployment.

4. This is likely to occur in Q2-Q3 2012.

5. As soon as unemployment goes up again, the Fed will announce QE3.

6. The dollar will continue to be weak.

7. It is likely that price inflation will continue to be "modest" (as the Fed sees it) in light of ongoing real estate related asset devaluation. This depends on the amount of QE. (snip)

eagle2
02-18-2012, 08:41 PM
Most people do not run their cars and trucks on natural gas. Twer it only true. Likewise, as we have repeatedly pointed out, a LOT of people have oil heat. Particularly in the colder parts of the country. Food prices have gone up 28% over the past year.

You don't seem to understand basic economic concepts, like the laws of supply and demand. The supply of food is down, which resulted in higher prices. The demand for oil is up as our economy is growing again instead of contracting. The price per gallon of gas is still lower than it was in 2008 when it went about $4 a gallon. How do you explain this? Interest rates were higher in 2008 and so was the price of gas.

Raising interest rates could bring the price of oil down by wrecking the economy, but I don't think most Americans want to do that.




As for how the economy is doing : Compared to what ? While technically not in recession , it is the weakest recovery we have ever seen.
Compared to the Reagan and Clinton Recoveries it is pathetic. I exclude the Bush the Dumber Recovery because it is fairly clear now that it was illusory and built on a bubble.

Again, you don't seem to have a basic understanding of economics. You don't understand that not all recessions are exactly the same. During the Reagan Administration, the economy began to grow again because the Fed dramatically decreased interest rates, and what caused the recession was the Fed dramatically increased interest rates. That's how the real world works. Raising interest rates slows economic growth, which is what happened in 1980 - 1981, and which caused the recession. Lowering interest rates stimulates economic growth, which is what happened starting around 1983, when the economy began to recover.

For the most recent recession, interest rates were already low, so there wasn't much room to lower them. Bush ran up trillions of dollars of debt and turned a surplus of over $100 billion to a projected deficit of $1 trillion, so that limited our government's ability to stimulate the economy with spending. The government stimulus program wasn't big enough, considering how bad the financial crisis was. China's stimulus, which was far bigger than ours, relative to GDP, had their economic return to pre-crisis growth in a few months.

Melonie
02-19-2012, 06:07 AM
The demand for oil is up as our economy is growing again instead of contracting. The price per gallon of gas is still lower than it was in 2008 when it went about $4 a gallon. How do you explain this?

That's very easy to do .... YOU'RE 'making things up' ................


(snip)NEW YORK (AP) -- Gasoline prices have never been higher this time of the year.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.(snip)


also see

(snip)"Americans used 2.8 percent less motor gasoline last year as an aging population more inclined to take shorter trips, along with more fuel-efficient automobiles, cut into domestic use according to a report issued this morning by the U.S. Department of Energy.

At the same time, domestic production of crude oil increased by 110,000 barrels per day, bringing the U.S. domestic average up to 5.6 million barrels per day. That figure was as low as 4.9 million barrels per day in 2008, but has increased with the surge in drilling in the Bakken Field in North Dakota.

The Energy Department said “motor gasoline consumption, constrained by slowing driving‐age population growth and the improving fuel economy of new vehicles, is forecast to fall slightly in both 2012 and 2013.”

Domestic crude oil production increased by an estimated 110,000 barrels per day to 5.59 million barrels per day in 2011. A 380,000 barrels per day increase in lower‐48 onshore production in 2011 was partly offset by a 40,000 barrel per day decline in Alaska and a 230,000 barrel per day decline in output in the Federal Gulf of Mexico.

Partially as a result of declining domestic consumption, the U.S. became an exporter of refined gasoline for the first time since 1949 in 2011, the Department said. (snip)


So much for your 'cargo cult' supply versus demand theory. Where gasoline is concerned, US demand is dropping, US supply is increasing ( to the point of a surplus requiring exports ), and yet pump prices have recently risen to the near record $4 per gallon levels of 2008. The only consistent explanation for this is FED policy induced US dollar devaluation / loss of purchasing power, in conjunction with a global economic marketplace setting the price for oil / gasoline based on a 'basket' of different currencies.

And the exact same scenario now applies to US food as well ...


http://1.bp.blogspot.com/_otfwl2zc6Qc/S_ASn0kTaXI/AAAAAAAANdE/bng-rlK3OdE/s400/china.jpg


... or put another way, US food producers earn more 'profits' if they are receiving payments in higher valued Chinese Yuan, Japanese Yen, Indian Rupees etc. for exported food, compared to receiving devalued US dollars for domestic food sales. This situation, just like exported gasoline, increases 'domestic' price levels to compensate for the devalued US dollars being used to make domestic purchases. And if higher US dollar denominated prices for domestic food / gasoline decrease domestic demand, there is still no motivation for US producers to reduce prices ... since they are able to simply export more food / gasoline at the 'same' price ( net of currency exchange ).

Cutting to the proverbial 'chase', damn near every aspect of the US economy is now linked at the proverbial 'hip' to the world economy. This in turn makes the purchasing power / exchange rate value of US dollars versus other global currencies a HUGE factor in establishing US dollar denominated prices for anything that can be globally 'traded' ... from commodities to manufactured goods to labor costs. And this also serves to reduce the significance of US supply versus US demand to a proverbial 'sideshow', with GLOBAL economic trends now far outweighing domestic economic trends. Thus the FED's policy regarding the US dollar now has far more impact on US price levels than US domestic supply and demand.

Melonie
02-19-2012, 06:49 AM
During the Reagan Administration, the economy began to grow again because the Fed dramatically decreased interest rates, and what caused the recession was the Fed dramatically increased interest rates. That's how the real world works. Raising interest rates slows economic growth, which is what happened in 1980 - 1981, and which caused the recession. Lowering interest rates stimulates economic growth, which is what happened starting around 1983, when the economy began to recover.

Yet more 'cargo cult' economics ! Within some reasonable window, interest rates are more or less irrelevant to economic growth. What's actually important in the real world is profitability. If a business is highly profitable, the business owners will be willing to pay comparatively high interest rates in pursuit of expansion to earn even higher profits ! Conversely, if a business is marginally profitable, even at low ZIRP era interest rates, they are not going to make financial commitments to borrow and expand.

So what did Reagan actually do to make US businesses more profitable ? Well, for starters, a major tax cut which allowed businesses to 'keep' a significantly greater share of their gross profits, and which allowed US 'middle class' consumers to 'keep' a significantly greater share of their paychecks. Also, a significant reduction in ( new ) gov't regulations which saddle US businesses with high compliance costs thus reduced profitability.


But the 'cargo cult' economists persistently fail to understand ( or acknowledge ) the REAL economic mechanisms at work ... from

(snip)"In a chapter of Nobel prize winning physicist Richard Feynman's book 'Surely You're Joking Mr. Feynman!' he discusses junk science and relates it to a tribal phenomena known as the cargo cult.


http://therealrevo.com/blog/wp-content/uploads/2011/07/11-cargo-cult-new-guinea-650.jpg


In the South Seas there is a cargo cult of people. During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now. So they've arranged to imitate things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas--he's the controller--and they wait for the airplanes to land. They're doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn't work. No airplanes land. So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they're missing something essential, because the planes don't land.

In other words, rather than understanding and initiating the fundamental cause of some effect, the cargo cult imitates the form of the causal process in the hope that it will bring them the actual effect. In this case, the islanders created an imitation airport in the hopes that it would result in actual goods being brought by airplanes. In the same way, Keynesian economists can be thought of as cargo cult economists.

Everywhere we hear the Keynesian doctrine that in order to restore economic prosperity, we must encourage spending. If only people would spend we would be OK. The Fed is lowering interest rates to zero in order to encourage lending. Obama is proposing to spend hundreds of billions of dollars to "restore" economic growth. Naturally, the money for these programs will be created out of thin air by the Federal Reserve when it purchases Treasury securities with fake money.

In a simple barter economy, you would not think to offer nothing for a good that you desire. You would offer something that you own or have created. In reality, nothing changes when you introduce a medium of exchange (money) in order to simplify transactions. In order to actually spend money, you must produce something and offer it as a value for a value. In other words, spending or "demand" is a consequence of production. Your demand is your supply which is in essence Say's Law.

Notice that the cargo cult economists try and imitate the form of a valid economic transaction by advocating the creation and expansion of paper money. When the government prints paper money and offers the paper dollars for goods and services, it appears that someone has produced wealth and is exchanging it for an equal value. After all, in the past, when the paper was backed by real wealth (gold), it was observed that there was a lot of paper money around. So, just as the cargo cults fabricated control towers and runways in the hope that it would bring real goods, the cargo cult economists believe that by creating paper money with fancy ink and stamping a large number on it, wealth will result. But just as the "planes don't land" for the islanders, creating paper money does not create goods."(snip)

Eric Stoner
02-20-2012, 10:14 AM
You don't seem to understand basic economic concepts, like the laws of supply and demand. The supply of food is down, which resulted in higher prices. The demand for oil is up as our economy is growing again instead of contracting. The price per gallon of gas is still lower than it was in 2008 when it went about $4 a gallon. How do you explain this? Interest rates were higher in 2008 and so was the price of gas.

Raising interest rates could bring the price of oil down by wrecking the economy, but I don't think most Americans want to do that.




Again, you don't seem to have a basic understanding of economics. You don't understand that not all recessions are exactly the same. During the Reagan Administration, the economy began to grow again because the Fed dramatically decreased interest rates, and what caused the recession was the Fed dramatically increased interest rates. That's how the real world works. Raising interest rates slows economic growth, which is what happened in 1980 - 1981, and which caused the recession. Lowering interest rates stimulates economic growth, which is what happened starting around 1983, when the economy began to recover.

For the most recent recession, interest rates were already low, so there wasn't much room to lower them. Bush ran up trillions of dollars of debt and turned a surplus of over $100 billion to a projected deficit of $1 trillion, so that limited our government's ability to stimulate the economy with spending. The government stimulus program wasn't big enough, considering how bad the financial crisis was. China's stimulus, which was far bigger than ours, relative to GDP, had their economic return to pre-crisis growth in a few months.

We have beaten this dead horse into dust ! It doesn't matter whether you use stimulus or tax cuts IN THE SHORT TERM. Both methods put more money into the hands of consumers. The difference is the incentives created and LONG TERM RESULTS. If, IF Obama's porkulus package had been focused on INFRASTRUCTURE , as the Chinese did, it might, MIGHT have had greater benefit. That is NOT what happened.

You continually ignore the money supply and just focus on interest rates. Don't feel bad. Most Fed Governors have historically made the same mistake and we've all had to pay the price. Literally. Similarly, you insist on ignoring the role of a weak dollar and its effect on commodity prices. They did cover other things in your Economics class besides just "Supply and Demand , Supply and Demand ", didn't they ? Melonie has explained this for you over and over again. What part don't you get ?

For the last time : I am not arguing against low interest rates. Not now . I AM arguing against rates that are TOO LOW which current rates certainly are. Like many misguided government policies they distort the economy by for instance destroying and discouraging savings. If we look at most of the world's more successful economies compared to ours, one big difference is their savings rate. Rather than just buy, buy , buy on credit, credit and more credit they save for at least a down payment if not the entire unit cost. And those same policies always come with a big hangover that has to be endured. This is the "pants down" moment for Krugie and the rest of the Keynsians, when their tongues get tied and they can't say anything except for the silliest pap : "For how long do we keep the government tap running ? When do we start paying back what we've borrowed ? How exactly do we do that ? " They don't have any answer for the first two and their answer for the third is to just tax the rich more.

Eric Stoner
02-20-2012, 12:40 PM
Oh what the hell. As long as the poor horse is already dead and buried: Exhibit "A" are the brilliant Keynsian prescriptions from John Kenneth Galbraith ( great guy, lousy economist ) and others for New York City in the 1970's. "There is nothing wrong with N.Y.C. that doubling its budget would not cure". We all know how well that worked out.
Exhibit "B" is the Keynsian icon , Paul Krugman ( a creep and a lousy economist ) who never ceases to outdo himself for factual delinquency and intellectual dishonesty. In his Times column of today he really set the bar at a new low. In arguing against the austerity policies of several European countries and the ECB ( since modified but Krugie never lets a few facts get in his way ) Krugie rewrites history. Standard practice for the little rascal. He claims that Hoover cut spending in response to the Great Depression. Only he didn't. For 1929 - the Federal Budget was $3.8 billion ; 1930 -$3.95 ; 1931 - $4.1 ; 1932- 4.2 and 1933 - $5.1. For FDR's first budget year (1934) spending was $5.9 followed by $7.5 in 1935 , then $9.1 in 1936. It fell to $8.8 in 1937 leading partly to the Great FDR Recession of 1938 when spending dropped to $8.4 before rising to $9.2 in 1939.
And of course, what salient, no glaring, historical fact does Krugie leave out ? The enormous tax increases by BOTH Hoover and FDR.

We have seen this movie before. As bad as the current recession may be , it is NOT the Great Depression. Short of spending, taxing and borrowing on a scale commensurate with what we did during W.W. II ( which would almost surely cause Krugie to have uncontrolled ejaculations for a month ) how has current policy differed all that much from what Hoover did ? 1. We spent more. 2. We supported the banks rather than let them fail. 3. We didn't raise taxes as much as Hoover did ?

Btw, the reason I spend so much time on Krugie is that he is the guru of much of current Obama policy. It is well known that the White House craves his approval and are upset when they don't get it.

eagle2
02-20-2012, 07:30 PM
That's very easy to do .... YOU'RE 'making things up' ................


(snip)NEW YORK (AP) -- Gasoline prices have never been higher this time of the year.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.(snip)


also see http://www.desmoinesregister.com/article/20120208/BUSINESS/302080071/U-S-gasoline-consumption-falls

(snip)"Americans used 2.8 percent less motor gasoline last year as an aging population more inclined to take shorter trips, along with more fuel-efficient automobiles, cut into domestic use according to a report issued this morning by the U.S. Department of Energy.

At the same time, domestic production of crude oil increased by 110,000 barrels per day, bringing the U.S. domestic average up to 5.6 million barrels per day. That figure was as low as 4.9 million barrels per day in 2008, but has increased with the surge in drilling in the Bakken Field in North Dakota.

The Energy Department said “motor gasoline consumption, constrained by slowing driving‐age population growth and the improving fuel economy of new vehicles, is forecast to fall slightly in both 2012 and 2013.”

Domestic crude oil production increased by an estimated 110,000 barrels per day to 5.59 million barrels per day in 2011. A 380,000 barrels per day increase in lower‐48 onshore production in 2011 was partly offset by a 40,000 barrel per day decline in Alaska and a 230,000 barrel per day decline in output in the Federal Gulf of Mexico.

Partially as a result of declining domestic consumption, the U.S. became an exporter of refined gasoline for the first time since 1949 in 2011, the Department said. (snip)


So much for your 'cargo cult' supply versus demand theory. Where gasoline is concerned, US demand is dropping, US supply is increasing ( to the point of a surplus requiring exports ), and yet pump prices have recently risen to the near record $4 per gallon levels of 2008. The only consistent explanation for this is FED policy induced US dollar devaluation / loss of purchasing power, in conjunction with a global economic marketplace setting the price for oil / gasoline based on a 'basket' of different currencies.

And the exact same scenario now applies to US food as well ...



There is one world-wide market for oil, not just a US market, and for the world-wide market, consumption is increasing faster than production.

http://www.economist.com/blogs/dailychart/2011/06/oil-production-and-consumption




http://1.bp.blogspot.com/_otfwl2zc6Qc/S_ASn0kTaXI/AAAAAAAANdE/bng-rlK3OdE/s400/china.jpg


... or put another way, US food producers earn more 'profits' if they are receiving payments in higher valued Chinese Yuan, Japanese Yen, Indian Rupees etc. for exported food, compared to receiving devalued US dollars for domestic food sales. This situation, just like exported gasoline, increases 'domestic' price levels to compensate for the devalued US dollars being used to make domestic purchases. And if higher US dollar denominated prices for domestic food / gasoline decrease domestic demand, there is still no motivation for US producers to reduce prices ... since they are able to simply export more food / gasoline at the 'same' price ( net of currency exchange ).

Cutting to the proverbial 'chase', damn near every aspect of the US economy is now linked at the proverbial 'hip' to the world economy. This in turn makes the purchasing power / exchange rate value of US dollars versus other global currencies a HUGE factor in establishing US dollar denominated prices for anything that can be globally 'traded' ... from commodities to manufactured goods to labor costs. And this also serves to reduce the significance of US supply versus US demand to a proverbial 'sideshow', with GLOBAL economic trends now far outweighing domestic economic trends. Thus the FED's policy regarding the US dollar now has far more impact on US price levels than US domestic supply and demand.

China is buying more food from the US because China has become significantly wealthier over the past 10 years, and can afford to buy a lot more food from the US.

eagle2
02-20-2012, 07:37 PM
Yet more 'cargo cult' economics ! Within some reasonable window, interest rates are more or less irrelevant to economic growth. What's actually important in the real world is profitability. If a business is highly profitable, the business owners will be willing to pay comparatively high interest rates in pursuit of expansion to earn even higher profits ! Conversely, if a business is marginally profitable, even at low ZIRP era interest rates, they are not going to make financial commitments to borrow and expand.

So what did Reagan actually do to make US businesses more profitable ? Well, for starters, a major tax cut which allowed businesses to 'keep' a significantly greater share of their gross profits, and which allowed US 'middle class' consumers to 'keep' a significantly greater share of their paychecks. Also, a significant reduction in ( new ) gov't regulations which saddle US businesses with high compliance costs thus reduced profitability.



Reagan cut taxes in 1982, yet the economy contracted, and unemployment dramatically increased. It was only after interest rates were lowered that the economy began to grow again, and unemployment fell. Once again, the facts contradict your ideology.

eagle2
02-20-2012, 11:35 PM
We have beaten this dead horse into dust ! It doesn't matter whether you use stimulus or tax cuts IN THE SHORT TERM. Both methods put more money into the hands of consumers. The difference is the incentives created and LONG TERM RESULTS. If, IF Obama's porkulus package had been focused on INFRASTRUCTURE , as the Chinese did, it might, MIGHT have had greater benefit. That is NOT what happened.

You continually ignore the money supply and just focus on interest rates. Don't feel bad. Most Fed Governors have historically made the same mistake and we've all had to pay the price. Literally. Similarly, you insist on ignoring the role of a weak dollar and its effect on commodity prices. They did cover other things in your Economics class besides just "Supply and Demand , Supply and Demand ", didn't they ? Melonie has explained this for you over and over again. What part don't you get ?

You and Melonie are both wrong. Neither of you even understand how "Supply and Demand" works, which is why I keep repeating it. You both seem to think that if you raise interest rates, the price of commodities magically drops. The real world doesn't work this way.



For the last time : I am not arguing against low interest rates. Not now . I AM arguing against rates that are TOO LOW which current rates certainly are. Like many misguided government policies they distort the economy by for instance destroying and discouraging savings. If we look at most of the world's more successful economies compared to ours, one big difference is their savings rate. Rather than just buy, buy , buy on credit, credit and more credit they save for at least a down payment if not the entire unit cost. And those same policies always come with a big hangover that has to be endured. This is the "pants down" moment for Krugie and the rest of the Keynsians, when their tongues get tied and they can't say anything except for the silliest pap : "For how long do we keep the government tap running ? When do we start paying back what we've borrowed ? How exactly do we do that ? " They don't have any answer for the first two and their answer for the third is to just tax the rich more.

We start paying back what we borrowed when the economy fully recovers. You and Melonie do not have a basic understanding of economics. If you did, you would understand why raising interest rates would hurt the economy.

Melonie
02-21-2012, 03:42 AM
you're a 'paradigm shift' behind ...

http://gainspainscapital.com/wp-content/uploads/2012/02/commodities1.jpg

... note recent massive spike in commodity prices at the same time that recent FED policy has reduced interest rates to near zero. On the basis of 'cargo cult' economics, the decline in demand for commodities as the result of the 2008-9-10 recession should have caused commodity prices to 'crater' in the same manner as they did in the 1930's. Obviously this did not happen. Something has fundamentally changed since the 2001-2 post 9/11 recession ( the last time that commodity prices 'cratered' ) to cause recent commodity prices to 'levitate' despite a major reduction in US demand and despite US interest rates being at record low levels. Are you ready to admit what that change is ?

Hint hint you can see a 'glimpse' of this change first occurring in the late 1970's, although it was quickly reversed in the early 80's.

Eric Stoner
02-21-2012, 07:45 AM
You and Melonie are both wrong. Neither of you even understand how "Supply and Demand" works, which is why I keep repeating it. You both seem to think that if you raise interest rates, the price of commodities magically drops. The real world doesn't work this way.



We start paying back what we borrowed when the economy fully recovers. You and Melonie do not have a basic understanding of economics. If you did, you would understand why raising interest rates would hurt the economy.

The only problem is, we never do. We borrow and spend but when the time comes to pay it down, Congress always chickens out. Along the same lines, one person's economic recovery is never robust enough to satisfy someone else who didn't get enough put on their plate.

You confuse "understanding" Keynes with agreement. I understand John Maynard Keynes all to well and have never agreed with his policies. Just like the Bible was written by desert dwelling primitives with a genuine fear of women and a total lack of scientific knowledge, Keynes worked and wrote in a world where money was backed by gold. And as I have repeatedly proved, his policies did not , never have and will NOT work.

Supply and demand does not operate in a vaccuum. The U.S. is now an oil and gas EXPORTER. Did you know that ? We have plenty of oil and gas and demand is stable. The political worry over Iran is cancelled out by Saudi assurances that they will pump enough oil to make up any disrupted supply. Libyan oil is coming back on line. The Russians are pumping and exporting like crazy. Something else is at work besides just supply and demand. For some reason you just have a mental block when it comes to how foreign exchange works and how our weak dollar affects commodity prices.

Eric Stoner
02-21-2012, 07:51 AM
Reagan cut taxes in 1982, yet the economy contracted, and unemployment dramatically increased. It was only after interest rates were lowered that the economy began to grow again, and unemployment fell. Once again, the facts contradict your ideology.

OK. OK . I give up. We'll just have to let you use your own self written history book.

Yes , Reagan cut taxes STARTING in 1982 but remember the the cuts were PHASED in and did not take full effect until 1983.
Volcker started raising rates in 1979 but the recession did not hit until 1981 AFTER Reagan had been elected.
Neither policy was like making instant coffee. No economic policy ever is. Both took time to work their way through the system and take effect.
Btw, you're not one of those people who thinks that umbrella usage causes it to rain, are you ? Just curious.