Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
Saturday, February 04, 2006
The Legacy Of Greenspan, And Life After
During the week, a thread for quotes from Alan Greenspan was suggested, so this is the place for that. And a reader asks, "Topic Suggestion: Life after Greenspan."
"Some questions to address:
1) Will Bernanke abolish the PPT?
2) Will he do it gradually (administer methadone rather than induce fatal withdrawal symptoms)?
3) If he tries to reflate through purchase of l-t bonds, will that lead to higher interest rates (read mortgage rates) due to inflation fears?
4) And hence, won't any effort to offset an Asian pullback from $US assets inadvertently crash the housing market?
5) Will Ben B take measures to end the conundrum?"
Another ponders, "How will the lower unemployment rate influence the FED on its rate changing policy in relation to Ben Bernanke?"
"Will it be business as usual and they will continue to raise rates or will ben get in and just start printing money? We all know what affect higher rates will have on the housing market and we know what lower rates will do to the dollar. What becomes more important to Bernanke?"
I had been enjoying the fun of talking about the PPT but based on the comments I've seen lately there appears that some people think this is a real entity. I'll have to take this up at the next trilateral commission meeting if I get get a word in edgewise between JFK and Elvis bickering over who gets to sit in the front seat of the black helicopter.
ReplyDeleteSome of the comments I've read are ridiculous IMO, like the PPT propping up google.
ReplyDeleteYeah, that's what I'm talking about propping up GOOG or TOL or trying to screw the shorts in HBs. Silly. That stuff not only doesn't happen but cannot happen. Orderly markets with circuit breakers and injection authority are not the same as what people here are calling PPT.
Then there's the myth of propping up of housing prices where people think 1995 was the last normal price. 1995 was the last general market cyclic low not the inflation adjusted middle of the price trend. I'm putting on a new roof and painting and adding a granny flat to my primary. Prices of materials are waaaay up. Let's not forget to include replacement costs instead of original construction costs when determining the price of the structure itself.
-Some- of he run up in prices is return to median from their lows. -Some- is general inflation. -Some- is commodities specific, lumber, cement, etc. inflation. -Some- is related to qualitative improvements in the product. And some, I think a lot, is speculative. The speculative part will blow off entirely and there will be undoubtably be overshoot eating away at the inflation aspects and also discounting improvements. That's describing a cycle that returns to the -lows- of say 1995 and IMO probably as much lower as it has excessively run up BUT none of this is subject to manipulation by monetary policy except at the fringes.
Okay, mr.d, et al... here's the curve ball thrown by the author of "Petrodollar Warfare":
ReplyDeleteThe primacy of the USD has been predominantly due to it's solitary ability to purchase oil.
The whole world has had no choice but to acquire and accumulate USD to secure their own present & future energy requirements. Moreover, the higher the price of oil, the more dollars they have to have!
Fascinating, isn't it? Consider the implications...
* The strength of the dollar hasn't been due to the economy, interest rates, or dollar repatriation.
* Greenspan's massive money supply expansion hasn't resulted in hyperinflation because the world has had no alternative to the USD for oil.
Consequently, if oil ever becomes available for purchase in a currency other than USD, the USD will then become subject to 15+ years of pent-up inflation pressures.
Now, there's this little thing called the Iranian Oil Bourse due to open soon which would do just that. Venezuela hopes to follow shortly therafter.
Of course, the last country to open an oil market accepting EU was Iraq, and we attacked immediately thereafter. Any doubt that Iran's nuc program won't be the basis for stopping the Bourse, too?
BTW, interesting side note for doubters...
The U.S. government immediately switched the Iraqi oil market back to USD exclusively, sacrificing huge sums of Iraqi funds in the process. This is the same U.S. government that argued in the Supreme Court against U.S. servicemen collecting damages levied against frozen Iraqi funds, stating that those funds were needed for the rebuilding effort.
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