Tuesday, August 24, 2010

How Long Can We Afford to Pretend We Can Fix This?

Out of time so just a few thoughts.

How Long Can We Afford to Pretend We Can Fix This?
I would think the final nail in the coffin of the hopes and dreams for a housing recovery was on full display today when the existing home sale numbers came out. Chart via Calculated Risk shows the effects of both all time low borrowing rates and several selling tricks used by stupid programs to draw demand way forward:

Game over.

Already there are mumblings of another tax credit or other iteration of free giveaways but it is clear these tricks only sucker in the last few dummies willing to play this game.

I have written endless words discussing the huge issue going forward; with rates at all time lows any move up will eat away a large part of any home price appreciation. Can rates stay right here for 5 years? 10 years? I can only think the FED both thinks so and will make it so.

At this point I would think most accept that there is limited demand right now because people in aggregate are hopelessly overextended as is. Call it the "New Normal", a "return to normal", or "rational thinking" but the excess blow off top spending of the past is gone for some time. Policy makers would do much better to stop trying to return to the old ways and concentrate on how best to steward this economy into new directions to better serve the US economic interests in the future.

Boom Boom Bernanke has a speech set for Friday and I expect he is going to change his course even more so than he has and get pretty clear on what new stupid pet tricks the FED have in store for September. I wonder how long we can afford to pretend they are capable of doing anything? Sure, there will be a short term blip across many sectors (mostly stocks) but the half life of these things is decreasing all the time.

More flailing away while drowning is expected from the FED already (Sizeable Additional QE By The Fed), and Bill Gross me out just will not STFU about a nationalized mortgage giant paid for by the people. Hey Mr. Smartest man in the debt Universe, quick question: If you in all your infinite wisdom will not give mortgages because they are a suckers play, why should I as a taxpayer be made to? The standard "you will face misery" answer will not suffice, get creative would you?

Add to all this that just like Jason Voorhees the Euro zone debt crisis refuses to die even after being buried as Ireland debt ratings get cut again.

I think at this point in time it would be best if the more well known writers/bloggers/advisers that have any influence or access to the FED/Treasury (you can figure out who that is) could get those up front to address like adults the real structural issues facing the economy and just how far they are willing to go to support a failed system. We should have fair warning and time to prepare ourselves.

Have a good night.

6 comments:

Jeff said...

"Boom Boom Bernanke"

I love it!

I thought Gross's "who me" letter was funny.

At least the guy doesn't try and hide the fact that he is talking his book.

I can only imagine the pressure of trying to run $1 trillion of capital.

I am sure he would love to pull a Druckenmiller and bail.

I think all of these guys are starting to feel the heat now that the gig is up.

You sound as frustrated as I do with the Fed. I might go out for some cocktails tonight! It's such a shame to watch this country get pillaged like this.

getyourselfconnected said...

jeff,
yeah, but its a cumulative frustration. I had some hope that the data would show that the FED cannot make people borrow if they dont want to and the FED cannot make banks lend if they dont want to. WTF are lower rates by buying longer dated treasuries going to do? What's another .5% really? A drop from 10% to 5% is huge, a drop from 3.5% to 3% aint crapola. Does not seem hard to figure out.

scharfy said...

I doubt we will get the explicit re-fi of the entirety of America, but Bernanke in his 2002 speech, "Deflation, Making Sure it doesnt happen here" gives us a direct look at the next (or current) play in the playbook...

"So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities."

The Fed will not quit. 30 year jumbo at 1.75% anyone? Get your popcorn this movie's just getting good.


Deflation, Making sure it doesn't happen here

crisis garden said...

Great graph. That was one hell of a housing recovery in 09.

Oh well, it was fun while it lasted.

crisis garden said...

>Policy makers would do much better to stop trying to return to the old ways and concentrate on how best to steward this economy into new directions...

To do this Mr. O would first have to explain some unpleasant realities to the folks. Realities they simply won't accept.

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