When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Monday, September 17, 2012

Federal Reserve Re-inflating the U.S. Housing Bubble

What the heck--the U.S. housing bubble led to the biggest recession since the Great Depression, and now the Federal Reserve under Ben Bernanke is trying to re-create the bubble all over again--except this time it is the Federal Reserve buying the mortgages, not Fannie Mae and Freddie Mac or Wall Street:

US cannot continue the endless sugar rush - Telegraph: " . . . If “insanity” is doing the same thing again and again and expecting a different result, then it’s difficult to describe Bernanke’s latest initiative as anything other than insane. By focusing on MBS (mortgage  backed securities) purchases, the Fed is trying to re-inflate America’s real estate bubble, in the hope that rising prices will encourage home-owners to spend more by re-mortgaging and getting even deeper into debt. America has done this before, repeatedly, and it always ends in tears. . . . For all the market euphoria, QE3 will do far more harm than good. By undermining the dollar and fueling future inflation, it will discourage household spending by further debasing wages and pensions. By putting upward pressure on the cost of living, QE3 will eat further into real disposable incomes, forcing American consumers to retrench even more. Oil prices are up almost 30pc since mid-June, even though the global economic outlook has worsened, as speculation has grown about American and European QE. That’s because money-printing encourages shrewd investors to seek out tangible assets – not just gold, but commodities too – and that trend is now spreading into the mainstream. The Fed already has $1,600bn of Treasuries on its balance sheet, compared to a $1,100bn budget deficit. With foreigners, not least foreign governments, now owning more than half of America’s debt stock, Washington is wide open to justifiable charges of debt monetisation. That’s why QE could eventually spark a trade war or, more immediately, a lot more explicit reluctance in Beijing and elsewhere to keep lending the US money. Bernanke wasn’t facing a banking collapse or the prospect of “imminent deflation”. Last Thursday wasn’t a “Lehman moment”. To please his political masters and their friends in high finance, the Fed chairman administered another big dose of QE anyway. So money-printing has evolved from a drastic remedial action to a lifestyle choice, which strikes me as an addiction. . . ."


The Big Picture

Financial Crisis - The Telegraph

JohnTheCrowd.com | The Sailing Website

Craig Newmark - craigconnects