It looks like the dollar is losing value

[antagon]

Yeah but at the same time US is growing government and raising taxes and regulations so employment costs become bigger. Quiet mad policy.

Sure you can pay debt this way, but at some point the debtor is going to notice what is happening and not buy US debt/ get rid of it, since reducing government spending and raising taxes is not really an option, the treasurie is going to have to print the money to buy the debt. Which will result in inflation that could well be a bit over the feds mandates.

I don't really see how this rescues the housing markets (unless the FED specifically buys housing debt - but even then there is still excess supply). Sure the inflation will make houses cost more, but in relative to everything else they will still fall in real terms.

Maybe I am missing something. I am trying to get into economics university next year so I am hanging around here to learn stuff...

A) the fed is already monetizing the debt, see Quantitative Easing.

B) it is beyond the Fed's mandate, but they do what they gotta do to keep their gig. I am sure they aren't happy about it.

C)It rescues the housing market if the dollar loses a lot of value because prices will rebound, being priced in dollars. It's just like the effect of the dollar losing value and driving up stocks and commodities usually within a day.

D) "Yeah but at the same time US is growing government and raising taxes and regulations so employment costs become bigger. Quiet mad policy." This must end. It can't be sustained. Nobody in DC reads the memos. They are all crooks.

"I don't know as I want a lawyer to tell me what I cannot do. I hire him to tell me how to do what I want to do." ~J.P. Morgan

If you replaced the word lawyer in that statement with "economist" it could have been the utterance of any congressmen from either party.

Yeah, but the QE still won't help the housing market, prices are dictated by supply and demand. And the QE will make every american that much poorer (in real terms), so the real price of houses will go even lower, as the poorer you are, the less you are going to pay for house and the more you are going to pay for commodities (demand decreases). Sure in nominal terms housing will go up, but it will go up much less than commodities, gold etc. It will be still a poor investment, just better than the dollar. Meanwhile government is still subsidizing construction, which increases the supply of houses.

The spending pinch that inflation causes is not going to go towards housing, but something else. The inflation if high enough could cause a gold and commodities price to go very high, even in real terms. Right now it may be going to US government which causes a bubble there, once it pops, fed doesn't have much choice but to cause a huge inflation to pay all the debt, possibly even hyperish inflation.

Anyway my point is, FED can't legislate less houses or more demand for them (unless they buy the houses). Sure last time they inflated in early 2000s it went mostly towards housing, but now everyone knows house is poor investment, real price of housing is just as screwed with or without the fed IMO.

By the way, where does this term QE come from? I mean it's just the same as monetizing debt, or "lowering interest rates" or creating money. I am just interested is there some specific reason why there is a new name for it? Or is QE somehow different?

this assumes that supply, demand and inflation will roll at the same velocity. if they did, what you've theorized might play out just that way. without discounting your argument that monetization is cancelled by inflation, there is still an opportunity for it to make an economy healthful. because real demand will create the inflation and inspire the supply, it isn't accurate to presume that the latter factors will coincide with demand during what is likely the application of a stimulus policy. that is to say that you ease, you wait and see if demand might rise.

personally i dont think easing effectively penetrates the economy down to the streets. banks retain the option to spend that cash otherwise, and broke people who feel they should own their homes is out of fashion for the next few years.

 

[Norman]

this assumes that supply, demand and inflation will roll at the same velocity. if they did, what you've theorized might play out just that way. without discounting your argument that monetization is cancelled by inflation, there is still an opportunity for it to make an economy healthful. because real demand will create the inflation and inspire the supply, it isn't accurate to presume that the latter factors will coincide with demand during what is likely the application of a stimulus policy. that is to say that you ease, you wait and see if demand might rise.

personally i dont think easing effectively penetrates the economy down to the streets. banks retain the option to spend that cash otherwise, and broke people who feel they should own their homes is out of fashion for the next few years.

Yeah that's true too. But it seems to me like right now the created money is not going towards housing market as much as other markets. So if demand appears in other markets first, that means even worse downfall for housing. If something supply of houses doesn't need to be driven up - there are too many already (I remember reading that there is 5 months supply). Why try to create more malinvestments.

And isn't creating demand where there should be none what got the whole series of bubbles mess started. I don't see how more of the same is going to solve the problems, but perhaps I am wrong. We can only speculate where the inflation appears, but it probably just creates a bubble, basically subsidizing a market at the expense of others.

 

[loosecannon]

"personally i dont think easing effectively penetrates the economy down to the streets. banks retain the option to spend that cash otherwise"

Amen. File that tid-bit along with your comments about reinventing capitalist architecture.

Norman, I don't think you understand the relationship Americans have with home ownership. Real Estate is considered the most sound and reliable of all investments in the US, esp your own castle. Where you hide with your own guns.

Once the market bottoms RE will recover, albeit at a new norm, inflation will hasten that recovery.

QE is nothing more than a stupid way to generate inflation.

Ben Bernanke is completely steeped in the illusion that counteracting recessions/depressions is a matter of rescuing finance and providing liquidity because he spent his career gleaning that moral from the Great Depression. He literally wrote the book on that school of thought.

And he was at least half wrong. We now can be nearly certain that the cause of the GD was somewhat misdiagnosed.

Hopefully in the future economists will focus a lot more on generating demand and not try to rely on interest rate targets and massive capital injections into the finance sector to remedy deflation.

It doesn't work, it hasn't worked, it is time to try new ideas.

But I welcome inflation if and when they can make it occur.

 

[Norman]

"personally i dont think easing effectively penetrates the economy down to the streets. banks retain the option to spend that cash otherwise"

Amen. File that tid-bit along with your comments about reinventing capitalist architecture.

Norman, I don't think you understand the relationship Americans have with home ownership. Real Estate is considered the most sound and reliable of all investments in the US, esp your own castle. Where you hide with your own guns.

Once the market bottoms RE will recover, albeit at a new norm, inflation will hasten that recovery.

QE is nothing more than a stupid way to generate inflation.

Ben Bernanke is completely steeped in the illusion that counteracting recessions/depressions is a matter of rescuing finance and providing liquidity because he spent his career gleaning that moral from the Great Depression. He literally wrote the book on that school of thought.

And he was at least half wrong. We now can be nearly certain that the cause of the GD was somewhat misdiagnosed.

Hopefully in the future economists will focus a lot more on generating demand and not try to rely on interest rate targets and massive capital injections into the finance sector to remedy deflation.

It doesn't work, it hasn't worked, it is time to try new ideas.

But I welcome inflation if and when they can make it occur.

Ok. So you are saying that americans want houses more than other assets. Shouldn't real market prices reflect this? And also I think banks would be a bit troubled to own even more mortgages, since they already own a fair deal.

There is no question RE will recover, but IMO, the only way to get true recovery and sound market is to let the prices fall and get the buying going on again without artificial demand. Only reason they need this artificial demand is that the government caused in the first place. So now, when the bubble has deflated, the housing prices would go even lower than the real demand would have been for them. But the only real cure is to let this happen and not print money, it's far from certain that this won't reflate new bubbles. Obviously the government can make the decline less painful, but that can be only done by pretty much taking debt, or cutting somewhere else. But at least that won't inflate new bubbles, so yeah I agree it's much sounder policy.

Why do you welcome inflation? I mean inflation just misallocates resources and makes everyone poorer. Or do you just mean you own something that benefits from inflation .

 

[loosecannon]

Ok. So you are saying that americans want houses more than other assets. Shouldn't real market prices reflect this? And also I think banks would be a bit troubled to own even more mortgages, since they already own a fair deal.

Mortgages are all "fully" collateralized, so banks love em.

And market prices do reflect our premium value of personal real estate. (See Housing bubble)

There is no question RE will recover, but IMO, the only way to get true recovery and sound market is to let the prices fall and get the buying going on again without artificial demand. Only reason they need this artificial demand is that the government caused in the first place. So now, when the bubble has deflated, the housing prices would go even lower than the real demand would have been for them. But the only real cure is to let this happen and not print money, it's far from certain that this won't reflate new bubbles.

all of that is true except you misunderstand the purpose of QE. It isn't to spur demand for homes but to fend off deflation. A completely different agenda.

Why do you welcome inflation? I mean inflation just misallocates resources and makes everyone poorer. Or do you just mean you own something that benefits from inflation .

I hate inflation as much as the next guy but it is essential to our monetary system to have inflation in order to keep the money supply growing. It is essential to the survival of our economy the way our economy is structured.

And once you get into deep debt inflation is the fairest way and the surest way to make that debt service tolerable. Any and all inflation today is only the realization of inflationary forces deferred from the past into the present.

 

[AquaAthena]

What does this mean to the People of America? What will happen if the U.S. dollar is considered actually worthless?

Currency Exchange Rate Quote - Canadian Dollar to US Dollar(/CADUS) - MSN Money

Gold is now $1300. 00 an ounce. I remember in the year 2000, it was hovering around $700.00 an ounce. I would place money in investments such as art, too.

 

[loosecannon]

"A society of sheep must in time beget a government of wolves...Bertrand de Jouvenel"

that is a keeper! Thanks!

 

[Norman]

Ok. So you are saying that americans want houses more than other assets. Shouldn't real market prices reflect this? And also I think banks would be a bit troubled to own even more mortgages, since they already own a fair deal.

Mortgages are all "fully" collateralized, so banks love em.

And market prices do reflect our premium value of personal real estate. (See Housing bubble)

There is no question RE will recover, but IMO, the only way to get true recovery and sound market is to let the prices fall and get the buying going on again without artificial demand. Only reason they need this artificial demand is that the government caused in the first place. So now, when the bubble has deflated, the housing prices would go even lower than the real demand would have been for them. But the only real cure is to let this happen and not print money, it's far from certain that this won't reflate new bubbles.

all of that is true except you misunderstand the purpose of QE. It isn't to spur demand for homes but to fend off deflation. A completely different agenda.

Why do you welcome inflation? I mean inflation just misallocates resources and makes everyone poorer. Or do you just mean you own something that benefits from inflation .

I hate inflation as much as the next guy but it is essential to our monetary system to have inflation in order to keep the money supply growing. It is essential to the survival of our economy the way our economy is structured.

And once you get into deep debt inflation is the fairest way and the surest way to make that debt service tolerable. Any and all inflation today is only the realization of inflationary forces deferred from the past into the present.

Ok this clears up alot... Though I don't really see how you connect housing bubble to this, as it was artificially "FED up". That's what I mean that they weren't "real" market prices, but manipulated by the money supply. And further manipulation causes such things to happen again.

Why is it essential for monetary system to have inflation? I think it's a bit problematic since it creates these asset bubbles, and drives consumption. Sure otherwise we would see deflation, but is that really a problem?

 

[loosecannon]

yes deflation is a problem. A super serious problem.

The reason why inflation is necessary is because when money is created via lending there isn't enough money in circulation to pay the interest involved in those transactions.

That along with population and trade increase requires an ever increasing money supply to keep the economy going.

If the money supply gets too small and the velocity of money too slow defaults become contageous consumption stalls, hoarding ensues and the economy grinds to a halt.

We have a debt based currency, not a fiat currency. And most of the money in circulation is virtual money, not real money.

It is really a vulnerable system.

 

[loosecannon]

I don't really see how you connect housing bubble to this, as it was artificially "FED up". That's what I mean that they weren't "real" market prices, but manipulated by the money supply. And further manipulation causes such things to happen again.

Market prices were driven by low interest rates and the fed monetizing the secondary mortgage markets. You are correct in that.

But RE has already fallen some 30% from their peak in 06(?). At some point the market will be sound again and inflation only speeds that process along.

 

[Norman]

How does inflation speed it? As I explained I thought it would only hurt the recovery. And AFAIK the government is trying to slow the recovery for there to not be so much pain for the unemployed etc. but I dunno.

And BTW, isn't inflation just as bad as deflation to currency, the only difference is you have to pay your everyday stuff and taxes in currency so you always need some money. But everyone in long term try to get rid of the cash.

 

[loosecannon]

inflation speeds it up because as the value of the dollar falls the price of homes (being priced in dollars) increases. That makes it possible for the bottom of the market to be reached without prices falling as far.

Deflation kills the economy like a car running out of gas.

Inflation is just a depreciation of the dollar to adjust for an increase in the money supply in the past. Inflation is like a kind of tax collected secretly from everybody holding dollars.

Inflation hurts while deflation kills. But if you are in debt you want inflation. And if your economy relies on exports you want inflation.

 

[william the wie]

A really major problem that is generally ignored is that innovation and productivity is deflationary. Central banks starting in the Netherlands and then the UK in the 1600s is designed to spread innovation quickly. As long as the main innovation was spreading food crops mostly from the Americas worldwide deflation was counteracted by rapidly growing populations. However the period of exponential population growth is behind us. Yes world population will hit about 9.6 billion simply through momentum around 2060 according to the UN but large parts of the industrialized world are depopulating so increasingly more products are chasing fewer buyers. Worse yet those buyers generally know and have adapted to Moore's law and analogous forces but our financial system hasn't.

I don't see any hope for off the shelf financial/monetary solutions like the QE used in the wars of Spanish and Austrian succession being much use in the modern era.

 

[antagon]

this assumes that supply, demand and inflation will roll at the same velocity. if they did, what you've theorized might play out just that way. without discounting your argument that monetization is cancelled by inflation, there is still an opportunity for it to make an economy healthful. because real demand will create the inflation and inspire the supply, it isn't accurate to presume that the latter factors will coincide with demand during what is likely the application of a stimulus policy. that is to say that you ease, you wait and see if demand might rise.

personally i dont think easing effectively penetrates the economy down to the streets. banks retain the option to spend that cash otherwise, and broke people who feel they should own their homes is out of fashion for the next few years.

Yeah that's true too. But it seems to me like right now the created money is not going towards housing market as much as other markets. So if demand appears in other markets first, that means even worse downfall for housing. If something supply of houses doesn't need to be driven up - there are too many already (I remember reading that there is 5 months supply). Why try to create more malinvestments.

And isn't creating demand where there should be none what got the whole series of bubbles mess started. I don't see how more of the same is going to solve the problems, but perhaps I am wrong. We can only speculate where the inflation appears, but it probably just creates a bubble, basically subsidizing a market at the expense of others.

easing stretches the envelop of the fed's purview to start with, they cant quite use that same cash as effectively as i think fiscal stimulus might be used. their only option is to hand cash to self-interested bankers. i think that trying to make a great economy out of the dot-com bust was a mistake. this time around i dont think a great economy by way of easy money is the goal. the way i appraise the impact of the financial crisis, i dont think it is affordable or plausible to fully inflate a bubble within reasonable but aggressive measures. this includes a consumer commodities bubble like the hyper-inflation that some are warning about.

i think it will be hard to stop the deflationary bleeding -- quite the opposite. by the time rates rise back up, i strongly doubt that the economy will be in any sort of boom or bubble. the economy might be stable, but it wont be vibrant, and i'd say that is the point of all of this stimulus and easing.

 

[antagon]

What does this mean to the People of America? What will happen if the U.S. dollar is considered actually worthless?

Currency Exchange Rate Quote - Canadian Dollar to US Dollar(/CADUS) - MSN Money

Gold is now $1300. 00 an ounce. I remember in the year 2000, it was hovering around $700.00 an ounce. I would place money in investments such as art, too.

double your money in a decade! I'M IN.

despite its growth, the best thing gold has going for it is the shine. this is not a brilliant return for the risk.

 

[antagon]

inflation speeds it up because as the value of the dollar falls the price of homes (being priced in dollars) increases. That makes it possible for the bottom of the market to be reached without prices falling as far.

does this happen directly with respect to home value? everything priced in dollars will shoot up in price? i thought it would have to rebound by way of consumer demand or import purchasing power.

what i had in mind when questioning the ability for QE to trickle down through the banking system to the housing market was that home lending (which demonstrated that is is the epicenter of home demand last biz cycle) was the dear hope of the fed with respect to handing the bankers over billions of dollars. figures they'll go forex with it commensurate with the easing for a safer return. they certainly dont want to trust a bunch of folks thinking they're entitled to home ownership while the rates are unrealistically low. been there done that.

great solution on paper, though.

then again, if a bunch of foreign investors buy up US RE over a cheap dollar, that will be much welcomed. smells like the 80s.

 

[uscitizen]

How about buy around $500 and 4 years later is $1,300?

 

[loosecannon]

"does this happen directly with respect to home value? everything priced in dollars will shoot up in price? i thought it would have to rebound by way of consumer demand or import purchasing power."

It isn't written in stone that assets priced in dollars will inversely reflect the changing value of the dollar, but it is generally true, and in the case of stocks and commodities it usually happens the same day.

There are two competing theories which may each be more true on different occasions.

The first is that assets have real value, period. Which is why gold, mere gold, can be used to back currencies and why the World bank used to literally appraise the wealth of nations based on the productivity of their land. That was true at least as recently as 1990.

The other school of thought is that demand drives prices influenced by incomes. IOW what can people afford to pay for RE.

In the long run assets do tend to reflect the change in the value of the dollar very closely altho scarcity also drives them up against the dollar.

I once did a study of silver, gold and oil and their relative prices vs the value of the dollar since 1913. Periodic vascilations from the mean were occasionally as high as 20% but over the long run they all maintained about a 5% deviation from a perfect inverse relationship to the dollar.

 

[loosecannon]

A really major problem that is generally ignored is that innovation and productivity is deflationary. Central banks starting in the Netherlands and then the UK in the 1600s is designed to spread innovation quickly. As long as the main innovation was spreading food crops mostly from the Americas worldwide deflation was counteracted by rapidly growing populations. However the period of exponential population growth is behind us. Yes world population will hit about 9.6 billion simply through momentum around 2060 according to the UN but large parts of the industrialized world are depopulating so increasingly more products are chasing fewer buyers. Worse yet those buyers generally know and have adapted to Moore's law and analogous forces but our financial system hasn't.

I don't see any hope for off the shelf financial/monetary solutions like the QE used in the wars of Spanish and Austrian succession being much use in the modern era.

What about directly driving demand?

Personally the only "solutions" I can envision for our economic problems is a completely new architecture. Beginning of course with ending the fed and taking the banks out of the business of inventing our financial architecture to serve them risk free.

It may also be time for a one world currency or a return to a reserve currency backed by gold, silver and land.

 

[antagon]

How about buy around $500 and 4 years later is $1,300?

not impressed for the risk. i did buy a rapper-grade rope chain 5 years ago. just over 4 ounces @ 18kt... gold was around $550 at the time, i recall. i wouldn't have bought it if i couldn't wear it around.

i'm a young man, there's better ways to make a return on my cash than waiting 4 years for a triple up, and i'm not so wealthy that i have money laying around which my businesses or i cant think of what to use it for.