Consequences of Fed policy - serial bubble blowing, the next stage...

http://mises.org/story/3266

The interactive FED positions additional "surprises" shows additions to what was a valid economic equation....

It is as if one ponies very significant additional Xi's to the "already running" equation....

Ok....so becomes another equation....and one has to cease using the older "antiquated" equation....

Not just the FED...but the law making body itself which is largely "politically" driven....not "economics" driven....adds Xi's that do not jive with their verbal objectives....

One has to conclude that as long as the same old system of "illogical politco-economics".....maybe let's call it "hollywood economics" persists ....that outcomes will not rhyme with previously made verbal basura....

This is why I have continually brought up structural change as being necessary....

"Hollywood" economics needs to be eliminated....

If not.....just note that the equation has changed ....and adjust accordingly....

What one already knows is that in the near future two important Xi's will change to the upside....

Monetary velocity and currency supply....
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In other words....one should not be shocked at what is seemingly illogical additions....but just be ready to react accordingly....

Also ....short of revolution...,why would one try to spend one's time in order to create their own changes....when all one has to do ....is to recognize and adapt to the new one....

It is just "another equation"....
 
Quote from blackjack007:

this is totally false. low interest rates didn't cause the real estate bubble. they played a minor role, but the primary cause was loose lending standards and poor oversight.

if you think low interest rates necessarily cause real estate bubbles, look at the 50s and part of the 60s. rates were lower then and there was no real estate bubble. home prices appreciated at a modest rate, nowhere near the 10-20% annual increases we saw in 2003-2006.

had there been tight lending standards in 2003, even with the low rates we would not have had a r/e bubble.
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Artificicially low rates caused by intervention of the central money authority always cause asset bubbles. Always

The real estate bubble was caused by artificially low rates. Coupled with the recent collapse of equity martkets. Investors felt that a "safe" place to allocate capital was in real estate. Coupled with new instruments for off setting risk and the Government GSE's which removed the risk for market participants when making loans.

The reason this didnt occur in the 60's was that there had not just been a collapse in equity and there did not exist other tools such MBS and lending by national institutions and GSEs. Most home loans where issued by and owned by local banks back then.

TO OP

Outstanding post.
 
Just goes to show a very common WS notation....

"Money" always "follows performance"....

In "either direction"....

WS has an upper class.....a middle class....and a lower class....

Upper class.....Their money does not follow performance....
Their money " creates performance".....

Middle class....Their money is "middle of the curve" money....Their money "fuels performance"....

Lower class....Their money follows "what has been posted in public media as "performance"....and thus allow "some" of the middle class to leave with some "middle" money....and the Upper class has largely already left the Middle with the higher price points.....but will make some "clean up" points from the lower class.....

What is particularly clear at the moment....

Are the recent hyperbolic charts of treasury price movement.....

When one takes a gander.....gee......I wonder which side the house is on...."wink, wink".....

Even Jimmy Rogers sees this one.....
 
Why are bonds a bubble? If anything it was credit that was the bubble and the bursting has resulted in a surge in savings.

Make sense to me.
 
The real estate bubble was caused by artificially low rates. Coupled with the recent collapse of equity martkets. Investors felt that a "safe" place to allocate capital was in real estate.
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I agree. People got burnt in the tech bubble, shied away from the market and took a stab at real estate in two ways, up grade and investment props or second homes.

I always wondered what would be the next asset class if this didn;t pan out, ahhh but it seems not to matter, everyone will have nothing left to invest, it'll be a struggle to keep one's head above water, esp re employement security.

If the market offers nothing ( except to maybe hold onto your pittance 410k or company stock for years) and real estate is DOA. I suppose people could start their own business, this too seems to offer nothing.

It seems many malls are re building into faux cities with side by side 10k sq ft store fronts, what can you put in a store that size and profit? Not everyone wants a nail salon or a tanning hut. Retail and service was tough in good times.
 
Quote from JamesVU2000:

Why are bonds a bubble? If anything it was credit that was the bubble and the bursting has resulted in a surge in savings.

Make sense to me.
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Don't know about you, but savings to me means more than a 0.25% return.
 
Quote from JamesVU2000:

Why are bonds a bubble? If anything it was credit that was the bubble and the bursting has resulted in a surge in savings.

Make sense to me.
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Bonds are a bubble in the following ways.

1) Low Yields are inflationary in the long run. This is what bonds are signaling (partly) part of it is manipulation by the Fed and Treas.

Having $1000 bond paying 2.0% over 30 Years. While the government is expanding the money supply. Is a terrible investment. Compare Corporate yields versus government yields. which are artificially low because of Quantative Easing. Lets Face it why is there less Risk with the FED then with all the Companies in the DOW 30. If all the companies on the DOW collapse how is that good for America. See the misallocation of Risk?


Many speculators are now playing the bond trade. Its easy money and with leverage you make a killing piggy backing the FEds move.

The smart money was long bonds in NOV.


3) The eventuall collapse of the Bond, will destroy Savings for many penisioners and pension funds as described nicely by OP Cutten.

In away the collapse of the Bond will be a direct representation of the collapse of the Government, hopefully it will bring about a systemic change and abolition of the FED. If bonds collapse who is the FED gonna blame? Probably all americans.

The smart Money has move a significant chunk of capital offshore.
 
Once again, I'd like someone to explain why the American experience (as far as bond prices) for the next decade will be different from the Japanese experience of the last decade.

Japan kept rates at zero for years, threw in quantitative easing, and had massive public works projects and the corresponding large budget deficits. Bond rates have remained below 2% and sometimes below 1% for the entire time, while an entire generation of smart guys grow old waiting for the JGB bubble to burst.

The only difference (and it could be a major one) I see is the chronic current account surplus of Japan vs. the chronic current account deficit of the US. I suppose this means that Japan finances its gov't debt internally while the US finances its gov't debt from abroad.
 
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