Saturday, Apr 28, 2007
Fed has lost control of monetary policy and prefers inflation to recession.
Asian Times: Eye On America: Inflation less painful than recession
I'm heartly fed-up with the bias in the UK press. The Asian Times appears good and this article caught my eye. By examining yield curves on long or short US bonds, the article suggests good and bad news for the US economy. The good news is that the housing market will continue to be supported by Chinese and private investor purchases of Treasury and other fixed-income securities. The housing bubble warrants a correction in land values but, as long as long bond rates stay low, the correction will be mild. Prices on existing homes won't fall a great deal. Oh dear - that's bad news for HPC then. But read the article and see what bad news for the US economy could mean for the UK.
Posted by talking rot @ 11:23 AM (183 views) Add Comment
8 Comments
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1. Whiteknight said...
They are wrong as usual.
Its amazing how consistently wrong some people can be.
Its also amazing that these people are the most arrogant and sure in their own abilities.
Recession is painful but ultimately leads to people having to adjust their behaviours and do efficient things with both their time and their capital. The equivalent of boot camp for people who have become a little comfortable.
Inflation will continue at an ever increasing rate (if action is not taken) even if it is not imported in the real figure and the effect will be to crush peoples wealth leading to civil unrest without insisting on the obvious corrective behaviour. The only boot camp element about it will be the increased fitness levels from being required to carry around currency in wheel barrows.
Again, its amazing how wrong people can be on a consistent basis. They can practically be used as a useful indicator when passed through a NOT logic gate.
Weapons Grade Bozocity (WGB)
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3. Sold 2 Rent 1 said...
"the housing market will continue to be supported by Chinese"
Not true. The Chinese are heading at 100mph into a banking crisis. 1m new investors a week are borrowing to invest in their stock market bubble. See article beow.
Combine the chinese borrowing by individuals with the corporate investments that will turn bad in 2008/9 we have the makings of a huge train wreck.
4. royston said...
I am very concerned that we may go down precisely the same route in this country. There are clearly global imbalances: assets prices and house prices are too high. By comparison, the prices of consumables and wage inflation are too low. The imbalances can be fixed with a correction in either, i.e. a house price crash, OR price inflation in consumables and wages. Indeed, from a politician's point of view, a partial correction in each is probably the least destructive path. Brown's appointees to the MPC are all left leaning socialist economists, so it will be the "let the workers have their share" perspective from them. They won't particularly want to clamp down on wage inflation if they can avoid doing so. Similarly, conspiracy theories aside, their sympathies are probably with the young family struggling to pay the mortgage. So, they won't be too keen to up the interest rates on them either. The most attractive path for such sympathies would seem to be: 1) dampen housing demand, then 2) gently inflate (we don't want hyperinflation) to bring price levels back into line. I am now seriously questioning whether having my wealth mostly in cash is really a good idea after all.
5. sold 2 rent 1 said...
"the housing market will continue to be supported by Chinese"
Not true going forward. The Chinese are heading at 100mph into a banking crisis. 1m new investors a week are borrowing to invest in their stock market bubble. See article below.
Combine the chinese borrowing by individuals with the corporate investments that will turn bad in 2008/9 and we have the makings of a huge train wreck.
China depends heavily of the US and europe to buy its goods. If these 2 areas slow dramatically then it will be hung out to dry.
China and the US depend heavily on each other. This relationship has worked until now but will it continue as both counties see harder times?
6. Smokehammer said...
asian times saying.... drop the $
Dont get into debt just now. Either way it could be very painful for a long time.
7. harold said...
"...and prefers inflation to recession."
Were it a simple choice between the two, then it is unlikely that any country would ever experience a recession. The US consumer has no more capacity to take on debt, no matter how much the Fed inflates the $ to erode the real value of that debt. When a consumer led economy stops consuming it goes into recession, this is now happening to the US and people are soon to feel the effects on the dole queues.
8. harold said...
S2R1, I guess you've read this:
http://www.financialsense.com/fsu/editorials/2007/0427b.html