Wednesday, Sep 19, 2007
In The US the FED has announced it is on RECESSION watch!
New York Times: Will the Fed Reverse the Housing Slump?
The Federal Reserve sent the stock market soaring yesterday. So can it stop the decline in home prices, too. Don’t count on it. Guys take emotion out of this. The storm has only just begun. I am not an expert and value opinion but I feel this is may just be a cat and mouse game to the bottom.
Posted by waitingfor hpc @ 08:35 AM (744 views) Add Comment
10 Comments
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1. The Learned President Mugabe. . . said...
I think that this is a good move. A little bit of inflation never did anybody any harm...
2. dohousescrashinthewoods said...
I notice that, despite the FTSE jumping up 2%, my spread bets on B&B, Northern Rock and Paragon are barely in the red. Somehow their prices didn't get much of a fillip from this news.
3. The Capitalist said...
Ben Ben Ben!
You lost it, dude...dollar collapse, Fed underwrites wreckless investment firms and allows the consumer to borrow more. What sort of monetary policy is this? I thought you wre a disciple of Milton Friedman?
The bust will be bigger now that you have delayed the inevitable!
4. alan said...
The reduction in CPI and the lowering of IRs in the US gives the BoE a good excuse to lower IRs in the UK next time round. I do not think this will cause any sudden rise in HPI because the rate reduction will only cancel out the small increases made by Abbey and others recently and the general increase in mortgage rates caused by the application of tightened LTV terms.
The credit crunch and the NR bailout will ensure mortgage applications are checked scrupulously for the next 6 weeks or so, simply because the lenders don't want to lend, they want to hoard cash. I suggest a low volume of sales as lenders and buyers "wait and see".
Some BTLers are unloading now, so I therefore expect current house price negotiations to result in prices drifting lower about 1 or 2% each month when they feed through in November/December.
Longer term is very difficult to forecast as the next wave of sub prime "step ups" happens around November, and many in the US will not be able to afford the big percentage increases in the steps (teaser loans by another name). This will cause another wave of loan defaults, fund failures and further credit illiquidity which can't be predicted.
Yes, perhaps a cat and mouse game...
5. fahrenheit451 said...
Humph, basically.
Perhaps this is a the dip in rates before they continue up again.
The FED has been holding its breath for too long, expecting it to rise up to 6%, and any business should do future models on 7% at least to ensure an adequate profit margin. Then will the BoE follow suit (and which lenders follow the BoE?) ?
Not sure, any ideas ?
6. tyrellcorporation said...
How many times can the FED play the re-inflate game though? Every time this happens the Dollar weakens and with it the pre-eminence of the USA in general terms. Debt is eating away at the US and Western economies like a cancer. It's not a sustainable policy - the baby bommers are just keeping their Golden Era going at the expense of the current and next generations. It's just a shame the youth of today don't switch off their iPods for a second and look up to see what's happening. Their futures are being raided to pay for someone's retirement today.
I find it funny that politicians bang on about wanting to engage young people in politics and reverse the decline in voting amongst that age group. I actually thing they rather appreciate the lack of awareness as it gives them carte blanche to do whatever they like as long as they appease the 50-60 year olds.
7. mrmickey said...
The fact is the relationship between the government and the electorate is that of a parent and it's spoilt child. The electorate expect mummy to rub it better and make the pain go away every time, hence all the bail outs and interest rate dropping going on. The correct thing to do to save the economy is to raise rates but this will cause pain to the electorate and no politician would ever allow that. I think were now seeing the inherent weaknesses of democracy coming through.
8. Housecrashwallop said...
mrmickey - not true, the MPC is made up of non political independent voters specifically selected by Gordon Brown who has a word in their shell-like every month about what he expects to happen with IR's.....ah I see what you mean.
The rate cut in the US will see the feel good return, investors will dive back into property, there will be more liquidity, however..... The extra dosh will be a relief to people who live on the edge of their means and by their very nature they will use up that slack "Hey I got an extra $200, I'm gunna go get me a new DVD player! a huh a huh a huh, and hey am gunna put more on mah credit card mah!". Then what ? Crash again, it is inevitable Neo...then they will lower the rate again. This is what Greenspan meant when he said you cannot project this current economic scenario, it is self perpetuating, the extra cash at the top feeds the bottom and the whole vile machine moves closer to the cliff edge, problem is the extra cash is getting tighter every time.
I had my automatic email from Rightmove today , there is a glut of property come on the market where I live just over the weekend. Fabulous.
With regard to young people I am very surprised we have not seen a march on parliament yet about affordable housing. Do we still have the SU? Or are they too busy watching X factor, reading HEAT magazine etc?
9. Davidr said...
I find some of the ageist comments curious! Older people have been s**t upon for all of my life, especially compared to other comparable european countries. Even now the true unemployment rate in over 50s is massive. Pension funds have in effect been robbed to rid companies of more expensive and less manipulable staff. Similarly, the sudden switch to Global low interest rates which brought about house price inflation effectively halved the value of pension savings , given that pension schemes were required to use funds to purchase annuities on retirement. You had a situation where people with say a house and a roughly similar value in pension savings doubled one and halved the other. This made them feel a lot richer when the truth is they are one hell of a lot poorer. This seems to have escaped most peoples attention, possibly because house prices are more easy to understand tha pensions calculations. There are lots of poor pensioners who have no means of changing their situation. If inflation takes hold vast swathes of older people will be robbed of the little they do have. Of course civil servants and politicians have exempted themselves from this risk.
Surely, If Mr Mervyn King has been overruled by the Government then he should resign. The same goes for Bernanke. After all, if their decisions to increase and maintain IRs was right and they are giving in to political pressure, they won't be able to make any future decisions that will engender confidence. If they were wrong then it was they who have caused the recent mayhem, then they should also resign. Politicians and those who lick their boots really are a despicable bunch.
10. fahrenheit451 said...
Reminds me of the nursery Rhyme:
"Seesaw Marjorie Daw, Johnny shall have a new master, He shall earn but a penny a day, Because he can't work any faster".
http://www.rhymes.org.uk/seesaw_marjory_daw.htm
Perhaps government spending should also be cut, thoretically by reducing wastage (both inflated wages and wasted goods).
However I'm now also reminded of the old addage, from the carpenters shop ...
"Measure twice, cut once"
But if I go down this line too far, it will not be very "Politically Correct" and this government has backed itself into a corner on that issue, time to ring the changes.