Here's another nugget from Thoma's post... supposedly from Greenspan:
If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.
I'm in the mood for a fairy tale...
I'd like somebody to expalin how AG's actions rectify those imbalances without some of the 'more wrenching changes' part... outputs, incomes and employment.
I get where he wants to go - the neutral rate, the sweet spot where growth balances contraction and where he feels the FED has control again... But the path he is on (continuing increases) leads through the swamp to get there... And if he doesn't go there, the debt bubble continues to grow & grow... especially considering the lousy fiscal record of congress & the administration.
Anyone see how we get there without getting or feet wet?
Maybe the carry trade continues, playing the spread this time on european and japanese short end and MBS/treasurys on the long end.
If the oil prices remain at current levels and the fed continues it rate hikes and as a result risk premiums on securities particularly MBS rise, then CR will be right on the money with his housing forecast.
Add Andy Xie's forecast for China and Asia in general tapering down its growth rate. Potentially leading to a synchronized global slowdown. We could then be entering unchartered territory in my mind with all the macro imbalances.
df, We can hope that America's economic "flexibility" will help with the "imbalances". I'm open to suggestions on how to get there. Keeping rates accommodative forever isn't a solution, but maybe going a little slow might help (as suggested be Dr. Hamilton and pgl).
I still think the FED missed the boat by not tightening credit standards (the "regulatory substitute" approach).
Interest rates are such blunt instruments - and Dr. Duy points out the FED might "strangle the non-consumption sectors of the economy" to keep inflation in check.
I'm all for tightening home lending standards, but would that really work? It might end the housing boom and keep the banking system healthier in the short run. Still negative or near negative short interest rates and the perception that rates will have to stay that low mean that speculators can borrow short and use the proceeds to pump up some other asset. They've got to normalize the interest rates or the game will simply move on to some other asset class.
Here's another nugget from Thoma's post... supposedly from Greenspan:
If we can maintain an adequate degree of flexibility, some of America's economic imbalances, most notably the large current account deficit and the housing boom, can be rectified by adjustments in prices, interest rates, and exchange rates rather than through more-wrenching changes in output, incomes, and employment.
I'm in the mood for a fairy tale...
I'd like somebody to expalin how AG's actions rectify those imbalances without some of the 'more wrenching changes' part... outputs, incomes and employment.
I get where he wants to go - the neutral rate, the sweet spot where growth balances contraction and where he feels the FED has control again... But the path he is on (continuing increases) leads through the swamp to get there... And if he doesn't go there, the debt bubble continues to grow & grow... especially considering the lousy fiscal record of congress & the administration.
Anyone see how we get there without getting or feet wet?
dryfly
Maybe the carry trade continues, playing the spread this time on european and japanese short end and MBS/treasurys on the long end.
If the oil prices remain at current levels and the fed continues it rate hikes and as a result risk premiums on securities particularly MBS rise, then CR will be right on the money with his housing forecast.
Add Andy Xie's forecast for China and Asia in general tapering down its growth rate. Potentially leading to a synchronized global slowdown. We could then be entering unchartered territory in my mind with all the macro imbalances.
df, We can hope that America's economic "flexibility" will help with the "imbalances". I'm open to suggestions on how to get there. Keeping rates accommodative forever isn't a solution, but maybe going a little slow might help (as suggested be Dr. Hamilton and pgl).
I still think the FED missed the boat by not tightening credit standards (the "regulatory substitute" approach).
Interest rates are such blunt instruments - and Dr. Duy points out the FED might "strangle the non-consumption sectors of the economy" to keep inflation in check.
Interesting times!
I'm all for tightening home lending standards, but would that really work? It might end the housing boom and keep the banking system healthier in the short run. Still negative or near negative short interest rates and the perception that rates will have to stay that low mean that speculators can borrow short and use the proceeds to pump up some other asset. They've got to normalize the interest rates or the game will simply move on to some other asset class.
There is also the question of who to regulate.
If funds are available from outside the normal banking channels, then just how does ton control the flow of funds.
Say a mortgage broker with a corp to protect him sales questionable mortages that meet minmimum legal standards to non bank entites.