I used to work for a firm that used to make me spout the same sort of jibberish, no matter how stupid I might feel writing or saying those things. What I really thought, and what reality was, hardly mattered. I got so sick of it I quit. But since Moskow's job would be on the line if he said what he really felt, well, forget about it, he is going to tow the party line.
With the revisions to personal income growth, reduced productivity, record high oil prices and rising inflation, the fact that the Fed paused shows you just how scared they are about the housing bubble. If you listen to their words, you'll be totally screwed on this one. They took a rounding error as a sign of cooling inflation, just to get the markets off their back and not scare the crap out of homeowners, but they wont be able to hold off on rate hikes, and housing is basically doomed. These guys cannot cannot cannot tell you how they really feel, so dont be so surprised by the BS they continue to spew out.
But it seems unlikely that prices will actually decline for the nation overall.
It's possible that this prediction will be proven wrong this week (didn't Goldman Sachs say YoY prices have already declined nationally in their analysis?).
I'm not sure how we could get through this fall or winter with the glut we have and not see YoY decline.
Inflation IS a concern with energy at $70-75/barrel of oil, and the potential to go vastly higher, and the effect that a depreciating dollar would have on everything else...
E.G., if the dollar is left to depreciate relative to the Won, that would be HOW big a price spike to everyone who shops at Wal-Mart?
I think there is a bias in the federal reserve that although both recession and inflation are bad, inflation is worse.
Thus when both the risks of inflation and of recession appear, the bias of concern is to inflation.
Also, remember, you can't be a pessimist and hold a job like that in the fed. Well, you can be, but you can't TALK like a pessimist, lest your pessimistic comments become self-fufiling prophecies.
Mr. Moskow indeed has to soothe the markets- if he came out and said 'flee the ship' the markets would tank- not that they won't eventually anyway.
The bust in housing is only now beginning to appear as dark clouds on the horizon, but with each pasing month, those clouds become more ominous. Add to thatthe spectre inflation, which makes a lethal brew for the economy.
So far it looks like Bernanke is presiding over an increasingly polarized Fed. He is, not surprisingly, prone to overlook inflationary risks, just as the hawks are prone to overlook recessionary risks. It wasnt just Moskow banging the hawk war drum today, Atlanta Fed president Guynn was out talking up, even if it is in a retirement speech, the hawk position: I am sure future policymakers will remember the lessons we learned in the past 40 years about what happens when you start down the slippery slope of trading inflation for growth. The last FOMC vote was not unanimous, with Lacker voting for raising rates to contain inflation. Bernanke is clearly a dove, but can he actually generate a dovish consensus? I think this is going to get very interesting.
"But it seems unlikely that prices will actually decline for the nation overall."
wtf? Even if they don't decline, this statement has significantly hurt the credibility of the fed for me.
The economy may be fine, life may go on, but I would never say in a million years that "it seems unlikely that prices actually decline". That's completely ludicrous!
What Moskow is discussing in roundabout terms is the Sacrifice Ratio:
An economic ratio that measures the costs associated with slowing down economic output to change inflationary trends. The ratio is calculated by taking the cost of lost production and dividing it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in inflation.
Sacrifice Ratio=Dollar Cost of Lost Production/Percentage Change in Inflation
If inflation is becoming a problem, central banks will try to cool economic growth in a bid to reduce inflationary pressures. However, this reduction in output costs the economy in the short term, and the sacrifice ratio tries to measure that cost. (excerpted from investopedia.com)
Essentially, a little pain now to save a lot of pain later. Of course that seems to run contrary to American's buy now, pay later mentality.
The economy has slowed due the Fed rate hikes. Consumer spending has slowed as energy prices have acted like a tax hike. I think more rate hikes = recession. The subsequent layoffs would have an extreme impact on the housing market. And on public and private pension systems.
dc1000, I deleted the comments. Unfortunately there doesn't appear to be any log-in option with Haloscan, although I can ban by IP address. I hope it doesn't come to that ...
first of all he is not a voting member and second of all he is a fed long timer who misses the days when the fed would throw the economy in to recession just so they could feel important
sharkbait, Moskow is not a voting member yet, but he will be next year. From that Reuters article: "Moskow ... will be a voting member of the Federal Open Market Committee in 2007"
Moskow is the President of the Chicago Fed, so his views are still heard.
CR -- when he becomes a voting member the economy will already be in a recession and they wont be able to cut rates fast enough. Also -- he is to known to always vote with the consus -- so dont take him too seriously as he doesnt take himself seriously either.
Sorry -- typed too fast -- he is known to vote always with consensus:
Quote:
Moskow, 68, isn't a voting member of the rate-setting Federal Open Market Committee this year and has always joined the majority decision when he had a vote.
Prior cycles have tended to not show price declines on a national basis because of a "rolling" nature of the cycle. The various major areas would separately hit their peaks over a two year period. This was driven by a similar timing difference in employment and local GDP activity. While the first to peak were declining, the last were still going strong. The national averages would be smoothed by this, and hide the decline.
However, about two years ago I noticed that this timing range on emplyment and GDP had tightened to less than a one year spread. Accordingly, the entire nation should be very nearly on the same timing for this RE pricing cycle peak and decline. This means that the national averages will reflect a more synchronous environment that will NOT obscure the downturn as they have in the past.
"the orderly declines (in housing) that we've been expecting"...well, this should be a comfort to the distressed sellers trapped in falling markets in Florida, Boston, Arizona and Nevada.
And this.."large increases in home values added an indirect boost to household spending growth"..which translated from federal speak refers to the massive refi and HELOC boom which has kept this economy bubbling, leaving an army of mortgage holders in debt up to their eyeballs for a depreciating asset that they are unable to sell at a price that would cover the equity they've extracted. Of course, if they hadn't taken every dime of equity out of their houses, how would they have kept up with the soaring costs of health insurance, gasoline, groceries, et. al. in a period of flat wages.
And no, this is not local, this is national.
Wasnt the last time something resembling this happened, it was the savings and loan crisis, and a man named Seidman went around the country closing down thrift institutions and reimbursing insured depositors.? Hmmm. Seems to me that this time what we are talking about is not individual Americans or even residents of the USA. As a newcomer to the study of economics (Im getting an education courtesy of the blogosphere) I think I learned recently that these mortgages are collected and packaged as something called CDOs what ever that means, and then are sold in large denominations to, primarily, foreign institutional investors. Did I read that roughly 1/4th of these debt instruments are held by the Chinese ??? Interesting. That would mean. if there is a "mess" of sorts, then we could be in the interesting position of seeing the US taxpayers dollar used to bail out investors in a country where we have a nearly 200 billion dollar a year trade imbalance. Yikes!!!! this can't be right...what did I miss?
Foreign Central Banks are holding $534 billion of Fannie and Freddie paper (1/3 of outstanding). Wonder if they have read the article about the homeless guy in Florida that had a couple of home mortgages (defaulted of course).
If the US is too abusive with the privilege of debasing the currency in which it's debt is denominated then people will start looking for alternatives (as happened with the british pound when it lost reserve currency status -- see Barry Eichengreen paper Redirect Notice )
Some central banks seem to be defecting already. Search for "reserve diversification". It has to been done carefully though so that it is not too destabilizing. Brad Setser linked from CR does a lot of reserves analysis. I like to put it into my Free Market pipe and smoke it.
The whole local vs. national price decline argument stepped beside the point a long time ago. So midwestern markets with high out-migration, low employment growth, and low real estate appreciation won't experience dramatic price declines, since they never got the dramatic price increases to start with. I'm sure the effects on consumer spending of any price declines in Bloomington--last time I was there they didn't have a Starbucks yet--will, in fact, be "modest." You still have to drink a lot of kool-aid before you think that offsets the nationwide economic impacts of the price declines in the coastal markets.
I also like the juxtaposition of this post with the one below it. If I am reading it correctly, 75% of condo developers in the survey are offering non-price sales concessions (a/k/a "incentives") to move inventory. So any data set that relies on "contract sales price" will show inflated prices on new condos, because "non-price" concessions don't get subtracted from the contract sales price. (The lender and the appraiser are supposed to be making those sales price adjustments, of course, but strangely enough we find developers failing to disclose them to lenders and appraisers, and lenders and appraisers failing to look for them. This keeps the appraised value from dropping under the contract sales price, which means the buyer can borrow more money.) It's hard to calculate the exact effect on "true" prices with this stuff--my inner cynic tells me that the "optional items" being included "at no cost" are often worth a whole lot less than the buyer thinks they are--but I think it's safe to discount those sales prices by at least 5.00% on average.
Frankly, every time I hear someone use the term "orderly declines" I take another Percocet. The fact that homeowners can't rush for the exits is always comforting until homeowners need to be able to rush for the exits. Then it sucks.
I used to work for a firm that used to make me spout the same sort of jibberish, no matter how stupid I might feel writing or saying those things. What I really thought, and what reality was, hardly mattered. I got so sick of it I quit. But since Moskow's job would be on the line if he said what he really felt, well, forget about it, he is going to tow the party line.
With the revisions to personal income growth, reduced productivity, record high oil prices and rising inflation, the fact that the Fed paused shows you just how scared they are about the housing bubble. If you listen to their words, you'll be totally screwed on this one. They took a rounding error as a sign of cooling inflation, just to get the markets off their back and not scare the crap out of homeowners, but they wont be able to hold off on rate hikes, and housing is basically doomed. These guys cannot cannot cannot tell you how they really feel, so dont be so surprised by the BS they continue to spew out.
But it seems unlikely that prices will actually decline for the nation overall.
It's possible that this prediction will be proven wrong this week (didn't Goldman Sachs say YoY prices have already declined nationally in their analysis?).
I'm not sure how we could get through this fall or winter with the glut we have and not see YoY decline.
Positions may have to be re-evaluated.
Remember two things:
Inflation IS a concern with energy at $70-75/barrel of oil, and the potential to go vastly higher, and the effect that a depreciating dollar would have on everything else...
E.G., if the dollar is left to depreciate relative to the Won, that would be HOW big a price spike to everyone who shops at Wal-Mart?
I think there is a bias in the federal reserve that although both recession and inflation are bad, inflation is worse.
Thus when both the risks of inflation and of recession appear, the bias of concern is to inflation.
Also, remember, you can't be a pessimist and hold a job like that in the fed. Well, you can be, but you can't TALK like a pessimist, lest your pessimistic comments become self-fufiling prophecies.
Mr. Moskow indeed has to soothe the markets- if he came out and said 'flee the ship' the markets would tank- not that they won't eventually anyway.
The bust in housing is only now beginning to appear as dark clouds on the horizon, but with each pasing month, those clouds become more ominous. Add to thatthe spectre inflation, which makes a lethal brew for the economy.
Moskow's comments seem so far off base they frighten me...
Do any of you think the US is already IN a recession? I do.
So far it looks like Bernanke is presiding over an increasingly polarized Fed. He is, not surprisingly, prone to overlook inflationary risks, just as the hawks are prone to overlook recessionary risks. It wasnt just Moskow banging the hawk war drum today, Atlanta Fed president Guynn was out talking up, even if it is in a retirement speech, the hawk position: I am sure future policymakers will remember the lessons we learned in the past 40 years about what happens when you start down the slippery slope of trading inflation for growth. The last FOMC vote was not unanimous, with Lacker voting for raising rates to contain inflation. Bernanke is clearly a dove, but can he actually generate a dovish consensus? I think this is going to get very interesting.
"But it seems unlikely that prices will actually decline for the nation overall."
wtf? Even if they don't decline, this statement has significantly hurt the credibility of the fed for me.
The economy may be fine, life may go on, but I would never say in a million years that "it seems unlikely that prices actually decline". That's completely ludicrous!
There's a famous line from a politician that went something like: "Don't listen to what say, but watch what we do?"
Anyone know who said that?
Edited By Siteowner
again, someone is posting as me. its just to mess with me obviously.
CR, any thoughts to a log-in comment section?
What Moskow is discussing in roundabout terms is the Sacrifice Ratio:
An economic ratio that measures the costs associated with slowing down economic output to change inflationary trends. The ratio is calculated by taking the cost of lost production and dividing it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in inflation.
Sacrifice Ratio=Dollar Cost of Lost Production/Percentage Change in Inflation
If inflation is becoming a problem, central banks will try to cool economic growth in a bid to reduce inflationary pressures. However, this reduction in output costs the economy in the short term, and the sacrifice ratio tries to measure that cost. (excerpted from investopedia.com)
Essentially, a little pain now to save a lot of pain later. Of course that seems to run contrary to American's buy now, pay later mentality.
New mortgage product:
Perpetual Mortgages:
The home loan your children will inherit | Mail Online
CR-
I accidentally signed my post with your initials, sorry. Looks like I am a little more sick than I feel. No more blogging today.
"But it seems unlikely that prices will actually decline for the nation overall."
WTF??? Does this guy work for the Bush administration?
"But it seems unlikely that prices will actually decline for the nation overall."
WTF??? Does this guy work for the Bush administration?
The economy has slowed due the Fed rate hikes. Consumer spending has slowed as energy prices have acted like a tax hike. I think more rate hikes = recession. The subsequent layoffs would have an extreme impact on the housing market. And on public and private pension systems.
Lets hope Moskow was only "joking."
dc1000, I deleted the comments. Unfortunately there doesn't appear to be any log-in option with Haloscan, although I can ban by IP address. I hope it doesn't come to that ...
Let me know if it happens again.
Best Wishes to All.
first of all he is not a voting member and second of all he is a fed long timer who misses the days when the fed would throw the economy in to recession just so they could feel important
sharkbait, Moskow is not a voting member yet, but he will be next year. From that Reuters article: "Moskow ... will be a voting member of the Federal Open Market Committee in 2007"
Moskow is the President of the Chicago Fed, so his views are still heard.
Best Wishes.
CR -- when he becomes a voting member the economy will already be in a recession and they wont be able to cut rates fast enough. Also -- he is to known to always vote with the consus -- so dont take him too seriously as he doesnt take himself seriously either.
Sorry -- typed too fast -- he is known to vote always with consensus:
Quote:
Moskow, 68, isn't a voting member of the rate-setting Federal Open Market Committee this year and has always joined the majority decision when he had a vote.
Moskow Says Fed May Resume Interest-Rate Increases (Update4) - Bloomberg.com
OH man -- third comment in a row -- somebody stop me!
Check this:
Moskow repeated today that job growth of 100,000 a month is consistent with the economy's potential growth rate of about 3 percent.
If I'm not mistaken the economy needs to generate 125K per month to keep the unemp rate from falling.
I'm waiting for the day when Moskow will proclaim that job growht of 0K per month is consistent with the economy's potential.
Prior cycles have tended to not show price declines on a national basis because of a "rolling" nature of the cycle. The various major areas would separately hit their peaks over a two year period. This was driven by a similar timing difference in employment and local GDP activity. While the first to peak were declining, the last were still going strong. The national averages would be smoothed by this, and hide the decline.
However, about two years ago I noticed that this timing range on emplyment and GDP had tightened to less than a one year spread. Accordingly, the entire nation should be very nearly on the same timing for this RE pricing cycle peak and decline. This means that the national averages will reflect a more synchronous environment that will NOT obscure the downturn as they have in the past.
To say that a RE decline will not effect the economy is like saying that it will rain but not get wet.
There are no soft landings in real estate. It is just a question of how hard it will be.
To say that a RE decline will not affect the economy is like saying that it will rain but not get wet.
There are no soft landings in real estate. It is just a question of how hard it will be.
"the orderly declines (in housing) that we've been expecting"...well, this should be a comfort to the distressed sellers trapped in falling markets in Florida, Boston, Arizona and Nevada.
And this.."large increases in home values added an indirect boost to household spending growth"..which translated from federal speak refers to the massive refi and HELOC boom which has kept this economy bubbling, leaving an army of mortgage holders in debt up to their eyeballs for a depreciating asset that they are unable to sell at a price that would cover the equity they've extracted. Of course, if they hadn't taken every dime of equity out of their houses, how would they have kept up with the soaring costs of health insurance, gasoline, groceries, et. al. in a period of flat wages.
And no, this is not local, this is national.
Wasnt the last time something resembling this happened, it was the savings and loan crisis, and a man named Seidman went around the country closing down thrift institutions and reimbursing insured depositors.? Hmmm. Seems to me that this time what we are talking about is not individual Americans or even residents of the USA. As a newcomer to the study of economics (Im getting an education courtesy of the blogosphere) I think I learned recently that these mortgages are collected and packaged as something called CDOs what ever that means, and then are sold in large denominations to, primarily, foreign institutional investors. Did I read that roughly 1/4th of these debt instruments are held by the Chinese ??? Interesting. That would mean. if there is a "mess" of sorts, then we could be in the interesting position of seeing the US taxpayers dollar used to bail out investors in a country where we have a nearly 200 billion dollar a year trade imbalance. Yikes!!!! this can't be right...what did I miss?
Foreign Central Banks are holding $534 billion of Fannie and Freddie paper (1/3 of outstanding). Wonder if they have read the article about the homeless guy in Florida that had a couple of home mortgages (defaulted of course).
If the US is too abusive with the privilege of debasing the currency in which it's debt is denominated then people will start looking for alternatives (as happened with the british pound when it lost reserve currency status -- see Barry Eichengreen paper Redirect Notice )
Some central banks seem to be defecting already. Search for "reserve diversification". It has to been done carefully though so that it is not too destabilizing. Brad Setser linked from CR does a lot of reserves analysis. I like to put it into my Free Market pipe and smoke it.
The whole local vs. national price decline argument stepped beside the point a long time ago. So midwestern markets with high out-migration, low employment growth, and low real estate appreciation won't experience dramatic price declines, since they never got the dramatic price increases to start with. I'm sure the effects on consumer spending of any price declines in Bloomington--last time I was there they didn't have a Starbucks yet--will, in fact, be "modest." You still have to drink a lot of kool-aid before you think that offsets the nationwide economic impacts of the price declines in the coastal markets.
I also like the juxtaposition of this post with the one below it. If I am reading it correctly, 75% of condo developers in the survey are offering non-price sales concessions (a/k/a "incentives") to move inventory. So any data set that relies on "contract sales price" will show inflated prices on new condos, because "non-price" concessions don't get subtracted from the contract sales price. (The lender and the appraiser are supposed to be making those sales price adjustments, of course, but strangely enough we find developers failing to disclose them to lenders and appraisers, and lenders and appraisers failing to look for them. This keeps the appraised value from dropping under the contract sales price, which means the buyer can borrow more money.) It's hard to calculate the exact effect on "true" prices with this stuff--my inner cynic tells me that the "optional items" being included "at no cost" are often worth a whole lot less than the buyer thinks they are--but I think it's safe to discount those sales prices by at least 5.00% on average.
Frankly, every time I hear someone use the term "orderly declines" I take another Percocet. The fact that homeowners can't rush for the exits is always comforting until homeowners need to be able to rush for the exits. Then it sucks.