Slowing housing won't sink spending: Poole
Submitted by
CalculatedRisk on Wed, 03/08/2006 - 11:59am (19 comments)
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Poole, Bernanke, Snow, they all know they are wrong. They must make these ludicrous statements to influence consumer optimism.
Those guys are smarter than I am, or they wouldn't have the jobs they hold. I do not have an economics degree, and I lack access to their data. There is no way they can believe their spin.
mtnrunner2
I would totally agree with you- its too bad the current powers may be are using the FED as a propaganda tool- Poole or any of the others cannot truly believe these words they speak- its merely said to prop up the sagging RE markets.
It's pretty obvious that just as inflated RE values, and the subsequent consumer spending, has been the largest contributor to the economy over the last three years, so is the prospect of declining RE values and subsequent drop in consumer spending, one of the greatest threats to economic growth.
Hey maybe Its_Just_Money is on to something... maybe Poole et al know something we don't... that RE driven consumption is so important to the economy that if RE really crashes & spending stalls their boss plans to fire up the printing presses & helicopters.
Who knows.
i'll tell you, inventory is really starting to build up and very few transactions are happening. you can see the tidal wave coming in. there's no way there's enough buyers out there to support today's asking prices. this thing could dip hard and then find a stable point.
I don't believe what the Feds are saying, but I can understand why. I guess Greenspan's quip about the "aftermath of protracted periods of low risk premiums" is the only warning we'll get out of them.
LMAO!!!
Somebody please mention "catching a falling knife/piano", the Great Depression, dot.bomb, revert to the mean, and "no buyers at any price", just to bring this full loop.
A major hazard of the coming real estate crash will be that it may cause such a contraction of desire to borrow that the Fed will be unable to expand the money supply to counteract its deflationary effects. My understanding is that the money supply depends greatly on the mechanisms of fractional reserve banking, which depends on people being willing to borrow the money pushed out into the banks by the Fed, and then pay it to other people who will make deposits that then support further lending, and so on until the effective amount of money in the system is multiplied many times over. If a declining real estate market jars the many baby boomers who expect to retire on funds from the sale of their homes into starting to save as they should, the decline in consumption will be much greater than what would result from just a drying up of the home equity withdrawal ATM.
jm: I'm fairly confident failure to generate loan issuance will not be because of borrowers' restraint, but lenders'. People will always gladly seek credit, but under current legal and accounting structures somebody associated with the lending side has to hold the bag when the defaults come rolling in. This area (removing critical accountability) has to be attacked to facilitate lending, and I'm confident attempts will be made when the need arises. Specifically how and whether successfully will have to be seen.
But you are right to the effect that at the end of the day, nobody can be forced to engage in discretionary transactions.
Poole's upbeat comments might have been intended to smooth the way for Bernanke's concern for smaller banks' real estate exposure. Good cop, bad cop so the market doesn't just hear bad cop.
How long before you guys break down and admit that you were wrong? I thought you were right and that the apocolypse was coming. But I've come to conclusion that you have underestimated the vitality of the American economy, the significant strength we process as the global leader, and our ability to manage the economy. Some individuals balance sheet may be reduced in the coming years, but the overall economic activity will continue unabated.
Chad you're whistling past the graveyard, and that's a dangerous thing. 5 years in the real estate industry is a blip on the screen. you've seen the 5 year run up which was accomodated by the loosest monetary policy in history combined with further tax incentives (e.g. incrase in tax free capital gains) and a yield starved climate to boot. you've yet to see the other side of the mountain but soon you will.
the underpinnings of this debt driven recovery continue to show their fallacies. for example GM just released a deal for Dodge suv's, trucks and minivans. 0% financing for 60 months and no payments until october. after 13 consecutive rate hikes how can 0% still make you money? i smell something, and it ain't roses.
If the Fed is willing to buy up MBS when other buyers get cold feet then they might be able to keep the lending party going if need be.
Chad - I hope you're right (as I've worked in the real estate lending business for 15 years), but I can't imagine the next fifteen years will be anything like that last 15 years. How many Americans can own their own home ... 100%? Real estate prices have been feeding on the ever-increasing number of buyers the last couple of decades. For the last five years we've been feeding off of the desire for many to own multiple homes. When this quantity of buyers stagnates, prices will as well... and that will be the end of the housing boom/ATM.
I'm under no illusions as to the future of my career. When the party ends, I'll walk away smiling. It's been a hell of a ride.
Chad: To paraphrase, throw me a truckload of money and I'll show you some vitality too.
I'm under no illusions as to the future of my career. When the party ends, I'll walk away smiling. It's been a hell of a ride.
The right answer. I've done that a couple times in my career already and I'm not even 50... The way mfg'ing is going now I might have to do it again... but I PROMISE I won't go into real estate.
Uh, was he talking about the US, or is non-US income and employment growth going to keep US spending up?
Re cm's comment on mine of 12:11 that, "I'm fairly confident failure to generate loan issuance will not be because of borrowers' restraint, but lenders'," I think we'll see much more restraint on the potential borrowers' side than most anticipate. I was taking increased restraint on the lenders' side for granted -- and expect it to be enforced by stricter future regulation (in the tradition of 'locking the barn door after the horse has been stolen').
No one with an ounce of sense will want to borrow, and no one without will have any hope of getting a loan.
It's really great that you believe consumers will continue to spend, Poole. What about them going into dissavings for, what, around eight straight months now? Even Dick "Con Killa" Cheney is saying that Americans need to save more, yet you think otherwise.
Can you say, "No savings for boomers who are about to retire, and even less for their spendthrift offspring?"