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Inverting Cause And Effect: Do Asset Prices (And Stock Market Bubbles) DetermineThe Economy And Monetary Policy?
Earlier Alan Greenspan shared some Fed insight, explaining the diagonal rise of the stock market, which can be summarized as follows - "stock prices determine the economy, not the other way round." In one simple sentence, Greenspan demonstrates that the Fed is not only chock full of people who can't read economic textbooks good (sic) but is populated by a subset of people suffering from cause-and-effect inversion disorder (it is also chock(er) full of new and improved stock traders and algos populating Liberty 33, doing all they can to make sure that in 13 up days, there is just one down). Yet in a market which has broken all laws of rationality, is the Fed's flawed self-fulfilling prophecy gaming the only thing that the amazing American's recovery is based on? To be sure, the main reason why economic skeptics such as Rosenberg, Edwards, Janjuah, and (ever decreasing) others retain their pessimism is that while the marker has now priced in one of the most ebullient, V-shaped economic recoveries in the history of the world, the underlying economy has stagnated and even downshifted into a double dip along numerous metrics, even despite ongoing fiscal stimulus and monetary pumpatude. So what is going on? Simple - the Fed, and by implication the administration, believe that once confidence and the market reach a given level, Joe Consumer will forget that the mortgage bill has not been paid in 12 months, the credit card in 3, that all neighbors lost their jobs a year ago and still can't find a new ones, and instead will merely look at the Dow (not the S&P - for some reason government/Fed workers still don't realize that nobody follows the DJIA, but whatever) and the UMich consumer confidence, for a barometer of economic health. The fallacy of this proposition is of course beyond preposterous, but these and such are the thoughts of the Federal Reserve.
What the Fed's fatally flawed policy does create, are asset bubbles of historic proportions, which lead to ever-accelerating boom and bust periods, whose amplitude get bigger and bigger. Yet so far the only person who seems to realize this at the Fed is Kansas Fed President Tom Hoenig. Alas, he is a lone voice as even he acknowledges.
Appropriately, Goldman's Sven Jari Stehn has just published an analysis looking at whether there is a two-way relationship between asset prices and the economy (merely the latest in a long line of such queries), and most relevantly: monetary policy. Goldman has long been is a big proponent of ZIRP, claiming that the Fed will not raise the Fed funds rate until the end of 2011 (and possible longer - recently Janet Yellen implied the Fund rate may be at zero until 2013!). Goldman's findings into the "Greenspan Doctrine" indicate that even something as ridiculous as an S&P level of 2,000 by the end of 2011 will likely not force the Fed into acknowledging there is a bubble. This is shocking, as it indicates that while the Fed inflates the upcoming bubble (which in theory truly could go 25% higher than the last all time high in the S&P), the subsequent collapse will certainly be the last for America. The clock on the final wealth transfer from the middle class to the kleptofascists has begun.
From Goldman:
Do Asset Prices Help Forecast the Economy?
We start by exploring the predictive power of asset prices? such as equity prices, house prices and the spread of the corporate BAA yield over 10-year Treasuries ?for four-quarter-ahead core PCE inflation and the unemployment gap since 1987. A simple way to summarize the predictive content of asset prices is to explore by how much their inclusion reduces the average forecasting error (Exhibit 3).1
Our results confirm earlier studies in suggesting that asset prices contain some predictive power for both future inflation and unemployment but are more informative for the latter.2 For example, we find that the growth of the S&P index helps improve the average four-quarter-ahead forecast of inflation and unemployment by 4% and 5%, respectively. Most strikingly, however, incorporating house prices reduces the error made in projecting the unemployment gap by an impressive 19%. (This result, however, is sensitive to our choice of the sample period which saw a large boom in the housing market as well as falling unemployment.)
How Has the Fed Responded to Asset Prices?
We now turn to exploring whether the Fed has followed the Greenspan doctrine in practice. We find that they have, establishing this in two steps:
First, Fed officials have reacted to asset prices. We find that equity prices and the BAA/UST spread enter the standard Taylor rule significantly (see Exhibit 4). That is, the Fed has responded to movements in those asset price measures in addition to responding to current values of inflation and unemployment. (Similar results obtained when the output gap is used.) For example, the Fed has increased the federal funds rate by 3 basis points for every 1 percentage point rise in the year-on-year growth rate of the S&P 500. However, although our above results showed that house prices had predictive power during this period, the Fed apparently did not take this information into account (i.e. the coefficient is insignificant).
But, second, the Fed has reacted to asset prices only in as far as they help predict future inflation and unemployment. Strikingly, we find that none of the asset price measures is significant in the ?forward looking Taylor rule.? This result suggests that the Fed has not responded to asset prices in addition to their projections of inflation and unemployment.
These results are consistent with the view that the Fed has followed the Greenspan doctrine in practice and responded to asset price movements only to the extent that they help forecast inflation and unemployment.3
Implications of an Equity Market Boom
Having established that the Fed has followed the Greenspan doctrine in practice, we now examine the implications of a presumed asset price boom for the warranted fed funds rate. As an example to explore the general issue of how to deal with asset bubbles, we focus on equity prices. Specifically, we assume that the S&P 500 will rise at a quarterly rate of 10% (not annualized) for the remainder of 2010 and then half as fast in 2011. Exhibit 5 shows that this is a very aggressive equity market outlook?putting the S&P at 2000 by the end of 2011, a very large increase from our Portfolio Strategy group?s 2010 forecast of 1250.
To put our zero funds rate view to a relatively stiff test, we base our simulations on the Fed?s economic forecasts. We proceed in two steps.
1. The Fed sticks to the Greenspan Doctrine
Assuming that the Fed responds to the hypothetical equity price boom the same way it has done in the past, Exhibit 6 shows that the warranted funds rate rises to -1.6% by end-2011?roughly 90 basis points higher than without paying attention to the equity price boom. (Under our own assumptions, the warranted funds rises merely to -5.9% at end-2011). Therefore, if the Fed responds to equity prices as it has in the past, even a substantial equity market boom would unlikely lead to a funds rate hike before 2012.
2. The Fed adopts a ?Bubble Policy?
Our results suggest that the Fed has ?walked the walk? and not responded explicitly to asset price bubbles during the last two decades. Following the financial crisis, however, the debate about whether the Fed should lean against asset bubbles in the future has gained momentum. What is the likelihood that Fed officials will abandon the Greenspan doctrine and if so, what could their response to our hypothetical equity price boom look like?
It is tempting to interpret Kansas City Fed President Hoenig?'s dissent at the last two FOMC meetings as evidence that the Fed?s thinking on asset prices may be changing. He voted in favor of removing the language on keeping the funds rate low for an ?extended period? because he worries about ?the buildup of financial imbalances.? But while some other members of the FOMC have also signaled a willingness to rethink the Greenspan doctrine, we see little evidence that Fed officials are about to adopt a full-blown ?bubble policy.?4
Nonetheless, let us assume for a moment that Hoenig could somehow convince the rest of the FOMC to abandon their long-held reservations against a bubble policy? how soon would they hike in response to our hypothetical equity price boom? Finding an answer to this question requires making two bold assumptions? and hence can serve for illustrative purposes only.
First, we need to define what we mean by a bubble. For simplicity we treat as a bubble the deviation of the ratio of the S&P price index to the 10-year moving average of earnings from its long-run value. Exhibit 5 plots this measure, suggesting that S&P valuation is currently broadly in line with historical norms and was most overvalued by 134% in 1999Q4 and 45% in 2007Q3. On this measure, our assumed equity boom would result in a valuation of 77% above average at end-2011. (We assume 7% growth in earnings.)
Second, we need to assume how the Fed might respond to this bubble. Somewhat ironically, we think the best way to calibrate this hypothetical response is to consider the academic work of its greatest critic: Chairman Bernanke. In his simulations he assumed that the central bank would raise the policy interest rate by 100 basis points for every 10% increase in equity prices above fundamental value (in addition to responding to expected inflation). In practice, such a response appears unreasonably large; for example, our valuation measure would imply that the Fed should have hiked by an additional 1340 basis points in 1999Q4! For illustrative purposes, we will therefore assume that the Fed would move somewhat toward Bernanke?s parameters and respond to our equity price boom by raising the funds rate by 25 basis points for every 10% deviation from ?fair value? in addition to responding to the growth in equity prices as prescribed by the Greenspan doctrine simulated above.
Exhibit 6 shows our results. First, we see that if the Fed had followed our bubble policy in the past, they would have implemented a tighter policy during the equity price booms of the late-1990s and mid-2000s. For example, our results suggest that the fed funds rate should have been raised to 8.8% in 1999Q4, well above the 5¼% actually implemented at the time. A ?bubble pricking? Fed would have raised interest rates somewhat more aggressively between 2004 and 2005 also; however, the difference is less marked as S&P 500 valuations? unlike house prices?were only slightly above historical norms.
Second, Exhibit 6 explores the robustness of our zero funds rate call going forward. Using the Fed?s forecast, the results suggest that a bubble policy would lead the Fed to hike the funds rate in 2011Q4. Clearly, this is much earlier than the Greenspan doctrine would suggest. But despite our very aggressive equity market assumptions, it is still a long way off ?and, of course, even more so with our own forecasts.
If you rushed to the conclusion, go back and reread this piece because it is actually important. In essence, what Goldman states is that no matter what happens with assorted bubbles, with asset price inflation, and with the stock market, the Fed will assume that the economy is be improving as a function of the stock market, but that any improvement will be based on the stock market... Uh... Yes, it basically means that no matter how much better the economy "may" get, no matter to what levels the S&P rises (even if does one assume that the market does determine the state of the economy... why not - we do live in a Banana republic now), the Fed will be convinced that the two are connected and in no way a function of monetary policy. By the time the Fed funds rate is lowered, the economy and the market will be at the plateau of the terminal bubble, whose implosion will be uncontrollable and make the 2007 housing and credit market bubble collapse seem like amateur hour.
- 1. For inflation, Exhibit 3 reports the forecasting gain compared to using a ?Phillips curve? relationship, which explains inflation by past inflation and economic slack. For the unemployment gap, we compare the forecast gain to using only past values of the unemployment gap. While we focus on the ?in sample forecasting gain here, we obtained similar results for ?out-of-sample? forecasts.
- 2. See James Stock and Mark Watson, ?Forecasting Output and Inflation: The Role of Asset Prices?, Journal of Economic Literature, Vol. XLI, 2003.
- 3. Statistical analysis confirms a significant link between asset prices and the Fed?s expectations of future inflation and unemployment (not shown).
- 4. See, for example, Donald Kohn, ?Homework Assignments for Monetary Policymakers?, Remarks at the Cornelson Distinguished Lecture, March 24, 2010.
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Considering, the FED is inflating asset prices like crazy... Yes?
Asset prices are bounded by the availability of pigments and dye utilized as inputs to their Xerox machines
Coincidence? Doubt it.
http://jessescrossroadscafe.blogspot.com/2010/03/whistleblower-in-silver-manipulation.html
That's why I always save it before the "Waste the Whistleblower" mission. That guy is gonna have to go and buy all new weapons.
To quote Doug Noland:.
"U.S. financial assets – hence the dollar – are perceived to benefit from
a relative advantage versus other major currencies based upon:
a) the virtual unlimited capacity for the Treasury to run massive
deficits and,
b) the Fed’s seemingly endless capacity to
i) purchase (monetize) U.S. debt instruments and
ii) essentially peg
interest-rates
This extraordinary capacity and willingness by U.S.
fiscal and monetary policymakers to inflate Credit and meddle (in the
markets and economy) today:
a) bolsters marketplace confidence in the
sustainability of economic recovery, and
b) cements the
view that the soundness of Credit instruments throughout the entire
system – Treasuries, mortgages, financial sector debt, corporates,
munis, etc. – is underpinned by current and prospective reflationary
policymaking.
Ergo, the markets’ perception of “too big to fail” has inflated
U.S. securities pricing – reduced risk premiums - throughout the entire
system."
...........................
The more money printed, the more schemes and scams perpetrated by the Fed to backstop asset prices,
- The higher the U.S. dollar goes
- The lower the CRB index falls
- And dip buyers in junk bonds and high risk stocks show up with renewed vigor
The rising dollar and collapsing commodity prices removes any possibility of the Fed hiking interest rates in the near future, thereby ensuring that easy money will continue indefinitely.
Upon the arrival of any type of mishap, convulsion, default, forced liquidation, margin call, financial failure, or other assorted bull market "interruptions"....
Investors temporarily dump stocks and immediately flee towards U.S. Dollars, U.S. Treasuries, and interest rates immediately crash down to "Animal Spirit" levels which entice even more "bargain hunting" and "garbage can diving" among the speculators. This, of course, creates the "instant rebound" in stocks.
When Bloomberg and CNBC are overrun by the likes of Meredith Whitney, Nouriel Roubini, Robert Prechter, and other "gloom and doom" types, upon the first whiff of a stock market correction, the short interest in cyclical, retail, and financial names starts skyrocketing at a record pace. Eventually, Goldman Sachs trots out the addition of these names to the "Conviction Buy" list and incites epic squeezes, which are invariably hopped upon by the momentum funds.
Spectacular gains in high risk stocks encourages fund managers to dump old fashion blue chip names like Exxon, AT & T, Verizon, etc. and continue chasing the screamers, or otherwise go back to the garbage can and search for beaten down junkers which haven't moved yet.
Its all part of the Perpetual Motion Machine, deftly choreographed by Bernanke, Geithner, LLP, to create the psychological boost to risk takers worldwide, and ultimately, creating a self-reinforcing feedback loop which spurs more economic activity, which in turn drives earnings higher, which in turn guns stock prices even higher.
All done while spending trillions, running gargantuan deficits, yet enjoying 40-year low interest rates, a "King Dollar" currency, and little or no inflation.
Bravo!!!!
One question: since none of the above generates any final demand for the goods and services of the companies whose stock prices are rocketing upwards, how do earnings continue to grow? This sounds like the ultimate decoupling scenario: a few tens of million--and growing--unemployed people squatting in virtual foreclosed houses, deriving 100% their income from USG welfare while the market circle jerks itself to new orgasmic heights. I'm not buying it. At best only half of America owns stock and those that do not have no trouble assessing that their personal plight is getting more hopeless by the day.
The Fed and the USG are flying the plane up a box canyon in the clouds, hoping to gain enough altitude to sqeak over the pass. Yet, with every input of new debt fuel the engines produce less power and the plane loses its battle with gravity. It gains speed only because it is losing altitude--a fact that obscured by the billowy clouds out the windows. The passengers are murmuring and worried, nervously tightening their seatbelts--knowing that it will matter little, but not sure what else to do. They all sense that the mountainside is rushing to meet and greet them, despite the attempts by the pilot to calm them. They can all visualize what the country--and their lives--look after the moment of impact.
'but these and such are the thoughts of the Federal Reserve.'......and their ka-zillion mouth pieces working the net and media as officials and professionals telling everyone to accept nonsense as fact.
Sure the stock prices are important but the vast majority of Americans have no stock and live from check to check. Better that those checks are from high wages than ED or minimum wage. The economic problems are simple, the US spent 40 years exporting the wealth engine to third worlders, spent like druken sailors on International police and just generally betrayed the nation. .
As stated: the "result, however, is sensitive to our choice of the sample period which saw a large boom in the housing market as well as falling unemployment." The people at the Fed, Treasury, business media, almost all 'giant vampire squids', TBTFs, etc. are 'all in' and have been at least since around midway through Greenspan's term until the bitter end of middle America. Therefore, regardless of sample dependent feedback from government determined interest rates to asset prices back to the quickly socializing economy, it is the feedback from insane bureaucrats like Greenspan, Bernanke, and Yellen to policies that a ten year old knows are morally bankrupt and logically insane that will end the misery of our economy and so many others.
Huh, and I thought that contribution months ago by Ben Dover was satire. Who was it on here who said something along the line of "I made a bet that pigs couldn't fly, because they have no wings. I was wrong"? I know we've all thought it. lol
Bernanke stuffed a pig in a cannon like a scene from the fair and said pigs do fly.
The smartest thing wall street ever did was convince the world that the DOW = economy.
spot on ;-)
and if shit companies like citi and gm fall on their face, then remove them from the index and voila! problem solved...
Goldman says: "Exhibit 5 plots this measure, suggesting that S&P valuation is currently broadly in line with historical norms and was most overvalued by 134% in 1999Q4 and 45% in 2007Q3. ... that the Fed should have hiked by an additional 1340 basis points in 1999Q4!" -- first, does The Squid really thinks that Greenie would hike all 1340bp at once? Is Are they nuts at 85 Broad? If Fed started raisin 50bp in every meeting, the Y2K bubble would never have gotten to be 134% above "fair value" (whatever that value maight be.) And second, Squid says S&P was 45% overvalued in 2007? well, in 2008 it was a simple case of reversion to the mean, right? Up 45% above "fair value", so it has to go a bit below the "fair value" level to balance out the rise, right? Of course, in the eyes of the Fed this simple drop of perhaps 10% below long-term fair value looked liek the end of the world and prompted them to pay banks to take free cash...
Suffice to say, we have zero CONfidence in what we see her, much less anywhere in our economy. Gold and silver :-)
TD writes in his editorial the following: " Greenspan shared some Fed insight, explaining the diagonal rise of the stock market, which can be summarized as follows - 'stock prices determine the economy, not the other way round'" and " ...the Fed, and by implication the administration, believe that once confidence and the market reach a given level, Joe Consumer will forget that the mortgage bill has not been paid in 12 months, the credit card in 3, that all neighbors lost their jobs a year ago and still can't find a new ones, and instead will merely look at the Dow..."
This is not simply 100% backward logic of the Fed. The bubble has been reinflated INTENTIONALLY by, of and for the richest of the rich, the REAL OWNERS of the government and by extension of the country. Here's one of the best papers that show who owns what in these United States
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
And according to this UC Santa Cruz professor, not only top 1% owns 35% of the total wealth, they own 47% of the financial wealth, and 50% of all investable assets, while bottom 90% have only 12%. Anybody wants to guess who really benefit from the new bubble in asset prices? 90% may "feel better", but top 1% is laughing all the way to the federally-backstopped bank.
But the most interesting thing is that top 1% "owns" 5.4% of debt, while the share of debt "owned" by the bottom 90% is 73.4%!!! With 12 to 75 equity to debt ratio, how can 90% of the country see any benefits from this bubble?
This asset price bubble is not a simple scam (sorry, a policy of the government and federal reserve), it's a way to safeguard and extend the status, the wealth, and the influence of the mega-wealthy, while literally burying everyone else in tens of trilliosn of debt!
It used to be the stock market was risk; now it’s the economy that is risk.
The moon landing was faked!
Need I say more?
Well. Maybe a little...
Yes, things must be really rosy. www.dailyjobcuts.com shows how well its all going on Main St.
I sometimes think I must be having a nightmare and will wake up and all will be ok.
Not.
Buy adult pampers.
Greenspan is almost confessing that the Fed has a direct hand in reflating the stock market. In this and other interviews given this year he seems to be letting it slip. He's bold in his assertion that the rally is the cause of improvement in credit. In the latest interview he boldly states that it must precede any economic recovery. I think the flaw is the law of unintended consequences: the stock market is not reflating the general economy this time, but it is causing inflation that is killing consumers and small business.
+1000 beautifully stated
5 year olds can tell you this shit ain't gonna end well. It takes an Ivy leaguer to spin it into magic sauce.
Whether it makes sense or not, Bernanke is following exactly one metric: employment. He believes that keeping interest rates at zero will increase employment. Period. That' s the "there" that is there.
Is he right? I doubt it. But that's all that is going on. In Larry Summers immortal words, there are "unintended beneficiaries". And maybe those beneficiaries have their thumbs on the scale so firmly that nothing else gets through to Bernanke's ears. But it's all about employment.
couple of months ago australia raised their rates. That raise created job growth there. If we raise our interest rate we will fall faster.
Have the math problems been made easier to increase the number of comments or to welcome morons?
In other words, the government is betting that the US consumer will start buying things out of Michigan again? That does seem familiar.
So stocks are up 60-70% in a year. And we still have ZIRP. And we will have ZIRP (or something very close to "0") for a long time to come.
So does Benny not believe in this idea that stocks = economy? If so, you would have thought he would have backed off of ZIRP by now.
ZIRP is TARP in slow motion. The banks are earning a ton from their book of assets. This income allows them to absorb losses from crappy assets.
We have a 15T banking system. Because of ZIRP they are earning 2-3% on this book today. That comes to $500b of "extra" income every year. So ZIRP is just a subsidy for the banks.
Who pays for ZIRP? Savers of course. They get nothing for their money. So they buy stocks.
I can't imagine how this crazy imbalance can be brought back into balance without a very big bang at some point.
I think stocks are up because of ZIRP. How could they not be? Why would anyone invest in Treasury securities at these levels?
Of course stocks are up because of ZIRP. Youre smart , that shouldnt even be a rhetorical question you asked - its so damn obvious its annoying to read any other viewpoint of why stocks may be rising.
Ziro , tarp , talf , GSEs , QE. Simply govn money pumping is the sole driver for stock prices with the animal spirits of investors as the vessel.
Fundamentals have NEVER meant a damn thing in stock investing. Price makes news. Not the other way around. And liquidity makes price.
ps: Greenspan really is a preposterious a$$hole.
good comments! If the Fed could set/control/learn and apply its own ivory tower impractical theories, we would be living in an economy where there wasn't 10% official unemployment, economic growth rates that turn a 10% fiscal injection into just 5% annual GDP growth for one QoQ (a straight loss to the tax payer of 50 cents per dollar borrowed and injected) and leaving aside the even more dismal economic performance once the Fed injection of 3% of GDP. Don't we really live in an economy where there is no longer a need for distinction between fiscal and monetary policy? Don't we already know that dumbing down employment is also an undesirable outcome and that official uemplyment numbers mask the real truth and that is that allowing global partiticipation in our local market that bypasses our labor laws is a crime? The 90% who say they are in work (or not seeking it) have seen their value add and real wages, to enjoy a high standard of living, chopped in half by exporting higher value, research oriented or working conditions wiped away in favour of sweat shops in china and rubbish dump cities in Brazil. The Fed will not raise rates until employment picks up to 93% or less, PERIOD. Employment will not pick up until we stop allowing unfair competion by our trading partners, PERIOD. The Fed has as much chance of explaining that economic growth relates to the stock market as anyone else does in saying that employing slave labour increases profits. Obama doesn't get it, neither does anyone on Government or the Treasury. Read up on "debt saturation" to see how borrowing any money in a buggered and beggared economy simply reduces the size of the economy relative to the capital it employs.
Why not? It seems like most people simply adapting to the situation as soon as possible, or even trying to manipulate it for short-term profit. Life is too short, and the best way to predict the future is to invent it.
So, print, spend, invest..
by the way..is there a blog site (not a Government propaganda machine) that has the flip side of this one ( i.e. www.dailyjobgains.com ) ? http://www.dailyjobcuts.com/ and maybe one that does net change in jobs?
just wondering, shouldn't an economic system benefit the majority in the first instance and lend a hand to the bottom say, 10% as a second instance? just wondering how print, spend, invest is a model that works in the long run, anywhere in history that is. You know, 1900's China, S.America in the 1970's 1980's, Iceland and Zimbabwe in the noughties.
Gotta Love it. Lets pay savers in this county NOTHING. Give free money to banks (real banks and casinio banks i.e., GS) Nothing like covertly transferring weath from American citizens to the Wall Street cabal. Thank you BEN!!!!
Paying savers is called the carry trade. Pity those return crashes.
We know the Government owns AIG, FRE, FNM, C, GM. AIG the largest Insurance Company in the World. FNM, FRE comprise of over 50% of all of the Mortgages in the United States. C is one of the largest International Banks. Gm is the largest American Car Maker.
With the implementation of The Health Care Bill (18% of GDP) the Government controls Health Care.
Government Control of Aig, FNM, FRE, C, GM and Health Care make up over 50% of the Nations GDP.
Then if you assume that the Government owns over 50% of the S&P thru S&P Futures the Government effectivly owns the Stock Market.
These three items comprise of over 80% to 90% of the Nations GDP. This is total Government Control over Americans lives.
Why should the Stock Market be Controled or Guaranteed by the Government? If the Stock Market is Guaranteed by the Government why shouldn't Jobs or Housing Values.
Why has the Government turned a blind eye to the Jobs Market and the Housing Market while only concentrating on the Stock Market?
There is ample evidence that Bernanke is much more focused on housing prices than the financial markets. That's why he has gone balls out buying MBS. That's why the government has let FHA goe nuts. That's why Fannie&Freddie have been, de facto, nationalized. He is determined to arrest the decline in house prices.
Read Bernanke's speech on house prices' impact on the economy:http://www.federalreserve.gov/newsevents/speech/bernanke20070615a.htm
In my opinion, this is one of the more significant speeches he's given and the one which gives you the most insight into what he's trying to do.
Obviously, ZIRP is a key part of this. Of course, it's possible that his concern for housing prices is a smoke screen for making the bankers even richer.
On another topic. I think Greenspan had it right. He inflated the Housing Prices. At least with the Housing Boom it created Jobs, Jobs, Jobs. Think about it. All of the people that rely on the Housing Market. To name a few:
Builders, Realtors, Mortgage Brokers, Appraisers, Banks, Insurance Companies, Title Companies, Surveyors, Home Inspectors, Well and Septic Testers, Local County and States thru Transfeer Taxes and Stamps.
Drywall people, Plumbers, Carpenters, Electricians, Roofers, Brick Layers, Concrete Companies and finishers, Siding Manufactures and Installers, Drainspout and Facia Manufacturers and Installers, Window Manufacturing Companies and Installers, Roofing Companies and Roofers, Electrical Manufacturing Companies and Electricians, Lighting Manufacturing Companies, Carpet Manufacturing Companies, Tile Manufacturing Companies, Plumbing Fixture Manufacturing, Furnace Manufacturing Companies, Water Heater manufacturing Companies, Drywall Manufacturing Companies, Lumber Companies, Kitchen and Bathroom Cabinet Manufacturing Companies, Block Manufacturing Companies, Roofing Manufacturing Companies, Heavy Equipment Makers for Grading and operators, Appliance Manufacturing Companies. Warehouse Companies supplying all of the above Mateials for purchsase.
All of the Companies that supply the above Companies. Computer Manufacturers, Copy Manufacturers, Fax Manufacturers, Phone Manufacturers, Desk Manufacturers, File Cabinet Manufacturers, Comercial Carpet Manufactures, Paper Companies, Payroll Companies, Broadband Services, Phone Services, Equipment Services.
Also for the above Companies, Comercial Office Space, Comercial Leasing Companies, Vehicles for Fleets or Construction work.
There are not many areas of the Economy that Housing Industry does not touch or affect.
That is why I think Greenspan had it right because at least with robust Housing Millions of People were Employed and Housing prices were stabel giving Americans a feeling of Security. I think that is more important to keep Housing prices stabel than the Stock Market up for the above reasons.
Most People own a Home and that is their biggest asset. With a stable Housing Market it gives Americans a feeling of Security and the ability to control their future by being able to Sell, Mortgage, or Move. Few own Stocks and if they do they are a small percentage of their overall worth. Their Home being their biggest asset.
The Govt control of C, GM, FRE, AIG et al has come at a horrific cost. We cant seem to get a handle on ever becoming a creditor Nation like we were in the past. We have spent the last 40 years transferring our wealth building engine to the rest of the world, someone pointed out.
In the past, boom/bust was the norm. However, the PTB have allowed American mfg to go overseas. Nearly everything we wear, drive, use on a daily basis is NOT made here. We are reaping the bitter harvest of our choice to become an "information based" economy. The FIRE based economy doesnt operate well with 10-20% un/underemployment.
The stock market is just a hoax---ZIRP causing "investors" to live the pipe-dream that we will recover from this Great Depression. The same idiots who got us into this mess will fail in their vain attempts to revive the American corpse.
I recently took a job call after being out of work for @8 monthes out here in Cali. Met 3 fellow Union Electricians who have lost their homes from this downturn. Interestingly enough, in the 96 unit condo complex I reside in, there hasnt been many losing their moderate income jobs. Home prices have been halved from the peak four years ago--and the for sale units languish on the market for monthes now. Some recovery, eh?
I'd be interested to read how you other ZH readers are faring.
May Almighty God help us all.
dont think Gpd wants his name on the dollar bill any more! "In God We Trust" as long as its collaterlaised reverse tri-party repo'ed on SIVs that can be offshored so that huge bonuses can still be paid to bankers who would be in jail if there crimes were treated as seriously as stealing cash from a filling station.
Amen to that.
There is something very wrong with our country.
Another interesting question:
"Why Is The Stock Market The Most Inefficient Market Of All Financial Markets?"
2 Possible Answers:
"Does the stock market not attract enough liquidity to accurately value all +10,000 stocks at once because it is viewed as inefficient and hence abnormally volatile and risky?"
or
"Is the stock market the most inefficient of all financial markets and abnormally volatile and risky because it does not have enough liquidity to accurately value all +10,00 stocks at once?"
In other words, why do we continually see clear signs of an inefficient market through 10-20-30-50-100% moves in stock everyday....why isn't it possible to attract enough liquidity to accurately value all stocks at once? Is the information flow that uncertain and dynamic that we all have no idea what companies should be accurately valued at?
Or is the equilibrium of the equity market artificially set at a state of inefficiency to satisfy market participants' desire for the opportunity to achieve abnormally high returns should they want to exit efficient and low return markets such as the bond and currency markets?
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