Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Bernanke and Bush on Subprime Credit Crunch

Interest-Rates / Credit Crunch Sep 05, 2007 - 08:37 AM GMT

By: David_Urban

Interest-Rates

Friday was a big day as the markets expected confirmation of a September rate cut in Bernanke's Jackson Hole speech. What they got was confirmation that the Fed is monitoring the situation and stands ready to act if the housing meltdown spills over into the general economy.

‘It is not the responsibility of the Federal Reserve –nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.' Bernanke told the markets that it is not the Federal Reserve's job to bail out speculators but they will act if there is a spillover into the general economy.


He later remarked that although recent data has been strong it may not be as relevant and more immediate data will hold greater relevance going forward. If we want to bet on a cut in September the economic data coming out between now and September 18 th will be paramount as will private conversations with business and banking contacts. The most important information will be coming from the August retail sales, August ISM manufacturing survey, August industrial production, and July personal income.

The first statistic came in on Friday with personal income rising 0.5% MoM in July and 6.6% from a year ago. Personal spending was also rising at a 0.4% MoM in July and 4.7% from a year ago. Both numbers were above market expectations.

President Bush later made a meager but correct step to suggest that Congress pass legislation to assist homeowners in obtaining FHA insurance and revising the tax code. The proposals will no doubt be topped by a Congress who will fight to fill a bill with so much pork it might affect the pork futures market.

This will not reverse the problem but in fact make it worse if it turns out to be a bailout of speculators and lenders. President Bush and Bernanke both went to great lengths to state that their jobs are not to bail out lenders and speculators. If Congress passes a bill that resembles a bailout rather than assistance Bernanke may not cut rates but rather hold them steady.

Good legislation will focus on correcting past mistakes rather than the problem currently occurring in the housing market which is deflation. Oddly enough, this is good because deflation will remove the speculators and cleanse the market. Once the fear of deflation is ended the next bull market in housing can begin.

The current tightening of mortgage standards means that people on the margin who bid up housing prices through the use of exotic mortgages and lax standards will be denied access to the type of credit which caused prices to be bid up. The buyers left in the market are now the ones who should be within that particular price range.

The drop in the number of buyers will affect sellers who will not see the same level of action for their properties. Instead of seeing homes go for values above the asking price, eventually they will cut and/or drop prices in order to make the sale. This flows back to the mortgage holders and non-sellers in the general area who will see the equity in their homes disappear through lower appraised values.

The prospect of a 15-25% deflation will not push people into foreclosure as home price deflation does not affect the monthly mortgage payment or the owners' paycheck. Both will stay the same. But housing deflation will increase the purchasing power of those looking to purchase a house as they will be able to pay less for more.

Where it does affect the owner and economy is that the home equity tap, which has for so long supported consumer spending, will now be turned off. This will not increase foreclosures by any measurable number going forward but it will slow non-essential consumer spending. If a homeowner was using home equity loans to pay their mortgage waiting to cash in on expected housing price increases then they were clearly living beyond their means. In this case, the chance for a foreclosure increases.

A final area where deflation will affect homeowners is in the sales of existing homes. If the value of homes in the area is falling then a family is more apt to stay within their current home rather than trade up the ladder using their equity as a down payment on the new home.

By David Urban

http://blog.myspace.com/global112

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This blog and the author is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.

David Urban Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules