socalalarm, Roubini says that the Fed lowering rates would be like pulling on a string, i.e. it won’t make any difference because households are in so much debt already. I think it could draw out the foreclosures somewhat, but to make a true dent in foreclosure, you would need to put rates back to the same it was when the people took out the loan, i.e. 1% – 3%. If the Fed goes that low, can you imagine inflation really taking off…
The problem is the upcoming job losses and tighter credit lending standards. Even if rates go back to 4.5%, the job losses resulting from construction and MEW-related jobs will cause a recession.
Every asset bubble has reverted to the mean. We haven’t even seen the fallout of the lending industry yet, or the derivatives mess in Fannie Mae come to light. Once the gov’t bails out Fannie, they have to raise taxes or print more money… What will China do as the US consumer pulls back, and they have less money to buy Treasuries – can you imagine their lower demand will really raise the long end of the curve.
The other factors we’re not even considering paint a much worse picture.
In the end, our economy will be cleansed for the next generation, so they can have a shot at a decent life, instead of being buried in our debt and priced out of homes. It’s time that a home costs what a median earner can afford. To me, this is a welcome development.
