Here Lies the American Dream

[uncomfortably numb]

patientrenter,
The value of the currency is everything. That’s why the Fed has complete control over it. Interest rates control it’s value as does the money supply itself. It all comes down to how much labor is what currency going to buy. If you understand this, you understand the forces which control the value of money.

[sdduuuude]

“Dollar value” and “dollar availability for housing purchases” are two completely different things. You are treating them as the same thing.

As an example, take the drop of the 10 year bond over the last few days. The money supply has not changed – the Fed neither changed the money supply, nor rates.

However, mortgage rates rose, making less money available for housing. Thus, even though currency was not artificially devalued, there is less of it available for housing.

Is the separation not clear?

[sdduuuude]

“Dollar value” and “dollar availability for housing purchases” are two completely different things. You are treating them as the same thing.

As an example, take the drop of the 10 year bond over the last few days. The money supply has not changed – the Fed neither changed the money supply, nor rates.

However, mortgage rates rose, making less money available for housing. Thus, even though currency was not artificially devalued, there is less of it available for housing.

Is the separation not clear?

[uncomfortably numb]

Volumes have been written about what exactly money is. It is very complicated. Most bankers have no idea what money is or where it comes from, for that matter. I believe you are mixing some things up, like money in a closed system vs an open system (where there are many currencies).

As far as bond prices are concerned, there exists an inverse relationship between prices and interest rates. Bonds are simply a promise to pay a fixed premium per unit. If rates go up you bond becomes worth less. It’s a debt instrument and has little to do with money supply once it has taken life (other than if the money supply forces interest rates up or down, as it is currently doing).

By raising interest rates, the money increases in value. The increase in interest rates forces the price of the house down which is the same thing as saying that the money became worth more.

[uncomfortably numb]

Volumes have been written about what exactly money is. It is very complicated. Most bankers have no idea what money is or where it comes from, for that matter. I believe you are mixing some things up, like money in a closed system vs an open system (where there are many currencies).

As far as bond prices are concerned, there exists an inverse relationship between prices and interest rates. Bonds are simply a promise to pay a fixed premium per unit. If rates go up you bond becomes worth less. It’s a debt instrument and has little to do with money supply once it has taken life (other than if the money supply forces interest rates up or down, as it is currently doing).

By raising interest rates, the money increases in value. The increase in interest rates forces the price of the house down which is the same thing as saying that the money became worth more.

[sdduuuude]

When you say this

“The insane increase we have seen in the money supply (absolute change) is what has caused housing inflation”

Are you talking about money available for people to borrow for the purchase of a home or money that is printed and added to the overall supply of dollars?

[sdduuuude]

When you say this

“The insane increase we have seen in the money supply (absolute change) is what has caused housing inflation”

Are you talking about money available for people to borrow for the purchase of a home or money that is printed and added to the overall supply of dollars?

[uncomfortably numb]

Inflation is always caused by “printing,” either actual dollar notes or electronic entry, more money than goods and services created.

[uncomfortably numb]

Inflation is always caused by “printing,” either actual dollar notes or electronic entry, more money than goods and services created.

[sdduuuude]

I agree, but that isn’t what caused this housing bubble.

[sdduuuude]

I agree, but that isn’t what caused this housing bubble.

[Author]

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