I think Tim Iacono is the only person expecting deflation. I can see housing prices go down,but what else would go down? What do you think, sduuuude, inflation or deflation, and why?
I think the government will probably try to go the middle road: Basically print enough money to partially offset the credit contraction. Like you say, it won’t be enough to keep housing or the stock market elevated, but other prices will still rise. Necessities will rise, and gold and agricultural commodities might rise the most. By being in the middle of the two evils, they upset the least voters. Houses drop 30% and gasoline rises 30%? Wouldn’t you try to do the same if you were Bernanke?
I agree they probably will do both. Of course, the RE bulls will claim some level of vindication by focusing on price rather than value, but a correction by any other name is still a correction.
Well, PS, my understanding of macro economics isn’t as good as yours. The thing is housing will deflate and most everything else will inflate – thus the conundrum. I guess Bugs is right, housing will drop but inflation could appear to mitigate the drop in price, though not value.
I think the Fed should ignore the housing market and keep inflation to a mild level, but I don’t know what they’ll do.
As someone listed in another post somewhere, the housing correction is a necessary, “bad medicine” that must be swallowed to balance out many problems in the economy.
Here are some excerpts from the Jim Puplava show. It makes you think that the government really doesn’t want housing to drop and rather print money. I am surprised that Bernanke seems to be the most reasonable, since he at least tried to rase rates. (At least so far)
I’m not an expert but I think that we’ll see lower housing prices with higher interest rates. The reason is that housing is not part of inflation, but rent is (as is oil). As inflation rise, the Fed will have to combat it. If assets prices are not rising, we need higher rates to attract foreign money on which we depend so much now.
Wages and consumer goods will remain in check thanks to over capacity in Asia. We are entering uncharted territory where some sectors of economy will have inflation whereas other sectors may experience slight deflation (such as consumer electronics). I think the near future will be good for people who have good jobs, low housing expenses and consume little.
The world economy might be saved by China engineering a consumer boom in their market, just like Thailand, South Korea and Malaysia did with their economies after the Asian financial crisis.
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