July 26, 2006 at 11:04 PM #7016sdduuuudeParticipant
I love this article:
It poses the exact question that has been bothering me these last several months in very simple terms.
When some prices rise and some fall, but you only have one control, what do you do?
Fascinating.July 27, 2006 at 12:08 AM #29778powaysellerParticipant
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?July 27, 2006 at 12:42 AM #29782rseiserParticipant
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?July 27, 2006 at 7:44 AM #29786waiting hawkParticipant
Hyperinflation 😉July 27, 2006 at 8:49 AM #29792BugsParticipant
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.July 27, 2006 at 8:59 AM #29795sdduuuudeParticipant
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.July 27, 2006 at 9:13 AM #29798North County JimParticipantJuly 27, 2006 at 10:41 AM #29809rseiserParticipant
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)July 27, 2006 at 12:50 PM #29824PerryChaseParticipant
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.
- You must be logged in to reply to this topic.