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August 8, 2006 at 1:15 PM #7138August 8, 2006 at 1:36 PM #31288bubba99Participant
Although one would expect a recession if housing prices collapse, I do not think that it is an automatic. Yes consumer spending should be lower, and savings and disposable income also lower because of increased payments to ARMS, and HELOC because of higher interest rates, but will the FED allow a serious recession, just a minor one, or try to prevent it all together.
We saw back in 2001 that the FED could significantly impact the economy by lowering interest rates – this is not the only trick in their toolbox. It is likely that in the event of a recession beginning, the FED will begin to ease liquidity by increasing money supply. As long as the US can continue to buy low cost consumer goods from abroad, the economy will keep moving. But how do we pay for the net outflow of dollars to foreign governments. One possible answer is to print money.
As long as interest rates stay ahead of the deflation of the US dollar, the US will be able to finance its growing trade deficit. For a time, this will stave off a “real recession”. The US dollar will lose against foreign currencies, but they are so dependent on the US consumer to keep their own economies going they will fight to prevent a US consumer recession. Thus a serious recession may be avoided. The forecasts of Gloom and Doom for the US economy because of a housing led recession are overstated.
But just to be sure, I am out of the market.
The FED may pull some other rabbit out of their hat and create a new “real estate” like boom. Or maybe in 5 years or so we do real estate again. But the world economies will not allow a real US recession if they can help it.
August 8, 2006 at 3:01 PM #31302BugsParticipantPrinting money punishes everyone; price corrections only punish the dumb and/or greedy. I detest the idea of subsidizing and enabling someone else’s poor decisions. I say let the prices correct and leave the rest of us out of it.
August 8, 2006 at 4:07 PM #31323anxvarietyParticipantPrinting money punishes everyone; price corrections only punish the dumb and/or greedy. I detest the idea of subsidizing and enabling someone else’s poor decisions. I say let the prices correct and leave the rest of us out of it.
I see only one problem with that… majority rules 🙁 🙁
We know the gov will bail out the banks.. How would they be able to do that though without throwing some cookies to the people?
I think we’ll see the banks get a giant hand-out and people that are screwed over by their debt will get a mini-handout.. us Piggys by the sidelines will be paying into this fund with our tax money, to what benefit? Seems orta like an affirmative action for personal finance.
August 8, 2006 at 5:56 PM #31341August 8, 2006 at 6:41 PM #31342Diego MamaniParticipantIt’s not “FED”, it’s Fed, short for Federal Reserve Board.
August 9, 2006 at 8:52 AM #31383powaysellerParticipantIn the other link I posted on the Roubini thread, he explains why not even a rate cut can prevent a recession; it’s a sure thing now. He also explains why the rest of the world cannot decouple from the US slowdown; they will all be affected; commodity prices and emerging markets will all go down as US demand wanes.
One comment I’d like to add: the US consumer is in so much debt, that not even 0% interest rates can save us. Look at Japan – not even 0% rates for over a decade prevented their recession and housing bubble collapse. The US consumer is spending 108% of disposable income, up from 40% in the 1950s when they first started tracking this data. How much more of income can people spend. Any Fed printing will really raise inflation, and that will be just as bad for consumers as higher interest rates.
The other very real problem that the Fed doesn’t directly address: how do they get foreign central banks to keep funding our deficit? If rates are cut to 1% again, watch the flight out of the dollar in earnest.
I am curious if the Fed has any rabbits in the hat. What can they possibly do to mitigate the recession. The recession is coming, I’m certain,but what will they do to try to shorten it once it hits? Anything they could do would be just an intermediate fix, I am afraid. The real answer is we must invest in our education, development, research, and start saving and not consuming stuff made by other countries at a higher rate than our own production!
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