Tuesday, December 17, 2002
NEW YORK — A record wave of mortgage refinancing since 2000 has put money in consumers' pockets and fueled one-fifth of all U.S. economic growth since 2000, a report released Tuesday said.
What an interesting factoid. Bet you'll never hear that on CNBC.
This must be the new economics. It used to be that production and wages drove the economy. Production, not consumption. Wages, not borrowed money. The goal of wealth has been replaced by affluence. If a family is affluent they have massive expenditures matched with massive income. Wealth doesn't work that way at all. The day family revenues fall and the payments on the luxomobiles and huge palace house become a burden, affluence is over, and there is still no wealth. Our wealth has been traded for cars and house payments. Cars wear out and rust away; houses need maintenance and are taxed. It's all affluence. Where has the wealth gone?
This didn't put money in our pockets. It reduced our indvidual debt to the mortgage companies.
Conseco files Chapter 11, 3rd largest BK after Enron and Worldcom
Understanding Inflation and Deflation
Once asset prices start falling, I do not believe the Fed can stop them. No one can. Pyramid schemes collapse, they do not continue in perpetuity. There is no evidence in history that it can be done. Our own Nasdaq experience shows they were unable to do it there. A weak dollar policy will create plenty of it's own problems which Mr. "You Mean I'm Not Supposed To Talk This Way In Public?" Bernanke doesn't even mention. Will foreigners just sit there and say 'thank you' as they get shafted? Might they move their savings to another currency or gold? What percentage of our assets do they own currently? Isn't it a lot?
If the Fed manages to keep housing prices levitated for a while longer, it will only mean more pain and suffering in the end. The way things have worked this time, falling asset prices may actually cause deflation, as people swear off debt. Or, people may do what this Fed has conditioned them to do: chase the asset that is rising in price. Paying down debt or moving on to the next speculation may interfere with the plans of Mr. "We're Gonna Start Buying Crap Off eBay If We Have To" Bernanke. A sated consumer, saddled with debt, who is worried about losing his job, may not cooperate with Mr. Bernanke's campaign to increase demand.
The Fed will certainly try to continue to inflate. And certainly the prices of some things may go up in value. But my guess is the Fed doesn't have as much power as they think they do. Even if they are successful, it will only take us closer to serious, serious systemic problems. But I do not believe housing prices can be propped up much longer. And when that goes, the real pain will begin. The sooner we take the pain, the sooner we can get back to reality and a healthy economy.
Live like there's no tomorrow and remember the economy is consumer-driven.
What else? Oh, yeah, if interest rates ever go back up, there won't be a tomorrow.