Seems low interest rates aren’t all the tool they’re cracked up to be?
But they’ve only been low for a bit over 3 years.
Monetary policy works with a lag and all that.
Much like Japan.
Again like the carpenter said of his piece of wood, no matter how much cut off it’s still too short?
Along the same lines, next thing they’ll be doing is increasing savings incentives to help investment.
And note the slight twist on the same theme, increasing bank capital requirements to support confidence.
It’s about aggregate demand, and how you can’t drain yourself to prosperity.
How hard is that?
New Home Sales Unexpectedly Slip 1.6% in February
March 23 (Reuters) — New U.S. single-family home sales fell in February, but a jump in prices to their highest level in eight months kept hopes alive of a recovery in the housing market.
The Commerce Department said on Friday sales slipped 1.6 percent to a seasonally adjusted 313,000-unit annual rate. January’s sales pace was revised down to 318,000 units from the previously reported 321,000 units.
Sales for November and December were revised up a bit.
Economists polled by Reuters had forecast sales at a 325,000-unit rate in February. Compared to February last year, new home sales were up 11.4 percent.
The median price for a new home rose 8.3 percent to $233,700, the highest level since June. Compared to February last year, the median price was up 6.2 percent.
The report, which rounded off a week of mixed housing data, followed a similar pattern seen in the market for used homes. Home resales fell in February, but prices rose from a year earlier. Housing starts slipped, while permits for home building approached a 3-1/2 year high in February.
How hard is that? It’s extremely difficult for the economically illiterate politicians who suddenly find themselves able to tinker with the buttons and levers that control the economy. It’s toys for boys: they cannot resist tinkering with the controls.
Tell them that the solution is simply to give households more spending power (and/or increase public spending) and they’ll burst into tears: that would put an end to their tinkering.
Unexpectedly. Says it all.
Can we summarize the effects of low interest rates as:
1. It takes away interest income from the economy that is always a net saver
2. it does not stimulate bank lending or private sector borrowing that are pro cyclical
3. it may lure savers that are desperate for income into other more risky asset classes
The effect of extra savings incentives, e.g. tax deductibility , will just create more demand leakage.
Do you mean that their idea behind higher bank capital is that savers will get more confidence in the safety of the bank and then save more?
1. yes 2. it might, but assume you are ‘mr economy’ and go in for a loan. yes, rates are down, so the lower payments help you qualify, but your income is down as well, which probably hurts you far more than the rates help, even though it might be a wash numerically? and the lower income is keeping sales and employment down as well. 3. possibly, though savers have fewer dollars of interest income to spend or save.
higher capital is supposed to make people feel there is less systemic risk and therefore somehow spend more.
In my reality the house market is like a wish sandwich………..
You got the tax appraisers trying not to loose tax income and the mortgage industry trying not to admit they are backwards on almost all properties while stuff is selling cheap or not at all……..
If I thought the numbers were real I still would not be surprised and would bet it’s a lot worse….
@Dave Begotka, maybe the appraisals from insurers are a better indication?
@walter,
Dude that number only counts when the corporate oligarchy has to pay you…….and they will soften you up a bit first with bully tactics………lol
How does this deal sound, I know of a property that is appraised at 110K that can be had for 70K and the taxes on the property are 3.5K…………..so in 20 years you have paid the banksters 2.5 times amount borrowed and you will also have spent 70K in taxes.
All this in an area where you can wipe your ass with most collage diplomas, most of the 20% unemployed are unemployable, starting pay for factory work (if you can find it) is 8 to 10 dollars an hour and to top it off the local industries that are still there have difficulty filling “skilled” positions…..(Tool makers, fabricators…..)
if its a house you want to live in you need to compare it to renting for the next 30 years, etc.
yes, it costs to live somewhere
@Dave Begotka,
Warren who is “you”………”I” am fine………my point is we are a lot closer to eating ourselves then most realize.
Dude you know I like you and think you have a lot of great ideas but you seem to get a bit disconnected sometimes….. as in the past…………………….
http://www.youtube.com/user/TheTrailerParkVault
I prescribe you watch “Trailer Park Boys”…….all 7 seasons……this is how I grew up and there are a zillion of these types running wild…….none of them have a clue and if you asked them what MMT was they would think it was a new drug or something.
Can the framework of our world you all believe is reality survive without a mass culling…….can changing numbers in a spread sheet really change anything when it comes to the masses of mindless human monkeys running amuck NEVER given a chance…………………
hoping to find out soon!
Bernanke: “I did NOT have savings with that investment.”
Politicians & Press: “What? Did you just say what we think you said?”
Bernanke: “Define savings.”
Gotta love the interpretations:
Feb release:
Nov Dec Jan
318 324 321
March release:
Nov Dec Jan Feb
322 336 318 313
Feb est 325
Seems like if the Dec revision was only worth mentioning in passing as a “bit” then none of the data was worth mentioning at all…
Just amusing.
honestly all Austrians and MMT-ers HAVE TO READ (AND REALLY UNDERSTAND) Henry David Thoreau’s essay called “Civil Disobedience.” It is an absolute MUST, b/c it addresses the issues of the size of government, the role of the individual in society, and the path to Freedom on earth in the most detailed, direct, and comprehensive manner I think I have ever read in modern literature. He addresses all the issues Austrians and MMT-ers ultimately fight over, which is the role of government in society versus the role of the individual, etc. I re-read this great piece today and I was in awe how much it relates to the philosophical issues MMT-ers and Austrians and Libertarians and America at large today are grappling with and attempting to resolve in good conscience.
It is even more fascinating that it was published in 1849 while Marx’s communist manifesto was published in 1848. I do not know if Thoreau knew of or read Marx at the time (though I suspect he would have)…either way the parallels in the ideas are striking indeed. Most people don’t realize that Marx was more democratic than socialist, and he looked to the Freedom of America both on paper and in geographic possibility as a model for Europe to follow. But that’s really another story for another time.
And to whet Matt Franko’s whistle…check out the last couple paragraphs of “CD” where Thoreau talks about the New Testament and what I believe is an allusion to the New Jerusalem in the last line of the entire piece.
Arguably one of the most powerful and potent political and civil documents ever written.
http://sunsite.berkeley.edu/Literature/Thoreau/CivilDisobedience.html
and don’t forget to read pirsig’s ‘lila’
@WARREN MOSLER,
yes I’ve been meaning to get to that per your request
he ignored hobbes and the fundamental need for govt to prevent constant warfare, including what we call criminal activity, which is what happens without government.
Hobbes is perhaps most famous for his political philosophy. Men in a state of nature, that is a state without civil government, are in a war of all against all in which life is hardly worth living. The way out of this desperate state is to make a social contract and establish the state to keep peace and order. Because of his view of how nasty life is without the state, Hobbes subscribes to a very authoritarian version of the social contract.
@WARREN MOSLER,
I haven’t read Hobbes much at all, but “The Leviathan” is describing the nature of the government as a beast ruling over men (for men). The social contract is definitely true and must be affirmed. Thomas Moore in “A Man for all Seasons” states a similar philosophy regarding the law and the need for the law among men and society.
Thoreau was not against government as you say, he was for a greater and better government. Much like your proposals are for a greater society as I see it.
This is a quote from Civil Disobedience:
“But, to speak practically and as a citizen, unlike those who call themselves no-government men, I ask for, not at once no government, but at once a better government. Let every man make known what kind of government would command his respect, and that will be one step toward obtaining it.”
and here is another one:
“For eighteen hundred years, though perchance I have no right to say it, the New Testament has been written; yet where is the legislator who has wisdom and practical talent enough to avail himself of the light which it sheds on the science of legislation.”
To put it in economic terms, Thoreau saw an major political “output gap” in terms of his government, his society, and amongst the potential within the modern man.
yes, it’s a work in progress…
@Mario,
Interestingly enough, Karl Marx was also one of the unsung heroes of the American Civil War. He was a foreign correspondent in London for the New York Herald Tribune during the war, and wrote about how the UK supported the South in order to undermine the North as an emerging industrial capitalist competitor. The Southern plantation/slave economy was much more akin to the British colonial domain and thus much easier to control.
Derivatives and financial engineering was in play as well. British investors bought Confederate debt structured with embedded options to give investors the right to receive interest payments and redeem principal in their choice of either inflationary Confederate currency or equivalent weight in bales of cotton, or other cash crops.
@Ed Rombach,
fascinating Ed! Thank you for sharing this.
The BOJ is warning that fed inaction on interest rates could change the adjustment factors that are in play…
http://www.marketwatch.com/story/fed-warned-not-to-keep-rates-too-low-for-too-long-2012-03-24