Central banks create all modern financial bubbles. Real market interest rates will destroy the US stock market prices, bond market prices, commodities market prices and so-called recovering housing market prices. Volcker showed us what raising interest rates will pop bubbles. Bernanke is showing us that forcing down interest rates through monetizing the Treasury and GSE markets blows bubbles everywhere.
Remember when the market would tank and the FED came to rescue always, cut rates cut rates… wealth effect model is the best thing we have here
We are at mini bubble 2.0 in home prices now and Bernanke was complaining after the Fed Minutes that Lending standards are too tight even with all this cheap money into the system.
Had to take a shot at Bernanke for that on Bloomberg recently.
For Bernanke to think lending standards are too tight when they poured 3 trillion dollars into the system and people still can’t buy homes .. show they have no grasp of where DTI capacity is..
But then again, they never saw the crash coming because they never understood the leverage no capacity debt bubble we were in
Now even with record low interest rate, look at how much struggle we have with consumption.
One item on home prices.
Take a look at any long term chart of housing prices and then focus on 2001-2006 and then look at the re inflation of prices with the long term trend line.
We never ever corrected properly enough on home prices in relationship to real time Debt to income ratio.
Housing Inventory crisis which is a major hangover from the housing bubble is actually the main reason why home prices are rising again. Then add to that these super low crazy rates which 70% of the market place is still mortgage buyers. We don’t have enough income growth to handle housing inflation .
In Japan, Kuroda is paying trillions of yen in JGBs from banks and insurance companies, in order to weaken the yen. So he is boosting exports, pumping up the stock market, but ultimately ramping up the prices of imports and forcing up the cost of living on cash-strapped Japanese citizens.
The two charts linked below show the relationship between the JCB weakening of the yen against the USD, and the bubbles in the NIKKEI 225 that follow.