Joined: 28 Dec 2005
|Posted: Thu Nov 05, 2015 9:21 am Post subject: Fed - USD/Oil - Housing
What good is ďsoundĒ money when the result is lower real income?
Sure, the dollar is worth less, but the additional dollars more than make up for it.
The Fed creates and destroys money to help smooth-out business cycles to promote sustainable growth, which is optimal growth.
Economic boom/bust cycles (not to be confused with asset booms and busts) are inefficient both in the boom and bust phases.
Monetary policy has become much more flexible to deal with suboptimal growth, since we went off the gold standard.
You can thank the Fed later for the faster real growth.
Too much household debt was caused by lax lending standards set by Congress, along with other poor policies from Washington politicians, including too-big-to-fail.
Of course, an economic downturn causes more loan defaults. It shouldn't have been the case some people were able to borrow and others were able to borrow too much.
And, too much government debt was caused by too much government spending and too low tax rates in expansions.
If you believe the financial sector is as big as the economy, then you should be for a bigger financial sector.
The stronger dollar coincided with lower commodity prices Ė priced in dollars Ė particularly oil prices.
Oil importing countries need fewer dollars to buy oil and the appreciation of the dollar compensated for the decline in oil prices, I.e. foreigners exchange their currencies for fewer dollars to buy oil priced in dollars or sell their goods to the U.S. for fewer dollars to buy oil at lower prices.
And, regarding the housing market, itís a bubble only if it bursts.
However, housing starts and the homeownership rate donít show a housing boom at all.
Most people live month-to-month. So, higher housing prices are needed for lower mortgage rates.
Homeowners should be thankful the Fed increased their equity.
When economic growth picks-up, higher interest rates may result in lower or slower asset prices.
Whatís important is economic growth (of goods & services).
And, you donít know itís a bubble, unless it bursts. For example, it looked like the Colorado housing market was forming a bubble by the mid-2000s, but it didnít burst.