Skip to main content

What's Bernanke going to do during the housing crash?

A Recent NY Times article on the Japanese Housing Bubble
got me thinking. Especially this quote:

Japanese economists say the United States is not likely to suffer a decline that is as severe or long-lasting as Japan's, because they see a more skilled hand at the tiller of the American economy: the Federal Reserve. Japan's central bank, the Bank of Japan, failed to curb the stock and real estate bubbles until mid-1989, when it was too late and prices were sky-high, they said.

Translation: It's different this time! Is it really? Let's listen to some words from Mr Bernanke:

But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Sounds different, but in a really bad way. It won't be like Argentina. Argentina owed external debt in a foreign currency and had a currency peg. I think we will have very serious deflation but Bernanke might take "unconventional measures" and then all bets are off. If only conventional measures are used we'll see the government make a beeline to zero percent interest rates very quickly as soon as the housing bubble starts to affect the economy. Once rates fall below european rates that will start eroding the currency. Europe of course will lower rates too because they can't have an appreciating currency so early in their economic recovery. When rates fall and hit zero thigs will go for a while and the housing bubble, or another internet bubble might come back but if no inflation shows up this time at zero percent, which it might not, then we reach the problem of rates at zero percent. This is the nightmare of central bankers. Bernanke has taken a keen interest in this and has recommended "unconventional measures" like buying things besides treasuries to create liquidity. The central bank will play this where's the money going now game with the investment community. Buying stuff in different markets all over the place confusing investors and the economy to no end.


Jeff D said…
Bernanke is a dangerous man, but he'll end up worsening the problems we're inevitably going to have due to the massive imbalances that Greenspan allowed to develop........

Popular posts from this blog

Thinking about ICOs.

The ICO craze is in full swing. Etherium goes from 30 cents to > $300. The Ten-X ICO and others raise millions in no time. The secondary market for it shoots up massively. The two questions I ask in every bubble are:

Where is the money coming from?
How can I monitor that source of money to know when the money is going to stop coming?

 My best guess for where the money is coming from in the ICO bubble is China. China is the home of all the big Bitcoin mines and has a cottage industry of schemes to exfiltrate money out of China and into anywhere else. The "money" is also coming out of Bitcoin to some extent and into other crypto currencies due to high transaction fees.

What Countries are using crypto currency?

 If we look at bitcoin search trends for Bitcoin : We see the U.S is at number 10. And Ethereum, the smart contract cryptocurrency powering the newly hatched ICO world: We see that the U.S is way down the list at number 18. Google underreports China of c…

Keeping up to date on China Stock/Economic news

I have been trying to get a daily reading list together so I can more closely follow economic developments in China. I was trying to stay as far away from western viewpoints of China as possible. Reading western news sources is like reading about science in newsweek vs reading china business based and focuses news sources -- which is more like reading the actual technical journal articles.

Ok here's my notes on the topic so far:

-Decent - basically Xinhua's (Official Chinese News Agency) business section

-brief gov news agency business headlines.

-Not bad with a lot of original information! for example:

"Tax treaty benefits
In this article, we shall analyze the process of adopting a Mauritius company as a holding vehicle. The China-Mauritius tax treaty offers some tax benefits in structuring a tax efficient holding structu…

Why there will be no hyperinflation

I have been reading the inflation/deflation debate for some time now on various parts of the web. The inflationists insist that we will collapse like Wiemar. The deflationists insist that we will collapse like Japan. The memory of the 1970s inflation is strong in many an old gold curmudgeon, so the inflationists seem to be more prevalent. I will in this essay attempt to argue that hyperinflation will not happen if global commodity markets remain priced in dollars. The reason for this is that if inflation increases, the rest of the world will bid commodities up drastically, especially oil, and severely throttle U.S economic growth, leading to a more restrictive monetary policy.

Hyperinflation always happens due to a foreign exchange crisis. The population, sensing a high level of inflation, rushes to change their earnings in for real goods or foreign currency. In the case of Wiemar, or Argentina, the rest of the world is largely unaffected. They see their currencies drastically …