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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: X Y Zebra who wrote (24777)10/24/2004 8:37:00 PM
From: Elroy JetsonRead Replies (1) of 306849
 
Real estate benefits for a period under Monetarism, but later falls back to those bothersome real factors that Bernanke treats as a footnote to the Big Plan.

Like your example of the teenager given a Porsche and a credit card, Monetarism reaches a point like Japan where no further debt can be induced into the economy - the constraints being near zero interest rates and stagnant income growth.

When no further leverage can be forced into the system, those who need further appreciation to pay their loans default.

Previously, we have always reached this point artificially when the Fed decides to put the brakes on debt creation by raising both rates and lending standards.

But in a deflationary environment, and with true-believers at the Fed, the Fed currently sees no reason for the economy to even have brakes in the first place. They see themselves as preventing deflation by "stabilizing prices" as if it were some sort of dangerous disease.

But as Charles Rist said, "A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920s teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation."

The end-game for real estate will be ugly.

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