I also do not think they want to put themselves out of business, but they are slowly painting themselves into a corner.
"Free money" by definition must be worthless. There is no free lunch.
The public is slow to wake up to the fact that they are being cheated, but once inflationary expectations take hold they have a tendency to feed on itself.
Early last year i thought, that we were not past the point of no return, meaning that the Fed could tighten for real and engineer a hard landing ( we are well past the soft landing option).
This year i am not so sure.
It is highly likely that we have already passed the point of no return.
Think what would happen to the economy if housing prices dropped to fair value, meaning about 50%.
What would happen to consumption, Fannie Mae, the banks, stock market, retailers,the unemployment rate ?
IMO 20% unemployment rate, collapsing banks, commercial and residential ghost towns and millions of people moving back with their parents.
IMO housing prices must go down by 50%, the only question is whether they go down in real or nominal terms.
So either we have a depression now or no depression but eventual hyperinflation and then a depression.
The first months of Bernanke will be crucial, will they stop at 4.5 % or keep going past 5 ?
Not that 5% would be enough given that a true level of inflation is somewhere between 6-10%.
I agree, 2006 will be a key year. |
