After checking out your website, I wanted to remark about the positive feedback loop whereby low interest rates led to rising home prices, which permitted the consumer to borrow vast sums of money and run huge deficits. The debt financed consumption of imports, which leaves the FCBs with little choice but to recycle the dollars back into US bonds, further distorting interest rates below natural levels.
The only thing that realistically causes the loop to break is when home prices soar so far that the reduction in affordability removes a large enough fraction of the buyers. Home prices stop rising, the mortgage debt stops expanding, and the massive prop under consumer spending is removed. Of course, you know all this.
The key question for the timing of this is how long it takes for this to transmit through the system. It appears home prices have stopped rising. It seems like the net change in mortgage debt should taper off almost immediately, since it has more to do with home prices than sales volumes. Do you have a statistic that captures change in outstanding mortgage debt?
Seems like merely looking at origniation statistics is insufficient, since most new loans replace existing loans. It's the *change* in mortgage debt that is most indicative of new stimulus, right? Net new mortgage debt is what is used to finance consumption, and when that number falls off, we'll see imports begin to fall, with coincident declines in FCB purchases of our bonds. So just as the economy is weakening, this artificial depressant on long term rates will go away.
It seems most critical to track net change in mortgage debt, since it should be a leading indicator for the trade deficit and the likely reductions in FCB bond demand.
BC |
