That's a lot of ifs. J6P is already leveraged to the max, if not on homes, then on credit cards, education loans, and now car loans too. There's a myth that we've deleveraged. At the macro level, there's very little deleveraging going on. Really, it's more like the debt has played musical chairs and grown fatter at the same time. Lastly, we aren't getting 250K per month and that's not likely to happen consistently any time soon. You don't get that kind of growth in an over-levered economy.
Lastly, real estate prices ARE over-priced. There isn't one asset anywhere, including precious metals that are NOT over priced. Everything is over priced because interest rates, which are the price of money, are artificially low and we have a surplus of dollars backed by a surplus of debt floating around that has chased every price higher.
If there's one single lesson everyone should absorb is that in a free market, the price of money is like the key stone in a cathedral. EVERYTHING else keys off this one price. If it is manipulated, then everything else gets mispriced. In a free market, we would probably see interest rates on the 10 year Treasury at something like 5-6%, which means our Congress would have to pay close to $1 trillion per year in interest to entice the free market to own it. That would deflate prices in almost every other sector, including houses.
This is why it's a catch 22. Bernanke knows all this. Almost can't blame him for doing what he's doing. He knows that if he did the right thing to preserve our free markets, that he would have to allow deflation to happen to let the excesses of the last 30 years get wrung out. This is how markets reset and reallocate capital to the highest risk vs reward projects. But if he were to do that, then he'd be kicked out of office and so would every Congressman, because free markets aren't forgiving to those who made bad bets, so a lot of people would suffer the hangover for the last 30 years of boozing.
Knowing this simple fact is why I am 100% certain this speeding train will never stop until it hits the wall. Most people simply don't understand how free markets work and why interest rate and monetary manipulation always lead to the same outcome in every single instance in history that it has been tried for too long. I can assure you Bernanke knows where this will lead, but he's made a cold calculation that by the time it hits the wall, he'll be retired and praised for the short term work he did, despite leaving a catastrophe in waiting behind him. |
