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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (29344)	5/4/2005 3:32:08 PM
From: Tommaso	Respond to of 116555

>>>The problem for the FED is they think they can slowly unwind the housing bubble as they did the stock bubble. I do not think they can but it will be the little guys that get hurt the worst.<<<< I actually do not think that they have unwound the stock bubble. And any decline in housing prices should set off a contraction of credit that will pull money out of the stock markets. And vice-versa. I think that the Fed will expand credit, but not lower interest rates, which it can do. An institution headed into bankruptcy will in fact be wlling to agree to higher interest rates in order to obtain additional credit. The expansion of the money suplly, I think, will devalue the dollar and lead to commodity price increases, which will show up in the inflation figures. To "fight" this inflation, the Fed will allow interest rates to rise or even help force them up. I think it depends on which "little guys" you are talking about. I consider myself a "little guy," but I own my house free and clear and have no other debt, and am short both stocks and (a little) bonds. I think a person with big credit card debt and a big adjustable mortgage will have no choice but to give up his or her house and file for bankruptcy. There may be a generation of credit slaves, especially with the new bankruptcy law. Whatever happens, it will not be a happy outcome.

To: mishedlo who wrote (29344)	5/4/2005 3:33:37 PM
From: Alias2k5	Read Replies (1) \| Respond to of 116555

I share concerns about whether the Fed is on the right course, but don't think it's being driven by little guy / big guy preferences. Greenspan took the funds rate to 1% to be "accommodative" of the completely unexpected 9/11 and Iraq War contingencies - that's when he started using the term - now we're in a process of "measured" withdrawal of that accommodation. "Accommodative" decrypted means patriotic leniency. If somebody's being bailed out it is the current federal administration and the enormous war and security induced deficit and debt that would have been impacted by more rapid rate increases. I don't think Greenspan, or anybody else, could predict the costs associated with these policies. I certainly agree that Americans have been led to pile up personal debt by leveraging their artificially enhanced real estate gains, but would question if the Fed can save anybody from a bubble - the markets ignored Greenspan in his bully pulpit on "irrational exuberance." I would disagree that the Fed "unwound" the tech bubble - the market started to collapse in April 2000 - Greenspan didn't really act until a year later when much of the damage was done. I think the Bush administration has been fiscally irresponsible and Greenspan in his final years has reverted to his schoolboy ideology in order to "accommodate" bad government in what he considers a good cause.