Friday, September 14, 2012

Is Bernanke Attempting to Blow ANOTHER Real Estate Bubble?

While thinking some more on Bernanke's decision that we need more quantitative easing and that he would achieve this easing by purchasing mortgage bonds, I was struck by how little sense this made.  First, it's not as if mortgage rates are high right now, in fact, they are the opposite at all time lows:

Also, it doesn't seem to be the case that real estate is drastically undervalued either, in fact, adjusted for inflation it still seems to be at slightly elevated levels.  The only reason to think real estate is undervalued is because it was much higher several years ago, but as we know, that value was not real:

So if real estate mortgage rates are at all time lows and real estate prices are still a little on the high side historically, what could Bernanke be doing?  It seems pretty obvious that he is trying to blow another real estate bubble.  He probably thinks that if he can blow another bubble, we can get construction spending as a % of GDP up, thus helping get our economy back on its feet and also help create jobs (though those jobs are relatively unskilled and don't exactly seem to represent what I would think would be the future of the economy).  But as we've seen, there is no such thing as a free lunch, nor is there such a thing as free money.  At some point the Federal Reserve will have to reverse course and then there will be hell to pay.  Just remember what happened in the aftermath of the Fed blown stock market bubble and the Fed blown real estate bubble.  Nothing but carnage.

Also, it's very unclear if there will actually be beneficial effects to the real economy by any of this.  Former Fed Governor Kevin Warsh thinks that the launch of the IPhone 5 will have more of an impact than QE3 will.  Check out his interview at CNBC, which is one of the best I've seen in a while (if I were President, I might think of naming Kevin Warsh to be Fed Chair):

Marc Faber also makes some good point in the interview below.  He points out that money printing tends to help the rich, who own assets but hurt the poor, who don't (and who face higher food and energy prices).  He also points out that this will only end in disaster, or as he puts it "The Fed Will Destroy the World".  Given the impact of QE on food prices globally and the fact that many people around the world spend a good percentage of their income on food, you can kind of see the point.  Many already believe that QE2 caused the riots that led to the revolutions across the Middle East as people were extremely unhappy with food price inflation:

1 comment:

  1. I believe that the trends created by the Fed are not by any means intrigued by the general influence on the people on the loose,so long as they keep up their capability to obtain profits for themselves.No doubt to be reliable that the Fed will play with any policy format that will support their profits, ignoring social consequences to the farthest degrees conceivable to keep up benefit margins.Bubbles simply happen to be interim incendiary financial reactions.All of which,by configuration,require the making of more cash.Obviously,the childishness of such attempts can just amplify profits for a period,which further requires the cycling of bubbles.From my perspective,there is no limit to this cycling.They will proceed with,the same as they generally have since their commencement in 1913.What interest does a private substance have in the thriving of people outside itself?The answer is: close to is totally important to give development or manageability to itself.
    Hurford Salvi Carr