The Housing Bubble

The International Herald Tribune starts off this morning with a look at Bernanke’s future problems: stagflation, inflation, and what they say is the housing market buckling: Housing starts fell 7.4 percent in April to a 17- month low. Homebuilder confidence in May was at its lowest point in almost 11 years. Consumer confidence tumbled this month by the most since last year’s hurricanes. A University of Michigan survey found that consumers are less inclined now to buy a home or a car than at any time in more than a decade. Greenspan passed the baton of ridiculous money supply creation to Bernanke, who will take the blame for the faltering economy. Greenspan took over the Fed in 1987, at the head of a possibly huge stock market crash. Instead of letting the market finally correct itself from 50 years of mistakes, he created a 19 year money supply injection which made investors happy at all the rising charts over that time. Yet the casual investors, and even the expert, doesn’t see that upward moving charts do not mean you’re making a profit. The dollar fell much faster than the charts went up. Now we’re seeing years of housing charts going up and up, but people’s pocketbooks becoming thinner and thinner. What can Bernanke do?

News.com.au offers their perspective on the same problem: stagflation before inflation coupled with a softening of the housing market. Yet the famous Australian paper seems just as untrustworthy in terms of financial analysis with the view on Bernanke’s choices: Low economic growth with high inflation could force the Federal Reserve Bank to continue raising rates at the very time it needs to lower them. The Federal Reserve doesn’t need to lower interest rates nor does it need to raise them. It needs to stop setting the rates and let the banks and the free market decide how much interest to charge. The Fed also needs to stop printing new money each and every week — they need to start deflating the currency base so that savings mean something and markets can have a chance to correct themselves over the next decade. If Bernanke lowers interest rates, all we’ll see is more money creation, leading to more inflation. For over 93 years the Fed has been creating money out of thin air, and the US is on the verge of paying back all those debts in something worse than a recession.

KGW.com title this morning says it all: Housing troubles? Bank on it. They say that any economist worth his salt has been concerned for 15 months, but the true economists were concerned from the first day an average home went up in value. Average homes (covering about 90% of the housing in the US) should go down in price as they get older and newer models spring up. The first day that a house became more expensive over time was the day to be concerned — it is a sign of inflation. Just as your car goes down in price, so should your house, unless there are unique circumstances that make your house more desired than others. The housing bubble started decades ago, and no one should be shocked at economic destruction we’ll face when things finally correct themselves.

Wave3 says Stocks to take new look at inflation. The analysts seem shocked by what they consider a rogue CPI price move hgher, but they’re ignorant to realize that it was a government mistake. The CPI is an index that is manipulated by the U.S. government to give citizens and foreigners the green light for more investment. Rather than reporting the real cost of living increases each year (between 5% and 9% annually if you look at ALL costs), they report numbers that are created out of thin air — just like all that new money. The CPI is the most unreasonable number created by government, because it directly affects how people save and invest their money. Without the fraud of the CPI, the Federal Reserve would not be able to keep creating money out of thin air. Without the Federal Reserve creating money out of thin air, we wouldn’t need the CPI as we wouldn’t see inflation. They both work hand-in-hand with one-another, and we shouldn’t be surprised that they scratch each other’s backs so well.

Saving the best news for last, the Investor’s Business Daily announces New derivatives let home owners hedge against price declines. Now home owners can trade through the Chicago Mercantile Exchange to trade futures and options on housing prices in ten different markets: Boston, Miami, New York, San Diego, San Francisco, Washington, D.C., Chicago, Denver, Las Vegas and Los Angeles. As I’ve always said: one bubble popping in any one market means we’ll see a bubble forming in another market. When a bubble bursts, it is the latecomers who are hurt. The early investors in a pre-bubble market make a huge profit, and they’re quick to invest the money elsewhere, creating another pre-bubble. More derivatives in the U.S. market create a bigger fall for the country’s economy should a recession finally appear. Instead of gambling on the housing market, how about selling, moving and downsizing?

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