Today I attended a speaking event featuring Barry Habib, sponsored by Walnut Creek’s RPM Mortgage and a mortgage-broker friend of mine, Ken Neate. Barry is a well-respected businessman, investment professional, and a heavyweight in the mortgage industry, and was invited to share his thoughts on the mortgage market, interest rates, the economy, stocks, and the housing market with a select group of local real estate agents.
Especially since the 1990′s, home prices have largely been driven, directly or indirectly, by the actions of The Fed. The Greenspan Fed enabled the Credit and Housing Bubbles, and the Bernanke Fed is doing everything it can to keep them inflated, extending and pretending, hoping the fundamental core economy will eventually catch up.
Whether you define deflation in terms of credit, in terms of purchasing power of the dollar, in terms of the CPI, or in terms of the Case-Shiller CPI, to the complete consternation of screaming hyperinflationists, those predicting deflation got it correct.
This brilliant report clearly explains the complex forces at play in our current economy. Topics covered include The Fed, inflation, The Great Depression, The Dollar, deflation, geopolitics, budget deficits, consumer spending, and more.
This is a must-read.
The Fed makes banking policy decisions, largely influenced by the level of inflation, yet home prices are excluded from the calculation. As home prices skyrocketed, inflation – as it felt to people on the street – was probably underestimated. With today’s falling home prices, we could be in a more deflationary environment than economists give credit.
Bernanke has bet his bankroll on Goldilocks, but the Red Queen trumps the golden girl.
And the difference all stems from how you measure inflation. These details matter. Now, let’s go back to that highlighted portion from the BLS web site.
“Because the asset price method can lead to inappropriate results for goods that are purchased largely for investment reasons [emphasis mine], the CPI implemented the rental equivalence approach to measuring price change for owner-occupied housing.”