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Old 05-31-2008, 07:04 PM
 
Location: DFW - Coppell / Las Colinas
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This is for all the Economic genius's on the forum. In the early 1980's inflation went sky high after a war & high prices / shortage of fuels from the 70's. Good Ole Ronald Reagan gave us Reagonomics and interest rates went sky high to reduce spending, encourage savings and bring inflation under control. Home mortgage rates went up to 17%.

Is this the formula that will be needed in the near future? Will the housing crunch prevent the Fed from doing what's necessary to reel in inflation if we start to see double digits again?

I don't pretend to be an expert so I seek your opinion.
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Old 05-31-2008, 10:22 PM
 
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If so it will not hit until after the election, and the seating of the new President and Congress. Then all bets are off. But I think you are correct and wise to anticipate it.

If they did it before the election, there would be a large public outcry against the Fed. While the Federal Reserve pretends to be an apolitical (and private) company, to keep its con job and monopoly it has to be highly politically aware. By waiting until after the election, with 2 years for the uproar to die down, they can get away with this stuff.

Just part of the cycle of harvesting the wealth produced by the working slobs.

Thomas Jefferson probably said it best . . .

"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
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Old 06-01-2008, 06:52 AM
 
Location: South Dakota
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Recall, also, that in the late '70's there was a huge building boom - in my part of the county primarily residential - fueled by reasonably low interest rates, better than usual agricultural commodity prices, and a seemingly endless increase in land value - both development land and agricultural land. Add energy price inflation and it's, for some of us anyway, "deja vu all over again." That bubble popped around 1984 or so and gave us about 10 years of a depressed housing market, "farm aid" concerts, spiralling bankruptcies in the ag sector, and permanently higher energy costs. Is that train coming down the track again???
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Old 06-01-2008, 07:28 AM
 
Location: Raleigh, NC
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The problem is that most of our debt isn't owned by other Americans in the form of 30 year bonds like before. It's mostly owned by foreigners in the form of 2 and 10 yr t-bills. This is a problem....

In addition, what will happen to the economy, Fannie/Freddie, etc when rates skyrocket to 20%? With all the ARMs out there, will we really replicate the situation as we did in the late 70's?
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Old 06-01-2008, 08:56 AM
 
Location: South Dakota
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Quote:
Originally Posted by ViewFromThePeak View Post
The problem is that most of our debt isn't owned by other Americans in the form of 30 year bonds like before. It's mostly owned by foreigners in the form of 2 and 10 yr t-bills. This is a problem....

In addition, what will happen to the economy, Fannie/Freddie, etc when rates skyrocket to 20%? With all the ARMs out there, will we really replicate the situation as we did in the late 70's?
My recollection is that ARMs were either unknown or so rare as to be unknown in the late '70s/early '80s. So long-term mortgage rates didn't change, but new money became prohibitively expensive, commerical and agricultural operating credit lines soared to 18% and higher, business credit dried up, and property values plummeted. Homeowners and other long-term borrowers faced a stagnant market due to high rates and low property values. Many folks were immediately upside down - but the difference was they could at least stay put with an affordable long-term debt payment. Short term credit was unbelievably expensive and that [with a number of other economic factors - notably collapsing commodity prices in the farm belt] primarily fueled the problem. Now homeowners who made the poor choice to gamble on interest rates face a double whammy - declining values, no market AND increasing rates/payments.

What's that mean? If the collapse comes it will be worse that the early '80s.
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Old 06-01-2008, 10:17 AM
 
5,410 posts, read 10,358,934 times
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Quote:
Originally Posted by windtimber View Post

What's that mean? If the collapse comes it will be worse that the early '80s.
Oh yeah. Those will be looked at as the good old days.

That was the era the ARMs came from. The start of the S&L collapse was when the Saving and Loans cost of short-term borrowing was higher than the long-term loans they had out. Put them upside down in their own business.

Rather than fixing the problem, the morons [Reagonomics] of that day "de-regulated" and "let the market work." The long-term stable loans were replaced by short term scam loans and not too long after the S&L's all went under.

(sound like the same brainless de-regulation and wonder-of-the-market dogma you hear, now?)

Rolling bad debt has been the American Way, since.
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Old 06-01-2008, 10:44 AM
 
2,695 posts, read 6,928,967 times
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In the old days the economy was controlled by auto,steel etc,when the workers were getting to much money in there pockets,they would lay off until the workers money was drained and gov't would say how awful but could care less.This cycle was used to control workers.Today only a click of the mouse is needed,the gov't see's everything and still could care less about workers,only there pockets get lined with money.
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Old 06-01-2008, 10:58 AM
 
Location: Backwoods of Maine
7,320 posts, read 9,040,152 times
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Fed Chairman Paul Volcker was the one who began raising interest rates in the late 70's and early 80's. BTW, he now is economic advisor to Barack Obama. Google some of Volcker's recent statements on the current US economy - quite an eye-opener!

Ben Bernanke, the current Fed Chairman, is no Paul Volcker, not by a long shot. They don't call him "Helicopter Ben" for nothing! Back in the 70's the US dollar still had some purchasing power, and was worth saving, so Volcker rolled up his sleeves and went about saving it. Inflation had become out of control, much as it has today.

But Bernanke is cut from the same cloth as Alan Greenspan. Another dove, another inflator. The problem is, he can't tighten even if he wants to - the economy in the US, in the world - is far different today than it was back in Volcker's day. Back then, the US was the biggest creditor nation in the world. Now, we are the biggest debtor nation. Now, inflation is world-wide, not just American (ours isn't as bad as many other countries). If Bernanke tried to tighten as Volcker did, the entire US economy would crash. We are on the edge as it is. IMHO, it is too late the save the US dollar by raising interest rates. Check out Volcker's recent comments.
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Old 06-01-2008, 02:17 PM
 
3,283 posts, read 4,840,605 times
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Quote:
Originally Posted by Rakin View Post
This is for all the Economic genius's on the forum. In the early 1980's inflation went sky high after a war & high prices / shortage of fuels from the 70's. Good Ole Ronald Reagan gave us Reagonomics and interest rates went sky high to reduce spending, encourage savings and bring inflation under control. Home mortgage rates went up to 17%.

Is this the formula that will be needed in the near future? Will the housing crunch prevent the Fed from doing what's necessary to reel in inflation if we start to see double digits again?

I don't pretend to be an expert so I seek your opinion.
i think instead of letting house prices fall too far(as this would flatten every bank), they are inflating the currency to bring other prices in line with RE. although i still see a bit of a fall in RE for the next few months. when all the dust settles, we have got paul volker type rates and i don't think we will see cowboy monetary policy again in my lifetime. nor do i see another bubble again

Last edited by 58robbo; 06-01-2008 at 02:31 PM..
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Old 06-01-2008, 02:27 PM
 
3,283 posts, read 4,840,605 times
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Quote:
Originally Posted by Philip T View Post
Rather than fixing the problem, the morons [Reagonomics] of that day "de-regulated" and "let the market work." The long-term stable loans were replaced by short term scam loans and not too long after the S&L's all went under.

(sound like the same brainless de-regulation and wonder-of-the-market dogma you hear, now?)
trust me the markets work. you just have to make clear to everyone that when something starts to hit the fan, there are no bailouts!

if you spoke to anyone in 2004 about RE crashes they thought you were referring to mars, like it had never happened on earth before. if you then went on to say that that is where you thought the market was headed, they busted out the straight jacket!

it's free markets without consequence that do not work!
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