Real Estate Madness and the Commercial Banks Who Support the Habit
http://money.cnn.com/2005/10/14/news/economy/loans/index.htm
I've just read in this intriguing article that, apparently, banks are raising the limits of the typical consumer mortgage, ahead of even the Fannie Mae estimates. This is the equivalent of trying to get someone to stop using cocaine by er... giving him more cocaine... Yes, THAT makes sense. Why don't we make it easier for the borrower to finance his excesses further, because apparently, the U.S. consumer isn't indebted enough, doesn't have a negative real savings rate, and the macro environment (high energy costs, rising interest rates, etc.) is REAAALLY conducive to the "spend and spend until you drop, and MAYBE pay later" type of consumer behavior.
Where is the inflation in the economy the bulls ask? My answer to this is: in all the places where we don't normally look. Inflation is in the consumer credit, in the real estate, in the stock market, in the dollar... If you flood the economy with liquidity as the Fed did for 3 long years following 9/11, the price of *everything will rise*. THAT's the classic definition of inflation, not the one where we don't count home prices, energy prices or food.
Home prices don't need to crash for the U.S. consumer to feel REAL pain. They just need to stop rising. If real wages trends don't improve (and, judging from the latest wage data quoted by Lehman Brothers and Goldman Sachs economists, they won't!), the U.S. consumer is basically committing a financial suicide. There is also already data out there pointing out to a record number of credit card delinquencies and falling behind schedule payments.
I just don't see how the solution to these problems would be for banks to encourage even greater consumer borrowing. What will be the straw that breaks the proverbial camel's back?
I've just read in this intriguing article that, apparently, banks are raising the limits of the typical consumer mortgage, ahead of even the Fannie Mae estimates. This is the equivalent of trying to get someone to stop using cocaine by er... giving him more cocaine... Yes, THAT makes sense. Why don't we make it easier for the borrower to finance his excesses further, because apparently, the U.S. consumer isn't indebted enough, doesn't have a negative real savings rate, and the macro environment (high energy costs, rising interest rates, etc.) is REAAALLY conducive to the "spend and spend until you drop, and MAYBE pay later" type of consumer behavior.
Where is the inflation in the economy the bulls ask? My answer to this is: in all the places where we don't normally look. Inflation is in the consumer credit, in the real estate, in the stock market, in the dollar... If you flood the economy with liquidity as the Fed did for 3 long years following 9/11, the price of *everything will rise*. THAT's the classic definition of inflation, not the one where we don't count home prices, energy prices or food.
Home prices don't need to crash for the U.S. consumer to feel REAL pain. They just need to stop rising. If real wages trends don't improve (and, judging from the latest wage data quoted by Lehman Brothers and Goldman Sachs economists, they won't!), the U.S. consumer is basically committing a financial suicide. There is also already data out there pointing out to a record number of credit card delinquencies and falling behind schedule payments.
I just don't see how the solution to these problems would be for banks to encourage even greater consumer borrowing. What will be the straw that breaks the proverbial camel's back?
posted by Ivan at 10/17/2005 12:50:00 PM
1 Comments:
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