The Mess That Greenspan Made - Part 414

Europe a Preview of Debt Crisis in the U.S.

Former Kansas governor Mark Parkinson appeared on CNBC yesterday and made the point that you don’t hear too much anymore these days with European credit markets being such a mess – that the U.S. will someday have a similar crisis.

Unfortunately, with the election season now well underway, officials in Washington are not likely to take any action to make the looming U.S. debt crisis any less menacing, in fact, with borrowing rates so low for the Treasury Department, you get the feeling that we’re whistling past the graveyard louder than ever.

Wednesday Morning Links

Euro hits new 11-month dollar low – BBC
Another eurozone crisis is only weeks away – Telegraph
Greece is slipping on reforms, IMF warns -Washington Post
Pressure for more ECB action after summit falls short – Reuters
Italy Sells Debt at Record Yields, Budget Approval Next – Bloomberg
Is the Euro the Gold Standard Of the 1930s for Eurpoe – Zero Hedge
Presidential Dollar Production for Circulation Suspended – Mint News
Reid Says He Will Block Republican Tax Cut – Bloomberg
Witness: Jon Corzine Aware of Money Transfer – ABC News
At home with Ben – FT Alphaville
Lessons of the 1930s – Economist
Physics Envy – WSJ

Oil drops below $99 ahead of OPEC meeting – AP
Gold slips to two-month lows as euro struggles – Reuters
OPEC agrees to keep oil output stable – Globe & Mail
Old Oil Depletes, And the New Oil is Slow – Gregor
The Saudi production puzzle – FT Alphaville
Europe, Central Banks and continued demand for gold ETPs – Mineweb
Gold breaks below the triangle, downside risk increases – Commodity Online
Weaker gold to test, but not crack ETF holder nerve – Reuters
Chinese still buying gold big time – huge imports in October – Mineweb
The gold bugs are throwing in the towel – MarketWatch

Keynes v. Hayek: Enough Already – Uneasy Money
The Consumer Recovery Deception – Daily Capitalist
Austrian Disease: Poor Scholarship, a Priori Bias – Naked Capitalism
China Affirms Property Curbs Even as World ‘Very Grim’ – Bloomberg
Greece Apparently Even Worse Off Than Realized, Hits Euro, Stocks – WSJ
The political endgame for the euro crisis – voxeu
Spending by government may boost economy – China Daily
China Money-Supply Growth at Weakest Pace in Decade – Bloomberg
Realtors: We Overcounted Home Sales for Five Years – Reuters
Mortgage delinquencies expected to rise into 2012 – OC Housing News
Bernanke Signals Fed Ready to Ease on EU Risk – Bloomberg
Go Behind the Fed’s Closed Doors – WSJ


A “Nothing Sandwich” from the Fed

The Federal Open Market Committee made no changes to monetary policy at their last meeting of the year that concluded a short time ago and provided no further hints at action they are likely to take next year.

They simply upgraded their assessment of the U.S. economy after the generally positive data that has been received since they met last month and, with a much friendlier board composition in 2012, will begin their work anew in six weeks.

Gone next year will be board members who cast dissenting votes on more accommodative policy changes in the fall – Richard Fisher of the Dallas Fed, Charlie Plosser of Philadelphia, and Narayana Kocherlakota of Minneapolis – while three of the four incoming voting members – John Williams of San Francisco, Dennis Lockhart of Atlanta, and Sandra Pianalto of Cleveland – appear open to more easing should the economy stumble.

The only 2012 voting member who has voiced opposition to more easy money from the Fed will be Richmond Fed President Jeffrey Lacker, so, when considering the improvement in the economy in recent months, the “nothing sandwich” from the group today shouldn’t be surprising in the least.

Markets were clearly looking for more, but they’ll have to wait until next year.

Today’s FOMC policy statement is shown below alongside the one from last month.


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Since we’ll be out when the Federal Open Market Committee meeting adjourns in an hour or so, offering up yet another policy statement for an increasingly fragile global economy, this story at The Onion seemed worth sharing between now and the time that we return.

To no one’s surprise, Fed Chief Ben Bernanke came in #1 in the short list of most influential economists and, sadly, the satire website’s characterization of what he’s accomplished probably isn’t too far off the mark.

Economists and the Housing Bubble

More evidence that economists in general and dismal scientists at the Federal Reserve in particular are hopelessly and dangerously detached from reality (i.e., guided by the mistaken belief that, if something doesn’t exist in their models, neither does it exist in the real world) comes via this Associated Press story about a new study by the central bank detailing how wild speculation drove the late, great U.S. housing bubble.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers noted.

I saw this last week when it was originally published and should have mentioned it at the time (the report from the New York Fed can be found here), but, now that it’s getting lots of attention in the mainstream media it’s a case of better late than never.

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