Federal Reserve | timiacono.com - Part 55

Shiller on “Bubbly” Housing Markets

Yale Professor Robert Shiller says “it’s looking bubbly now” for some cities in the latest Case-Shiller home price index (as detailed here yesterday), noting that he’s “starting to worry more about bubbles” than any developing slowdown in the U.S. housing market.

According to Zillow, the price of our home here in Montana continues to rise by thousands of dollars each month and, for the first time, a check on the California home we sold about nine years ago shows it has reached the price at which we sold it, up about 20 percent from a year ago. It’s nice to see that things are back to normal.

Case-Shiller Home Prices Up 12.4%

Standard & Poor’s reported(.pdf) that U.S. home prices continued to rise at a brisk pace over the summer as the 20-city Case-Shiller Home Price Index jumped 1.8 percent in July and the 10-city index rose even faster, up 1.9 percent.

On a seasonally adjusted basis, the indexes rose 0.6 percent and 0.7 percent, respectively, and, from year ago levels the indexes are both up more than 12 percent.

All 20 cities sported gains in July – for the fourth consecutive month – paced by an increase of 3.2 percent in Chicago, 2.8 percent in Las Vegas, and 2.7 percent in Detroit. Former housing bubble hotspots continued to lead in year-over-year price gains as Las Vegas home values rose 27.5 percent, San Francisco home prices rose 24.5 percent, and gains in both Los Angeles and San Diego were just over 20 percent.

Cities trailing in home price appreciation were New York with a gain of just 3.5 percent, Cleveland at 3.9 percent, and Washington D.C. at 6.0 percent. The housing market in the nation’s capital, where prices rebounded first after the recession and then saw hefty gains as home values in the rest of the country declined for years, now looks rather pedestrian.

Dudley on the Fed’s “No Taper”

Here’s New York Federal Reserve President William “I can’t eat an iPad” Dudely explaining how the Fed’s “no taper” decision last week was “completely consistent” with what the central bank has been saying all summer long and shouldn’t have come as a surprise.

I don’t know about you, but I get the distinct impression from listening to Dudley that the Fed has become even more dangerously detached from the real world than they already were.

Also see Druckenmiller: Fed robbing poor to pay rich from last week at CNBC.

Takahashi’s Brilliant Feat … and Demise

I couldn’t help but wonder how Japanese finance minister Takahashi Korekiyo led Japan to a period of strong economic expansion while other nations were mired in the Great Depression as detailed in this Ambrose Evans-Pritchard commentary last week.

Be that as it may, if QE as conducted is causing asset bubbles, then we should deploy central bank stimulus more creatively, should it prove necessary. We know how to do it. The methods were pioneered by Takahashi Korekiyo, who pulled Japan out of the Great Depression early in the 1930s. His brilliant feat is now the model for what Japan is (covertly) doing again under Abenomics.

Takahashi turned the Bank of Japan into an arm of the treasury – “fiscal dominance” – and ordered it to finance the budget deficit. You can deploy QE in any way you want. It could be used to build houses, injecting the money into the veins of the economy, instead of the veins of hedge funds. There is no reason why it cannot be administered by an independent Fed or Bank of England, choosing the calibration level as they see fit.

As it turns out, one rather large “vein” of the Japanese economy in the 1930s was military spending and this sector was the recipient of much of the budget deficit largess as detailed in Paul Kennedy’s excellent The Rise and Fall of Great Powers.

Despite – and in some ways because of – these economic difficulties, the finance ministry under Takahashi was willing to borrow recklessly in the early 1930s in order to allocate more to the armed services, whose shares of government spending rose from 31 percent in 1931-1932 to 47 percent in 1936-1937; when he finally took alarm at the economic consequences and sought to modify further increases, he was promptly assassinated by the militarists, and armaments expenditures spiraled upward. By the following year, the armed services were taking 70 percent of government expenditures and Japan was thus spending, in absolute terms, more than any of the far wealthier democracies.

This added context is kind of important…

Inequality for All

Robert Reich’s highly regarded new documentary Inequality for All debuted across the country over the weekend and, as a result, its garnering a good deal of media attention, for example in Prosperity for the Few, Inequality for All at U.S. News and World Report along with Is America Catching Up With Robert Reich’s Income-Inequality Crusade? at NY Mag.

Here’s the trailer:

The Rotten Tomatoes Tomatometer gives it a 100% rating.

I’ve always liked Robert Reich and I hope this kicks off some sort of a broader movement as the growing divide between rich and poor, enabled by the Federal Reserve and Washington lawmakers, is headed for a French Revolution style ending at some point if left to take its natural course. Then again, this kind of ending would actually be its natural course…

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