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The FED’s Money Trap

Posted on August 12, 2013

The Federal Reserve, and therefore the economy, is caught on the horns of a dilemma of our own making.

ZIRP (zero interest rate policy) and the aggressive pumping of money (upwards of $85 billion a month) into the financial system have tripled our money supply.

If it weren’t for nearly stagnant money velocity (MZ), we would be seeing inflation / CPI in the 20% range or more.

This disruption of the money supply has sent confusing signals to both markets and Main Street, distorting prices and misallocating resources as the newly created dollars search for opportunities to earn a return.

Housing is perhaps the canary in the coal mine telling us that things are not going well and danger is close by.

Even with 3% 30-year mortgages and no money down, we have  to go back to 1997 to see such such low levels of home ownership in America.

New housing starts, while showing some improvement, are still quite weak, perhaps even stalling out.  We now see a return to the Adjustable Rate Mortgage, a financial vehicle at least partially at fault for exacerbating the housing bubble.

Recently doctorhousingbubble had a terrific article on this strange phenomenon:

“At the same time, we find out that the home ownership rate continues to fall reaching a multi-decade low while rental vacancies slowly decline.  All of this of course makes sense given a supply constrained market and a massive amount of investor buying over the last few years adding rental properties to the market (taking off market potential single-family homes for actual purchase).  What is troubling about the data is the difficulty for first-time buyers to enter into this odd market.  Having a larger share of our market as renters might make sense given economic constraints of household incomes yet it should be abundantly clear who the big winners were from all the Quantitative Easing that has occurred.  Welcome to rental nation.”

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4 thoughts on “The FED’s Money Trap

  1. El Kabong says:

    The Main Stream Media will keep telling us that the housing market is improving, no matter what. Thank goodness for Internet sources like WND, who tell it like it is.

  2. 1baronrichsnot1 says:

    Yep! don't look for it to get any better, let me ask, would you build a house now for the intention of selling at a profit? Me neither! The ones who can afford the taxes already have one or two, the others are hanging by a thread with 3 part time jobs, as we are lied to about the unemployment rate, U6 is above 15%, over all, 40% for blacks 20 to 29 yoa, and 28% for whites same age, hispanics, no statistics that i've heard. Are they supposed to not have houses? This proves a very, very weak economy! So many on food stamps, latest figures, 28% of americans 89 million families on the dole. 5000 to the mile, would form a long, long, soup line. Make the 30's look like the horn of plenty! We have a recovery? where!

  3. El Kabong says:

    And Tea Party Economist. I read buth. 🙂

  4. El Kabong says: