JPow fascinates me. He has been epically good as Fed chair. But his commentary is loyal to all the broken conventional models that have made monetary policy so damaging this century. Does he realize what’s wrong with the conventional approach, but he says the words he needs to say in order to guide the ship of fools?
Maybe off topic, Kevin, but do you have any comments on the Chinese real estate market and the ongoing economic situation there? I know your research is mostly U.S. focused but it can be informative to review other countries. If I understand things correctly in China they actually might have a surplus of housing, but speculative zeal has created unsustainably high prices---in other words, it's a real bubble that contrasts with the false surplus the Fed was worried about in 2005-2006.
Looks like inflation is more persistent than I thought. That steady 5% Services Sector is probably more indicative of underlying inflation than anything else.
The FED is a permissive parent. Lots of talk about what should be or needs to be done. And yet the FED always gives the market either what it wants or what it doesn't need but will take anyway. And the FED never blames government for creating financial and economic distortions.
Mortgage rates at 7% would not be a problem now except two years ago rates were 2.5% and and people were flush with cash due to the COVID bailouts. That situation is largely the fault of Congress, but did the Federal Reserve not anticipate this would be a problem? Should not the Federal Reserve in 2020 and 2021 had looked down the road and foreseen that what Congress was doing would cause serious economic and financial dislocations?
But no. The FED was distracted. It is always distracted. It is always surprised. In 2008 the policy mismanagement was so bad it required eliminating mark-to-market accounting for financial firms and then years of ZIRP. Today the financial bailout is the pure fiction that bank loans held at 50 cents at the dollar can be priced at face value.
And the problem in 2023 is obvious - it is that the economy is unable to supply goods and services at a market clearing price. This is not due to a lack of money. It is because there are not enough people working and because regulations are choking real-estate and infrastructure development. There is a massive over-regulation problem and a serious issue with government spending and a serious problem with government providing incentives on the wrong things.
The FED doesn't control any of this. And yet these bad government policies are choking the economy and creating stagflation. And JPOW is too timid to speak the truth because he doesn't want to be political. Just like the permissive parents who don't want to hold Junior accountable because they don't want Junior to be mad at them.
This chart actually gets at one of my main complaints about monetary policy over the past 25 years, which is that our housing supply problem creates “inflation” that is unrelated to monetary policy, or even to production. It is mostly an annual increase in the income redistribution to land rents that comes from our urban land regulation disease. It’s sort of like categorizing a tax hike as inflation.----KE
I thought I was all alone, wandering in the foggy wilderness, in gathering gloom.
Suddenly, a light! KE with a lantern!
I did not watch the GOP debates. But I gather from headlines etc that housing costs were not on the agenda.
To me that illustrates the yawning abyss between what is Washington and media, and ordinary people.
Also puzzling. Surely, even from a cynical aspect, housing is an issue that could be politically exploited, false promises made, blame assigned.
But nothing. Washington is not the capital of America. It is something else.
No wonder voters vote for oddballs.