Joe Doakes from Como Park emails:
Boris Yeltsin*, head of the Federal Reserve, declares the short-term interest rate the Fed charges banks will remain nearly zero. That will keep loan interest rates down hoping to stimulate the economy. And with interest rates low, buyers can afford a larger loan so sellers can afford to retire to Fort Meyers. Unalloyed good, right?
Maybe not. When I bought my first house in 1987, our loan was 9.5% because the seller paid two points to buy down the rate. My wife and I were dancing in the street – Free Money! On a $70,000 house, our PITI was about $1,000 per month. We could afford that as we were both working full time.
That same house today would cost $150,000. At 4%, the payment is still around $1,000 per month. But can Millennials afford to pay that? They have more student loans than we did. Their debt to income ratio is worse. Are they getting married as my generation did, working full time as we did, giving up vacations and iPhones and luxuries as we did? If not – how can sellers afford to sell and move?
I don’t have a solution, I merely note that zero interest rate is not a silver bullet to cure all economic ills. And once you’ve fired it – as the Fed has done – there’s nothing left to try. After that, we’re down to the Iceland Option.
*Oops, I misspoke – Janet Yellen is head of the fed. Boris Yeltsin was the dictator whose policies led to economic collapse. I get confused.
Joe Doakes
Something liberals, with their decades of tinkering with the buttons and levers and switches of government, never quite understand; the intrinsic value of things never really changes (allowing for variables like location, quality, or whatever applies). A house is a house. An appendectomy is an appendectomy. A flipped patty is a flipped patty.
Tinkering with the money supply only changes the value of the things we use to represent those concrete values. Making more money only works if you make more stuff for that money to represent.
We’re not doing nearly enough of that.
Boris Yeltsin*, head of the Federal Reserve, declares the short-term interest rate the Fed charges banks will remain nearly zero. That will keep loan interest rates down hoping to stimulate the economy.
How well is it working for Japan? Fucking morons!
I keep hoping that the Obama years, as well as the PIIGS and Japan, will spell the end of Keynesian theory in this regard, but like a zombie in a horror movie, it keeps coming back.