Unless the fed wants to collapse the housing market (and the U.S. economy along with it) followed by bankruptcy of the middle class, do you think that the trillions in I/O and ARM mortgages have placed a ceiling on the amount the fed can raise rates?
Nope... I would argue that the fed is facing one of its greatest problems in years - the inability of yields to rise. Normally fed raises rates, arm rates rise, long rates rise, housing markets cool off, speculator money transfers from housing and equities into bonds, and that tempers things again. Problem is, now you have people speccing their retirement funds in real estate. While we have this 'bubble'. How do you think that is going to end? Real estate crashes, bond yields are lousy, and equity markets are stagnant. Bad scenario. But possible, unless a new equity run up gets people out of housing and back into equities, allowing longer term interest rates to rise due to a lack of bond buying. Greenspan et. al. probably consider those people buying on ARMS part of the 'froth' of the market - too bad for them.
That's why the new bankruptcy law this year. The homestead clause is modified that unless youâve been living in the house for two or more years, your house is not protected by bankruptcy. Other new measures in the new law will have about six month âgrace periodâ if you will, but this modification to homestead takes effect immediately. We WLLL see record number of middle class bankruptcy. The US is already see the expansion of low class AND upper class. The middle class is shrinking. That is a very worrisome social development, especially when the middle class in many developing countries are expanding. US is moving backwards.