There is no doubt that the "US" GDP growth has experienced a large increase from debt driven buyers (home equity included). High unsecured debt is being baled out by home equity, home equity is being baled out by high LTV loans, high LTV loans with low income to debt ratios are being funded by sub-prime loan programs, critical and "border deafult" sub-prime loans are being baled out by extended tolerance programs set by FRB, while sub-prime loans are being extended by 30% (30 to 40) years. We have a brilliant FRB here....sweep the dirt under the rug. Whn the rug becomes too high, build another rug, before you trip over the dirt you swept on the first one. Rates wil be in am equivicable holding pattern until 1/08 when the next President's in office. That's my take.
No!! Back then foreign central banks were still willing to roll Treasury bonds as they gave "secure" positive returns. Now they give negative returns (in real purchasing power) and certainly they are not "secure." (US can never pay them off - only borrow from Peter to pay Paul*, or run dollar printing presses, and this is being realized by many now.) Your implied comment that "now is like then" is non-sense. "Now" is very different! ---------------------------- *US is starting to run out of "Peters" so not long before the mint's presses run 24/7 if you think in multi-year time scale as I do. (Not a trader)
FED's number one job is to fight inflation. If it gets too ugly, they raise rates even if it hammers the equity markets and housing. It has to get BAD though. And for several months in a row. They are no longer ahead of the curve as in the past. I can't see them lowering rates even on bad econ #'s. As mentioned, dollar is screwed, and inflation is already here big time, unless you don't drive or eat that is. Or pay rent. The FED is in a hell of a pickle, brought on by themselves from 6 years of excessively easy money. Yep, good for econ growth, but you have to pay the piper eventually. The longer they let everything inflate, the worse it will be. Definitely a tight wire act. Sad thing is that Bernake will get the blame, when it is a situation he inherited.