Not if people aren't spending and there is no velocity. It can be done with little consequence, especially if the dollar is as strong as it is right now relative to other currencies. Our debtors (China, Japan, Middle East) have no where else to go, so they have to play ball and loan us money at 2%. Very nasty stuff. Fixed income people are also getting murdered. Savers are the ones who are going to have to pay for all this. Totally despicable, but that is what is happening. I'm moving from cash to equities and eventually commodities, just following the trail.
seems to me the holders of assets are taking it on the chin. Would you rather have two houses and a stock portfolio right now or a boatload of cash?
Cash is king. Some assets are probably worth investing in, others are probably headed for deeper troubles (e.g. commercial real estate). I think housing may be bottoming out here, and actually may have a reasonable year, though the heady days are over. (Overseas money has dried up).
Sure but there are also long-term strategies that don't require guessing market direction for 2009. Trading isn't all about guessing where the S&P will go next year.
Lots of people, who didn't participate in the silliness of the last few years, with good earning power (such as myself) and holding lots of cash, will come into the market when it looks like prices are turning around. It is an auction, and 4.5% interest may be so enticing, that it may turn the market in the other direction. It just takes a little bit of turning, to get the buyers rushing in. Anyone who has ever been to an auction knows this. Question is when?
I understand your point, but don't be in too much of a hurry...there is approximately 450 billion refinance coming into the market next year ...who the hell is going to finance that? It can't be the banks without wiping out their built up reserves from our taxes....putting them in another hole. Unemployment is going to add considerable pressure to the default rate and they have no escape as their credit cards are most likely maxed out or will be... Overall,housing is still to bloody expensive . Only pristine clients will be considered for mortgages provided they have adequate deposits. The good news, if any late next year ,will be the possibilty of inventories decreasing on a percentage basis, but I would not get excited about that,either.
I agree, but a bottoming out will be very encouraging for the economy. As for how the 4.5% will be funded? Two ways: Foreign reserves and the Fed printing press (actually it is all computerized, which makes it very environmentally sound).
When banks stop hoarding cash and resume consumer/business lending. Money supply is created largely by the FED and Commercial Banks. FED creates base money supply (M0), and Commercial Banks explode that base through fractional reserve lending. Yes, commercial banks create money though debt-based money creation. Right now, the Banks are hoarding cash and cutting off consumer and business credit. Dealerships can't get financing. Chrysler can't finance its cars. Credit Cards are getting cut and limits reduced, mortgages need 30% down + 5% over prime for 700 fico, etc etc. Banks are hoarding all the bailout money from the FED and Treasury. Debts being repaid or written off far exceed the level of new debts or loans being made = contraction of money supply = deflation. When banks get off their asses and resume lending to street-level business and consumers, thats when inflation resumes, as business or private loan values are exploded through fractional reserve lending. Borrow 100, spend 100, recipient deposits that 100 and the bank can lend out 90, recipient gets 90, deposits it in the bank, and the bank can lend out 80$. The recipient gets 80$, deposits it in the bank, and the bank lends out 70$ etc etc. The whole funny money system is built around the premise that debt and loans will continually be made at ever increasing levels or the money supply shrinks dramatically. In order to get people borrowing again, the liquidity trap has to end. The Banks are responsible for everything. They voted 0% rates, they brought about the housing bubble, they wrote all worthless derivatives they later bought. Now we have to bail their asses out and the deflation they're fear mongering is their own creation by hoarding cash. Its a fucking joke.