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And the rise in housing prices is a bubble created by monetary inflation. Asset prices increase first when money is created. Houses are one of the many safe hav

And the rise in housing prices is a bubble created by monetary inflation. Asset prices increase first when money is created. Houses are one of the many safe havens that people put their money into when the economy has poor investment and savings options. Monetary inflation also fuels cheap loans that inflate these assets and get people into long term debt obligations - because money is largely created by giving out loans. This is all part of the same problem.

imtringued 5y ago
>Monetary inflation also fuels cheap loans that inflate these assets and get people into long term debt obligations You're forgetting something extremely important here. It's the savings that are fueling cheap loans. Those savings force the Fed to lower interest rates. It's not the Fed that is making this decision, it's the market collectively deciding that depositing money and lending it out is the best use of their money and those savings have to go somewhere. Before 2008 those savings were flooding into mortgage bonds and banks ran out of mortgages to sell so they just took subprime mortgages and got the rating agencies to lie for them. All for that sweet sweet commission.
- billytetrud 5y ago
  > It's the savings that are fueling cheap loans What? I don't think that's at all true. > the market collectively deciding that depositing money and lending it out is the best use of their money I don't think anyone thinks that earning bank interest is the best use of their money. Interest is basically 0. In some countries you have to pay to hold deposits in banks. > those savings have to go somewhere They actually don't. We could legislate 100% reserve requirements for example, instead of the 0% we have today. > Before 2008 those savings were flooding into mortgage bonds I think you're misunderstand how banks operate these days. Banks no longer lend out proportional to the deposits they get, banks lend out as much as they can without any limit. The amount people are saving is literally irrelevant at this point. It was already basically irrelevant in 2000. https://www.newyorkfed.org/research/epr/02v08n1/0205benn/0205benn.html https://www.newyorkfed.org/research/epr/02v08n1/0205benn/020...
kbenson 5y ago
> And the rise in housing prices is a bubble created by monetary inflation. That doesn't account for the vast difference in price based on locale. Inflation is not locale based, but housing prices definitely are. I don't doubt that monetary policy affects housing, because it makes it easier to get loans which will affect demand, and thus pricing, but it's not the whole story, and may not even be half the story depending on the area. For example, another thing that affected demand is urbanization. But, interestingly, the rate of urbanization seems to have decreased since the 1970s (and in some regions actually regressed in the 1970 in total, not in rate of change).[1] I think this needs to be accounted for in any coherent theory that tries to link monetary policy to lack of savings now compared to the past, when we already know that housing prices have risen much faster but that housing prices are also extremely locale based, which monetary policy isn't. Ultimately, while I think monetary is powerful in how it affects myriad things, I think we would be remiss to use it as an explanation for everything just because it's easy to point to. Most things are far more complex than that and have many inputs that affect them, and without careful examination we can't be sure if monetary policy was the majority of the reason, or even the primary reason. 1: https://en.wikipedia.org/wiki/Urbanization_in_the_United_States https://en.wikipedia.org/wiki/Urbanization_in_the_United_Sta...

imtringued 5y ago

>Monetary inflation also fuels cheap loans that inflate these assets and get people into long term debt obligations You're forgetting something extremely important here. It's the savings that are fueling cheap loans. Those savings force the Fed to lower interest rates. It's not the Fed that is making this decision, it's the market collectively deciding that depositing money and lending it out is the best use of their money and those savings have to go somewhere. Before 2008 those savings were flooding into mortgage bonds and banks ran out of mortgages to sell so they just took subprime mortgages and got the rating agencies to lie for them. All for that sweet sweet commission.

billytetrud 5y ago
> It's the savings that are fueling cheap loans What? I don't think that's at all true. > the market collectively deciding that depositing money and lending it out is the best use of their money I don't think anyone thinks that earning bank interest is the best use of their money. Interest is basically 0. In some countries you have to pay to hold deposits in banks. > those savings have to go somewhere They actually don't. We could legislate 100% reserve requirements for example, instead of the 0% we have today. > Before 2008 those savings were flooding into mortgage bonds I think you're misunderstand how banks operate these days. Banks no longer lend out proportional to the deposits they get, banks lend out as much as they can without any limit. The amount people are saving is literally irrelevant at this point. It was already basically irrelevant in 2000. https://www.newyorkfed.org/research/epr/02v08n1/0205benn/0205benn.html https://www.newyorkfed.org/research/epr/02v08n1/0205benn/020...

kbenson 5y ago

> And the rise in housing prices is a bubble created by monetary inflation. That doesn't account for the vast difference in price based on locale. Inflation is not locale based, but housing prices definitely are. I don't doubt that monetary policy affects housing, because it makes it easier to get loans which will affect demand, and thus pricing, but it's not the whole story, and may not even be half the story depending on the area. For example, another thing that affected demand is urbanization. But, interestingly, the rate of urbanization seems to have decreased since the 1970s (and in some regions actually regressed in the 1970 in total, not in rate of change).[1] I think this needs to be accounted for in any coherent theory that tries to link monetary policy to lack of savings now compared to the past, when we already know that housing prices have risen much faster but that housing prices are also extremely locale based, which monetary policy isn't. Ultimately, while I think monetary is powerful in how it affects myriad things, I think we would be remiss to use it as an explanation for everything just because it's easy to point to. Most things are far more complex than that and have many inputs that affect them, and without careful examination we can't be sure if monetary policy was the majority of the reason, or even the primary reason. 1: https://en.wikipedia.org/wiki/Urbanization_in_the_United_States https://en.wikipedia.org/wiki/Urbanization_in_the_United_Sta...