BERNANKE’S GREAT MONETARIST GAFFE
by ilene - May 27th, 2010 1:30 am
BERNANKE’S GREAT MONETARIST GAFFE
Courtesy of The Pragmatic Capitalist
I had to chuckle at the headline on Yahoo Finance throughout much of Monday’s trading session:
It’s an accurate headline. Mortgage rates have declined in recent weeks as U.S. government bonds have surged. But the actual article was filled with very dramatic certainties (most of which were inaccurate and/or misleading). For instance, the excellent Mark Zandi of Moody’s was quoted saying that we are seeing a once in a generation buying opportunity in real estate:
“It’s the best time in our generation to buy. It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn’t pick a better time to buy or re-finance.”
Wow, sounds like we should all go out and buy houses, right? It gets rosier though. The article details why we should all run out and buy houses immediately:
But the decline in rates probably won’t last long, analysts say. So homeowners need to move fast.
“I think they won’t last much longer than a month or two at the best,” says Lawrence Yun, chief economist at the National Association of Realtors. “I can see them going up to 5.5 percent by the end of June if not sooner.”
Move fast, huh? Prices are low. Rates are going back up. That sounds pretty convincing. If interest rates (and home prices) are only going to be low for a brief period then we should capitalize on that opportunity. Right? But then the article takes a dramatic turn for the worst when they try to explain the actual fundamentals behind the rising interest rate argument:
“The US is fortunate now that there’s no pressure on interest rates,” Yun goes on to say. “But going forward, higher rates will be needed for financing the debt.”
(Screeching sound). Uh oh. Here we go again with the hyperinflation, the USA is dying, the dollar is finished, higher interest rates will be needed to “finance our debt”, argument. The dots are easy to connect in this article. In essence, the article implies that interest rates are at record lows because investors have sought the safety of government bonds and mortgage rates have subsequently declined. What they fail to expand on is why interest rates have been declining in recent weeks when, according to…