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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Housing starts and 10 year tsy rates

Posted by WARREN MOSLER on November 17th, 2009


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Interesting how high housing starts were when interest rates were a lot higher than they are now.

And if you ‘population adjust’ the housing starts the ‘Greenspan super bubble’ fell far short of previous highs, even with much higher mtg rates back then. (add about 2% to the 10 year note rates to approximate mortgage rates.)

In fact, it’s hard to attribute housing performance to interest rates in general.

I saw a graph from Goldman a couple of years ago showing how housing related to the fiscal cycle and at that time it was forecasting a decline. And interest rates were nowhere to be found in that model. While I did criticize some of the policies of the Greenspan era, I never have ‘blamed’ him for the housing bubble. Ironically he’s watched this destroy his reputation and largely believes it himself.

Interest rates didn’t get us into this and they won’t get us out, as the late John Kenneth Galbraith stated in his last book, ‘The Economics of Innocent Fraud.’


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6 Responses to “Housing starts and 10 year tsy rates”

  1. William Naphin Says:

    Yes. Bernanke was certainly dovish yesterday from a future rate expectations standpoint. And he tried to have it both ways on the currency. All were reported and forwarded on bloombergs ad nauseum. But no one mentioned this: *BERNANKE SAYS DEMAND FOR CREDIT HAS `FALLEN SIGNIFICANTLY’ In my book he basically admitted yesterday that monetary policy has been a failure, and falling real rates on TIPs say the same thing. They don’t forecast inflation (real rates rise in a generalized inflation)per the breakevens, but instead imply little or no demand for credit.

    Reply

  2. warren mosler Says:

    Yes,

    Feeling more and more like a zero rate policy is highly deflationary which is a good thing as it allows taxes to be that much lower for a given amount of govt spending.

    But when the govt doesn’t understand that and keeps deficits relatively low Japan happens

    Reply

  3. Winslow R. Says:

    Bank lending did turn up last week, first time in months though not a trend……. yet.

    http://www.federalreserve.gov/releases/h8/current/default.htm

    Reply

  4. Matt Franko Says:

    Winslow, From your Fed link:
    “..Domestically chartered commercial banks acquired $84.5 billion in assets and liabilities of nonbank institutions in the week ending November 4, 2009. The major asset items affected were: Treasury and agency securities, mortgage-backed securities (MBS), $2.6; commercial and industrial loans, $1.8; real estate loans, revolving home equity loans, $6.4; real estate loans, closed-end residential loans, $76.3;…”
    It reads like the banks just took some residential loans off of some non-banks (CIT?). Is this the way the Fed usually describes an expansion of bank credit in this release? I dont follow this release regularly (but I know you do thanks!) and am not familiar with the “jargon” here. Resp,

    Reply

  5. Winslow R. Says:

    They do this from time to time, last big one was in May.

    http://www.federalreserve.gov/releases/h8/h8notes.htm

    Missed it this time. Thanks for pointing out.

    Reply

    Winslow R. Reply:

    scroll towards bottom of page to see notes

    Reply

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