48% of mortgages may go underwater says DB

[BigBagel]

http://www.bloomberg.com/apps/news?p...d=adBYDzUMt68k

Deutsche Bank must not have gotten the memo.

[flintlock]

Re: 48% of mortgages may go underwater says DB

Sad when we've all become so jaded that a story like this doesn't even warrant a reply. "Ho hum, just half the mortgages underwater, that's all?"

[nero3]

Re: 48% of mortgages may go underwater says DB

In my opinion a tragic article. I'm sure inflation soon will break through, making most of the mortgages above water.

The UK, US, and even some other countries will have to print more, while you get the emerging market, china, gold and general inflation bubble oozing out all over the place. I think most of the damage will begin once Brazil, and some of the other emerging market's really start hitting the accelerator.

[EJ]

Re: 48% of mortgages may go underwater says DB

In my opinion a tragic article. I'm sure inflation soon will break through, making most of the mortgages above water.

The UK, US, and even some other countries will have to print more, while you get the emerging market, china, gold and general inflation bubble oozing out all over the place. I think most of the damage will begin once Brazil, and some of the other emerging market's really start hitting the accelerator.

Perusing the forums tonight, I have gone back and read several of your posts.

I am intrigued.

Your opinions are usual in other places but not here.

You provide a welcome context for the following observation.

Commodity price inflation is anathema to central banks.

By separating asset price inflation from commodity and wage inflation central banks can appear politically neutral yet take care of their primary constituency.

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Quite a political conundrum.

[dummass]

Re: 48% of mortgages may go underwater says DB

Perusing the forums tonight, I have gone back and read several of your posts.

I am intrigued.

Your opinions are usual in other places but not here.

You provide a welcome context for the following observation.

Commodity price inflation is anathema to central banks.

By separating asset price inflation from commodity and wage inflation central banks can appear politically neutral yet take care of their primary constituency.

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Quite a political conundrum.

You said raise rates twice. Was this intentional?

[MarkL]

Re: 48% of mortgages may go underwater says DB

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Or, as politicians are often wont to do, tread the middle ground by raising rates just a little, resulting in some wage price inflation, and some additional recession.

[ratfink]

Re: 48% of mortgages may go underwater says DB

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

EJ,



Did you forget some half of that choice, or am I just slow about getting the point, there only being the one?

[ratfink]

Re: 48% of mortgages may go underwater says DB

Ok, I'll supply:

On the "other" hand, keeping rates low as long as possible to jump-start the producer/consumer economy, and risking a sudden stop as your creditors all find better things to do with their money.

Either way, the real losses have to be "real"-ized, and it will not be those in the driver's seat of the FIRE economy who will take the hit. The question is, I think, a matter of how much time is allowed for it to unfold. You can walk down the Empire State Building stairs, and then go get a pizza, or you can come down quickly and become one. Unfortunately, I don't believe there is that much time.

[nero3]

Re: 48% of mortgages may go underwater says DB

Perusing the forums tonight, I have gone back and read several of your posts.

I am intrigued.

Your opinions are usual in other places but not here.

You provide a welcome context for the following observation.

Commodity price inflation is anathema to central banks.

By separating asset price inflation from commodity and wage inflation central banks can appear politically neutral yet take care of their primary constituency.

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Quite a political conundrum.

Thanks.
I will guess they will end up disappointing both. First by being to loose, and then later by having to tighten hard.

[ThePythonicCow]

Re: 48% of mortgages may go underwater says DB

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Quite a political conundrum.

I'll take a stab at parsing the enigmatic words of our esteemed Oracle.

The Fed might be faced with a difficult decision.

They might have to raise rates to please their FIRE Economy constituency (if needed to quell wage price inflation caused by commodity price inflation), but if they do raise rates, this would crash the Producer/Consumer Economy anew, angering their broad based constituency.

At other times, as I recall, EJ has flatly denied that the Fed might raise rates while we are still in a recession. To do so would present an unacceptable risk of crashing the Producer/Consumer Economy anew.

My tea leaves are getting murky here, but perhaps EJ is turning over in his mind the possibility that there is an exception to his flat denial. That possible exception would be if the FIRE Economy constituents were feeling too much heat from the wage inflation that resulted from commodity price inflation.

If I am reading EJ right here (don't bet your return flight ticket on it) then I don't see this political conundrom arising. My gloomier and doomier expectation is that most companies are going to be so desparate that they will not raise wages in any case. If an employee can't get by on half the "real" wage they had before, then tough. That employee is free to quit in protest.

(Not really relevant here, but I can't resist noting that on the other hand, a few companies, the winners of the Bankster shootout at the OK corral, namely JPMorgan and Goldman, are happily raising wages for the cream of the crop that they are sucking up from their failed competitors.)

This overall situation will continue, with all but a few lowering their living standard, until it doesn't continue. It will not end well.

[jimmygu3]

Re: 48% of mortgages may go underwater says DB

EJ,



Did you forget some half of that choice, or am I just slow about getting the point, there only being the one?

I think he meant:

Here are the Fed's choices.

Maintain low interest rates and allow commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

-Jimmy

[metalman]

Re: 48% of mortgages may go underwater says DB

I'll take a stab at parsing the enigmatic words of our esteemed Oracle.

At other times, as I recall, EJ has flatly denied that the Fed might raise rates while we are still in a recession. To do so would present an unacceptable risk of crashing the Producer/Consumer Economy anew.

My tea leaves are getting murky here, but perhaps EJ is turning over in his mind the possibility that there is an exception to his flat denial. That possible exception would be if the FIRE Economy constituents were feeling too much heat from the wage inflation that resulted from commodity price inflation.

If I am reading EJ right here (don't bet your return flight ticket on it) then I don't see this political conundrom arising. My gloomier and doomier expectation is that most companies are going to be so desparate that they will not raise wages in any case. If an employee can't get by on half the "real" wage they had before, then tough. That employee is free to quit in protest.

(Not really relevant here, but I can't resist noting that on the other hand, a few companies, the winners of the Bankster shootout at the OK corral, namely JPMorgan and Goldman, are happily raising wages for the cream of the crop that they are sucking up from their failed competitors.)

This overall situation will continue, with all but a few lowering their living standard, until it doesn't continue. It will not end well.

conundrum... two choices that lead to equally disadvantageous results... or one choice that may lead to two equally disadvantageous results.

ej's said unemployment will remain high as inflation rises.... goods/service supply shock meets money supply shock...

gov't will lie about inflation as long as possible.

nothing new in this post... except the address to nero. hmmmmm.

[ThePythonicCow]

Re: 48% of mortgages may go underwater says DB

Unfortunately, I don't believe there is that much time.

I doubt that it is possible to know how much time we have.

The catastrophic failure modes of big complex structures are difficult to analyze, especially when they are some of the most complex economic and political structures ever built by humans, in a never seen before (on this scale) stress situation.

All manner of fire and brimstone might be unleashed, but some key structural elements might hold (even though so many iTulipers are bankrupt that EJ has to close the site for lack of subscription renewal money :eek:.)

Or the thing could go belly up one fine Tuesday afternoon, without a public inkling of its imminent demise even that morning.

Certainly, as EJ points out, we're not going back. The FIRE Economy in its present incarnation has suffered a fatal blow. But we cannot be certain where this journey takes us nor how chaotic it will be in passing. We can only consider the possibilities, adapt to the changing situation, and play the odds.

[ST]

Re: 48% of mortgages may go underwater says DB

Here are the Fed's choices.

Raise interest rates to quell commodity price inflation that leads to politically untenable wage price inflation that angers your important and narrow FIRE Economy constituency or raise rates and crash the Producer/Consumer Economy anew, and anger your broad based constituency.

Quite a political conundrum.

Hasn't Bernanke, in effect, made the above options look archaic and amusing? In other words, isn't he seeking to achieve the same effect as raising or lowering interest rates by using all the stealth tools he outlined years ago?

Isn't the purpose of this, not only to try to yield finely tuned outcomes, but more importantly do what he wants, without the political backlash?

It seems to me that during a debt deflation of this magnitude the only time to adjust rates is when you want to manipulate public perception heavily toward one tilt when other tools have failed miserably to produce a desired quantifiable target i.e. 2% inflation targeting or 'full' employment or manage expecations of asset price inflation such as the equity market.