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always interesting to read:
http://english.caing.com/2011-05-06/100256416.html
http://english.caing.com/2011-05-06/100256416.html
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U.S. residential property lost US$ 6.3 trillion in value, or 28 percent, between 2006 and last year. The current value of US$ 16.4 trillion is 110 percent of GDP, which is still much higher than its historical average. During the previous property burst, total value declined to below 80 percent of GDP. Thus, the U.S. property market adjustment may be only half done.
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Rising oil prices are outweighing the benefits of low interest rates. The U.S. economy consumes 23 million barrels of oil per day. For each US$ 10 increase in the price per barrel, the additional cost to U.S. consumers is about US$ 84 billion, directly or indirectly, or 1.3 percent of America's GDP.
U.S. household debt is US$ 13.3 trillion. Each 1 percent saved in interest expenses is US$ 133 billion, or equivalent to the cost of a US$ 16 oil price increase. Considering how much oil prices have and could further rise, the cost of the Fed's low-interest rate policy seems to be outweighing the benefits. This is why the Fed isn't likely to ease more unless oil prices fall.
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Weak growth alone may not prompt an easing by the Fed. But falling stock markets could. As the U.S. household sector suffers weak income growth, falling property values and high indebtedness, the stock market offers the only place where the economy can feel better. Fears of a stock market decline could become self-fulfilling, as it weakens consumption which in turn weakens corporate earnings.
A weak stock market last summer prompted the Fed to pursue QE 2. Its direct impact was quite limited as measured by its impact on Treasury yields. But it was the factor that powered a stock market rally in the fourth quarter, which contributed to the economic rebound. The impact reversed in the first quarter partly due to QE 2's impact on oil prices.
Bernanke is clearly worried about oil prices, especially that it reduces the household sector's consumption power. Even though he doesn't admit it, he must know that U.S. monetary policy is a major factor, probably the most important one, in supporting oil prices.
The tradeoff is prompting him not to expand QE, even though economic growth, employment and the housing market are very weak.
Global stock market performance seems to affect oil prices. When stocks fall, the oil market is spooked by weakening demand and the price falls. If stock markets decline substantially in the third quarter, oil prices could fall significantly, too, just as they did last summer.
That may create conditions for the Fed to ease again through a Q 3, in name or otherwise. Its short-term impact would be to revive stock markets, but oil prices would surge, too. It would have less impact on growth but more on inflation than last year's QE 2. This would be another step down stagflation's slippery slope.
U.S. residential property lost US$ 6.3 trillion in value, or 28 percent, between 2006 and last year. The current value of US$ 16.4 trillion is 110 percent of GDP, which is still much higher than its historical average. During the previous property burst, total value declined to below 80 percent of GDP. Thus, the U.S. property market adjustment may be only half done.
...
Rising oil prices are outweighing the benefits of low interest rates. The U.S. economy consumes 23 million barrels of oil per day. For each US$ 10 increase in the price per barrel, the additional cost to U.S. consumers is about US$ 84 billion, directly or indirectly, or 1.3 percent of America's GDP.
U.S. household debt is US$ 13.3 trillion. Each 1 percent saved in interest expenses is US$ 133 billion, or equivalent to the cost of a US$ 16 oil price increase. Considering how much oil prices have and could further rise, the cost of the Fed's low-interest rate policy seems to be outweighing the benefits. This is why the Fed isn't likely to ease more unless oil prices fall.
...
Weak growth alone may not prompt an easing by the Fed. But falling stock markets could. As the U.S. household sector suffers weak income growth, falling property values and high indebtedness, the stock market offers the only place where the economy can feel better. Fears of a stock market decline could become self-fulfilling, as it weakens consumption which in turn weakens corporate earnings.
A weak stock market last summer prompted the Fed to pursue QE 2. Its direct impact was quite limited as measured by its impact on Treasury yields. But it was the factor that powered a stock market rally in the fourth quarter, which contributed to the economic rebound. The impact reversed in the first quarter partly due to QE 2's impact on oil prices.
Bernanke is clearly worried about oil prices, especially that it reduces the household sector's consumption power. Even though he doesn't admit it, he must know that U.S. monetary policy is a major factor, probably the most important one, in supporting oil prices.
The tradeoff is prompting him not to expand QE, even though economic growth, employment and the housing market are very weak.
Global stock market performance seems to affect oil prices. When stocks fall, the oil market is spooked by weakening demand and the price falls. If stock markets decline substantially in the third quarter, oil prices could fall significantly, too, just as they did last summer.
That may create conditions for the Fed to ease again through a Q 3, in name or otherwise. Its short-term impact would be to revive stock markets, but oil prices would surge, too. It would have less impact on growth but more on inflation than last year's QE 2. This would be another step down stagflation's slippery slope.
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