i was watching one of the economic programs on msnbc and they were saying that that inflation didn't turn out to be what was expected, another reason why feds raise rates is to fight off inflation, slow the economy down.
(source) [rquoter] people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation. [/rquoter] Wow. The third world government way to pay off debt.
The Fed had interest rates far too low the past few years, and the extra money in the economy didn't translate into inflation because cheap consumer goods from China and India kept prices down across the board. So instead the cheap money flowed into the housing market, creating a bubble that is bound to pop at some point. And considering that Americans have huge problems with saving, the burst in the bubble will in turn lead to less consumer spending, and thus a significant downturn in the economy. By raising interest rates from their disastrously low levels a few years ago, the Fed is trying to soften the landing, as many have said in this thread. Hopefully it works.
It is better to pop the housing bubble sooner rather than later. Unless foreign investors aggressively buy real estates in US, a booming housing market does little to americans as a whole. All it does is to create this false sense of wealth and encourage people to treat their real estate as ATM machines. The key is to educate people the importance of saving. Imposing tarriffs on cheap imports is the stupid way to go about it. People will still spend as much, just to buy less, and I really don't trust the government to use the collected tax to pay down debt. At the end, the poor will be hurt most. The best way to tackle this problem is try to increase export. What foreigners want to buy from US are hi-tech stuff. But the government has bans on exporting this and that. How do you achieve a trade balance that way? I believe the housing market is leading to a HARD landing. Do NOT believe in the new home sales number released yesterday. They revised July's number down by 7%. They intentionally overestimate the numbers, and sneak in the real numbers the following weak. This way the headline will always be "home sale jumped from previous month" instead of "home sale dropped by another 7%". I see a correction of at least 20% in most markets, and possibly 40%-50% in a few especially overheated markets.
