Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! CounterPunch is entirely supported by our readers. Your donations pay for our small staff, tiny office, writers, designers, techies, bandwidth and servers. We don’t owe anything to advertisers, foundations, one-percenters or political parties. You are our only safety net. Please make a tax-deductible donation today.
FacebookTwitterGoogle+RedditEmail

Inflation and Speculation

by SETH SANDRONSKY

Voicing what the Associated Press termed “now largely a consensus view,” Mr. Ben Bernanke, the new chairman of the Federal Reserve Board, has said low inflation is the key to growth of the U.S. economy and job market. OK, but how does this policy apply to the nation’s inflationary market for housing?

It is widely agreed that the Fed’s policy of low interest rates has kept credit cheap. By contrast, the European Central Bank has pursued a more restrictive monetary policy.

Unlike the ECB, the Fed’s policy has kindled the record U.S. building and mortgage refinancing booms on the watch of Mr. Alan Greenspan. Against this backdrop during the past 30 months, the rate of inflation has outpaced the growth rate of hourly earnings in the U.S.

The flood of low-priced imports from abroad, mainly China, has helped to make this stagnation of wages less obvious. China’s central bank has also lent the U.S. money with which to buy these imports. Supply and demand can work in strange ways, indeed.

At the same time, many U.S. wage earners have shouldered additional debt with their inflated home prices, as the market for home-mortgage loans expanded to $8 trillion. Compare that debt with the estimated $7 trillion of paper wealth wiped out in the crash of stock prices as the current decade began. The near similarity in amounts contains a crucial difference, of course.

People live in homes. Nobody resides in a paper stock. Yet inflation affects both assets that rise and fall in price and, crucially, can be used for loans to boost the buying power of businesses and consumers.

In his initial testimony to Congress, Mr. Bernanke spoke of a slow versus fast decline for U.S. housing prices in the future. His hoped for “slow landing” of his low-inflation agenda is expected to help stabilize the over-all increase in the prices of goods and services. Presumably, this will shield companies, households and investors from inflationary harm to their wages and investments, while sparking growth.

Home-price inflation has been the exception, a hallmark of the Fed prior to Mr. Bernanke’s arrival. In fact, monetizing the market value of an asset that shelters human beings has off-set stagnating household income and wages in the U.S. As Mr. Bernanke publicly commits to a policy of low inflation, one wonders what will replace rising home prices as a stimulus to the U.S. economy, the world’s largest.

It is doubtful that cutting the federal government’s deficit spending is the answer. Such a fiscal policy would harm the nation’s working populace by removing money from circulation. They would be left with less income to spend on food, shelter and transit, all other things being equal.

Real people–creditors and debtors, manufacturers and retailers–will live with the actual unwinding of America’s inflationary housing bubble. Given the size of the U.S. economy, the ripples from this eventual deflation of the housing market will test the leadership of Mr. Bernanke.

SETH SANDRONSKY is a member of Sacramento Area Peace Action and a co-editor of Because People Matter, Sacramento’s progressive paper. He can be reached at ssandron@hotmail.com

 

 

Seth Sandronsky is a Sacramento journalist and member of the freelancers unit of the Pacific Media Workers Guild. Emailsethsandronsky@gmail.com

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 29, 2016
Robert Fisk
The Butcher of Qana: Shimon Peres Was No Peacemaker
James Rose
Politics in the Echo Chamber: How Trump Becomes President
Russell Mokhiber
The Corporate Vice Grip on the Presidential Debates
Daniel Kato
Rethinking the Race over Race: What Clinton Should do Now About ‘Super-Predators’
Peter Certo
Clinton’s Awkward Stumbles on Trade
Fran Shor
Demonizing the Green Party Vote
Rev. William Alberts
Trump’s Road Rage to the White House
Luke O'Brien
Because We Couldn’t Have Sanders, You’ll Get Trump
Michael J. Sainato
How the Payday Loan Industry is Obstructing Reform
Robert Fantina
You Can’t Have War Without Racism
Gregory Barrett
Bad Theater at the United Nations (Starring Kerry, Power, and Obama
James A Haught
The Long, Long Journey to Female Equality
Thomas Knapp
US Military Aid: Thai-ed to Torture
Jack Smith
Must They be Enemies? Russia, Putin and the US
Gilbert Mercier
Clinton vs Trump: Lesser of Two Evils or the Devil You Know
Tom H. Hastings
Manifesting the Worst Old Norms
George Ella Lyon
This Just in From Rancho Politico
September 28, 2016
Eric Draitser
Stop Trump! Stop Clinton!! Stop the Madness (and Let Me Get Off)!
Ted Rall
The Thrilla at Hofstra: How Trump Won the Debate
Robert Fisk
Cliché and Banality at the Debates: Trump and Clinton on the Middle East
Patrick Cockburn
Cracks in the Kingdom: Saudi Arabia Rocked by Financial Strains
Lowell Flanders
Donald Trump, Islamophobia and Immigrants
Shane Burley
Defining the Alt Right and the New American Fascism
Jan Oberg
Ukraine as the Border of NATO Expansion
Ramzy Baroud
Ban Ki-Moon’s Legacy in Palestine: Failure in Words and Deeds
Gareth Porter
How We Could End the Permanent War State
Sam Husseini
Debate Night’s Biggest Lie Was Told by Lester Holt
Laura Carlsen
Ayotzinapa’s Message to the World: Organize!
Binoy Kampmark
The Triumph of Momentum: Re-Electing Jeremy Corbyn
David Macaray
When the Saints Go Marching In
Seth Oelbaum
All Black Lives Will Never Matter for Clinton and Trump
Adam Parsons
Standing in Solidarity for a Humanity Without Borders
Cesar Chelala
The Trump Bubble
September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Paul Street
The Roots are in the System: Charlotte and Beyond
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
FacebookTwitterGoogle+RedditEmail
[i]
[i]
[i]
[i]