Inflation and Speculation


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


Weekend Edition
November 28-30, 2015
Majd Isreb
America’s Spirit, Syrian Connection
Weekend Edition
November 27-29, 2015
Andrew Levine
The Real Trouble With Bernie
Gary Leupp
Ben Carson, Joseph in Egypt, and the Attack on Rational Thought
John Whitbeck
Who’s Afraid of ISIS?
Michael Brenner
Europe’s Crisis: Terror, Refugees and Impotence
Pepe Escobar
Will Chess, Not Battleship, Be the Game of the Future in Eurasia?
Vijay Prashad
Showdown on the Syrian Border
Colin Todhunter
Class, War and David Cameron
Jean Bricmont
The Ideology of Humanitarian Imperialism
Dan Glazebrook
Deadliest Terror in the World: the West’s Latest Gift to Africa
Mats Svensson
Madness in Hebron: Hashem Had No Enemies, Yet Hashem Was Hated
Walter Brasch
Terrorism on American Soil
Louisa Willcox
Grizzly Bears, Dreaming and the Frontier of Wonder
Dave Lindorff
Gen. John Campbell, Commander in Afghanistan and Serial Liar
Michael Welton
Yahweh is Not Exactly Politically Correct
Joseph Natoli
A Politics of Stupid and How to Leave It Behind
Karl Grossman
Our Solar Bonanza!
John Cox
You Should Fear Racism and Xenophobia, Not Syrian Refugees or Muslims
Barrie Gilbert
Sacrificing the Grizzlies of Katmai: the Plan to Turn Brooks Camp Into a Theme
Rev. William Alberts
The Church of “Something Else” in “an Ecclesiastical Desert”
Mark Hand
Escape From New York: the Emancipation of Activist Cecily McMillan
Ramzy Baroud
Forget ISIS: Humanity is at Stake
Andrew Gavin Marshall
Bank Crimes Pay
Elliot Murphy
Cameron’s Syrian Strategy
Thomas S. Harrington
Jeff Jacoby of the Boston Globe and the Death of Ezra Schwartz
Gareth Porter
How Terror in Paris Calls for Revising US Syria Policy
Michael Perino
The Arc of Instability
Yves Engler
Justin Trudeau and Canada’s Mining Industry
Tom H. Hastings
ISIS and Changing the Game
Lars Jørgensen
Vive la Résistance
John Halle
A Yale Education as a Tool of Power and Privilege
Norman Pollack
Syrian “Civil War”?: No, A Proxy War of Global Confrontation
Sheldon Richman
Let the Refugees In
James Anderson
Reframing Black Friday: an Imperative for Déclassé Intellectuals
Simon Bowring
UN Climate Talks 2009: a Merger of Interest and Indifference
Ron Jacobs
Rosa Luxembourg–From Street Organizer to Street Name
Aidan O'Brien
Same-Sex Sellout in Ireland
David Stocker
Report from the Frontline of Resistance in America
Patrick Bond
China Sucked Deeper Into World Financial Vortex and Vice Versa, as BRICS Sink Fast
James A Haught
The Values of Jesus
Binoy Kampmark
British Austerity: Cutting One’s Own Backyard
Ed Rampell
45 Years: A Rumination on Aging
Charles R. Larson
Chronicle of Sex Reassignment Surgery: Juliet Jacques’s “Trans: a Memoir”
Jeffrey St. Clair - Alexander Cockburn
CounterPunch’s Favorite Films
November 26, 2015
Ashley Nicole McCray – Lawrence Ware
Decolonizing the History of Thanksgiving