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:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
January 20, 2017
Friday - Sunday
Paul Street
Divide and Rule: Class, Hate, and the 2016 Election
Andrew Levine
When Was America Great?
Jeffrey St. Clair
Roaming Charges: This Ain’t a Dream No More, It’s the Real Thing
Yoav Litvin
Making Israel Greater Again: Justice for Palestinians in the Age of Trump
Linda Pentz Gunter
Nuclear Fiddling While the Planet Burns
Ruth Fowler
Standing With Standing Rock: Of Pipelines and Protests
David Green
Why Trump Won: the 50 Percenters Have Spoken
Dave Lindorff
Imagining a Sanders Presidency Beginning on Jan. 20
Pete Dolack
Eight People Own as Much as Half the World
Roger Harris
Too Many People in the World: Names Named
Steve Horn
Under Tillerson, Exxon Maintained Ties with Saudi Arabia, Despite Dismal Human Rights Record
John Berger
The Nature of Mass Demonstrations
Stephen Zielinski
It’s the End of the World as We Know It
David Swanson
Six Things We Should Do Better As Everything Gets Worse
Alci Rengifo
Trump Rex: Ancient Rome’s Shadow Over the Oval Office
Brian Cloughley
What Money Can Buy: the Quiet British-Israeli Scandal
Mel Gurtov
Donald Trump’s Lies And Team Trump’s Headaches
Kent Paterson
Mexico’s Great Winter of Discontent
Norman Solomon
Trump, the Democrats and the Logan Act
David Macaray
Attention, Feminists
Yves Engler
Demanding More From Our Media
James A Haught
Religious Madness in Ulster
Dean Baker
The Economics of the Affordable Care Act
Patrick Bond
Tripping Up Trumpism Through Global Boycott Divestment Sanctions
Robert Fisk
How a Trump Presidency Could Have Been Avoided
Robert Fantina
Trump: What Changes and What Remains the Same
David Rosen
Globalization vs. Empire: Can Trump Contain the Growing Split?
Elliot Sperber
Dystopia
Dan Bacher
New CA Carbon Trading Legislation Answers Big Oil’s Call to Continue Business As Usual
Wayne Clark
A Reset Button for Political America
Chris Welzenbach
“The Death Ship:” An Allegory for Today’s World
Uri Avnery
Being There
Peter Lee
The Deep State and the Sex Tape: Martin Luther King, J. Edgar Hoover, and Thurgood Marshall
Patrick Hiller
Guns Against Grizzlies at Schools or Peace Education as Resistance?
Randy Shields
The Devil’s Real Estate Dictionary
Ron Jacobs
Singing the Body Electric Across Time
Ann Garrison
Fifty-five Years After Lumumba’s Assassination, Congolese See No Relief
Christopher Brauchli
Swing Low Alabama
Dr. Juan Gómez-Quiñones
La Realidad: the Realities of Anti-Mexicanism
Jon Hochschartner
The Five Least Animal-Friendly Senate Democrats
Pauline Murphy
Fighting Fascism: the Irish at the Battle of Cordoba
Susan Block
#GoBonobos in 2017: Happy Year of the Cock!
Louis Proyect
Is Our Future That of “Sense8” or “Mr. Robot”?
Charles R. Larson
Review: Robert Coover’s “Huck out West”
David Yearsley
Manchester-by-the-Sea and the Present Catastrophe
FacebookTwitterGoogle+RedditEmail