FedWatch: Greenspan Takes The Long Walk

As a going away present on Judge Greenspan's final day, the Fed boosted the Federal funds rate for the nonce. This at a time when wages are seeing no increase, consumers are tapping the housing vein for money, and the savings rate is the lowest it's been since the Great Depression?

I'm absolutely certain there was "not a dry eye in the house," but I'm willing to suspect that it was definitely for different reasons than sheer joy and reverence.

And naturally, Greenspan is taking his retirement into the "Cursed Earth" of consulting. Maybe he'll run into Mike Brown at one of those $2,000-a-plate talking head schmoozefests. :)

As I was telling my fellow bloggers today, I really feel bad for good ol' "Helicopter Ben" Bernanke. He's inheriting a mountain of potential timebombs and problems that he simply isn't trained for. I think the key to the dilemma lies in the last paragraph of the aforementioned essay:

On the other hand, stocks should benefit from a slightly easier monetary policy. Deflation is death for stocks since falling output prices reduce profits and debt payments become far more burdensome. Deflation smashed worldwide stock markets in the 1930s and the Japanese stock market in the 1990s. Bernanke will be willing to risk a tad more inflation to ensure these grim outcomes never happen again. The bottom line: Stock investors should be all smiles with President Bush's new choice of Fed governor.

In other words, the stock market, which has been moribund for the past five years or so, is going to benefit at the expense of the housing market. This is potentially disastrous. You can lose your shirt in the market--I have, several times--but losing your home is a lot harder to recover from. And housing bubbles slide down a lot longer and bounce back a lot slower than market bubbles.

This ain't a zero-sum game, kids. If Judge Dredd could learn the law wasn't black and white, the Fed chair can remember that stocks and real estate can comfortably co-exist. Here's hoping he figures that out, and soon.

Posted at January 31, 2006 07:40 PM

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As a going away present on Judge Greenspan's final day, the Fed boosted the Federal funds rate for the nonce. This at a time when wages are seeing no increase, consumers are tapping the housing vein for money, and the savings rate is the lowest it's been since the Great Depression? I'm absolutely certain there was "not a dry eye in the house," but I'm willing to suspect that it was definitely for different reasons than sheer joy and reverence. And naturally, Greenspan is taking his retirement into the "Cursed Earth" of consulting. Maybe he'll run into Mike Brown at one of those $2,000-a-plate talking head schmoozefests. :) As I was telling my fellow bloggers today, I really feel bad for good ol' "Helicopter Ben" Bernanke. He's inheriting a mountain of potential timebombs and problems that he simply isn't trained for. I think the key to the dilemma lies in the last paragraph of the aforementioned essay: On the other hand, stocks should benefit from a slightly easier monetary policy. Deflation is death for stocks since falling output prices reduce profits and debt payments become far more burdensome. Deflation smashed worldwide stock markets in the 1930s and the Japanese stock market in the 1990s. Bernanke will be willing to risk a tad more inflation to ensure these grim outcomes never happen again. The bottom line: Stock investors should be all smiles with President Bush's new choice of Fed governor. In other words, the stock market, which has been moribund for the past five years or so, is going to benefit at the expense of the housing market. This is potentially disastrous. You can lose your shirt in the market--I have, several times--but losing your home is a lot harder to recover from. And housing bubbles slide down a lot longer and bounce back a lot slower than market bubbles. This ain't a zero-sum game, kids. If Judge Dredd could learn the law wasn't black and white, the Fed chair can remember that stocks and real estate can comfortably co-exist. Here's hoping he figures that out, and soon.