In a historical context, the Fed’s announcement of a hold on rates and future cuts is significant. What it signifies, however, is historical irresponsibility and social failure based on monetary policy.
In so many histories, the word “fools” is used pretty often. The usual historical subjects are wars, money, and politics. It’s really a choice of fools depending on the subject.
The interest rate rises, and related price rises triggered massive social damage. Fed rates went from near zero to 6% in 18 months. That was all it took to cause utter chaos. To be fair, the property markets and others were already severely gouging people, particularly in the US, but this was a truly global thing.
I want to focus on the housing markets because they underpin most domestic economies. They’re the big assets with the highest amount of capital in most countries.
The huge rise in homelessness and its related fallout was a key feature of the rate rises. The Three Blind Mice of the 21st century, Politics, Finance, and Markets, duly made life as difficult as possible and solutions unmanageable.
Politics decided it was a political problem. They then blamed everybody else for the problem and noisily succeeded in doing nothing about it.
Finance decided that the world should pay for its margins. Most people don’t know they’re living on other people’s margins. Everything is based on profit margins. Property markets are a good example.
The markets decided price rises look good in accounts meetings. The credit markets took advantage to raise the price of credit. That naturally flowed onto businesses, consumers, and the global supply chains in general.
Rates spent an inordinately long time at very low levels, even negative levels in the past. People made billions. If you borrow at 2% and lend at 15%, how can you avoid making big money?
A chicken could do that, and a lot of birdbrains became very rich. People borrowed at those levels and were instantly vulnerable to rate rises, particularly investors. They were always going to rise, and the lenders had to protect their margins.
Any market based on “growth” apparently has no other ideas than to raise prices. A stable market is usually a prosperous, if not glamorous, market. People were OK with rents and housing prices in general. Then the rate rises fundamentally destroyed a healthy market and replaced it with an unhealthy, untrustworthy, market.
Bear in mind:
All this happened solely on the net effects of a few interest rate hikes to the wider economy.
At no point in the rise of interest rates were all these very obvious devastating major social disasters a factor.
People talk about a “housing shortage”. There are plenty of houses. There wasn’t anything like a housing shortage before this outbreak of brilliance. There are also many vacant houses, and the anger is genuine. Real estate-mad Australia has even passed legislation raising a drastic increase in fines for unoccupied houses in Victoria.
Now there’s a price-based shortage, simply because so many people can’t afford to buy or rent. The market has done this to itself, at the expense of the entire society.
The homelessness problem for millions of people could be solved with a small amount of practical sanity If it’s affordable, people will buy it, whatever it is. That’s the exact opposite of this situation.
These prices are now an endemic health hazard for the world. Prices generally don’t go down. If they do, it’s grudgingly, not much, and slowly, the same way wages go up.
Dislocated people, migrants, and the homeless themselves are blamed for the shortages and the train wrecks of their lives. They are somehow responsible for things over which they have no control.
Like other sectors like health and higher education, the money consumed by the property sector isn’t available to spend elsewhere, either. That means the entire economy is paying for the cash people don’t have anymore.
In many cases, that means not having enough food. I was speaking to someone at Foodbank recently who said that only about half the people who should be using their services were using them. That doesn’t sound good.
The Fed and other heavy hitters in the fiscal sector were naïve. These 0.25% rate rises weren’t big, but they were big enough to trigger this mess. Regulators, or rather what’s left of them, couldn’t do much.
What about the misery? Do people get refunds for the chaos, indignity, insecurity, and desperation? Do tell.
