Inflating house prices are not even good for homeowners, if their property taxes are tied to supposed current property values. They can end up paying inflated taxes with no increased income to pay them.
Oh absolutely so! Running the clock forward, homeowners could ultimately have no recourse but to sell their homes to meet their tax obligation. Some real chaos could ensue if this begins en masse, as the sale prices would soon plummet (lots of supply, little demand). Disputes with local tax authorities would arise as the new market prices start printing, and the former owner who just sold demands their sale price be reflected as the tangible evidence of their property's actual worth in reducing their property tax bill (and retaining the most value from what was probably an underwater sale). Meanwhile, the new owner is in the same position, arguing with the assessors that their purchase price was the real value of the home, not the former assessed value, and their property tax exposure should be lower than what the prior owner experienced. Now, local gov't's become exposed to a collapse of tax receipts. Here in my city, leading out from the 2006 panic, homeowners have been beating a path to the assessor's office arguing the property tax assessment formulas are wrong, as their home's market values have been less than the latest re-assessments. Fed activity, in the end, has been holding up home values, and stalled this momentary phenomenon for the present moment. The spectre of this will trickle-up. Local gov't's will pressure States and pressure Fed to never allow home values to collapse, because this could precipitate a collapse of muni-finance and raise the risk of muni- bankruptcies. Presentations like above, make me fear that The Fed is already trapped. What it should do to end inflation experienced by the public, it cannot do, lest it hasten gov't defaults at all levels. It can buy a little time by always *saying* it is about to do what it should, yet never following through. The pressure to inflate their way out of the debt bomb will be truly enormous. World events, and even the street effects of ballooning inflation itself will be used as cover, and the monetization of debt will continue, until the $ is rendered unsuitable to transact business and make financial plans. If avg. price inflation is ~10%, shouldn't the Fed Funds rate be 12%? Or, at least *above* the inflation rate? Paul Volker inheritied something like a 9% rate, and pushed it briefly to 22% to bring inflation back under control. And Powell is, for the moment, only making statements about what The Fed might do, like, maybe we'll raise the rate 0.5%. We're an order-of-magnitude off here! Worse to think about, *could* The Fed even go to 10%, 12%, or higher? I think it is already the case that interest service on gov't debt would eat the whole budget, today, if this were seriously contemplated. The "chickens" are on final approach for the roost.
17:30 Actually we do have a pretty good guess what the real interest rate would be, because Crypto platforms have temporarily been able to get around the monopoly on banking via stablecoins. With coins pegged to the dollar, they all typically offer between 7-12% interest, depending on various factors. So that's a pretty good market estimate for the real interest rate on savings: 7-12%.
I think your question highlights why nations most of the time end up in a hyper inflation sooner or later. No politician or fed official would ever admit being so wrong that they bankrupted the nation. Inflation can always be portrayed as something scary that came from the outside which is why it favored by those that have their careers on the line, despite the catastrophic consequences. I think the speaker basically mentioned that the whole fed balance sheet is a mask for money printing if you zoom out and see the big picture
I wonder if instainly high home prices is a strategy to raise rent and keep inflation low? If houseing eats up everyones income, there is no money left to spend on stuff.
Ok, so wouldn't the net losses of rising interest rates on mortgages also have the same effect on a private bank? Of holding so many fixed rate mortgages? I mean, I guess better that a private company loose out on future earnings by owning a bunch of low interest mortgages than the fed. But that's not actual loss in the market, its sort of like an opportunity cost, right?
