Tuesday, November 15, 2005

Interest Rates and the M3


Interest rates just keep going up and up.
"Interest rates took another jump Thursday, rising to their highest levels in more than two years at a time when the number of people able to buy a Bay Area home continues to drop."

"Mortgage giant Freddie Mac reported Thursday that the nationwide average for 30-year, fixed-rate mortgages rose to 6.36 percent, up from 6.31 percent last week."

"That's nearly a point above the 5.53 percent average in late June, which — for a median-priced Bay Area home bought with a 20 percent down payment — adds $300 a month to mortgage payments."

"It's the fifth straight week rates topped 6 percent and the highest level since 30-year mortgages were at 6.44 percent in September 2003."

"While mortgage rates are going up, fewer people can afford to buy a home, according to a survey released Thursday by the California Association of Realtors. Only 12 percent of Bay Area households in September had the annual income of $167,420 needed to buy a median-priced detached home at $709,980, the survey found. A year ago, 15 percent could afford a median-priced"
We have also learned that the M3 report is now going to be kept secret (and here and here). So much for "transparency" in our financial system. Does this mean that the US is a less attractive investment to foreigners? Does this mean we can kiss goodbye the AAA bond? Does it mean that Bernanke will be able to print as much money as he likes and there will be no easily accessible data about it? Maybe the economy isn't as rosy as the Fed wants us to believe. Furthermore, many countries will likely dump US dollars if the Iranian Oil Bourse removes its peg from the dollar (but hey, we'll just invade Iran and solve the problem that way like we did in Iraq) and the Plunge Protection Team is going to need to have lots of liquidity. On the other hand, Greenspan was operating under the precedent that by increasing short-term interest rates the long-term rates would move higher. This turned out not to be true this time around and led to his infamous "conundrum" comment. Perhaps this is the Fed's way of trying to get back control.

Welcome to the Matrix. Now go back to sleep.

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