A New Monetary Crack High
It's an article of faith in today's markets that monetary expansion should not be used in an over-heating economy lest it bring wage inflation. And it's now a similar article of faith that monetary expansion is a great idea with markets at all time highs on the way to supernova. Suffice to say, global central banks have succeeded in creating a one-sided market:
Never before have global central banks coordinated easing with asset markets at all time highs.
For those few of us innocent bystanders, this madness is moral hazard taken to its logical self-destructiing extreme - the total monetary Ponzification of asset markets.
What is happening globally in real estate is even more destructive than what is taking place in stock markets.
Potential homebuyers and speculators far and wide have been told that when interest rates come down then real estate prices will sky-rocket. So what to do but pile into all forms of real estate ahead of time.
The problem is that over the course of the past fifteen years since the Global Financial Crisis, real estate has fully morphed from a mode of dwelling into a speculative asset class. No longer is it priced relative to rents and incomes, now it's priced with monetary-guaranteed capital gains. The net result of this increased speculative demand is to push prices inexorably higher while policy-makers have done everything possible to make housing more affordable by subsidizing even more SUPPLY. All manner of gimmicks have been employed to encourage a supply bubble to offset the monetary-driven demand bubble. The net result is that globally, developers have become massively over-levered to a Ponzified housing market and therefore the developers are starting to implode. China is the locus of collapse but other countries are going down the exact same path.
In order to bailout the collapsing developers, policy-makers are now doing everything possible to increase demand and they are actively enticing first time homebuyers to jump into the housing bubble. It's an article of faith that lower interest rates will stoke further home price gains even though historically lower interest rates have accompanied recession and collapsing home prices the majority of times.
Here we see via the U.S. home price index that home prices peaked in 2007 when interest rates peaked. And then home prices fell when the Fed began cutting rates. Both the level and duration of pause in interest rates in this tightening cycle are identical to the last cycle. Is that coincidence or is it merely an Idiocracy making the exact same mistake as last time except on a far larger cycle with much greater consequences?
Needless to say this status quo of industry capture by policy-makers and media is not the least bit in question, for now. What it portends is an entire generation of Millennials who have been actively enticed into Monetary Disney markets and will now be buried beneath the rubble of a second and much deadlier housing bubble collapse. All while our so-called leaders are solely preoccupied with who will be the next Captain of the Titanic.
In summary, for those who are in love with the status quo and the linear extrapolation of failed policy, then this rate cut is a fool's paradise. However, I would suggest that the greater risk at this juncture is not IN questioning this madness, but IN not questioning this madness in which criminality has now been normalized.
