There are very few graphs that have abrupt shifts upward or downward that indicate anything particularly good.  Now, if this were a graph of my net worth (even change the scale to thousands) , I would be a happy camper and would probably be spending a lot more time sea kayaking in some remote places instead of hunkering down for another rainy, chilly day in Nashville.  Any rate – shelve that dream and take a look at this:


In an earlier post, I shared the same chart a few months ago, before the Rocky Mountain peaks got added at the top.  But what is distressing is that this thing has started a steep upward trajectory again.  This means that the Fed is pumping more money into the system.  If we were truly seeing “green shoots,”  signaling an economic recovery, the curve would be slacking off.

What they are doing is propping up the mortgage markets by buying more mortgage backed securities – from the Fed’s Open Market Policy Report we learn:

“To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.”

So, the housing market crash, which got us into trouble is umm, being re-inflated?  Certainly the $8,000 credit, which is set to expire at the end of next month is helping out, but this is bat-poo crazy stuff.  People are being incented to buy homes because they are getting a great mortgage rate?  Meanwhile we are expanding the money supply to stratospheric levels to cover this?

I guess this is all part of the “new normal,” but the Fed is exposing itself to becoming a bit player on the sidelines with no gas left when the next shoe of commercial real estate starts to drop.  From the folks I am talking to, the interest reserves are about gone on the development projects and the developers, especially those that did one more deal for fees, are down to less than six months in the bank.  Dammit folks, I am a developer and am by nature and trade an exuberant optimist, but this stuff is truly frightening.  The only way out is massive inflation or crippling tax increases…I don’t like either option.

An alternative is to change the mindset in Washington from compassion to reality.  Not everyone can afford a house – period.  It’s a nice dream to save and aim for, but not everyone can do it.  Nor should they.  A robust rental option is a fine alternative to ownership.  But we have created a whacky tax incentive that encourages home ownership and coupled it with politically expedient programs to encourage those less fortunate to take the ownership plunge and now we are keeping interest rates artificially low to perpetuate the myth.  It’s time to get back to a government more interested in following sound governing principles and less interested in paying off voter blocs.