{"id":982,"date":"2007-02-02T00:35:47","date_gmt":"2007-02-02T07:35:47","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=982"},"modified":"2007-02-02T00:35:47","modified_gmt":"2007-02-02T07:35:47","slug":"peeking-into-bernankes-crystal-ball","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/982\/peeking-into-bernankes-crystal-ball\/","title":{"rendered":"Peeking into Bernanke’s Crystal Ball"},"content":{"rendered":"

Do you want to look into the crystal ball through the eyes of Federal Reserve Chairman, Ben Bernanke<\/a>? Will that help you predict mortgage rates and housing prices for 2007? I try to outguess the Fed all the time and I’ve decided that we’ll see a significant decline in short-term interest rates by YE2007.<\/p>\n

The answer is usually buried in paragraph three or four of government reports. The economic benchmark that is oft overlooked is the nominal GDP growth rate. The nominal GDP growth rate includes the effect of inflation. Nominal GDP growth reflects the ability of the US economy to pay our debts. The Fed Funds rate reflects the interest the economy pays on its debt<\/strong>. When the two are imbalanced, runaway inflation or its opposite effect, asset deflation, occurs. When nominal GDP exceeds the Fed Funds rate, we have a capital surplus which leads to inflationary pressures. When nominal GDP is less than the Fed Funds rate, asset deflation occurs. Leveraged assets, notably stocks and houses, decline.<\/p>\n

Let’s look at recent history to understand recent Fed activity as it related to nominal GDP. In 1990, 1995, and 2001, The Fed Funds rate exceeded nominal GDP; the economy wasn’t growing fast enough to service its debt. The Fed responded by slashing the Fed Funds rate to just under the nominal GDP to spur economic growth. This caused companies to take their money out of cash reserves (read<\/strong>: the bank) and into capital investment (read<\/strong>: plants, machines, equipment). That capital investment takes time so the Fed’s rate cuts take 12-18 months to have an effect. The Fed fine tunes the economy in a slow and deliberate manner, like the captain of an ocean liner.<\/p>\n

The nominal GDP growth rate target for the Fed has been 5%. When it approached 7% in 2004, what do you think they did? They raised the Fed Funds rate 13 times in a two year period from a low of 1.0% to the present day 5.25%. That brought nominal GDP under control but it took 12-18 months for the economy to feel the effect. What happened in late Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Do you want to look into the crystal ball through the eyes of Federal Reserve Chairman, Ben Bernanke? Will that help you predict mortgage rates and housing prices for 2007? I try to outguess the Fed all the time and I’ve decided that we’ll see a significant decline in short-term interest rates by YE2007. The […]<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-982","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-real-estate","8":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":10486,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/10486\/a-disaster-for-democrats-yeah-but-what-about-the-rest\/","url_meta":{"origin":982,"position":0},"title":"A Disaster for Democrats? 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He runs a weblog of his own -- under a different pseudonym -- and leads a life of joy, contemplation and undisturbed privacy under his real name. But no matter how he is denominated, Strummer is an expert in\u2026","rel":"","context":"In "Big Mother"","block_context":{"text":"Big Mother","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/big-mother\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5378,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/5378\/mortgage-market-week-in-review-14\/","url_meta":{"origin":982,"position":2},"title":"Mortgage Market Week in Review","author":"Tom Vanderwell","date":"November 1, 2008","format":false,"excerpt":"I want to apologize for the delay in getting this out until Saturday.\u00a0\u00a0 Due to some technical difficulties and some new things I'm going to be implementing, Friday was spent working on computer issues.\u00a0\u00a0 Yeah, I know, a fun way to spend a Friday..... So, here we are at the\u2026","rel":"","context":"In "Lending"","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2529,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/2529\/amaze-your-friends-why-the-surprise-fed-funds-rate-drop-isnt-impacting-mortgage-rates\/","url_meta":{"origin":982,"position":3},"title":"Amaze Your Friends : Why The “Surprise” Fed Funds Rate Drop Isn’t Impacting Mortgage Rates","author":"Dan Green","date":"January 22, 2008","format":false,"excerpt":"Advanced Fiscal Literacy For Real Estate Professionals The Fed Funds Rate is a fair proxy for economic health.\u00a0 When the economy is growing, the FFR\u00a0rises to fight inflation. When the economy is slowing, the FFR\u00a0falls to fight \"the absence of inflation\" (i.e recession). 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Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk.\u2026","rel":"","context":"In "Investment"","block_context":{"text":"Investment","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/investment\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/982","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=982"}],"version-history":[{"count":0,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/982\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=982"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=982"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=982"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}