Feds Cut Rate - Finally Bernanke tries to stay ahead of the curve…
Hey all…
Quick little post I thought anyone in the real estate industry should know.
This morning the Feds Cut the Rate (interest rate that is) .75% in an attempt to rescue the hurting economy.
Here’s my question…
Why is Bernanke always behind the curve??
He waits too long to raise interest rates (which partially drove the financing hysteria in 2002-2005)…
What happened there?
Okay, let’s go over the progression of how we got to this place.
Well… extremely low interest rates and flexible financing,
…which led to record levels of homeownership (sounds good on the surface),
…which led to people getting caught up in the emotional high of buying a home… without realizing they have to make the payment for years to come,
…which led to a real estate market that escalated out of control in many parts of the country,
… which led to a slight interest rate increase by Bernanke (too late),
… which led to huge numbers of foreclosures when peoples rates started to adjust to a way higher interest rate,
… which led to a glut of housing on the market,
… which led to dropping housing prices in most parts of the country,
… which led to a recession,
… which looks like it could lead to a depression,
… which led to a piddely rate cut by Bernanke of just 1/4 point in December ,
… which led to another piddely rate cut (once again behind the curve) earlier in January ‘08,
(almost done… I promise)
… which led to stock markets around the world to tumble because of increasing “signs” of a U.S. recession,
… which finally lead us to Bernanke pulling his head at least half way out of his @$$ and making a .75% rate cut… to get at least somewhat in line with the curve.
Wow…
Amazing what a series of “cautious” moves by the people managing this countries financial well being can do for us.
Greenspan always had a way of finding a way to stay ahead of the curve… and did a brilliant job as the Fed Chairman.
However, I equate Bernanke to the hunter that learns about that awesome hunting spot “just over the hill”… but doesn’t want to go over there yet because the hunting is really good… and might just get better. But… the next day his buddy tells him people are harvesting deer out of there in crazy numbers… so good ol’ Ben heads to that “hot” hunting spot only to find that he’s too late… no deer left. So, he plants one seed of barley (deer like to eat this stuff… I think) with hopes that the deer will come flocking back.
I know… kind of stupid analogy… but it’s true.
So, what will happen next in the roller coaster we call the Bernanke economy? Let’s wait and see. Hopefully we’ll get things figured out before we’re relegated to playing second fiddle behind the Chinese.
Hey, my name is Trevor and I'm the founder of The REI Brain and a real estate investor since the age of 21. Right now, my focus in real estate investing is multi-family income properties and I have plans on moving more into the commercial real estate investment world in 2008 and beyond. 
Excellent points … but from an armchair quarterbacks perspective. Easy to look back and say what happened, but a little more difficult to look forward and predict what will happen. Yes, Greenspan was very good (or lucky) at this. So, the million dollar question is, “is the 3/4 point rate cut not enough, just right, or too much?”
Hey Mike, I completely agree. Hindsight is always 20/20. If it were that easy to know how the economy would react… we’d all be billionaires.
However, in my opinion… Greenspan was a much more solid Fed Chairman… and his track record I think goes a bit beyond luck. But… he left the Fed in 2006… so I guess who’s to say that some of this mess isn’t attributed to him?? A portion probably is…
Anyhow, makes for good discussion and keeps us investors and business owners on our feet.
As far as the 3/4 rate cut being enough… I personally don’t think so… but… I’m not an ivy league educated economist either… so my opinion doesn’t count a whole lot.
Thanks for joining in the discussion! I look forward to seeing you back here soon!
Cheers,
Trevor