QE is not the best mechanism for dealing with the troubled economy, it’s just the only realizable one we have right now.

[QE] is definitely a pretty roundabout way of driving money into the real economy. Instead of putting the money directly to work, pay money to people who already have assets even more than their assets are currently trading for, in the hope that they’ll put at least some of the money to work.

In a sidenote he addresses “helicopter money” AKA “QE for the people.”

QE involves paying over a $ (or Pounds, or Yen) amount in return for an existing asset. This is a crucial feature, and accounts for many of the drawbacks — in particular that the policy benefits above all existing holders of assets. In theory, just handing money to everybody in the country is a more effective and equal way of acheiving its aims. But you don’t have to be a hard-money Bundesbanker to be at least a little uncomfortable with where this might end up

QE via asset purchases does strike me as a very roundabout way of addressing a demand shortfall in a substantially consumer driven economy. But as the above post suggests, nothing else may be politically viable.

#2013-05-31

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Institutional home buying fatigue?

We just don’t see the returns there that are adequate to incentivize us to continue to invest, [Bruce] Rose, 55, chief executive officer of Carrington Holding Co. LLC, said in an interview at his Aliso Viejo, California office. There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.

#2013-05-29 [ via ]

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The accelerating housing market?

You don’t see phase diagrams for housing everyday.

#2013-02-28

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Housing inventory trajectory for 2013.

I forgot to point out this post by Calculated Risk earlier this week. He’s using my housing inventory data to chart the trajectory of listings coming online this year. Inventory has come way down over the past couple of years and the big question is whether this winter will mark a bottom. If a lot of homes go on the market this spring, it probably indicates a bottom.

#2013-01-27

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Steve Randy Waldman: I think the behavior of real interest rates is the empirical fingerprint of the effect of inequality on demand.

Where the missing demand comes from:

Household borrowing represents, in a very direct sense, a redistribution of purchasing power from savers to borrowers. So if we worry that oversaving by the rich may lead to an insufficiency of purchases [by poorer households], household borrowing is a natural place to look for a remedy. Sure enough, we find that beginning in the early 1980s, household borrowing began a secular rise that continued until the financial crisis.

Why that’s a problem:

Suppose that the mechanism that reconciles inequality and adequate demand is household borrowing. Is that sustainable? After all, poorer households would have to borrow new purchasing power in every period in order to support demand for as long as inequality remains high.

How it messes with the role of banks in the economy:

We very explicitly ask banks to intermediate the deficit in demand, exhorting them to lend lend lend for macroeconomic reasons that are indifferent to microeconomic evaluations of solvency. We can have a banking system that performs the information work of credit analysis and lends appropriately, or we can have a banking system that overcomes deficiencies in demand. We cannot have both when great volumes of lending are continually required for structural reasons.

The elegance and insight density of this post is off the charts!

#2013-01-24