[RspecMAuthortah]

The Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line.

The reason home prices are not on line with fundamentals is - well there is just too much liquidity. Money is looking for places to go and there are not many. Except stocks. And then the next bet is real estate. They printed way too much for too long. Interest rate is at historic low, there is way too much savings, and in this inflationary environment, real estate is an excellent leveraged asset. No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.

Oh yeah, the same Dallas Fed chairman did not see the whole inflation thing coming either.

Yes, it is different this time.

[JumpCrisscross]

> Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line

This is hyperbole. The Fed, by and large, held the American economy together through the financial crisis and more remarkably the pandemic. Until now, neither of those produced meaningful levels of inflation. To say "their credibility is on the line" is to disagree with a multi-trillion dollar bond market taking the Fed's every word very much seriously.

> the same Dallas Fed chairman

This is the Dallas Fed's leadership [1]. None of them authored this article, certainly not the (interim) president, Meredith Black. If you want the dry stuff, what the Fed is actually saying versus its individual researchers, consult the beige book [2][3].

[1] https://www.dallasfed.org/fed/leadership.aspx

[2] https://www.federalreserve.gov/monetarypolicy/beige-book-def...

[3] https://www.federalreserve.gov/monetarypolicy/files/BeigeBoo... March 2

[listenallyall]

"held the American economy together". That's like saying I've kept my personal finances together by maxxing out my credit card. The American economy is insanely deep in debt, spurred on by Fed policy, and as far as what happened during the pandemic, the bill hasn't come in yet, but the inflation that started last year is certainly a preview of not-so-good things to come.

[scotuswroteus]

Exactly

[datavirtue]

I agree. Prominent investors, scores of former and current federal reserve analysts and directors, traders, and many others have been begging congress for financial regulation--before and after meltdowns. Many of those mentioned above have offered direct, specific advice on what to regulate and how to do it. Crickets...for decades.

[aaaaaaaaata]

The gears kept turning, doesn't mean irreparable damage wasn't done.

Central planners in the USSR were probably lauded by some subset of the citizenship, too. Doesn't mean it wasn't a sham.

[throwoutway]

I wouldn’t call it a sham. I think I’d rather some centralized orchestration of modern finance than none.

Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.

[scotuswroteus]

>I wouldn’t call it a sham. I think I’d rather some centralized orchestration of modern finance than none. >Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.

When that choice is before the American people, we'll be sure to turn to your perspective, but it's entirely irrelevant to the topic at hand, which is that the fed caused a problem they have yet to fix and they're not even now taking the steps necessary to fix it. We have a word now that exemplifies the ridiculous policymaking perspective that led the last year of bad decisionmaking: transitory inflation. That concept was laughable.

[stjohnswarts]

Yeah the only people I've seen that say the Fed is useless have been anarchists and libertarians and gold bugs.

[onlyrealcuzzo]

> No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.

Source?

[stonogo]

You won't get a source because it's misinformation. There are US cities wherein one in every three single-family-home purchases were made by investors last quarter: https://www.redfin.com/news/investor-home-purchases-q4-2021/ so perhaps OP was referring to that.

[onlyrealcuzzo]

I was gonna say - it's nearly impossible for the home ownership rate to be ~65% and 1/3 SFH also owned by institutions.

The vast majority of rental stock is not SFH, and the vast majority of rental homes are owned by mom & pop's.

[brian_cloutier]

This is a dumb question but... does housing have fundamentals?

There's a demand curve of renters willing to rent housing at different price points and I can see how this would put a lower-bound on housing prices, but why should there be any upper bound? When you buy a house you intend to live in there is no associated revenue stream, and the only return you can hope for is your expectation that someone else will buy the house from you for more in the future.

Maybe you can quantify that return, by modeling a rising population and municipalities which are slow to add housing? It still feels like housing is worth what other people are willing to pay for it, that's the fundamental.

[88913527]

I think it does have fundamental value. A stock's fundamental value is in its expected lifetime returns. For a home, it's the value of having shelter. Some areas are better to have shelter than others (favorable climate, access to a job center, etc).

[closeparen]

There is every reason that macroeconomic conditions would affect the value of land, but relatively silly and incidental reasons that the price of land would be so strongly coupled to the price of a home to live in (itself a depreciating commodity).

[nopenopenopeno]

Their only option is to be wrong. At the end of the day, the fed has an impossible job to do.

[vmception]

Oooh, nice, this has levels to it.

1) The Fed should create the outcomes such that their predictions were wrong

2) While also just having a bad interpretation of data to begin with

3) The Fed is only imagining that its toolkit can cause a specific outcome for economic growth, but it cannot cause humans to transact a certain way or predict what a large group of humans (or large pool of capital) will do. No economist can, and the other economists don't have an infinite balance sheet to try to influence it either.

4) The Fed was never asked to or mandated to do the things it does to stimulus the economy. (Caveat, the stimulus bills in 2020 are a major exception). The Fed just notices that nobody can stop it. Similar to the Supreme Court realizing that and testing it in Marbury v Madison. Congress lacks consensus on it and everyone is afraid of the alternative (Congress having to deal with monetary policy themselves, politically).

[datavirtue]

I agree. Congress is paralyzed (far more than the usual) when it comes to monetary policy and financial services regulation. It's officially their job but not their wheel house. Unsettling.

[pxue]

the job of the Fed is a proven impossible one. Their job is to nudge the entirety of the economy towards one or two of the Fixed Exchange Rate, Free Capital Flow, and Independent Monetary Policy at any given time, but never all three at once.

https://en.m.wikipedia.org/wiki/Impossible_trinity

[spaetzleesser]

I still remember Bernanke’s pronouncements before the 2008 crash that everything is just fine. It’s hard to not conclude that they either aren’t very competent or are playing political games.

[JumpCrisscross]

> remember Bernanke’s pronouncements before the 2008 crash that everything is just fine

The Fed chair saying "we're fucked" is, on its own, enough to cause a credit crisis. (This is why the Fed doesn't tend to make blanket forward-looking statements like "everything is just fine.")

[spaetzleesser]

I am not aware of them silently doing something about the mortgage bubble either.

[notch656a]

They can be dissolved. The constitution does not require a central bank.

[mensetmanusman]

You need a mechanism to decide the ratio of currency/population necessary to prevent a deflationary cycle.

[notch656a]

You don't 'need' the fed. The country lasted 150 years without one, and shortly (less than 20 years) after its introduction, a deflationary cycle and great depression ensued. The fed preventing a deflationary cycle has been thoroughly and mercilessly disproven.

Either the fed is powerless to stop the economic crisis we've suffered, or they're too incompetent to manage them. Either way it looks like they need dissolved.

[mensetmanusman]

The fed couldn’t possibly stop a deflationary cycle when the currency/population ratio was determined by how many atoms of non-oxidizing noble metals happens to be in the earth’s crust.

[notch656a]

The federal reserve themselves disagree with you [1].

Also note [2]:

"In 1913, this problem was addressed by the creation of the Federal Reserve System (Fed).33 The Fed was to remedy the situation in a two ways. First, it would provide a means by which banks could borrow in times of stringency to satisfy their customers’ demand for cash. Second, it could create a new form of money, Federal Reserve notes, which could be expanded or contracted in quantity to respond to the need for more cash."

"The creation of the Federal Reserve had little if any effect on the gold standard. The dollar was still defined in terms of gold. Federal Reserve notes were redeemable in lawful money. The Fed not only operated under the gold standard, but was charged with maintaining it, and kept a percentage of gold cover for its notes. Gold still dictated the value of the dollar. "

[1] https://www.federalreservehistory.org/essays/great-depressio....

[2] https://sgp.fas.org/crs/misc/R41887.pdf

[chii]

There's not been a run on banks since the Fed's existence. The country needed a "Fed" - you can only say that they're unneeded because you have not experienced a time when they didn't exist and bank deposits couldn't be secured.

It's like people who ask why they need to be vaccinated for polio now that there's very few cases of it.

[notch656a]

>There's not been a run on banks since the Fed's existence.

False, false, and false.

"Despite the creation of the Fed, a wave of bank runs resulted in massive bank failures over the period 1930-1933."

https://sgp.fas.org/crs/misc/R41887.pdf , pg. 9

[magila]

https://en.wikipedia.org/wiki/Free_banking

[vkou]

> The Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line.

Considering that after 2008 and 2020, we did not end up living in a weird Mad-Max blood-covered hellscape, trading bottlecaps for hits of zyme and ammunition (Which would have been the likely ideological outcome of 'just let the whole economy fail'), I think the Fed has weathered the past two decades fairly well.

[gitfan86]

I recently read a book that was basically a diary of a businessman from the great depression with some commentary.

It seems like there were two big problems that we have done a good job avoiding since then.

#1. Way too many people were rich on paper and with margin.

#2. Once the economy started to collapse everyone panicked and tried to avoid spending money, which causes a negative feedback cycle.

2008 was similar to issue 1, but we avoided step 2 by bailing out the banks and auto companies that should have collapsed.

[vkou]

> bailing out the banks and auto companies that should have collapsed.

'Should' is doing a lot of work in that sentence.

Should a business that's selling $10 bills for $9 collapse? Yes, that's pretty obvious.

Should a business that's consistently selling $10 bills for $10.05, but requires access to short-term liquidity that completely evaporated overnight to function, and is now not functioning, because some other unrelated part of the economy is sick, and all flow of credit has stopped?

Should that latter business fail? Who's going to be better off for it failing? Even if killing that business will create an economic catastrophe, as well as a mountain of geopolitical concerns that are the consequences of de-industrialization? [1]

On a metric of anything but ideological purity, the fed stopping the economic collapse where it did was a bargain at twice the price.

[1] Just ask Russia in 2022 how well de-industrializing all of its inherited Soviet economy has worked out for it. It's now in the unenviable situation where its domestic production can't even sustain a Soviet-era standard of living, without relying on now-sanctioned foreign trade.

All because it hyper-optimized on growing the 'productive' parts of its economy (Oil, oil, gas, oil, and gas), and let the unproductive parts (all that old, crappy, internationally uncompetitive Soviet industry) rot away.

[gitfan86]

Sorry, my mistake I meant to say would instead of should.

I don't think that the janitor at GM "should" have lost his job. It would have been nice if everyone lying about the real quality of the MBS products lost all the money they made though

[voisin]

> #1. Way too many people were rich on paper and with margin.

Isn’t this the housing market today? A huge portion of household wealth is the house itself and thanks to massive increases everyone feels rich because on paper it looks good, but it is all financed with ever increasing levels of debt.

[gitfan86]

I think crypto has played a role in educating more people to how bad it is to hold USD, low interest rates, printed money combined with that are a recipe for people to get into bidding wars and fomo. Ironically this is bad for Bitcoin because it is denominated in USD. Maybe Bitcoin does go to 1M, but only after a loaf of bread costs 1k.

I'm not suggesting anyone go out and buy a 2br house for 3 million dollars, but I do think that real estate will hold it's value in general much better than USD.

[dclusin]

Until the alt coin they were emotionally invested in loses 80% of its value. Then the stock market and USD don't look so bad.