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Tuesday, March 18, 2008

Bravo, Brenner
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Economist Reuven Brenner today expertly reinforces our views on the dollar, trade, and financial markets as expressed in our "Dereliction of the Dollar" article.

Writes Brenner:

You cannot restore trust while signaling that no steps will be taken to prevent the further fall of the greenback. Capital, be it to shore up financial institutions, or buy up much-devalued U.S. assets -- in terms of some currencies, U.S. real estate has plunged by more than 40% -- will stay on the sidelines as long as the Federal Reserve and the government do not take action to fix monetary policy.

In a Financial Times op-ed the other day, Alan Greenspan says that a measure of stability will be restored when house prices stabilize, which may be accurate. But why would capital flow into real estate denominated in dollars that are still expected to plunge?

The view expressed on this page by former Federal Reserve Board member Robert McTeer -- that the Fed now must give priority to the liquidity crisis and neglect the dollar -- is inaccurate, too. The liquidity crisis and the stable dollar are related. The vast extension of credit since 2002 could have never happened if the Fed had sustained a stable value for the dollar. . . .

The issue isn't that "we will never have a perfect model of risk," as Mr. Greenspan appears to think. What we need is accountability, not perfection. With the proper anchor, central banks can sustain a stable value for their currency, and that is what they must be held accountable for. If they do that, even if financial institutions experiment with a wide range of innovations they cannot expand credit too much.

The weak-dollar crowd only thinks of tradeable goods on international markets, a market that plays out over months or years. They make no space in their models for constantly adjusting asset prices and the crucial real-time investment decisions that drive the economy. With a more stable dollar, for instance, Bear Stearns could easily have found the capital to cover its losses and sustain its operations. But weak-dollar uncertainty causes panic and chases investors away.

posted by Bret Swanson @ 9:05 AM | Monetary Policy

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I always like Alan Greenspan and find his thought on this situation interesting. He worked closely with the Clinton administration and they balanced the budget.

Posted by: Real Estate In Blue Ridge Georgia at March 18, 2008 11:07 AM

I think many people liked Greenspan as well and I think it is no secret that they are asking for his comments now and hope it will bring the american public to a better sense of security.

Posted by: Blue Ridge Mountains Cabins For Sale at March 19, 2008 7:23 AM

So much chirping from the Feds a "tweek" here and a "tweek" there. I don't see much change do you? It is a better topic to discuss then the daily updates on Brittany Spears and what Donald and Rosie have to say.

The real estate industry will rebound on it's own and people will buy when they are ready. Lenders that over sold and profited will now pay the price.
The loosers are the communities who have abandon homes sitting luring crime and children. The communities who have closed schools and are busing students to other schools. This to will change in TIME!

Posted by: Port Orange FL Real Estate at March 20, 2008 7:35 AM

I think by June when children get out of school and people start vacationing and spending things will be better. I think many will choose to buy and move this summer and the fall may actually be a little slower and close out the year. I do think it will be 2010 before a normal market is in place. One thing for sure the interest will be higher by then and the cost of the housing will be up by then. If considering buying it really is a good time.

Many are thinking of second vacation homes and are going to check this out while vacationing this summer and see if there favorite area has any great deals.

Posted by: Cheap Hotels at March 22, 2008 8:41 AM

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