The Fed as Pontius Pilot

The Federal Reserve of is attempting to wash its hands of any wrong doing in The great turn-of-the-century housing boom.

The above article is rather long and mostly boring, filled with mathematics that only geeks could understand but the conclusion is as one might expect. The Fed is admitting no wrong doing for the current housing boom, and therefore by implication will not want any part of the blame for a bust that is just beginning to unfold. In fact, they are now attempting to absolve themselves of any error during this whole sordid affair. Following is the conclusion of "The great turn-of-the-century housing boom".

Conclusion

This article has attempted to explain two features of the turn of the twenty-first century U.S. economy: high levels of residential investment and homeownership rates. Our main findings are as follows. First, it appears that the housing boom has not been driven by unusually loose monetary policy. This is not to say the monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing. Second, the current levels of spending on new housing are largely explained by technology-driven wealth creation over the previous decade. Third, changes in the demographic, income, educational, and regional structure of the population account for about one-half of the increase in homeownership. That is, without any other developments, the homeownership rate is likely to have gone up anyway, but not by as much as it has done. The last finding is that substitution away from rental housing made possible by developments in the mortgage market, such as subprime lending, could account for a significant fraction of the increase in residential investment and homeownership.

We view our findings as supporting the view that the current housing boom may be a temporary transition toward an era with higher homeownership rates in which spending is temporarily higher than historical norms but will eventually return to such norms. While we have so far mostly avoided discussing housing prices, our findings do suggest that to the extent that house prices have grown considerably in recent years, this is not due to unusually excessive speculation in the housing market, such as would occur in a bubble. Instead, our findings point toward the high prices being driven by fundamentals.

IdiomSite offers the following take on I wash my hands of it.

Commonly, when someone has attempted to avert a wrong and it continues anyway, he states, "I wash my hands of the issue", indicating that he is clean and not to blame. This comes from Jesus' trial, as recorded in Matthew 27:24. Pontius Pilate, who was in charge of sentencing Christ, claimed that Jesus was innocent as far as he could tell. However, the crowds pushed to have Him executed. "When Pilate saw that he was accomplishing nothing, but rather that a riot was starting, he took water and washed his hands in front of the crowd, saying, 'I am innocent of this Man's blood; see to that yourselves.'

This seems all the more fitting because housing is about to get crucified.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/