More Than Leaves Are Falling

Fall has arrived with plenty of things beyond leaves losing altitude.

Investment portfolios are falling hard as Jay Powell and his Federal Reserve friends seek to correct past mistakes by monkey-hammering the economy with higher interest rates while also shrinking liquidity in the bond markets by selling off the Fed portfolio, put at upwards of $9 trillion.

The impact of such things is negative and widespread. Expect to see declines continuing in the value of your IRA, 401(k) and other investments long after the last leaf has hit the ground.

Similarly, for most people their home is their single largest asset. The surge in housing prices, even in distressed areas such as Johnstown in recent years, has made homeowners smile. This produces the so-called wealth effect in which although there are no plans to sell the house, it is heartening to know that if that decision would be made then massive financial gains would be realized.

And this allows households the confidence to spend more money on other things, secure in the knowledge that even in a worst-case scenario, their home equity could bail them out.

But the combination of those inflated house prices and rising interest rates, which have pushed 30-year mortgages from the 3-percent range to above 6 percent, have priced many people out of the housing market.

Most measures of demand have fallen sharply and prices of houses only now are beginning to follow that trajectory. They have lots of catching up to do.

Even those who still might be able to afford a house aren’t that optimistic. Why buy now? Just wait and prices will be lower, and maybe even interest rates will decline if and when the Fed folks decide they’ve crippled the economy sufficiently to rein in the inflation they created themselves with their loose monetary policies.

The irony of this is the would-be home buyers are looking to become renters, putting pressure on costs in that segment of the housing market, which translates into keeping inflation measures elevated and so delaying the Fed’s willingness to lower interest rates again.

On a more intangible basis, trust is falling fast in government, the legal system, Lamestream news media, healthcare and our public education system.

Once the weather improves, make it a point to get out and enjoy the fall foliage. It will provide a welcome respite from the reality of falling objects and failing institutions.