The Times Are A Changin’…
Bob Dylan played this number 1 hit, which was on the Billboard charts almost 60 years ago and his message still holds true today. In 1964, things were changing in America both politically, economically, and culturally. The economy was trying to emerge out of recession with a little help from the Vietnam War. The rise of the “Hippie / Liberal” movement was just beginning and America’s approach to wealth and social values was also about to make a notable change that is continuing today. Our Federal Reserve folks were following the works of the very well-respected John Keynes from 1935-1936, and it appears that our current Federal Reserve may still be following in his footsteps as well as the footsteps of past Federal Reserve members. While on the surface “Keynesian” economics explains a lot of things, it simply does not consider the changing culture of spending of the average US citizen. I am pretty sure that credit cards did not start until 1950 and other “unsecured debts” did not start until after that. Today, the average US adult has over $300,000 in debt (credit cards, student loans, unsecured debt, car loans, home loans and HELOCS) with an average overall rate of 9.6%**** So, while everyone who takes economics in college learns about “Keynesian Economics”, what I know is that this sort of individual debt was never contemplated in his theories or at least what I studied. But we continue to measure US economic growth basically the same way we did at least 60+ years ago and those times have certainly changed.
Federal Reserve Chairman Powell today stated in his after-meeting conference that the economy continues to be doing very well and employment is still strong. This is truly fascinating, when you see that overall consumer debt has just breached the $1 TRILLION mark for the first time. The average savings account went from over $35,000 per person to $26,000 or a drop of 25% in just a one-year time frame. Rising personal debt + falling personal savings equals a healthy economy? Interesting….
The Federal Reserve simply does not understand that the times are changing, and people no longer purchase items with monies that they have earned…they purchase things with credit cards or monies that they simply do not have. So, when you see “spending” rising…does that necessarily mean that the economy is doing well or is the average consumer simply “kicking the can” down the road and will pay for it over time. 40-60 years ago, cash was king except for buying a house or maybe a car…but now…having a credit card with over a $20K limit at the enticing rate of over 20% is more prevalent than you want to think. So, when our friends at the Federal Reserve think the economy is really doing well, maybe they should look closely under the “hood” and see that car engine we had in 1964 is much different than what we have today and needs to be taken care of differently. Old school thinking of hiking rates really has not created a so called “soft landing” in 40+ years…and we will not softly land this time either. They need to understand that our economy may be growing but not because people are earning more and spending more. They are spending beyond their means in many cases which is creating a false “hot” economic reading and will most likely create a bigger problem soon. The Federal Reserve needs to change with the times and adjust monetary policy to the “world” we now live in…not the “world” of 60 years ago. Hopefully, our young economists today are learning real world economics while still respecting the base economic teachings of their predecessors. The good news…The Federal Reserve will once again miss the “soft landing” they are looking for which will drive mortgage rates and overall rates lower in the future…. The Times Are A Changin’
Remember… The BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
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Blog post date: Friday, November 3, 2023
