It's a little early for April Fools, but Ben Bernanke might just be a prankster at heart.
I say this because he recently told the Economic Club of Indiana in Indianapolis that the Fed's plans for QE3 would help create more economic activity and higher home prices. Then he added, almost as an afterthought, that this would help many more savers than it would hurt.
I was waiting for the punch line…or the laugh track…or maybe an old bada-boom from Paul Schaeffer's band offstage. Only it never came.
It's like he was making a bad joke, "but QE is good for savers. No, really! I swear…"
Why the Fed chief keeps linking housing prices to savings and, by implication, to an economic recovery defies logic.
No matter how hard he tries, he can't solve our nation's economic woes by making the same mistakes all over again.
Part of the reason housing blew up in the first place is that people began to view rising home prices as personal ATM machines. Now Bernanke is simply putting a new face on the same monster.
Think about it…
We already have a multi-year oversupply in homes on the market and ridiculous amounts of construction are still going on in parts of the country where there are quite literally no buyers. If you've been to Las Vegas or parts of Florida you know exactly what I'm talking about.
How many homes do we really need at a time when values remain 30%-50%, and in some places even 70% below their peak?
Certainly not the millions of new homes that Bernanke thinks we do while unemployment remains high and actual buying power has been dramatically reduced.
And millions of strapped American families two paychecks away from bankruptcy surely don't care.
Bernanke's False Bottom
Now I know the media is very excited about recent data showing a recovery in housing prices, but let's take a deep breath. Seasonal demand accounts for a good portion of the bump. So does bargain hunting.
This suggests a new round of speculators has entered the game — and those folks are buying with cash, making mortgages irrelevant.
As a result, prices are being bid up even though overall demand remains relatively constant.
Then there are the banks. All of them claim they want to lend money, yet find every excuse not to. While they will claim otherwise, practically speaking they're saying one thing and doing another.
This, too, speaks to a massive disconnect.