How Banking Crisis and Covid Lockdowns Killed Speed ​​of Money (Death of the Dollar King) – The Confusing Interest – News Couple

How Banking Crisis and Covid Lockdowns Killed Speed ​​of Money (Death of the Dollar King) – The Confusing Interest

I have written many times about nothing that has been the same since the housing bubble burst and the financial crisis that followed in 2008. The crisis led to bank bailouts (TARP) and banking legislation (Dodd-Frank) that gave the Federal Reserve more power. And then the COVID lockdowns further strengthened the Federal Reserve. and a terrible decline in the velocity of money (the ability of printing money to increase economic growth…or GDP).

But let’s take a step back. One reason the housing bubble burst was President Clinton’s infamous National Home Ownership Strategy that encouraged “partners” with the federal government to relax underwriting standards for mortgage lending, especially for minority families. The intention was to increase the rate of home ownership in the US and it worked! very good. Alongside the increased home ownership rate came a rise in home prices, culminating with home price growth reaching 14.5% y/y in September 2005. Only to start slowing down to a crash.

Of course, the housing bubble has been associated with a lack/reduced documentation and mortgage loans. But the relaxation of underwriting standards by the National Home Ownership Strategy has helped fuel the subprime/no/low-document lending crunch. But weakening underwriting standards to increase homeownership rates is a dangerous strategy.

Note the increase in money velocity M1 (GDP/M1) starting in 1994. M1 velocity grew until the fourth quarter of 2007, then crashed along with house prices. The second and most abrupt collapse of M1 Velocity occurred with the COVID outbreak in March 2020 and the subsequent economic shutdowns and Federal Reserve intervention regarding money printing. M1 Money rose 173% from October 2008 to February 2020 and then increased another 369% from March 2020 to today. This is the Fed Storm Rush!!

M2, the broadest definition of money, hasn’t grown as fast as M1, but it’s still growing at an alarming rate. Atlanta Fed President Rafael Bostic blamed COVID inflation but not crazy money printing or government shutdowns. come on man!

Finally, the banking crisis (and TARP bailouts) combined with COVID have made King Dollar’s consumer purchasing power even worse.

Be wary of government strategies to make housing “affordable” because they appear to make housing more expensive and could help bring down the financial system.

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