International Currency Swap Markets Reveals of a Developing Credit Crunch!

Big trouble for risk asset bulls. US dollar shortages have been emerging all over.

From the Bloomberg: (bold mine)

A crunch is developing in international funding markets.

The cost to convert local currency payments in the euro area, U.K. and Japan into dollars has jumped amid speculation the Federal Reserve will raise interest rates in December. With other major central banks set to hold, or even loosen, monetary policy, the projected policy divergence is supercharging the usual year-end uptick in demand for dollar funding….

The one-year cross-currency basis swap rate between euros and dollars reached negative 39 basis points Wednesday, the largest effective premium for dollar borrowing since September 2012, according to data compiled by Bloomberg. The rate was at negative 37 basis points as of 11:31 a.m. London time.

The measure, which was closely watched by investors during the financial crisis as an indicator of stresses in the banking system, reached negative 138 basis points in 2008 following the collapse of Lehman Brothers Holdings Inc. While the increase this month is driven more by monetary-policy divergence it still has implications for global banks. It also means U.S. companies, which have been borrowing in euros to take advantage of historically low interest rates, must pay more to swap those proceeds back into dollars….

This rush for dollar fundraising across the globe this month pushed up the one-year cost for Japanese banks to the highest level since 2011. Meanwhile, the cost for U.K. banks has more than doubled in November. That’s unusual because the surge was mostly focused in the euro area and Japan the last two occasions that funding costs rose, according to George Saravelos, global co-head of foreign exchange research at Deutsche Bank AG in London.

Well, this seem more than just about the FED’s lift-off, although speculations about it have been exacerbating the current conditions.(see charts above)

This seems really more about those balance sheets overstuffed by debt as evidenced by the $9.6 trillion credit in US dollars to non-bank borrowers outside the United States at the end of Q1 2015 (BIS)

This excerpt from a study from the Bank for International Settlements illuminates on the current dynamic: (Global dollar credit: links to US monetary policy and leverage, BIS, Robert N McCauley, Patrick McGuire and Vladyslav Sushko January 2015)

First, evidence from 22 countries over the past 15 years shows that offshore dollar credit grows faster where local interest rates are higher than dollar yields, and this relationship has tightened since the global financial crisis. And the wider the gap between local 10-year yields and those on US Treasury bonds, the faster the next quarter growth in outstanding US dollar bonds issued by non-US resident borrowers. This finding is consistent with the observation that, since 2009, dollar credit has flowed to an unusual extent to emerging markets and to advanced economies that were not hit by the crisis, while it has grown at a slower pace in the euro area and the United Kingdom (UK). In sum, dollar credit has grown fastest outside the US where it has been relatively cheap.

Second, before the global financial crisis, banks extended the bulk of dollar credit to borrowers outside the US. Low volatility and easy wholesale financing enabled banks to leverage up to funnel dollar credit offshore. These findings are consistent with Bruno and Shin (2014b) and Rey (2013).

Third, since the crisis, non-bank investors have extended an unusual share of dollar credit to borrowers outside the US. Firms and governments outside the US have issued dollar bonds, and banks have stepped back as holders of such bonds. The compression of bond term premia associated with the Federal Reserve’s bond buying has induced investors to bid for bonds of borrowers outside the US, many rated BBB and thus offering a welcome spread over low-yielding US Treasury bonds. We also find that inflows into bond mutual funds offering a spread over US Treasuries played a significant role in spurring offshore dollar bond issuance. We interpret this as evidence of the portfolio rebalancing channel of the Federal Reserve’s large-scale asset purchases.

A key observation is that, following a brief spike in spreads in Q4 2008, spreads declined in the subsequent quarters even as the stock of offshore dollar bonds grew rapidly. Thus, while we cannot reject the “spare tire” argument of Erel et al (2012) and Adrian et al (2013) at the height of the crisis (ie firms substituting from supply-constrained bank financing to bonds, despite widening spreads), any such effect seems to have been short-lived. Instead, heavy bond issuance amid falling yields and narrowing spreads points to the importance of a largely policy-induced favourable supply of funds from bond investors beginning in early 2009.

We end with a discussion of the implications for policy. First, dollar debt outside the US serves to transmit US monetary easing into immediately easier financial conditions for borrowers around the world. Second, while policy in economies outside the US can raise the cost of dollar debt at home, the effect of such policy is limited by multinational firms’ ability to borrow dollars abroad through offshore affiliates. Third, the recent prominence of bond markets in supplying dollar credit introduces new risks to financial stability, and thus changes the way that we need to think about the policy challenges posed by offshore dollar credit growth.

Now a progressing feedback mechanism between onerous cross border debt levels AND a downshift in global economic performance has been increasing strains in the supply of US dollar. Combine these with Fed’s potential rate hike (policy asymmetry between US and the world), hence the brewing credit crunch storm.

 

George Selgin: Ten Things Every Economist Should Know about the Gold Standard

At the Ideas for an Alternative Monetary Future (Alt-M) website, George Selgin director of the Cato Institute's Center for Monetary and Financial Alternatives, Professor Emeritus of economics at the Terry College of Business at the University of Georgia, and an associate editor of Econ Journal Watch addresses 10 controversial issues (myths & facts) surrounding the classic Gold Standard

1. The Gold Standard wasn't an instance of government price fixing. Not traditionally, anyway.
2. A gold standard isn't particularly expensive. In fact, fiat money tends to cost more.

3. Gold supply "shocks" weren't particularly shocking.

4. The deflation that the gold standard permitted  wasn't such a bad thing.

5.  It wasn't to blame for 19th-century American financial crises.

6.  On the whole, the classical gold standard worked remarkably well (while it lasted).

7.  It didn't have to be "managed" by central bankers.

8.  In fact, central banking tends to throw a wrench in the works.

9.  "The "Gold Standard" wasn't to blame for the Great Depression.

10.  It didn't manage money according to any economists' theoretical ideal.  But neither has any fiat-money-issuing central bank.

Below are four of my favorites: (bold mine)

1.  The Gold Standard wasn't an instance of government price fixing.  Not traditionally, anyway.

As Larry  White has made the essential point as well as I ever could, I hope I may be excused for quoting him at length:

Barry Eichengreen writes that countries using gold as money 'fix its price in domestic-currency terms (in the U.S. case, in dollars).'   He finds this perplexing:

But the idea that government should legislate the price of a particular commodity, be it gold, milk or gasoline, sits uneasily with conservative Republicanism’s commitment to letting market forces work, much less with Tea Party–esque libertarianism.  Surely a believer in the free market would argue that if there is an increase in the demand for gold, whatever the reason, then the price should be allowed to rise, giving the gold-mining industry an incentive to produce more, eventually bringing that price back down. Thus, the notion that the U.S. government should peg the price, as in gold standards past, is curious at the least.

To describe a gold standard as "fixing" gold’s "price" in terms of a distinct good, domestic currency, is to get off on the wrong foot.  A gold standard means that a standard mass of gold (so many grams or ounces of pure or standard-alloy gold) defines the domestic currency unit.  The currency unit (“dollar”) is nothing other than a unit of gold, not a separate good with a potentially fluctuating market price against gold.  That one dollar, defined as so many grams of gold, continues be worth the specified amount of gold—or in other words that one unit of gold continues to be worth one unit of gold—does not involve the pegging of any relative price. Domestic currency notes (and checking account balances) are denominated in and redeemable for gold, not priced in gold.  They don’t have a price in gold any more than checking account balances in our current system, denominated in fiat dollars, have a price in fiat dollars.  Presumably Eichengreen does not find it curious or objectionable that his bank maintains a fixed dollar-for-dollar redemption rate, cash for checking balances, at his ATM.

Remarkably, as White goes on to show, the rest of Eichengreen's statement proves that, besides not having understood the meaning of gold's "fixed" dollar price, Eichengreen has an uncertain grasp of the rudimentary economics of gold production:

As to what a believer in the free market would argue, surely Eichengreen understands that if there is an increase in the demand for gold under a gold standard, whatever the reason, then the relative price of gold (the purchasing power per unit of gold over other goods and services) will in fact rise, that this rise will in fact give the gold-mining industry an incentive to produce more, and that the increase in gold output will in fact eventually bring the relative price back down.

I've said more than once that, the more vehement an economist's criticisms of the gold standard, the more likely he or she knows little about it.  Of course Eichengreen knows far more about the gold standard than most economists, and is far from being its harshest critic, so he'd undoubtedly be an outlier in  the simple regression, y =   α + β(x) (where y is vehemence of criticism of the gold standard and x is ignorance of the subject).  Nevertheless, his statement shows that even the understanding of one of the gold standard's most well-known critics leaves much to be desired.

Although, at bottom, the gold standard isn't a matter of government "fixing" gold's price in terms of paper money, it is true that governments' creation of monopoly banks of issue, and the consequent tendency for such monopolies to be treated as government- or quasi-government authorities, ultimately led to their being granted sovereign immunity from the legal consequences to which ordinary, private intermediaries are usually subject when they dishonor their promises. Because a modern central bank can renege on its promises with impunity, a gold standard administered by such a bank more closely resembles a price-fixing scheme than one administered by a commercial bank.  Still, economists should be careful to distinguish the special features of a traditional gold standard from those of  central-bank administered fixed exchange rate schemes. 

5.  It wasn't to blame for 19th-century American financial crises.

Speaking of 1873, after claiming that a gold standard is undesirable because it makes deflation (and therefore, according to his reasoning, depression) more likely, Krugman observes:

The gold bugs will no doubt reply that under a gold standard big bubbles couldn’t happen, and therefore there wouldn’t be major financial crises. And it’s true: under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.  Oh, wait.

Let me see if I understand this.  If financial  crises happen under base-money regime X, then that regime must be the cause of the crises, and is therefore best avoided.  So if crises happen under a fiat money regime, I guess we'd better stay away from fiat money.  Oh, wait.

You get the point: while the nature of an economy's monetary standard may have some bearing on the frequency of its financial crises, it hardly follows that that frequency depends mainly on its monetary standard rather than on other factors, like the structure, industrial and regulatory, of the financial system.

That U.S. financial crises during the gold standard era had more to do with U.S. financial regulations than with the workings of the gold standard itself is recognized by all competent financial historians.    The lack of branch banking made U.S. banks  uniquely vulnerable to shocks, while Civil-War rules linked the supply of banknotes to the extent of the Federal government's indebtedness., instead  of allowing that supply to adjust with seasonal and cyclical needs.   But there's no need to delve into the precise ways in which  such misguided legal restrictions to the umerous crises to which  Krugman refers. It should suffice to point out that Canada, which employed the very same gold dollar, depended heavily on exports to the U.S., and (owing to its much smaller size) was far less diversified, endured no banking crises at all, and very few bank failures, between 1870 and 1939.

6.  0n the whole, the classical gold standard worked remarkably well (while it lasted).

Since Keynes's reference to gold as a "barbarous relic" is so often quoted by the gold standard's critics,  it seems only fair to repeat what Keynes had to say, a few years before, not about gold per se, itself, but about the gold-standard era:

What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot.  But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages.  The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages… He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank or such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.  But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable.

It would, of course, be foolish to suggest that the gold standard was entirely or even largely responsible for this Arcadia, such as it was.  But it certainly did contribute both to the general abundance of goods of all sorts, to the ease with which goods and capital flowed from nation to nation, and, especially, to the sense of a state of affairs that was "normal, certain, and permanent." 

The gold standard achieved these things mainly by securing a degree of price-level and exchange rate stability and predictability that has never been matched since.  According to Finn Kydland and Mark Wynne:

The contrast between the price stability that prevailed in most countries under the gold standard and the instability under fiat standards is striking. This reflects the fact that under commodity standards (such as the gold standard), increases in the price level (which were frequently associated with wars) tended to be reversed, resulting in a price level that was stable over long periods. No such tendency is apparent under the fiat standards that most countries have followed since the breakdown of the gold standard between World War I and World War II.

The high degree of price level predictability, together with the system of fixed exchange rates that was incidental to the gold standard's widespread adoption, substantially reduced the riskiness of both production and international trade, while the commitment to maintain the standard resulted, as I noted, in considerably lower international borrowing costs. 

Those pundits who find it easy to say "good riddance" to the gold standard, in either its classical or its decadent variants, need to ask themselves what all the fuss over monetary "reconstruction" was about, following each of the world wars, if not achieving a simulacrum at least of the stability that the classical  gold standard achieved.  True, those efforts all failed.  But that hardly means that the ends sought weren't very worthwhile ones, or that those who sought them were "lulled by the myth of a golden age."  Though they may have entertained wrong beliefs concerning how the old system worked, they weren't wrong in believing that it did work, somehow.

Finally: 9.  "The "Gold Standard" wasn't to blame for the Great Depression.

I know I'm about to skate onto thin ice, so  let me be more precise.  To say that "The gold standard caused the Great Depression " (or words to that effect, like "the gold standard was itself the principal threat to financial stability and economic prosperity between the wars”), is at best extremely misleading.  The more accurate claim is that the Great Depression was triggered by the collapse of the jury-rigged version of the gold standard cobbled together after World War I, which was really a hodge-podge of genuine, gold-exchange, and gold-bullion versions of the gold standard, the last two of which were supposed to "economize" on gold.    Call it "gold standard light."

Admittedly there is one sense in which the real gold standard can be said to have contributed to the disastrous shenanigans of the 1920s, and hence to the depression that followed.  It contributed by failing to survive the outbreak of World War I.  The prewar gold standard thus played the part of Humpty Dumpty to the King's and Queen's men who were to piece the still-more-fragile postwar arrangement together.  Yet even this is being a bit unfair to gold, for the fragility of the  gold standard on the eve of World War I was itself largely due to the fact that, in most of the belligerent nations, it had come to be administered by central banks that were all-too easily dragooned by their sponsoring governments into serving as instruments of wartime inflationary finance.

Kydland and Wynne offer the case of the Bank of Sweden as illustrating the practical impossibility of preserving a gold standard in the face of a major shock:

During the period in which Sweden adhered to the gold standard (1873–1914), the Swedish constitution guaranteed the convertibility into gold of banknotes issued by the Bank of Sweden.  Furthermore, laws pertaining to the gold standard could only be changed by two identical decisions of the Swedish Parliament, with an election in between. Nevertheless, when World War I broke out, the Bank of Sweden unilaterally decided to make its notes inconvertible. The constitutionality of this step was never challenged, thus ending the gold standard era in Sweden.

The episode seems rather less surprising, however, when one considers that "the Bank of Sweden," which secured a monopoly of Swedish paper currency in 1901, is more accurately known as the Sveriges Riksbank, or "Bank of the Swedish Parliament."

If the world crisis of the 1930s was triggered by the failure, not of the classical gold standard, but of a hybrid arrangement, can it not be said that the U.S. , which was among the few nations that retained a full-fledged gold standard, was fated by that decision to suffer a particularly severe downturn?  According to Brad DeLong,

Commitment to the gold standard prevented Federal Reserve action to expand the money supply in 1930 and 1931–and forced President Hoover into destructive attempts at budget-balancing in order to avoid a gold standard-generated run on the dollar.

It's true that Hoover tried to balance the Federal budget, and that his attempt to do so had all sorts of unfortunate consequences.   But the gold standard, far from forcing his hand, had little to do with it.  Hoover simply subscribed to the prevailing orthodoxy favoring a balanced budget.  So, for that matter, did FDR, until events forced him too change his tune: during the 1932 presidential campaign the New-Dealer-to-be assailed his opponent both for running a deficit and for his government's excessive spending.

As for the gold standard's having prevented the Fed from expanding the money supply (or, more precisely, from expanding the monetary base to keep the broader money supply from shrinking), nothing could be further from the truth.  Dick Timberlake sets  the record straight:

By August 1931, Fed gold had reached $3.5 billion (from $3.1 billion in 1929), an amount that was 81 percent of outstanding Fed monetary obligations and more than double the reserves required by the Federal Reserve Act.  Even in March 1933 at the nadir of the monetary contraction, Federal Reserve Banks had more than $1 billion of excess gold reserves.

Moreover,

Whether Fed Banks had excess gold reserves or not, all of the Fed Banks’ gold holdings were expendable in a crisis.  The Federal Reserve Board had statutory authority to suspend all gold reserve requirements for Fed Banks for an indefinite period.

Nor, according to a statistical study by Chang-Tai Hsieh and Christina Romer, did the Fed have reason to fear that by allowing its reserves to decline it would have raised fears of  a devaluation.    On the contrary: by taking steps to avoid a monetary contraction, the Fed would have helped to allay fears of a devaluation, while, in Timberlake's words,  initiating a "spending dynamic" that would have  helped to restore "all the monetary vitals both in the United States and the rest of the world."

Read the rest here

UK Prime Minister David Cameron Warns of Looming Global Financial Crash

It’s interesting to see key political agents jump into the bandwagon in issuing warnings of a looming global crisis.

This time UK Prime Minister David Cameron, writing at the Guardian at the close of the G20 meeting, sees red lights flashing for a global financial crash.

Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.

As I met world leaders at the G20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down. Despite the progress in Bali, global trade talks have stalled while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty.

The British economy, by contrast, is growing. After the difficult decisions of recent years we are the fastest growing in the G7, with record numbers of new businesses, the largest ever annual fall in unemployment, and employment up 1.75 million in four years: more than in the rest of the EU put together. But the reality is, in our interconnected world, wider problems in the global economy pose a real risk to our recovery at home. We are already seeing that, with the impact of the eurozone slowdown on our manufacturing and our exports.

Read the rest here.

Don’t worry be happy. Don't you see, stocks are bound to rise forever!

Periphery to Core Dynamics: IMF Warns of Deepening Emerging Market Slowdown

The IMF recently observed that Emerging Markets have been enduring a broad based and synchronous growth decline that has been expected to worsen. 

From the Financial Times: (bold mine)

The Fund’s paper finds that growth is slower across a swath of developing countries, not just the largest economies such as China and India. Expansion rates in more than 90 per cent of emerging markets are lower than before the 2008 turmoil.

“The slowdown seems to be quite broad based,” said Mr Faruqee. Such a synchronised deceleration is unique outside of a recession or financial crisis.

According to the IMF research, trade links are an important reason for the slowdown, with emerging markets suffering from weaker growth in their trading partners. But there are also signs of deeper problems, with evidence that productivity improvements are contributing less to growth.

“The fact that we project some rebound in growth for the advanced economies and are lowering it for the emerging economies is suggestive of something internal among the EMs,” said Mr Faruqee.

At the IMF Direct Blog, IMF’s Sweta Saxena notes of the implication of an EM slowdown to the global economy: (italics original, bold mine)

-Expect lower growth in trading partners: A 1 percentage point slowdown in emerging market economies lowers growth in advanced economies by ¼ percentage point, on average, through reduced trade.

-Expect lower commodity prices. Emerging markets account for the bulk of commodity demand globally. A slowdown means a fall in demand which would lead to a fall in prices. Whether it is good or bad for incomes depends on whether a nation mainly consumes (good) or produces (bad) those commodities.

-Expect bank losses. A slowdown usually triggers problems in the repayment of loans and could lead to capital losses for banks, including those in advanced economies exposed to Emerging Market borrowers.

-Expect slower growth if you live in the same neighborhood. For example, a slowdown in China and Brazil would impact emerging Asia and Southern Cone countries, respectively, through trade. Russia would have an impact on its Central Asian neighbors through remittances, while Venezuela would affect its Central American neighbors through financing and energy cooperation agreements.

The IMF rightly expects a transmission of EM economic growth slowdown to affect advanced economies or Developed Markets (DM). They estimate that DM economies will slow by 1% due to the EM downturn. 

Whether the number is accurate or not doesn’t matter. 

Unfortunately the IMF team stops there. They did not expand their horizons to include of the subsequent feedback mechanism from DM to EM! If EM growth affects DM, so will there be a causal chain loop, or DM growth will also have an impact to EM growth!

Doing so would extrapolate to a contagion process, as the slowdown feedback mechanism in both EM and DM will self-reinforce the path towards a global recession! 

The EM-DM link as I previously noted: (bold original)

Even when the exposure would seem negligible, if the adverse impact of emerging markets to the US and developed economies won’t be offset by growth (exports, bank assets and corporate profits) in developed nations or in frontier nations, then there will be a drag on the growth of developed economies, which would hardly be inconsequential. Why? Because the feedback loop from the sizeable developed economies will magnify on the downside trajectory of emerging market growth which again will ricochet back to developed economies and so forth. Such feedback mechanism is the essence of periphery-to-core dynamics which shows how economic and financial pathologies, like biological contemporaries, operate at the margins or by stages.

What the IMF seems to be suggesting is that the contagion process has been accelerating or intensifying.

This seem to square with consensus expectations of global economic growth which continues to get marked down as shown by the chart from Zero Hedge

So the IMF has been explaining the symptoms

Let me add to the insights of the IMF.

Whatever “internal” dynamics being experienced by many EM has been about inflating domestic bubbles. Blowing domestic bubbles, which means a massive misallocation of resources, translates to less productivity improvements.

Moreover, by focusing on blowing domestic bubbles, the domestic production process has been directed at focusing on domestic bubble requirements rather than to serve consumer needs around the world, hence the lesser trade.

Both these highlight the “something internal” quirks noted by the IMF.

The bottom line is that EM economies, like their DM counterparts, have indulged in speculative binges more than they have been engaged in production. 

The ramification of overleveraging to finance such speculative orgy has been to incite entropy in the real economy, both in EM and DM. 

The EM slowdown simply serves as empirical evidence to this decaying bubble dynamic. And this has began to manifest even in growth statistics of Developed economies.

And the intensifying slowdown in EM demonstrates my Periphery to core dynamics theory in motion. And importantly again, this has been indicative of a hissing global bubble in progress!

Myths From Subprime Mortgage Crisis

Here is a noteworthy article by Yuliya Demyanyk of the Federal Reserve of Cleveland debunking popular explanations of the recent subprime mortgage crisis.

Ms. Demyanyk's intro: (bold highlights mine)

``On close inspection many of the most popular explanations for the subprime crisis turn out to be myths. Empirical research shows that the causes of the subprime mortgage crisis and its magnitude were more complicated than mortgage interest rate resets, declining underwriting standards, or declining home values. Nor were its causes unlike other crises of the past. The subprime crisis was building for years before showing any signs and was fed by lending, securitization, leveraging, and housing booms."

Most of the misconceptions had been aggravating circumstances read as causal effects, logical fallacies or outright cognitive biases at work.

The ten myths:

Myth 1: Subprime mortgages went only to borrowers with impaired credit

Myth 2: Subprime mortgages promoted homeownership

Myth 3: Declines in home values caused the subprime crisis in the United States

Myth 4: Declines in mortgage underwriting standards triggered the subprime crisis

Myth 5: Subprime mortgages failed because people used homes as ATMs

Myth 6: Subprime mortgages failed because of mortgage rate resets

Myth 7: Subprime borrowers with hybrid mortgages were offered (low) “teaser rates”

Myth 8: The subprime mortgage crisis in the United States was totally unexpected

Myth 9: The subprime mortgage crisis in the United States is unique in its origins

Myth 10: The subprime mortgage market was too small to cause big problems

Read her insightful revelations here.

My favorite quote from Yuliya Demyanyk's striking comments (oddly from a quasi government agency): From myth 2.(bold highlights mine)

``The availability of subprime mortgages in the United States did not facilitate increased homeownership. Between 2000 and 2006, approximately one million borrowers took subprime mortgages to finance the purchase of their first home. These subprime loans did contribute to an increased level of homeownership in the country—at the time of mortgage origination. Unfortunately, many homebuyers with subprime loans defaulted within a couple of years of origination. The number of such defaults outweighs the number of first-time homebuyers with subprime mortgages.

``Given that there were more defaults among all (not just first-time) homebuyers with subprime loans than there were first-time homebuyers with subprime loans, it is impossible to conclude that subprime mortgages promoted homeownership."

In short, inflationary "boom bust" policies has not only failed to achieve its goals, it has led to the sharp deterioration of the society's standard of living!!!