The Upcoming Housing Boom

Even though the Fed's stated reason for cutting short-term interest rates by half a point was to help keep the economy from falling into recession, anyone who's been paying attention knows that a major motivation - if not the major motivation - was to try to calm the turbulence that has been roiling the markets since August....

The stock market, which had been begging for a bailout and hasn't ever seen an interest rate cut that it didn't like, responded to the Fed's half-pointer by running prices up. Ben Bernanke, the Street decided, is just what the doctor ordered...

However, if you look at the financial markets' overall reaction to the Fed move - not at just the stock market's reaction - you realize that as a result of the cut, those of us who keep score in dollars and didn't need to be bailed out are less wealthy than we were in terms of anything other than our home currency....

Because the rate cut contributed heavily to the dollar's recent sharp drop in the currency markets - parity with the Canadian dollar, for God's sake! - and to the price spike in hard assets like gold, silver, copper, and oil. So our wealth, relative to these other things, has diminished...

Even though the Fed has cut short-term rates, long-term rates, which it doesn't control, have risen in reaction to the cut. So whatever economic benefits may flow from lower shortterm rates will be partly offset by the rise in long rates, which are at least as important to the economy as short rates...

Finally, consider this. Even though Bernanke's cut may mean that some junk mortgages will reset at lower rates, the cost of large, high-quality fixed-rate mortgages, which are tied to long rates, will be higher than they'd otherwise be...