E How To Track The Trump Housing Bubble

Tracking the likely Trump housing bubble will be helpful to economists, investors, renters, potential home buyers and home sellers. It is not an absolute given that there will be a housing bubble under President Trump, but there could very well be one. There could be a downturn before a bubble. And a bubble will have to be limited, most likely, by a Fed unwilling to let the leash expand, which now holds the speculating canines back. There may be more barking than biting.

Some things will have to change in order for a housing bubble to occur under Donald Trump. This may not be an exhaustive guide to tracking a potential housing bubble but certainly could help many do so:

1. The Consumer Financial Protection Bureau will have to be abolished, or made comatose by the Trump administration simply defunding it. This will allow toxic loans to be made. It will no longer be necessary for financial institutions to actually prove that borrowers will be able to pay back their loans. Liar loans, Arms, and Pay Option Arms, piggyback down payments, lower credit scores and HELOCs will all be made easy for those seeking a loan once the CFPB is taken down.

2. There will likely have to be a scam against the government of the United States and taxpayers. This scam will allow the GSEs, or the banks who want to be GSEs and then offer government guarantees, to guarantee toxic, risky loans as if they were sound loans. This, of course, would put the government of the United States into ever deepening debt once the loans are found out to be less than solid.

There could be an exception to this, if the Fed would buy the weakened MBSs that would come out of these bad loans. If the Fed kept a floor under the market, maybe investors would buy these loans. If the Fed would limit declining prices with monetary policy or perhaps through buying bad paper, no matter what, investors may buy the MBSs.

But it is also possible that the Fed would act against very bad bonds created by bad loans in a harsh manner once again, as they did in 2007-2008, when the Fed let subprime and the commercial paper market backing subprime and eventually HELOCs to wither and almost die.

Commercial Paper Market Was Not Saved by the Fed in the Last Subprime Crash

3. The logic of a bubble actually working could be based upon the concept that there are no bubbles, only weak Fed monetary policy. I happen to believe that there were bubbles and there was weak policy, so I partly agree with the Market Monetarists, but not completely. The bubble may not crash significantly if the Fed continued to back it, as many would not walk away knowing that eventually the wealthy would come to the rescue even if prices declined some.  What happened last time is that the bubble was proven a bubble because the Fed let it crash completely, and then its banks gave easy money to the wealthy, and to firms like Blackstone to come in and mop up.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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