The Carter Bust
- During the final two years of Carter's term, sales of existing and new homes collapsed because the Fed was forced to raise interest rates sharply to get double-digit inflation under control.
- Biden is repeating the very same mistakes. He was oblivious to the inflationary potential associated with his $1.9 trillion "stimulus" plan and dismissed warnings of Obama-era economists such as Lawrence Summers.
A better corollary for the coming Biden bust is the Carter crash that occurred three decades earlier.
During the final two years of Carter's term, sales of existing and new homes collapsed because the Fed was forced to raise interest rates sharply to get double-digit inflation under control.
In the 1980 election, Carter was defeated by Ronald Reagan, whereupon Fed Chair Paul Volcker wrestled inflation into submission by raising interest rates.
Not only has inflation spiked to 8.6 percent, the dilatory response of the Fed is affecting mortgage rates downstream.
Its belated increase of the federal funds rate by 75 basis points in June has already pushed mortgage rates higher.
At the end of last week, Freddie Mac reported an average rate of 5.78 percent, more than twice what it was when Biden was inaugurated.
If the Fed bumps the funds rate another 75 basis points in July, as it is expected to do, mortgage rates will blow past 6 percent and the real estate market will probably be headed for a downturn comparable to the 1978-81 collapse.
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